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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended JULY 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Commission File Number 0-21180
INTUIT INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 77-0034661
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(State of Incorporation) (IRS Employer Identification No.)
2535 GARCIA AVENUE, MOUNTAIN VIEW, CA 94043
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(Address of Principal Executive Offices, including zip code)
(415) 944-6000
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(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01
par value
Indicate by a 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 September 30, 1996, there were 46,245,474 shares of the Registrant's
common stock, $0.01 par value, outstanding, which is the only outstanding class
of common or voting stock of the registrant. As of that date, the aggregate
market value of the shares of common stock held by non-affiliates of the
registrant (based on the closing price for the common stock as quoted by the
Nasdaq National Market on such date), was approximately $1,120,469,364.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held in November 1996 are incorporated by reference into
Part III of this Form 10-K.
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FISCAL 1996 FORM 10-K
INTUIT INC.
INDEX
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ITEM PAGE
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PART I
ITEM 1: Business.......................................................... 3
ITEM 2: Properties........................................................ 22
ITEM 3: Legal Proceedings................................................. 23
ITEM 4: Submission of Matters to a Vote of Security Holders............... 25
Executive Officers and Key Employees of the Registrant............ 25
PART II
ITEM 5: Market for Registrant's Common Equity
and Related Stockholder Matters............................... 28
ITEM 6: Selected Consolidated Financial Data.............................. 29
ITEM 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 30
ITEM 8: Financial Statements and Supplemental Data........................ 43
ITEM 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 62
PART III
ITEM 10: Directors and Executive Officers of the Registrant................ 62
ITEM 11: Executive Compensation............................................ 62
ITEM 12: Security Ownership of Certain Beneficial Owners
and Management................................................ 62
ITEM 13: Certain Relationships and Related Transactions.................... 62
PART IV
ITEM 14: Exhibits, Financial Statement Schedules,
and Reports on Form 8-K....................................... 63
Signatures .............................................................. 67
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Intuit, the Intuit logo, IntelliCharge, MacInTax, Quicken, QuickBooks,
QuickVerse, TurboTax, Announcements, QuickSteuer and ProSeries, among others,
are registered trademarks and/or registered service marks of Intuit Inc. or one
of its subsidiaries. OpenExchange, QFN, NETworth, Quicken Live, InsureMarket,
Kobanto, Family Lawyer, Investor Insight, Personal Tax Edge, QuickBooks Pro,
QuickPay, QuickEntry and QuickTax, among others, are trademarks and/or service
marks of Intuit Inc. or one of its subsidiaries. Other brands or products
contained in this document are trademarks, service marks, registered trademarks
or registered service marks of their respective holders and should be treated as
such.
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PART I
ITEM 1
BUSINESS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: This Form 10-K of Intuit
Inc. ("Intuit" or the "Company") contains forward-looking statements that are
subject to risks and uncertainties. Statements indicating that the Company
"expects," "estimates" or "believes" are forward-looking, as are all other
statements concerning future financial results, product offerings or other
events that have not yet occurred. There are several important factors that
could cause actual results or events to differ materially from those anticipated
by the forward-looking statements contained in this Form 10-K. Such factors
include, but are not limited to: the growth rates of the Company's market
segments; the positioning of the Company's products in those segments; the
Company's ability to effectively manage its various businesses, and the growth
of its businesses, in a rapidly changing environment; the timing of new product
introductions; retail sell-through of the Company's products; the emergence of
the Internet, resulting in new competition and unclear consumer demands; the
Company's ability to adapt and expand its product offerings for the Internet
environment; variations in the cost of, and demand for, customer service and
technical support; price pressures and the competitive environment in the
consumer and small business software and supplies industry; the possibility of
calculation errors or other "bugs" in the Company's software products; the
emergence of the electronic financial services marketplace; the cost of
implementing the Company's electronic financial services strategy; consumer
acceptance of online financial service offerings; the Company's ability to
establish successful strategic relationships with financial institutions and
processors of financial information; changing alliances among financial
institutions and other strategic partners; the emergence of competition from
these entities as well as from other software companies; changes in laws that
may govern any of the Company's products or services; the timing and consumer
acceptance of new product releases and services (including current users'
willingness to upgrade from older versions of the Company's products); the
consummation of possible acquisitions; the Company's ability to integrate
acquired operations into its existing business; the Company's ability to
successfully transition its online banking and bill payment operations to
CheckFree Corporation; possible fluctuations in value of the Company's
investment in CheckFree Corporation; and the Company's ability to penetrate
international markets and manage its international operations. Additional
information on these and other risk factors is included elsewhere in this Form
10-K.
OVERVIEW
COMPANY BACKGROUND
Intuit's mission is to improve the way individuals and small businesses manage
their financial affairs. To that end, Intuit develops, markets and supports
personal finance, small business accounting, tax preparation and other consumer
software products, and related supplies and electronic financial services that
enable individuals, professionals and small businesses to automate commonly
performed financial tasks and better organize, understand, manage and plan their
financial lives. Intuit employs a variety of consumer marketing research
techniques to define and design its products and services so that they will be
easy to use and responsive to customers' needs. The Company's product
development strategy focuses on products that give new and existing customers
added value and provide Intuit with opportunities for follow-on sales and
recurring revenue. For example, the Company has developed several complementary
products that share financial information, so that customers can use several
Intuit products in conjunction with one another. This provides the Company with
the opportunity to cross-sell additional products to its existing customer base.
The Company recently announced several Internet-related strategic initiatives
that are intended to facilitate communications between the Company's customers
and their financial service providers, and to support the Company's goal of
offering an expanding range of financial services to its customers. See
"Overview - Internet Strategic Initiatives."
Intuit's primary product and service offerings are in the following areas:
personal finance products, including Quicken(R) and Quicken Financial Planner;
small business accounting products, including QuickBooks(R) and QuickPay(TM);
personal and professional tax preparation products, including TurboTax(R) and
TurboTax ProSeries(R); other consumer software products offered by the Company's
Parsons Technology, Inc. subsidiary ("Parsons"), including Quicken Family
Lawyer(TM), Personal Tax Edge(TM) and Announcements(R); electronic financial
services,
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including online banking and bill payment services, Investor Insight(TM), the
NETworth: The Internet Investor Network web site ("NETworth"(TM)) offered by the
Company's GALT Technologies, Inc. subsidiary ("GALT"), and the InsureMarket(SM)
web site offered by the Company's Interactive Insurance Services Corp.
subsidiary ("IIS"); and supplies, such as checks, invoice forms, envelopes and
deposit slips, for use in conjunction with the Company's software products.
Quicken Financial Network ("QFN"(TM)), which is Intuit's World Wide Web site,
serves as a vehicle for offering some of the Company's electronic financial
services as well as a source of other financial information and services. The
Company's principal products and services are described below under "Products
and Services."
Intuit commenced operations in March 1983 and was incorporated in California in
March 1984. In March 1993, the Company was reincorporated in Delaware. The
Company's principal executive offices are located at 2535 Garcia Avenue,
Mountain View, California, 94043, and its telephone number is (415) 944-6000.
Unless otherwise indicated herein, the "Company" and "Intuit" refer to Intuit
Inc., a Delaware corporation, its California predecessor, and its subsidiaries.
INTERNET STRATEGIC INITIATIVES
On September 16, 1996, the Company announced three Internet-related strategic
initiatives designed to accelerate the adoption of electronic financial data
exchange and communication among individuals and small businesses and their
financial service providers. First, the Company announced plans to "open" the
architecture of its software products to financial service providers so that
such providers can connect directly through the Internet to their customers who
use Intuit products. By contrast, communications and exchange of data between
Intuit customers and their financial institutions are currently routed through
the Company's private network. This opening of the connectivity capability of
the Company's products will be introduced in stages, with Internet connections
for investment activities and online banking and bill payment activities
expected during calendar 1997.
Second, the Company announced that it would coordinate efforts with several
third parties to develop a comprehensive framework for exchanging financial data
over the Internet in an integrated collection of specifications and protocols
called OpenExchange(TM). OpenExchange is intended to make it easier and less
expensive for a wide range of financial service providers to build links for
electronic financial data exchange and communications using the Internet.
OpenExchange is expected to allow any front-end software or interface that uses
OpenExchange to connect with any back-end processing system that uses
OpenExchange, giving financial service providers significant flexibility in
providing services to their customers. OpenExchange is also intended to support
a wide range of financial activities involving many types of financial service
providers, including banks, brokerage firms, mutual fund companies and insurance
companies, and to support multiple PC platforms and other electronic devices.
The Company expects that OpenExchange will also incorporate protocols designed
to provide end-to-end security for financial data, including industry protocols
such as Secure Sockets Layer (SSL) v.3.0. The Company expects that OpenExchange
will be licensed for free and without restriction to financial service
providers, although technology providers such as Intuit may seek to charge
customers and/or financial service providers for the use of specific
implementations within their own products.
Third, the Company announced the signing of an agreement pursuant to which it
plans to sell its banking and bill payment processing subsidiary, Intuit
Services Corporation ("ISC"), to CheckFree Corporation ("CheckFree"), in
exchange for 12.6 million shares of the common stock of CheckFree (representing
approximately 23% of the resulting CheckFree shares outstanding). CheckFree is a
leading home banking and electronic bill payment processor. The Company expects
that the transaction will allow the Company to reallocate management and
financial resources to its core businesses and to other emerging business
opportunities (particularly those involving the Internet and electronic
financial services), while still participating indirectly in the banking and
bill payment processing business through its investment in CheckFree. The
closing of this transaction, which is expected to occur by early calendar 1997,
is subject to numerous conditions, including regulatory approval and the
approval of CheckFree's stockholders. See also "Overview - Pending Sale of ISC"
and Note 12 of Notes to Consolidated Financial Statements.
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EXPANSION OF ELECTRONIC FINANCIAL SERVICES
The Company believes that it may be able to improve its competitive position by
extending its business into the emerging electronic financial services market.
The Company defines electronic financial services as electronically-enabled
financial transactions and electronically-enabled marketing and sales of
financial products. Intuit has recently invested significant resources to
develop and acquire products and services for this market, including its
acquisitions of IIS, a developer of an Internet-based system that allows
consumers to obtain insurance information from national insurance carriers, and
GALT, a provider of mutual fund information through its NETworth web site. The
Company's recently announced Internet strategic initiatives (described above)
are designed to facilitate expansion of the Company's electronic financial
services business. Intuit currently works with financial institutions to offer a
number of online services, including online banking, electronic bill payment and
online tools, such as Investor Insight and NETworth for evaluating investments,
that extend the capabilities of Intuit's software products and increase the
automation of financial tasks. The Company is evaluating additional
opportunities related to electronic financial services, including products that
will enable users of Quicken to download brokerage account statements and
execute securities trades through participating financial institutions. The
Company expects to invest significant resources in developing and enhancing its
electronic financial service offerings during fiscal 1997.
EXPANSION INTO INTERNATIONAL MARKETS
During fiscal 1996, Intuit took several steps to increase its presence in
international markets. The Company introduced several additional international
products in the UK, Canada, Germany, France, Spain and Mexico. In addition, in
April 1996, Milkyway KK ("Milkyway"), Intuit's subsidiary in Japan acquired in
January 1996, released Kobanto(TM), its first small business accounting software
product for Windows. Although the Company did experience significant growth in
its international operations during fiscal 1996, its German subsidiary
experienced delays in executing two critical product launches in the second
quarter of fiscal 1996. See "Business - International" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations - Twelve Months Ended July 31, 1996 and 1995." There can
be no assurance that sales of international products will continue to grow at
the rate experienced during fiscal 1996, or that other product launch
difficulties will not be encountered in the future.
RECENT CORPORATE TRANSACTIONS
The Company has historically pursued a strategy of acquiring other businesses in
order to obtain complementary products and technologies and to obtain a presence
in new markets. During the past three years, the Company completed several such
acquisitions. In December 1993, the Company acquired ChipSoft, Inc.
("ChipSoft"), a publicly-held developer and marketer of tax preparation software
products. In April 1994, the Company purchased certain assets of the
professional tax preparation software business of Best Programs, Inc. ("Best").
In July 1994, the Company acquired National Payment Clearinghouse, Inc., a
privately-held provider of automated bill payment services, which is now the
Company's ISC subsidiary. (See "Overview - Pending Sale of ISC.") In September
1994, the Company acquired Parsons, a privately-held consumer software publisher
that emphasizes direct sales and marketing. In March 1995, the Company formed
Quicken Investment Services, Inc. ("QISI"), a wholly-owned subsidiary and
registered investment adviser that offers the Company's financial planning
products. In June 1995, the Company acquired Personal News, Inc. ("PNI"), a
privately-held provider of online investment research data. In June 1995, the
Company purchased certain assets of Mysterious Pursuit Pty. Ltd. ("Mysterious
Pursuit"), a privately-held Australian company that develops tax software. In
January 1996, the Company acquired Milkyway, a provider of PC-based financial
software in Japan. In June 1996, the Company acquired IIS, developer of an
Internet-based system that allows consumers to obtain insurance information from
national insurance carriers. In September 1996, the Company completed its
acquisition of GALT, a provider of mutual fund information through its NETworth
web site. See Notes 2 and 12 of Notes to Consolidated Financial Statements for
additional discussion of the transactions described above. Although the Company
believes these transactions were in the best interests of the Company and its
stockholders, there are significant risks associated with such transactions. See
"Management of Growth" and "Products and Services - Electronic Financial
Services."
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PENDING SALE OF ISC
On September 15, 1996 the Company and ISC signed an Agreement and Plan of Merger
(the "Plan") with CheckFree and a wholly-owned CheckFree subsidiary pursuant to
which the Company agreed to sell ISC to CheckFree in a tax-free merger
transaction in exchange for 12.6 million shares of CheckFree common stock (the
"CheckFree Shares"). Based on the closing price of CheckFree's common stock on
September 13, 1996 (the last business day before the transaction was announced),
the CheckFree Shares have a value of approximately $227.6 million and will
represent approximately 23% of CheckFree's outstanding common stock after
issuance, based on CheckFree's current outstanding shares. (The Company expects
to reduce its holdings to under 20% in order to account for its investment under
the cost method of accounting. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.") The Plan provides that, under
certain conditions, the Company will indemnify CheckFree for certain losses
arising from breaches of the Company's representations, warranties and covenants
in the Plan in an amount of up to 35% of the value of the CheckFree Shares, and
that 10% of the CheckFree Shares will be withheld in escrow for one year
following closing of the transaction to secure CheckFree's indemnity rights. In
addition, the Company has agreed to pay CheckFree the amount (if any) by which
ISC's revenues for the 12-month period ending July 31, 1997 are less than $46
million.
It is expected that the CheckFree Shares to be issued to the Company in exchange
for ISC will be registered with the Securities and Exchange Commission on a Form
S-4 registration statement and, in addition, CheckFree will grant the Company
certain demand and piggyback registration rights with respect to the CheckFree
Shares. The Company and CheckFree have also entered into a Stock Restriction
Agreement that restricts the Company's ability to increase its ownership of
CheckFree stock and to effect certain sales of CheckFree stock, and restricts
the manner in which the Company may deal with CheckFree and its stockholders in
connection with certain corporate proceedings and transactions.
Pursuant to the Plan, the Company, ISC and CheckFree expect to entered into
ancillary agreements addressing certain support, licensing and transition
issues, providing for certain payments by CheckFree to the Company in exchange
for certain license rights, and ensuring the Company's access to certain
technologies. Pursuant to the Plan, the Company will not compete with certain
electronic payment processing businesses for up to five years.
The consummation of these proposed transactions is subject to the satisfaction
of several conditions, including without limitation the approval of CheckFree's
stockholders and the absence of objection to the transaction by federal
antitrust authorities under the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
FISCAL YEAR CHANGE
As a result of the Company's change in its fiscal year effective August 1, 1994,
comparative financial information contained in this Form 10-K for the twelve
months ended July 31, 1994 is unaudited. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Fiscal Year Change."
PRODUCTS AND SERVICES
Intuit's primary product and service offerings are in the following areas:
personal finance products; small business accounting products; tax preparation
products; other consumer software products; electronic financial services; and
supplies such as checks and invoice forms. The Company's principal offerings in
each area are described below. For a discussion of revenues contributed by
software products and services and supplies, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PERSONAL FINANCE PRODUCTS
Intuit develops, markets and supports personal finance software products for
several personal computer operating environments, including Windows 3.1, Windows
95 and Macintosh OS. Quicken was introduced in October 1984 and has since been
enhanced and upgraded a number of times. Quicken allows users to organize,
understand and manage their personal finances. Designed to look and work like a
checkbook, Quicken provides users with an easy-
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to-use method for recording and categorizing their financial transactions. Once
entered, the financial information can be analyzed and displayed using a broad
set of reports and graphs. Quicken also allows users to reconcile their bank
accounts and track credit card purchases, investments, cash and other assets and
liabilities. Online banking features in Quicken ease data entry by allowing
users to download bank transaction information directly from participating
financial institutions. Quicken also enables users to schedule bill payments,
using either the online payment services of participating financial institutions
or directly through ISC. The online service processes payment requests by
printing and mailing computer checks or by initiating electronic payments. The
Investor Insight feature in Quicken (which is also available as a stand-alone
product) gives users online access to a variety of investment research tools.
See "Electronic Financial Services" for more details on these banking and
investment services. During fiscal 1996, the Company took steps to implement its
Internet strategy by incorporating into Quicken a version of Netscape Navigator,
free access to QFN (Intuit's World Wide Web site) and low-cost full Internet
access through service provider Concentric Network Corp. During the first
quarter of fiscal 1997, the Company plans to release new versions of Quicken,
including Quicken Deluxe 6 for Windows on CD-ROM and an enhanced version of
Quicken for the Macintosh, which will include a variety of new online features.
The Company also offers certain personal finance products through its QISI
subsidiary, which is a registered investment adviser under the Investment
Advisers Act of 1940. See "Regulated Businesses." Quicken Financial Planner
assists the user in creating a personal financial and retirement plan, based on
the user's current financial profile and financial and retirement goals. It
provides sample asset allocation guidelines to help the user determine how to
invest based on the desired rate of return. Mutual Fund Finder, which is a
feature of Quicken Financial Planner, provides the user with historical mutual
fund data from a Morningstar, Inc. database. This information can be updated on
a quarterly basis. Mutual Fund Finder also identifies specific funds for the
user based on designated criteria relating to risk and return, expenses and
other factors. In September 1996, the Company announced Fidelity QFP, which is a
specific version of Quicken Financial Planner designed for customers who have
401(k) retirement plans with Fidelity Investments ("Fidelity"). The product will
allow information from a user's retirement account with Fidelity to be
transferred to the software. This will simplify incorporation of the user's
individual financial information into the financial plan created by the
software.
SMALL BUSINESS ACCOUNTING PRODUCTS
Recognizing the widespread customer use of Quicken products for small business
applications, Intuit developed a similar family of products for small business
owners that provide the more extensive functions they require while maintaining
ease of use.
QuickBooks, which was first introduced in April 1992, was developed to address
the needs of the small business user but shares many of Quicken's most popular
features, including an easy-to-use design that does not require the user to be
familiar with traditional double-entry accounting concepts. For example,
QuickBooks supports both cash-based and accrual-based accounts payable with
separate entry of bills and automatic generation of accounts payable checks
based on outstanding vendor balances. In addition, QuickBooks offers automation
of payroll tasks, flexible invoicing, including printing on pre-printed forms,
letterhead or plain paper, full tracking and aging of invoices, inventory
tracking and audit trail creation. During 1996, Intuit introduced a version of
QuickBooks for the German accounting market, and Milkyway introduced Kobanto,
the Company's first Windows-based small business accounting software product for
the Japanese market.
QuickBooks Pro(TM) is an enhanced version of QuickBooks developed to address the
needs of small businesses in the U.S. that are project, job or time based, such
as contractors, consultants, lawyers, accountants and subcontractors. Many of
these businesses currently use manual methods or general purpose software
systems (including spreadsheets and word processors) to do time tracking and job
estimating, but these systems generally are not integrated with the businesses'
accounting programs. QuickBooks Pro allows users to integrate time tracking, job
estimating and project costing with accounting and payroll.
Payroll functionality is integrated into the Windows and Macintosh versions of
QuickBooks and QuickBooks Pro. QuickPay is an add-on product for Quicken and the
DOS version of QuickBooks that calculates and tracks gross salary and payroll
deductions and is targeted to small businesses that do not use an outside
payroll service. A related
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service offering is Intuit's Payroll Tax Table Update Service, a disk-based data
service that provides customers with new tax table files when relevant federal,
state or local payroll tax rates change.
TAX PREPARATION PRODUCTS
Intuit develops, markets and supports tax preparation software products
(including TurboTax, MacInTax(R), Personal Tax Edge and TurboTax ProSeries) for
individual consumers and small business owners for use in preparing their own
tax returns and for professional tax preparers for use in preparing their
clients' tax returns. Intuit's tax preparation software allows both individual
taxpayers and professional tax preparers to automate the process of preparing
tax returns. This software simplifies the process of preparing tax returns by
reducing calculation time and errors, automatically transferring data between
forms, checking for missing and incomplete information, and aiding in the
organization of tax records.
Tax preparation software must be rewritten each year to reflect annual changes
in tax laws and forms, and customers must purchase new versions each year in
order to file accurate tax returns using such software. As a result, tax
preparation software generates recurring revenues that historically have been
more regular and predictable than upgrade revenues typical of other types of
personal computer software. A change in this pattern could have a material
adverse effect on Intuit's operating results and financial condition. In
addition, the government's late release of federal and state tax forms and laws
requires rapid development and release of these products, thus creating some
risk of product errors and the costs associated therewith. During fiscal 1995
the Company identified calculation errors in certain tax products that
necessitated a charge of $1.3 million to cover the cost of revisions and other
remedial actions. A similar occurrence during fiscal 1996 resulted in a charge
of approximately $1.2 million. See "Product Development and Marketing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Twelve Months Ended July 31, 1996 and
1995."
Consumer Tax Preparation Products. Intuit's TurboTax and MacInTax tax
preparation software products for consumers are designed to be easy to use for
computer users of all skill levels, yet sufficiently sophisticated to prepare
complex returns. The programs also help users to identify tax deductions that
might otherwise be missed, as well as entries that might trigger an IRS 1040
audit. For its consumer products, Intuit currently provides 45 state tax
preparation products (one for the District of Columbia and each state that
imposes an individual income tax) for both Macintosh and Windows-based
computers. Intuit has recently expanded its consumer tax preparation products to
include products for certain international markets. See "International."
Intuit generally releases a "HeadStart" preliminary edition of its federal
TurboTax product and a generic "HeadStart" state tax return program in October
or November of each year. These preliminary editions enable customers to
organize their tax records and to make tax-planning decisions. Intuit generally
releases final editions in January or February after all of the relevant forms
have been made available by the IRS and various state tax agencies. Final
editions, which are available at no charge to purchasers of the HeadStart
edition, automatically transfer data previously entered into preliminary
editions.
Personal Tax Edge and Personal Tax Edge Preparer's Edition are consumer and
professional tax preparation products, respectively, that are designed for less
complex federal income tax returns. State Tax Edge(TM) is available for 45
states. A planning version of Personal Tax Edge is made available in advance of
release of the final version. The Company acquired Personal Tax Edge products
through its acquisition of Parsons in September 1994, and the products continue
to be marketed by Parsons primarily through direct sales efforts.
Small Business Tax Preparation Products. TurboTax for Business and MacInTax for
Business are tax return preparation products that enable small business owners
to prepare their own business tax returns. Intuit develops, markets and supports
separate programs for preparing federal and certain state S corporation, C
corporation and partnership returns, as well as programs that enable individuals
with sole proprietorships to complete their federal and state tax returns.
Professional Tax Preparation Products. Intuit's professional tax preparation
products are designed for use by tax preparers and accountants who prepare tax
returns for individuals and small businesses. Intuit believes that small to
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mid-size independent tax preparers currently comprise the largest segment of its
professional tax customer base. Intuit's TurboTax ProSeries includes a broad
suite of products that prepare individual income, corporate, partnership,
fiduciary and not-for-profit federal tax returns, as well as many state
equivalents. A number of add-on modules are provided, including client
organizer, practice management, networking, asset management and electronic
filing capabilities. Certain of the Company's professional tax products are also
sold bundled under the Power Tax name. For the 1997 tax season, the Company
plans to introduce QuickEntry(TM), a feature designed to improve the
productivity of tax professionals by reducing the time required to enter client
data.
Electronic Filing. In fiscal 1996, the Company was awarded several government
contracts totaling approximately $4 million to develop and support software for
the Internal Revenue Service. This software was part of a $17 million IRS
project called CyberFile that was designed to allow individual taxpayers to
electronically file their federal income tax returns from their home computers.
While the Company delivered its contractual components of the project and
received payment under the contracts, CyberFile has not been activated due to
concerns raised by other government agencies relating to the security of
electronically transmitted tax information.
OTHER CONSUMER SOFTWARE PRODUCTS
Intuit and the Company's Parsons subsidiary offer a product called Quicken
Financial Suite, which combines the Quicken Deluxe, Quicken Financial Planner
and Quicken Family Lawyer software products into a single product. In addition,
through Parsons, Intuit utilizes direct marketing techniques to sell software
products that assist consumers in managing various aspects of their personal
affairs. These products, which are distributed primarily through Parsons'
substantial direct distribution channel, include Quicken Family Lawyer, which
enables consumers to prepare legal forms and documents such as wills, powers of
attorney and promissory notes; Personal Tax Edge (see "Consumer Tax Products"
above); Announcements, which enables consumers to create personalized greeting
cards, banners, posters and other documents; and QuickVerse(R), a computerized
digest that enables users to quickly locate Biblical references. The Company
develops, licenses or acquires software products such as these in order to
leverage its direct-mail customer base.
ELECTRONIC FINANCIAL SERVICES
As a complement to its personal financial software products, Intuit offers
value-added services that further automate financial transactions for its users.
In addition to the services described below, the Company is developing
additional electronic financial service offerings that it expects to make
available during fiscal 1997. Revenues from these services have not been
significant during the past three years. The Company's recently announced
Internet strategic initiatives are expected to facilitate the longer-term
expansion of this business by streamlining electronic financial data exchange
and communications among individuals, small businesses and their financial
service providers. See "Overview - Internet Strategic Initiatives" above.
Although the Company expects that electronic financial services such as
InsureMarket and NETworth will become an increasingly significant portion of the
Company's business during the next several years (see "Other Electronic
Financial Services"), there can be no assurance that this will be the case.
Furthermore, the Company's recently announced agreement to sell its ISC
subsidiary to CheckFree will leave the Company with only an indirect
participation in the banking and bill payment processing business (through its
investment in CheckFree). See "Overview - Pending Sale of ISC."
Online Banking and Bill Payment Services. The Company offers a variety
of online banking and bill payment services in conjunction with participating
financial institutions. Fees charged to customers for these services are set by
each financial institution, with the Company receiving monthly per-subscriber
fees from the financial institutions.
Online banking is a service available through Quicken that was introduced in the
first quarter of fiscal 1996. The online banking services allow users with
accounts at participating financial institutions to download, and automatically
categorize into Quicken accounts, data from bank accounts, brokerage cash
accounts or charge accounts, thereby eliminating the need for customers to
manually enter this data into Quicken files. Online banking also enables users
to check on current account balances, transfer funds between accounts, determine
whether a given transaction has cleared and reconcile accounts. Intuit's ISC
subsidiary is currently responsible for online
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connections between the financial institutions and end users. See "Overview -
Pending Sale of ISC" and the discussion below regarding the recently announced
agreement to sell ISC to CheckFree.
In connection with its online banking services, Intuit currently has
relationships with approximately 40 financial institutions, including six of the
ten largest domestic banks and American Express, which is the largest U.S.
proprietary charge card issuer. In addition, in May 1996, the Company announced
plans to work with two of the financial service industry's leading processing
companies (Electronic Payment Services, Inc. and M&I Data Services) to enable
the financial institutions that are customers of these processing companies to
offer online banking, online bill payment and other online financial services
through their existing processor or service provider connections.
Online bill payment, a feature also available through Quicken, enables users to
pay bills by transmitting payment instructions via modem to ISC. Intuit began to
provide electronic bill payment service for Quicken through its ISC subsidiary
during the first quarter of fiscal 1996. Payments are processed electronically
through the automated clearing house system for merchants that have made
arrangements through their financial institutions for electronic payment
(approximately 3% of merchants currently). All other payments are made via paper
checks through the U.S. mail. This service is offered primarily through
financial institutions with which the Company has relationships, but for its
customers who do not bank at participating institutions, Intuit makes online
bill payment (referred to as "retail bill payment") available for a monthly fee.
Retail bill payment accounts represent approximately 10% of current bill payment
customers.
Intuit introduced its new BankNOW software product in September 1996. This
product allows PC users who are subscribers to America Online to perform basic
online banking functions such as checking account balances, transferring funds
between accounts, and scheduling bill payments. BankNOW is designed for
consumers who want fast, simple online banking but who do not require the more
complete financial organization and tracking functions offered in personal
financial management software such as Quicken.
If the sale of ISC to CheckFree is consummated, the Company will no longer
receive revenue directly from currently participating financial institutions in
connection with online banking and bill payment services, as these revenues will
be paid to CheckFree. However, Intuit expects that it will market and resell
bill payment services (performed by CheckFree) to end users. In addition, if the
sale of ISC is completed, Intuit expects to receive significant royalty payments
from CheckFree in exchange for, among other things, Intuit enabling a direct
electronic link between Quicken customers and CheckFree's back-end processing
services. See "Overview - Pending Sale of ISC." As part of the proposed sale of
ISC to CheckFree, Intuit and CheckFree have agreed that, following the
expiration of Intuit's current contracts with financial institutions (which will
be assumed by CheckFree), Intuit will allow CheckFree to access Quicken
customers only on behalf of financial institutions that have been authorized by
Intuit to connect to Quicken customers. Intuit expects that it will negotiate
with financial institutions to receive a connectivity fee for allowing the
financial institutions to connect to users of Intuit products using the
OpenExchange Protocol. See "Overview - Internet Strategic Initiatives." However,
there can be no assurance that these arrangements will generate significant
revenue for Intuit. If the proposed agreement to sell ISC to CheckFree is not
consummated as currently anticipated, Intuit expects that, in the near term, it
would continue to operate its banking and bill payment services as currently
operated.
Other Electronic Financial Services. Investor Insight is an online service
accessible both through a stand-alone software product and certain versions of
Quicken. Investor Insight gives users access to investment research tools,
including stock price quotes, recent financial market news, analysts' ratings
and research reports, analyses of price movements over five years and the
ability to chart and analyze individual securities or groups of securities.
Users are charged a monthly fee for the Investor Insight service. Investor
Insight can be accessed through Quicken and QFN. ISC currently operates the
servers that provide the Investor Insight service. If CheckFree's proposed
purchase of ISC is completed as expected, Intuit will continue to receive all
revenues generated by Investor Insight and CheckFree will continue to operate
the servers, with Intuit reimbursing CheckFree for its direct costs in
connection with such operation.
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Quicken Financial Network, or QFN, is an Intuit web site that serves as a
vehicle for offering some of Intuit's financial services (such as Investor
Insight, Quicken InsureMarket and NETworth), as well as a source for other
information and services relating to financial topics. The goal of QFN is to
provide a location on the World Wide Web where consumers can access a variety of
news, information, products and services to help them better manage their
financial lives. Users can access QFN through versions of Quicken that include
Netscape Navigator. In addition, users can access QFN by using any standard
Internet connection and browser. There is no fee for accessing QFN except for
telecommunications charges through phone companies and Internet service
providers. The Company receives advertising revenue from companies that offer
their services through QFN, but such revenues have not been material to date.
Quicken InsureMarket, offered by the Company's IIS subsidiary, provides an
interactive Internet link between consumers and national insurance carriers and
their agents, to enable consumers to obtain information about insurance.
InsureMarket became available in a "preview" version in June 1996 and, as of
October 1996, consumers in selected states can obtain quotes and other
information concerning term life insurance from participating insurance
carriers, contact agents for certain participating carriers, and purchase
certain policies online. In the future, the Company expects that consumers will
also be able to obtain similar services for auto, home owners' and small
business insurance. IIS expects to derive revenue from these services through
initial and ongoing annual participation fees from insurance companies that
offer policies, as well as commissions on policies sold. IIS must provide these
services in accordance with applicable state insurance regulations. See
"Regulated Businesses."
NETworth is a mutual fund service available through Intuit's subsidiary, GALT.
It provides investment resources for individual investors, including online
presentations from approximately 60 mutual fund families, integrated with free
mutual fund performance information from Morningstar, Inc.'s database of more
than 7,500 mutual funds, net asset value and stock price graphs, quotes and the
ability to keep track of a personal portfolio. NETworth can be accessed through
QFN, or directly from the Internet. Intuit receives initial and ongoing annual
participation fees from mutual fund companies that participate in the NETworth
site, as well as flat monthly fees from such funds for some services.
Intuit's IntelliCharge(R) credit card service combines credit card use with
software and communications technology to provide users of the Quicken Affinity
Card (a credit card offered through Travelers' Bank) with an electronically
transmitted statement from which data can be transferred to and categorized by
Quicken. Customers who receive data via modem are not charged for this service.
Intuit receives a fee from Travelers for each customer that signs up for a
Quicken Affinity Card, as well as a portion of any interest charges paid by the
customer. ISC currently performs certain processing functions in connection with
the Intellicharge service. If CheckFree's proposed purchase of ISC is completed
as expected, Intuit will continue to market the Intellicharge service and
receive all revenues generated by it, and will pay CheckFree to continue
providing processing services.
The market for electronic financial services is relatively new. Although demand
for the Company's personal finance, small business accounting, tax preparation
and other consumer software products and related supplies and electronic
services has grown in recent years, the Company believes it must extend its
business into electronic financial services in order to remain competitive. If
this market fails to grow or grows more slowly than anticipated, or if the
Company, despite an investment of significant resources, is unable to establish
services that achieve a significant degree of acceptance in this new market, the
Company's business, operating results and financial condition could be
materially adversely affected. Further, entry into the electronic financial
market carries with it additional liability risks. For example, errors in
transactions or misdirection of funds can result in significant liability and,
in certain cases, penalties may be mandated by federal law. In addition, certain
software that is essential to communications among customers, financial
institutions and the hub for online banking and bill payment services is
provided and maintained by a single third party under a license agreement with
Intuit. It is anticipated that, in connection with the proposed sale of ISC, the
hub and the license for such software will be transferred to CheckFree. Although
Intuit believes that it currently has a satisfactory contractual and business
relationship with this third party, termination of this relationship could
interrupt Intuit's ability to make available certain services. There can be no
assurance that the Company's efforts to expand its electronic financial services
will be effective, will reduce costs or will be accepted by consumers and
merchants.
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SUPPLIES
Intuit develops and markets a range of supplies designed to be used in
conjunction with its personal and business finance software products to further
automate transaction execution and record keeping. Intuit's line of supplies,
which includes paper checks, invoice forms, envelopes, deposit slips and address
stamps, enables users to save time and utilize professional-quality forms.
Supplies generate recurring revenue and add value and functionality to Intuit's
software products. Because virtually all of the supplies products involve
printing to the customers' specifications, these products are sold directly to
users. Customers receive supplies catalogs and order forms with most Intuit
software products to encourage supplies sales. Users may also order
electronically at any time using the Intuit Marketplace feature in Intuit's
software products. Revenue from supplies products increased 21% from the twelve
months ended July 31, 1994 to fiscal 1995, and 28% from fiscal 1995 to fiscal
1996, due to the growth of the Company's small business financial products, as
well as enhanced direct marketing efforts that have enabled customers to
purchase products directly by telephone. However, supplies revenue has declined
as a percentage of total net revenue over the past three years. The Company
faces increased competition and price pressure in its supplies business. The
supplies business can also be negatively affected by changes in paper check
printing and formatting requirements. In addition, demand for supplies may be
negatively impacted as some of the Company's customers shift to electronic bill
payment services.
In September 1995, the Company entered into an exclusive five-year contract with
John H. Harland Co. ("Harland") to produce all of its computer checks, invoice
forms and deposit slips. Harland is thus the sole source for Intuit's supplies
products. Accordingly, Intuit's ability to provide its supplies products is
dependent on continued good relations with this vendor, and the failure of
Harland to continue to provide supplies on a timely basis would have a material
adverse effect on Intuit's operating results and financial condition.
PRODUCT DEVELOPMENT AND MARKETING
Intuit believes that successful products must be easy to use and responsive to
the specific needs and use patterns of its customers, and the Company strives to
develop its products in accordance with these consumer marketing principles.
Accordingly, Intuit attempts to define desirable new products and enhancements
to existing products by conducting market research and working closely with its
current and prospective customers to determine their needs and requirements and
to obtain their input regarding desired product functions. New products and
enhancements are then designed based on this consumer input and, when possible,
field-tested by actual users who further critique the product and suggest
modifications. Once a product is released, customer reactions and input continue
to be monitored to assist in the development of product enhancements and
upgrades.
In addition, Intuit strives to define and develop products and upgrades that
will stimulate ongoing sales to repeat customers. For example, Intuit has
developed certain complementary products that can share information when used in
conjunction with other Intuit products. These integrated products provide added
value and functionality to new and existing customers and expand Intuit's sales
opportunities. Intuit also attempts to exploit new technologies such as CD-ROM
and the Internet to expand the features and functions of its products and
generate revenue from sales of upgrades.
The development of tax preparation software is unique in the personal computer
software industry because a rigorous annual development cycle is mandated by the
adoption of new tax laws and forms by the federal and state governments each
year. The uncertain timing of the release of tax forms by the IRS and state
government agencies and the complexity of the tax laws create a need for
flexible, highly sophisticated development management schedules. Intuit uses the
same development architectures for both its consumer and professional tax
software products. This gives the Company increased operating leverage compared
to tax preparation software companies that produce only consumer tax products or
only professional tax products.
Intuit's research and development expenses for the twelve months ended July 31,
1994 were $28.7 million, compared to $57.3 million in fiscal 1995 and $75.6
million in fiscal 1996 (not including charges of $151.9 million, $52.5 million
and $8.0 million, respectively, for purchased in-process research and
development). Intuit substantially increased actual spending on research and
development during fiscal 1995 in order to develop new
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products, as well as to adapt existing products for international markets. This
pattern continued through fiscal 1996, as the Company devoted significant
research and development resources to its electronic financial services,
including the integration of Internet access, QFN and online banking and bill
payment features into Quicken, as well as to developing products for the Windows
95 platform. The Company intends to continue to increase research and
development spending in absolute dollars during fiscal 1997.
Software products such as those offered by the Company often contain errors or
"bugs" that can adversely affect the performance of the products, produce
incorrect results and/or damage a user's data. If products are released that
contain errors, the Company may lose customer acceptance of its products, as
well as market share, and may be required to issue maintenance releases or pay
refunds or other compensation to users. Any of such steps, if taken, could have
a material adverse effect on Intuit's operating results. In the past, the
Company has discovered significant software defects in its products that have
adversely affected its business and operating results. For example, during 1995
the Company notified its customers that several of its tax products for the 1994
tax year had defects and released revised versions of the software at no charge.
These defects resulted in negative publicity, customer dissatisfaction and a
$1.3 million expense in the second quarter of fiscal 1995. Less serious defects
were discovered during fiscal 1996 and although the defects did not have a
serious impact on customer satisfaction, the Company incurred expenses of
approximately $1.2 million to correct the problem. In addition, as the Company
expands its participation in the electronic financial services markets, software
reliability and security demands will increase. The Company is working to
improve its quality assurance and test procedures, and with the fall 1996
introduction of its Quicken Live(TM) feature in its Quicken line of products,
the Company will be able to provide "patches" for software defects to online
customers more quickly via electronic delivery. However, there can be no
assurance that errors or omissions will not be found in new products or releases
after commencement of commercial shipments, resulting in substantial costs,
negative publicity, customer dissatisfaction, loss of market share or failure to
achieve any significant degree of market acceptance. Any such occurrence could
have a material adverse effect upon the Company's business, operating results
and financial condition.
Intuit currently has a number of new product development efforts under way or
planned to commence in the future. There can be no assurance that the Company
will be successful in developing, introducing and marketing product
enhancements, new products and services, or versions of existing products and
services for other platforms, or will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of these
products and services, or that its new or enhanced products and services will
adequately meet the requirements of the marketplace and achieve any significant
degree of market acceptance. Delays in the commencement of commercial
availability of new or enhanced products and services may result in customer
dissatisfaction and delay or loss of revenue. If the Company is unable, for
technological or other reasons, to develop and introduce new or enhanced
products or services in a timely manner in response to changing market
conditions or customer requirements, or if such new or existing products and
services do not achieve a significant degree of market acceptance, the Company's
business, operating results and financial condition would be materially
adversely affected.
Since its inception, Intuit has relied on a variety of marketing approaches and
has applied consumer mass marketing concepts from other industries to the
marketing of software products. Examples include Intuit's use of direct-response
TV and radio advertising and consumer public relations and its early penetration
of emerging low-price retail channels such as computer superstores, discount
chains, and warehouse and club stores.
The markets in which the Company competes are characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards, changing customer requirements and
new competitors. The introduction of products and services embodying new
technologies and the emergence of new industry standards and practices,
including changes in tax laws, regulations or procedures, can render existing
products obsolete and unmarketable. The Company's future success depends upon
its ability to enhance its existing products and services, develop new products
and services that address the changing requirements of its customers, develop
additional products and services for new or other platforms and environments
(such as the Internet) and anticipate or respond to technological advances,
emerging industry standards and practices and changes in tax laws, regulations
and procedures in a timely, cost-effective manner. In response to major industry
changes reflected by the increasing popularity of the Internet among consumers
and financial service providers, the Company has
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expanded its Internet strategy. See "Overview - Internet Strategic Initiatives."
There can be no assurance that such initiatives can be successfully implemented
or that they will result in increased revenue or profits for the Company.
Conversely, there can be no assurance that consumers' use of the Internet,
particularly for commercial transactions, will continue to increase as rapidly
as it has during the past few years.
SALES AND DISTRIBUTION
Intuit markets its products through distributors and retailers, by direct sales
to new and existing customers and to OEMs. A small but increasing proportion of
direct sales are made via the Internet. Certain foreign markets are also
addressed by developer-distributors that both produce and distribute products
locally and pay royalties to Intuit. The Company's electronic financial services
are currently sold to end users primarily through banks and other financial
institutions, with a smaller proportion sold directly to Intuit customers.
Revenue generated from sales to retailers and distributors accounted for 68% of
total revenue during the ten months ended July 31, 1994, compared to 59% during
fiscal 1995 and 58% during fiscal 1996. Intuit's products are carried broadly by
retail software outlets, computer superstores, office and warehouse clubs and
general mass merchandisers. North American sales to the retail channel are made
both by Intuit directly to retailers such as Best Buy, Egghead, Price Costco and
Sam's, and by distributors, including Ingram, and GT Interactive, to such
dealers as CompUSA, Office Depot, Computer City, Staples, Office Max and
Walmart. In the ten months ended July 31, 1994, fiscal 1995 and fiscal 1996,
sales to Ingram accounted for 14%, 12% and 13% of the Company's net revenue,
respectively, and sales to Merisel accounted for 14%, 8% and 5% of net revenue,
respectively. No other customer accounted for more than 10% of net revenue
during these periods. See Note 8 of Notes to Consolidated Financial Statements.
To augment its retail sales efforts, Intuit from time to time has participated
in creating bundled product offerings with other hardware and software
manufacturers in OEM relationships. To date, the majority of bundles have been
for special editions of Quicken for Windows that have more limited feature sets
than the standard version of the product. In some cases, OEMs purchase
fully-assembled products directly from Intuit, although recently the trend has
been towards "diskless" bundles, under which the OEM pre-installs the software
on personal computers or included CD-ROMs and includes only documentation. The
prices that Intuit receives for OEM sales are typically significantly lower than
distributor or direct sale prices, and in certain instances, OEMs receive the
products at no cost. While this practice generates little revenue and reduces
Intuit's operating margins in the short term, the Company believes that this
channel is strategically important because it allows the Company to acquire
large numbers of new customers with the potential to generate future sales of
software upgrades, electronic financial services and other Intuit products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Twelve Months Ended July 31, 1996 and
1995." The practice is also important in responding to the current competitive
environment for personal finance software. See "Competition."
Direct sales continue to be an important sales channel for Intuit, particularly
for small business and tax products and products offered through Parsons. For
example, during fiscal 1996, all of Intuit's professional tax and supplies
products and tax table service revenues, approximately 37% of its small business
accounting product revenues, and approximately 39% of its personal tax software
product revenues were from sales directly by Intuit to end users utilizing
targeted direct-mail solicitations and direct-response advertising in selected
magazines and newspapers. In addition, almost all Parsons sales are made through
direct-mail offers and outbound telemarketing. Intuit believes that direct-mail
advertising, in addition to generating orders, stimulates retail demand and
increases general consumer awareness of Intuit's products. Accordingly, during
fiscal 1996, the Company expanded its direct marketing activities in order to
sell products directly to its growing registered customer base and to reach
potential new customers.
Payment terms for retailers and distributors are generally net 30 to 45 days.
The Company has a liberal return policy for its distributors and retailers,
although they are encouraged to make returns within certain time periods,
particularly for tax products. The Company generally has an unconditional return
policy for consumers who purchase products directly from the Company.
Historically, the Company's returns have not materially varied from reserves
established for such returns.
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INTERNATIONAL
Intuit has developed versions of Quicken for sale in Australia, Canada, France,
Germany, Spain, the United Kingdom, Austria, South Africa and certain Latin
American countries, and versions of QuickBooks for the United Kingdom, Germany,
Australia and South Africa. Milkyway, the Company's Japanese subsidiary, now
offers a Windows 95 version of Kobanto, a small business software product, as
well as other products. Intuit also produces personal tax preparation products
for certain international markets: QuickTax in Canadian and Australian markets
and QuickSteuer(R) in Germany. In June 1995, the Company purchased the tangible
assets and intellectual property of Mysterious Pursuit, an outside developer of
tax software for the Australian, German, New Zealand and United Kingdom markets.
During fiscal 1996, the Company closed its operations in Australia and has
integrated certain of these products into the Intuit product line. Intuit may
introduce versions of its products in other countries based on customer demand
and available resources.
The development of products for foreign markets requires substantial additional
time, effort and expense because of the large differences among countries'
financial practices and cultures. Although international revenue has been
limited to date, Intuit believes that it may increase substantially over the
next several years. The Company intends to establish additional international
operations, hire additional personnel and recruit additional international
resellers in order to attempt to increase international revenue. Although the
Company did experience significant growth in international operations in fiscal
1996, its German subsidiary had experienced delays in two critical product
launches in the second quarter of fiscal 1996, resulting in late delivery of
products to retail channels and excess inventory levels in the distribution
channel. In addition, international growth slowed from the first half of fiscal
1996 to the second half of fiscal 1996, due to general weakness in European
consumer software markets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations - Twelve
Months Ended July 31, 1996 and 1995" and Note 8 of Notes to Consolidated
Financial Statements. To the extent that the Company is unable to expand
international revenue in a timely and cost-effective manner, the Company's
business, operating results and financial condition could be materially
adversely affected. There can be no assurance that the Company will be able to
maintain or increase international market demand for the Company's products.
The Company's international revenue is currently denominated in a variety of
foreign currencies and the Company does not currently engage in any hedging
activities. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in the currency
exchange rates in the future will not have a material adverse effect on the
Company's business, operating results and financial condition. See Note 1 of
Notes to Consolidated Financial Statements. Additional risks inherent in the
Company's international business activities include unexpected changes in
regulatory requirements, tariffs and other trade barriers, costs of localizing
products for foreign countries, lack of acceptance of localized products in
foreign countries, longer accounts receivable payment cycles, fluctuations in
foreign currency values, difficulties in collecting payment, difficulties in
managing international operations, compliance with a wide variety of financial
reporting requirements and systems, which can result in accounting and
forecasting errors, potentially adverse tax consequences including repatriation
of earnings, reduced protection for the Company's intellectual property rights
and the burdens of complying with a wide variety of foreign laws. There can be
no assurance that such factors will not have a material adverse effect on the
Company's future international revenue and, consequently, the Company's
business, operating results and financial condition.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
Intuit provides technical support and customer service for its products by
telephone, mail, facsimile, electronic bulletin boards and modem. Intuit has
installed sophisticated call-handling and facsimile processing equipment to
improve the efficiency of its support and customer service operations. The
Company operates major telephone support centers in Tucson, Arizona;
Fredericksburg, Virginia; Hiawatha, Iowa; Downers Grove and Aurora, Illinois
(where ISC is currently located); and Rio Rancho, New Mexico. In addition, the
Company's supplies business has a telesales and service center in Mountain View,
California. During periods of peak call volumes, Intuit hires substantial
numbers of temporary employees, and also outsources part of its customer service
function, to assist the
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full-time staff in serving customers. Despite its efforts to staff and equip its
customer service and support functions appropriately, from time to time during
peak periods Intuit's ability to respond to customer orders and support calls in
a timely manner may be temporarily impaired due to constraints on available
personnel or internal systems. In addition, delays in order fulfillment, and
events such as the occurrence of unexpected product errors, may result in
unusually high volumes of customer calls that temporarily exceed Intuit's
response capacity. For example, the Company experienced significant operational
problems as a result of inadequacies in certain of its systems, procedures and
controls when, during the quarter ended January 31, 1995 and following weeks,
Intuit's existing direct order entry systems were unable to process all of the
orders received on a timely basis. This resulted in a number of problems,
including adverse publicity, lost business and customer dissatisfaction. During
fiscal 1996, the Company's online banking and bill payment customers experienced
difficulties in connecting to these services, requiring the Company to invest in
correcting certain operational problems during the fiscal year. Such occurrences
in the future can be expected to adversely affect Intuit's customer
relationships and sales.
In the future, Intuit will be required to continue to improve its management
controls and reporting systems and procedures on a timely basis as well as to
expand, train and manage its employee work force. These tasks are made more
difficult as a result of the seasonal nature of the Company's business, and the
challenges these tasks pose will require substantial time and attention from
management. To address these areas, during fiscal 1996, the Company made
significant investments in facilities and infrastructure related to customer
service and technical support, devoted significant resources to increase
staffing and training of customer service and support personnel in order to
increase capacity and improve service levels, and invested in correcting
operational problems relating to its network services. Although the Company is
taking steps to improve its internal systems, procedures and controls, there can
be no assurance that the Company will be successful in doing so. Failure to do
so would have a material adverse effect upon the Company's business, operating
results and financial condition.
In the past, the Company has generally not charged customers for technical
support and customer services. However, during fiscal 1996 it began charging its
QuickBooks and QuickBooks Pro customers for telephone support. The Company
believes that this step is consistent with industry trends in the small business
products market. The Company also began charging for support on older DOS
versions of Quicken during fiscal 1996. The Company's primary competitors in the
personal finance market do not currently charge customers for support services.
The Company may institute support fees for other products in the future. The
Company will evaluate its recent decisions to implement support fees in light of
customer reaction, and will consider adjusting its policies if there is
significant unfavorable customer reaction. There has been no significant adverse
customer reaction to date with respect to QuickBooks and Quicken for DOS support
fees. However, there can be no assurance that these new policies will not have a
material adverse impact on customer relations.
MANUFACTURING AND SHIPPING; BACKLOG
Intuit outsources the majority of its software manufacturing and distribution,
including diskette purchase and duplication, printing of manuals and boxes,
assembly of final product, and shipping. Outsourcers are contractually required
to adhere to strict quality guidelines defined and measured by Intuit. Intuit
maintains a small in-house manufacturing and distribution facility to ship a
large number of products that have a relatively small volume, predominantly to
direct customers. Customer returns for direct sales are primarily handled
in-house, while returns from the retail distribution channel are handled
primarily by a third party. Intuit normally ships products within one week after
receipt of an order, with the exception of tax preparation software. Orders for
tax software are usually taken beginning in late April (for professional tax
products) and in late September (for consumer tax products) and the tax products
are shipped when available, typically between October and March. Intuit has
relatively little backlog at any time and does not consider backlog to be a
significant indicator of future performance.
SEASONALITY; QUARTERLY FLUCTUATIONS IN REVENUE AND OPERATING RESULTS
The Company's business has experienced, and is expected to continue to
experience, substantial seasonality, due principally to the timing of the tax
return preparation season, the timing of product launches for new or updated
versions of products and, to a lesser extent, to consumer software buying
patterns. Sales of the Company's tax products are concentrated in the period
from November, when certain professional tax products are released,
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through March, when consumers purchase the products in advance of the April 15
tax return filing deadline. Sales of the Company's Quicken product are typically
strongest during the year-end holiday buying season. As a result of these
seasonal patterns, the Company generated income from operations before
acquisition-related charges during its fiscal quarters ended January 31, 1995
and 1996 and April 30, 1995 and 1996. Intuit normally experiences significant
losses from operations before acquisition-related charges during its July and
October fiscal quarters because lower seasonal revenues are more than offset by
continuing operating expenses necessary to support direct marketing campaigns,
research and development and infrastructure requirements, among other items. See
Note 11 of Notes to Consolidated Financial Statements. The Company's
historically reported quarters have not reflected the full effect of this
seasonal pattern, principally because, with the exception of Milkyway, all of
the Company's business acquisitions were accounted for using the purchase method
of accounting, and therefore included the revenues and expenses of the acquired
companies only from the closing dates of the acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's quarterly operating results have fluctuated significantly in the
past, and are likely to fluctuate significantly in the future, based upon a
number of factors. In addition to seasonal factors described above, the
Company's quarterly operating results can be affected significantly by the
number and timing of new product or version releases by the Company, the timing
of product announcements or introductions by the Company's competitors,
discretionary marketing and promotional expenditures, research and development
expenditures and a variety of non-recurring events, such as acquisitions.
Products are generally shipped as orders are received, so the Company's backlog
at any given time is not material. Consequently, quarterly sales and operating
results depend primarily on the volume and timing of orders received during the
quarter, which are difficult to forecast. A significant portion of the Company's
operating expenses are relatively fixed, and planned variable expenditures are
based on sales forecasts. If revenue levels are below expectations, operating
results are likely to be materially adversely affected. In particular, net
income, if any, may be disproportionately affected because only a small portion
of the Company's expenses varies with revenue in the short term. In response to
competition, the Company may also choose to reduce prices or increase spending,
which may adversely affect the Company's operating results and financial
condition.
Although the Company has experienced significant growth in revenue in recent
years, there can be no assurance that the Company will sustain such revenue
growth in the future or be profitable on an operating basis in any specific
future period. Due to the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indicators of future performance.
The unpredictability of the Company's financial results may have a significant
impact on the market value of the Company's common stock. For example, following
the second quarter of fiscal 1996, the Company announced that its net income for
fiscal 1996 would not increase from fiscal 1995. This projection was below the
expectations of public market analysts and investors and the price of the
Company's common stock was materially adversely affected. It is possible that in
future periods, the Company's revenue or operating results may differ from
expectations and that the price of the Company's common stock may fluctuate as a
result. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview" and "- Certain Factors that May Affect Future
Results."
COMPETITION
The markets for the Company's products, both domestic and international, are
intensely competitive, subject to rapid change and characterized by constant
pressures to reduce prices, incorporate new product features and accelerate the
release of new products and product enhancements. Intuit believes that the
principal competitive factors in the software industry are product features and
quality, reliability, ease of use, brand name, access to distribution channels,
quality of support services, and price. The Company encounters competition from
a number of sources, and many of the Company's competitors or potential
competitors, notably Microsoft Corporation ("Microsoft"), have significantly
greater financial, technical and marketing resources and broader product lines
than the Company. A variety of potential actions by any of the Company's
competitors, including reduction of product prices, increased promotion,
announcement or accelerated introduction of new or enhanced products, product
giveaways or product bundling could have a material adverse effect on the
Company's business, operating results and financial condition. The software
industry, including the Company, has experienced a significant platform shift
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<PAGE> 18
from DOS to Windows, and more recently to Windows 95. There is increased
competition on the Windows and Windows 95 platforms, including lower-priced
products or free promotional products that compete with the Company's software.
In order to respond to these competitive factors, the Company may use price
reductions and/or other promotional offers, resulting in reduced gross margins.
Prolonged price competition would have a material adverse effect on Intuit's
business, operating results and financial condition. As platform shifts and
other technological changes continue to occur, there are risks that competitors
may respond more quickly than the Company to new or emerging technologies or
changes in customer requirements such as the introduction of new personal
computer software or hardware platforms or changes in online or financial
telecommunications technology. Accordingly, it is possible that current or
potential competitors could rapidly acquire significant market share.
Conversely, it is possible that customers may not accept a platform that the
Company has chosen or will choose to pursue. Further consolidation of the
software industry or changes in the personal computer industry could lead to
increased competition in technological innovation and pricing strategies.
Only a small percentage of products introduced in the consumer software market
achieves any degree of sustained market acceptance. There can be no assurance
that the Company will be able to successfully compete against current or future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect upon its business, operating results and financial
condition.
The Company expects that Microsoft will be a formidable competitor in the
markets in which the Company currently competes and will compete in the future.
In connection with the Company's proposed merger with Microsoft that was
announced in October 1994 and terminated in May 1995, the Company shared
business information with Microsoft. Although the Company believes only a
limited amount of confidential information was disclosed to Microsoft, there can
be no assurance that Microsoft will not use information made available to it to
compete with the Company. Microsoft's Money products are being aggressively
promoted with free product offers through various distribution channels,
including the Internet. Microsoft also includes Money in its Home Essentials
software package, and can be expected to take additional actions to distribute
its products to a wide customer base. These actions will create additional
competitive pressure for the Company's Quicken products.
In addition to Microsoft, the Company's products and services also compete with
products and services offered by a number of other companies, many of which have
greater resources and/or broader product lines than the Company. In the market
for personal finance products, the Company also competes with MECA Software,
Inc. (a company owned by a consortium of banks, including Bank of America and
NationsBank), among others. In addition, the Company faces increasing
competition from financial institutions, such as Citibank, Charles Schwab and
others, that are developing their own financial software and web sites. Such
institutions could opt to support only their internally developed products, both
Quicken as well as proprietary products, or a wide variety of software
solutions. The Company's small business products compete with Peachtree
accounting software from ADP, as well as products from Sage and BestWare, among
others. In the personal tax area, the Company competes with Block Financial
Corporation and Computer Associates, Inc., among others. The professional tax
preparation market is highly fragmented. Intuit's principal competition includes
Arthur Andersen, Lacerte Software Corporation, Commerce Clearing House/Computax,
SCS/Compute, Creative Solutions, Pencil Pushers, Inc. and CLR Fasttax. Because
there are relatively low barriers to entry, the Company expects competition to
increase from both established and emerging companies to the extent the markets
addressed by the Company continue to develop and expand.
In the area of electronic financial services, the online banking and bill
payment services provided to financial institutions customers by the Company are
in competition with Visa Interactive, as well as a number of banks such as Wells
Fargo, NationsBank, Bank of America and Citibank. It is possible that some or
all of the financial institutions that currently have contractual arrangements
with the Company will begin to offer their own online banking and/or bill
payment services. If the Company's sale of ISC to CheckFree is completed as
expected, the Company will no longer be competing directly in the "back-end"
bill pay processing market. Investor Insight and NETworth compete with large,
established online financial publishers such as Dow Jones, ValueLine and
Morningstar. The principal competitors for the Company's QFN web site are the
financial areas on online services, as well as standalone financially-oriented
web sites like Quote.com.
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<PAGE> 19
Intuit's supplies products compete with those of a number of business forms
companies, such as Deluxe Business Systems, New England Business Services and
Moore Business Forms. In addition, several direct mail check printers have begun
offering computer checks and forms in addition to their personal check lines.
Intuit believes that its success in the supplies business results from a number
of factors, including its direct access to its software user base through in-box
advertising, price, service, product quality, speed of delivery and guaranteed
compatibility with Intuit software products. There can be no assurance, however,
that these factors will continue to allow Intuit to maintain its existing level
of, or generate additional, supplies revenue.
MANAGEMENT OF GROWTH
The Company has experienced significant growth during the past three years, both
internally generated and through mergers and acquisitions. Since September 1993,
Intuit has acquired ChipSoft, Best's professional tax product line, ISC,
Parsons, Mysterious Pursuit's tax software technology, PNI, IIS and GALT, and
has added support centers in Tucson, Arizona; Fredericksburg, Virginia;
Hiawatha, Iowa; Downers Grove and Aurora, Illinois; and Rio Rancho, New Mexico.
These acquisitions and additions have expanded the Company's size and number of
product lines, increased the number of its employees and resulted in the Company
having a number of geographically dispersed domestic offices and operations, in
addition to expanding international offices and operations. There are
significant risks associated with this growth. Certain of the Company's
acquisitions have involved issuances of equity securities, the incurrence of
debt and contingent liabilities, and amortization expenses related to goodwill
and other intangible assets, which have adversely affected the Company's
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations." The Company's ability to integrate and organize its new businesses
and to successfully predict and manage its growth will require improvements in
its operational, financial and management information systems. Although the
Company has taken steps to improve its internal processes, it has experienced
significant operational difficulties in its order entry and shipping systems and
in providing technical support to customers in the past. See "Customer Service
and Technical Support." It has also experienced excess capacity at certain call
centers due to rapid expansion. There can be no assurance that similar problems
will not occur in the future or that they will not have a material adverse
effect on the Company's results of operations. In particular, the process of
integrating acquired companies' operations, technologies and products into the
Company's operations has in the past, and may in the future, result in
unforeseen operating difficulties and expenditures, requiring significant
management attention that would otherwise be available for the ongoing
development of the Company's business. Moreover, there can be no assurance that
the anticipated benefits of any specific acquisition will be realized.
The Company may in the future pursue new technologies or businesses, some of
which may be accomplished internally and some of which may be accomplished
through joint ventures or acquisitions of complementary product lines,
technologies or businesses. Future acquisitions by the Company involve the risks
described above, as well as the risks of entering markets in which the Company
has no or limited direct prior experience, the potential loss of key employees
of the acquired company and of Intuit, and the possibility of additional
regulatory burdens. In the event that the Company pursues such new businesses or
technologies, either through internal generation or through joint ventures or
acquisitions, there can be no assurance that the Company's business, operating
results and financial condition would not be materially adversely affected.
REGULATED BUSINESSES
Certain aspects of the Company's current products and services are subject to
federal and state regulation, either directly or indirectly, as described below.
It is possible that these products and services will become more heavily
regulated in the future, or that other existing or new products and services
will become subject to government regulation.
Quicken Investment Services, Inc. ("QISI"), the Company's subsidiary that offers
Quicken Financial Planner and certain investment-related features of other
Intuit products, is registered as an investment adviser under the federal
Investment Advisers Act of 1940, and QISI and certain of its officers are
registered under the investment adviser laws in certain states. As a result of
this registration, QISI is subject to a variety of regulatory requirements that
do not typically apply to software companies. Compliance with these regulatory
requirements imposes restrictions on
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<PAGE> 20
QISI's business practices in a variety of areas, including advertising and
distribution arrangements, and also requires allocation of material financial,
legal and management resources. QISI could also be subject to liability and/or
injunctive actions for failure to comply with investment adviser regulatory
requirements.
The Company's IIS subsidiary, which runs the InsureMarket web site, is required
to be licensed as an insurance producer by the insurance regulator of each state
in which IIS engages in the solicitation, negotiation or effectuation of
insurance policies. IIS is currently in the process of obtaining the necessary
licenses in all fifty states. Until IIS is licensed as an insurance producer by
a state, IIS will be unable to engage in any activities requiring such
licensing. In addition to requiring an insurance producer license, state
insurance laws regulate other business activities of IIS, including advertising,
handling of fiduciary funds, information practices, record keeping and sharing
of compensation with unlicensed parties. Failure to comply with such regulations
could expose IIS to administrative penalties and sanctions. Compliance with the
requirements of state insurance laws will require allocation of material
financial, legal and management resources of IIS.
Certain bill payment services that the Company provides directly to consumers
are subject to the Electronic Funds Transfer Act and regulations promulgated by
the Federal Reserve Board and implemented by the Federal Trade Commission.
Banking and bill payment services that the Company provides to financial
institutions and, indirectly, to their customers, are not directly subject to
regulation under certain laws and regulations applicable to banks and other
financial institutions. However, the Company's provision of such services may
indirectly be affected as a result of limitations that such laws and regulations
may impose on financial institutions in their contractual arrangements with the
Company. In addition, the Company has made changes in certain of its products to
facilitate regulatory compliance by financial institutions. Moreover, to the
extent that the Company serves as a third-party processor or service provider to
banks and other financial institutions, the Company is directly subject to
Federal Reserve Board regulations and to regulation by federal or state
regulators of each such bank or financial institution, including the Office of
the Comptroller of the Currency, the Office of Thrift Supervision, the Federal
Reserve Bank for the district in which the given bank or financial institution
is located, the Federal Deposit Insurance Corporation, the National Credit Union
Administration and state banking regulators. Failure to comply with such
regulations could expose the Company to penalties and sanctions, and compliance
with such regulatory requirements requires allocation of material financial,
legal and management resources of the Company. Certain of these regulatory
requirements will become inapplicable following the planned sale of ISC.
The Company is currently evaluating additional electronic financial services,
including investment account statement download and online trading capabilities.
Although the Company will attempt to structure these services in a manner that
minimizes regulatory burdens, it is possible that these services, or other
investment-related services offered in the future, may require regulatory
compliance, such as registration as a broker-dealer under federal and/or state
securities or other applicable laws, or other regulation by state regulators.
Even if the Company is not required to register as a broker-dealer, it may be
impacted by broker-dealer regulations indirectly, as a result of limitations
such regulations may impose on financial and investment institutions in their
contractual arrangements with the Company.
PROPRIETARY RIGHTS
Intuit regards its software as proprietary and relies primarily on a combination
of copyright, trademark and trade secret laws, employee and third-party
nondisclosure agreements, and other intellectual property protection methods to
protect its products and technology. Intuit also has been granted seven patents
and has eight patent applications pending with respect to methods of processing
financial data and other processes used in certain of the Company's products.
However, Intuit believes that the ownership of patents is not presently a
significant factor in its business and that its success does not depend on the
ownership of patents, but primarily on the innovative skills, technical
competence and marketing abilities of its personnel. Intuit may not always own
the software and related technologies used in its product and service offerings.
For example, Intuit engaged an outside software development house to develop
system software that routes data between Quicken users and banks. Ownership of
this software was retained by the developer and is licensed to Intuit. Although
Intuit believes that it currently has satisfactory contractual and business
relationships with this developer, termination of this relationship could
interrupt Intuit's ability to provide certain services.
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<PAGE> 21
Intuit generally has no signed license agreements with the end users of its
products and does not copy-protect its software. In addition, existing copyright
laws afford only limited protection, and it may be possible for unauthorized
third parties to copy Intuit's products or to reverse engineer or obtain and use
information that Intuit regards as proprietary. There can be no assurance that
Intuit's competitors will not independently develop technologies that are
substantially equivalent to, or superior to, Intuit's technologies. Policing
unauthorized use of Intuit's products is difficult and, while Intuit is unable
to determine the extent to which software piracy of its products exists,
software piracy can be expected to be a persistent problem. In addition, the
laws of certain countries in which Intuit's products are or may be distributed
do not protect Intuit's products and intellectual property rights to the same
extent as the laws of the United States.
Intuit believes that its products, trademarks and other proprietary rights do
not infringe upon the proprietary rights of third parties. From time to time,
however, Intuit has received communications from third parties asserting that
features or content of certain of its products, or its use of certain
trademarks, may infringe upon intellectual property rights of such parties. To
date, no such claim has resulted in currently pending litigation except as
described in "Legal Proceedings" or in the payment of any claims. However,
Intuit cannot predict whether the impact of any known claims will be material.
As the number of software products in the industry increases and the
functionality of these products further overlaps, Intuit believes that software
products increasingly will become the subject of claims that they infringe the
rights of others. There can be no assurance that third parties will not assert
infringement claims against Intuit in the future or that any such assertion will
not result in costly litigation or require Intuit to obtain a license to
intellectual property rights of third parties. There can be no assurance that
such licenses will be available on reasonable terms, or at all.
EMPLOYEES
As of September 30, 1996, Intuit and its domestic subsidiaries had approximately
3,184 full-time domestic employees, and its international subsidiaries had an
aggregate of 290 full-time employees. Intuit and its employees are not parties
to any collective bargaining agreements, and Intuit believes that its relations
with its employees are good. The Company has an employment agreement with
William V. Campbell (the Company's President and Chief Executive Officer) that
is terminable at will by either party. Intuit believes its future success and
growth will depend in large measure upon its ability to attract and retain
qualified technical, management, marketing, product development and sales
personnel. Although the Company believes it offers competitive compensation,
there is intense competition in the software industry for qualified personnel
and the Company, like many of its competitors, has experienced difficulty hiring
and retaining employees. In particular, employee morale and retention have been
hindered by recent significant declines in the price of the Company's common
stock, which reduced or eliminated the value of stock options held by many
employees. To address this problem, in September 1996, the Company offered to
lower the exercise prices on existing options to the fair market value of the
Company's common stock on September 18, 1996 for all outstanding options with a
higher exercise price (except options held by the Company's Chief Executive
Officer and Senior and Executive Vice Presidents). Any option holder electing to
reprice an option will not be permitted to exercise the repriced option, even if
it is vested, for a certain period of time. See Note 12 of Notes to Consolidated
Financial Statements.
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ITEM 2
PROPERTIES
The Company's principal offices are located in Mountain View, California, with
additional leased office and manufacturing space in Palo Alto and San Diego,
California. The Mountain View facilities are occupied pursuant to long-term
leases entered into in November 1994. These facilities will replace the
Company's facilities in Palo Alto in a staged move that began in December 1995
and is currently expected to be completed during calendar 1997. Intuit has
committed to spend approximately $47.2 million for the Mountain View leases over
their remaining terms (which range from seven to eight years). Two of the
Mountain View buildings are not currently occupied but are subleased by Intuit
in their entirety. In June 1995, the Company entered into a build-to-suit lease
for approximately 140,000 square feet of new office space in San Diego to
replace existing facilities. The relocation to this new facility was completed
in June 1996. Intuit has committed to spend approximately $15.2 million for the
new San Diego lease over its eight-year term.
In addition to the facilities noted above, Intuit leases property in Tucson,
Arizona and Fredericksburg, Virginia (where two of the Company's call centers
are located); Hiawatha, Iowa (where its Parsons subsidiary, as well as a new
call center, are located); Downers Grove and Aurora, Illinois (where its ISC
subsidiary and a call center are located); Pittsburgh, Pennsylvania (where GALT
is located); Alexandria, Virginia (where IIS is located); and in Canada,
England, France, Germany, Japan and the Netherlands (where foreign subsidiaries
are located). Intuit occupies its call center facilities in Rio Rancho, New
Mexico, pursuant to a long-term financing arrangement under which the Company
will take title to the property for a nominal sum in September 2014. See Note 4
of Notes to Consolidated Financial Statements. Intuit also owns two additional
properties in Hiawatha, Iowa, which are occupied by its Parsons subsidiary.
Intuit believes that its facilities are adequate for its current and near-term
needs and that additional space is available to provide for anticipated growth.
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<PAGE> 23
ITEM 3
LEGAL PROCEEDINGS
On March 29, 1994, Joann McGovern filed a class action lawsuit against ChipSoft
(which was subsequently merged into the Company) in the Chancery Division,
Circuit Court of Cook County, Illinois, on behalf of the plaintiff and other
purchasers of the 1993 HeadStart version of the Company's TurboTax tax
preparation software (the "Product"). The plaintiff asserts claims for breach of
express and implied warranties and violation of the Illinois Consumer Fraud Act
and seeks, on behalf of herself and purported class members, refund of the
purchase price as well as consequential and punitive damages. The plaintiff
claims that the packaging of the Product was false and misleading in that it did
not adequately apprise purchasers of the need to obtain the final version of
TurboTax (which the plaintiff admits was available free of charge) in order to
prepare final tax forms for filing with the IRS. In October 1995, the Company
obtained summary judgment on the plaintiff's claims for breach of express and
implied warranties. On January 4, 1996 the plaintiff's motion for class
certification for the Illinois Consumer Fraud Act claim was denied. The
plaintiff is seeking judicial review of an issue relating to this determination.
On September 19, 1996 the Company filed a motion for summary judgment on the
plaintiff's Illinois Consumer Fraud Act claim, with a hearing currently
scheduled for December 12, 1996. The Company believes that the plaintiff's
claims are without merit and intends to defend the litigation vigorously.
On August 23, 1995, Interactive Gift Express, Inc. filed a patent infringement
suit in the United States District Court for the Southern District of New York
against the Company and seventeen other defendants alleging infringement of U.S.
Patent No. 4,528,643 and seeking unspecified damages. Interactive Gift Express
subsequently changed its name to E-Data Corp. The complaint did not specify
which products of the Company allegedly infringed the patent, and did not
indicate which claims of the patent are allegedly infringed. On August 26, 1996,
the plaintiff filed a report identifying which claims of the patent were
allegedly infringed and providing its interpretation of the claims, and also
stating that the Company was infringing the subject patent by "selling software
online." The parties have not yet begun to engage in discovery, which the
Company believes may be material. Although discovery has not yet commenced,
based on the investigation conducted by the Company to date and a review of its
products, the Company believes that the complaint is without merit and intends
to defend the litigation vigorously.
On June 26, 1996, Barbara Hubbard, a former corporate controller of the Company,
filed a lawsuit against the Company and its Chairman, its President and its
former Chief Financial Officer, in the Santa Clara County, California, Superior
Court, alleging sex discrimination, wrongful discharge, breach of contract,
defamation and violations of the California Labor Code. The complaint seeks
damages in an unspecified amount. The Company has answered the complaint,
denying all material allegations, with the individual defendants demurring.
Intuit believes that the complaint is without merit and intends to defend the
litigation vigorously.
On July 31, 1996, Trio Systems L.L.C. ("Trio") filed a lawsuit against the
Company in the U.S. District Court, Central District of California (Los Angeles)
alleging copyright infringement and violation of a license agreement. The
complaint seeks declaratory relief, rescission and $60 million in damages. Trio
alleges that the Company infringed Trio's copyrights in certain software by,
among other things, allegedly violating the license that was attached to the
software in various forms, and by allegedly making copies of the software
without the authorization of Trio, or in violation of various terms of the
license. Trio also contends that the Company has violated the terms of the
license by publishing software that contains software belonging to Trio under
conditions that allegedly violate the terms of the license. The Company answered
the complaint on September 3, 1996, denying all material allegations, and
discovery is proceeding. On September 30, 1996, Trio filed a motion for a
preliminary injunction seeking to prevent the Company from shipping any Intuit
products containing Trio software, including Quicken products. The Company has
filed a response to this motion and a hearing on the motion is scheduled for
October 28, 1996. The Company intends to oppose the motion vigorously and
expects that its new Quicken products will be available for purchase on October
24, 1996. Although discovery has just begun, based on the investigation
conducted by the Company to date and a review of its products, the Company
believes that the complaint is without merit and intends to defend the
litigation vigorously.
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<PAGE> 24
Financial Courseware Ltd. ("FCL"), an Irish company, has a software product
named "Intuition" that is used for teaching financial terminology within
institutions. FCL has opposed the Company's application to register "Intuit" as
a trademark in Canada, Germany, Switzerland and the United Kingdom. In
Switzerland, the Company's application was rejected, and the Company has
appealed. The oppositions remain pending in the other three countries. In
December 1995, FCL initiated proceedings against Intuit Ltd. (the Company's
United Kingdom subsidiary) in Ireland seeking to enjoin use of the Intuit mark
in Ireland and accounting for damages. A response and counterclaim have been
filed denying all claims and seeking to restrict FCL's rights under its
registration. Direct negotiations among the principals of FCL and the Company
have commenced, but it is too soon to determine how the matter will be resolved.
The Company is also subject to other legal proceedings and claims that arise in
the ordinary course of its business. Management currently believes that the
ultimate amount of liability, if any, with respect to any pending actions,
either individually or in the aggregate, will not materially affect the
financial position, results of operations or liquidity of the Company. However,
the ultimate outcome of any litigation is uncertain. If an unfavorable outcome
were to occur, the impact could be material. Furthermore, any litigation,
regardless of outcome, can have an adverse impact on the Company as a result of
defense costs, diversion of management resources and other factors.
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<PAGE> 25
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
quarter ended July 31, 1996.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The executive officers and key employees of Intuit are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott D. Cook 44 Chairman of the Board of Directors
William V. Campbell 56 President, Chief Executive Officer and Director
Michael A. Ahearn 49 Vice President, Human Resources
Mari J. Baker 31 Vice President and General Manager, Personal Finance Group
Eric C.W. Dunn 38 Senior Vice President, Consumer/International Division
Alan A. Gleicher 44 Vice President, Sales
Mark R. Goines 43 Vice President and General Manager, International Group
William H. Harris, Jr. 40 Executive Vice President, Financial Services and Tax Division
James J. Heeger 40 Chief Financial Officer and Senior Vice President, Finance,
Customer Services and Operations
Virginia L. Miller 45 Treasurer and Director of Investor Relations
John Monson 41 Senior Vice President, Small Business Division
Carl J. Reese 39 Vice President, Tax Software Engineering
Daniel N. Rudolph 39 Vice President and General Manager, Banking Services
Greg J. Santora 45 Corporate Controller
William C. Shepard 53 Vice President and General Manager, Professional Products Group
William L. Strauss 38 Vice President, Customer Services
Catherine L. Valentine 44 General Counsel and Corporate Secretary
Larry J. Wolfe 45 Vice President and General Manager, Personal Tax Products Group
</TABLE>
- --------------------------
Mr. Cook, a founder of Intuit, has been a director of the Company since March
1984 and Intuit's Chairman of the Board of Directors since March 1993. From
March 1984 to April 1994, he also served as President and Chief Executive
Officer of Intuit. Mr. Cook also serves on the board of directors of Broderbund
Software, Inc. Mr. Cook holds a Bachelor of Arts degree in economics and
mathematics from the University of Southern California and a Masters in Business
Administration from Harvard University.
Mr. Campbell joined Intuit as its President and Chief Executive Officer and a
director in April 1994. Mr. Campbell was President and Chief Executive Officer
of GO Corporation, a pen-based computing software company, from January 1991 to
December 1993. He was President and CEO of Claris Corporation, a software
subsidiary of Apple Computer Inc., from 1987 to January 1991. Mr. Campbell also
serves on the board of directors of SanDisk, Inc. Mr. Campbell holds both a
Bachelors and a Masters degree in economics from Columbia University.
Mr. Ahearn joined Intuit as its Vice President of Human Resources in September
1993. From 1987 to 1993, he held a variety of human resources roles within Apple
Computer, Inc., including Vice President Worldwide Human Resources for Claris
Corp., Apple's wholly-owned software subsidiary, from 1991 to 1993. Mr. Ahearn
holds a Bachelor of Arts degree in economics from Amherst College and a Masters
in Business Administration from Boston College.
Ms. Baker became Intuit's Vice President and General Manager of the Personal
Finance Group in July 1996. From April to July 1996, she served as Vice
President of the Company's Financial Supplies Group, and she served as Vice
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<PAGE> 26
President of International from September 1994 to April 1996. From January 1994
through September 1994, Ms. Baker was Vice President of Marketing for Now
Software, Inc., a personal and small business software company. Ms. Baker first
joined Intuit in April 1989 and served in various marketing positions until she
left the Company in December 1993. Ms. Baker holds Bachelor of Arts degrees in
economics and sociology from Stanford University. Ms. Baker also serves on the
Board of Trustees for Stanford University.
Mr. Dunn became Senior Vice President of the Consumer/International Division in
July 1996. He served as Vice President and General Manager of Intuit's Personal
Finance Group from May 1994 to July 1996, and served as the Company's Chief
Financial Officer and a director from September 1986 to December 1993. He also
served as Intuit's Corporate Secretary from March 1991 to December 1993. From
December 1993 to May 1994, Mr. Dunn was an Intuit Fellow. Mr. Dunn holds a
Bachelor of Arts degree in physics and a Masters in Business Administration from
Harvard University.
Mr. Gleicher joined Intuit as Vice President of Sales in December 1993. From
September 1990 until Intuit's acquisition of ChipSoft in December 1993, Mr.
Gleicher served as ChipSoft's President, Personal Tax Division. Mr. Gleicher has
a Bachelors degree in economics and business finance from San Diego State
University. He also earned a certificate from the Marketing Management Program
at Stanford University.
Mr. Goines became Vice President and General Manager of the International Group
in April 1996. He initially joined Intuit as Vice President and General Manager
of Personal Tax Products in December 1993 in connection with the Company's
acquisition of ChipSoft. From April 1991 to December 1993, Mr. Goines served as
the Director of Product Management of ChipSoft. Mr. Goines holds a Bachelor of
Science degree and a Masters in Business Administration from the University of
California at Berkeley.
Mr. Harris became an Executive Vice President of Intuit in December 1993, in
connection with the Company's acquisition of ChipSoft. He has been head of the
Financial Services and Tax Division since July 1996. From January 1992 to
December 1992, Mr. Harris served as President and Chief Operating Officer of
ChipSoft; and from June 1991 to January 1992, he was Executive Vice President
and Chief Operating Officer of ChipSoft. Mr. Harris earned a Bachelor of Arts
degree in American Studies from Middlebury College in Vermont and a Masters in
Business Administration from Harvard University.
Mr. Heeger became Chief Financial Officer of the Company in April 1996, and has
been Senior Vice President in charge of the Finance, Customer Services and
Operations functions since July 1996. He served as Vice President and General
Manager of the Company's Supplies Group from December 1993 to April 1996 and
served as Intuit's Vice President of Operations from August 1993 to December
1993. From September 1982 to August 1993, Mr. Heeger served in a number of
marketing and operations roles at Hewlett-Packard Company. From 1987 to August
1993, he was responsible for distribution of Hewlett-Packard's personal computer
products. Mr. Heeger received a Bachelor of Science degree in management from
the Massachusetts Institute of Technology and a Masters in Business
Administration from Stanford University.
Ms. Miller joined the Company as Treasurer and Director of Investor Relations in
March 1996. From 1985 through 1995, Ms. Miller was Treasurer of The Vons
Companies, Inc., a retail supermarket company. Ms. Miller holds a Bachelor of
Arts degree in liberal arts from the University of Illinois and a Masters in
Business Administration from DePaul University.
Mr. Monson became Senior Vice President of the Small Business Division in July
1996. He served as Vice President and General Manager of Intuit's Business
Products Group from May 1994 to July 1996 and as Intuit's Vice President of
Marketing from January 1989 to May 1994. Mr. Monson holds a Bachelor of Arts
degree in mathematics from Whitman College and a Masters of Management degree in
marketing and finance from Northwestern University.
Mr. Reese became the Vice President of Tax Software Engineering in December 1993
in connection with the Company's acquisition of ChipSoft. Mr. Reese joined
ChipSoft in October 1992 as its Vice President of Tax Software Engineering.
Prior to joining ChipSoft, Mr. Reese was employed by Jostens Learning
Corporation, an
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<PAGE> 27
educational software company, where he served as Director of Instructional
Management Systems from May 1990 to October 1992. Mr. Reese holds a Bachelor of
Science degree from Lehigh University.
Mr. Rudolph became Vice President of the Banking Business Division in August
1996. He has served as General Manager of the division since February 1996. From
June 1993 to February 1996, he served as Director of Marketing for the Company's
Business Products Group. Prior to joining Intuit, Mr. Rudolph was employed by
Mark Products, Inc., a manufacturer of pressurization and leak locating
equipment, software and services for the telecommunications industry, where he
served as Executive Vice President and Chief Operating Officer from 1987 to
1993. Mr. Rudolph holds a Bachelor of Arts degree in economics from Williams
College and a Masters in Business Administration from Stanford University.
Mr. Santora joined Intuit as Corporate Controller in January 1996. From 1983 to
1995, Mr. Santora held a variety of senior financial positions at Apple Computer
Inc., including Senior Finance Director of Apple Americas from May 1992 to
January 1996 and Director of Internal Audit from May 1991 to May 1992. Mr.
Santora, who is a certified public accountant, holds a Bachelor of Science
degree in accounting from the University of Illinois and a Masters in Business
Administration from San Jose State University.
Mr. Shepard became Intuit's Vice President of the Professional Products Group in
December 1993 in connection with the Company's acquisition of ChipSoft. Mr.
Shepard joined ChipSoft in February 1993 as its Director of Development, GUI
Income Tax Applications and became Vice President and General Manager of its
Professional Products Group in July 1993. Prior to joining ChipSoft, Mr. Shepard
was employed by SCS/Compute & Accountants Microsystems, Inc., where he served in
various capacities, including Executive Vice President, Product Development and
Support from May 1990 through January 1993. Mr. Shepard holds a Bachelor of
Science in mathematics from the University of Washington.
Mr. Strauss has been Intuit's Vice President of Customer Services since December
1993. He also served as Vice President of Operations from December 1993 to May
1995. Mr. Strauss was the Director of Operations at ChipSoft from August 1992
until the Company's acquisition of ChipSoft in December 1993. From July 1989
until August 1992, Mr. Strauss was Senior Vice President of Customer Service and
Credit at Hanover Direct, a direct marketing catalog company. Mr. Strauss holds
a Bachelors degree in accounting from Syracuse University.
Ms. Valentine joined Intuit as General Counsel in September 1994 and has served
as Corporate Secretary since April 1996. From November 1993 to September 1994,
she was General Counsel of Macromedia, Inc., a multimedia software tools
company. Ms. Valentine was General Counsel of GO Corporation, a pen-based
computing software company, from September 1991 to November 1993. Ms. Valentine
holds Bachelor of Arts degrees in finance and economics from the University of
Illinois and a Juris Doctorate from the University of Chicago.
Mr. Wolfe became Vice President and General Manager of the Company's Personal
Tax Group in April 1996. He had been the director of technical support and sales
for the Company's Professional Tax Group from March 1994 to April 1996. From
January 1990 to March 1994, Mr. Wolfe was Vice President of Direct Link
Software, Inc. ("DLS") and its successors. DLS was a privately held software
company from January 1990 to March 1993, when it was acquired by ChipSoft in
March 1993. ChipSoft was subsequently acquired by the Company in December 1993.
Mr. Wolfe holds a Bachelor of Science degree in business administration from the
University of Southern California and is a certified public accountant.
-27-
<PAGE> 28
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
On July 20, 1995, the Company's Board of Directors authorized a two-for-one
stock split in the form of a stock dividend of one share of common stock paid
for each share of the Company's common stock that was issued and outstanding at
the close of business on August 4, 1995. The stock dividend was distributed on
August 21, 1995. All share prices provided below have been adjusted to reflect
the stock split.
Intuit's common stock began trading over the counter in March 1993 and is quoted
on the Nasdaq National Market under the symbol "INTU." The following table sets
forth, for the periods indicated, the range of high and low closing sale prices
per share as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
FISCAL 1995
First quarter 35-9/32 17-1/2
Second quarter 34-7/8 32-3/8
Third quarter 41-7/8 31-3/8
Fourth quarter 43-3/4 31
FISCAL 1996
First quarter 72 40-5/8
Second quarter 87 53-1/4
Third quarter 67-5/8 43
Fourth quarter 55-1/2 33-1/2
</TABLE>
HOLDERS
As of September 30, 1996, there were approximately 1,000 holders of record of
the Company's common stock, representing approximately 30,000 beneficial
holders.
DIVIDENDS
The Company has not paid any cash dividends on its capital stock to date. The
Company currently anticipates that it will retain all future earnings, if any,
for use in its business and does not anticipate paying any cash dividends on its
capital stock in the foreseeable future.
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<PAGE> 29
ITEM 6
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected condensed consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes thereto appearing elsewhere in this Form 10-K. In August 1994, the Company
changed its fiscal year end to July 31 from September 30.
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY TEN MONTHS
YEARS ENDED ENDED YEARS ENDED
SEPTEMBER 30, JULY 31, JULY 31,
------------------------- ---------- --------------------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995 1996
--------- --------- ---------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue ................................. $ 97,683 $ 132,792 $ 210,376 $ 419,160 $ 538,608
Costs and expenses:
Cost of goods sold:
Product ............................... 31,401 41,493 55,151 110,322 136,470
Amortization of purchased software
and other (1) ....................... -- -- 18,558 11,369 1,399
Customer service and technical
support ............................... 16,216 23,425 36,664 75,113 106,872
Selling and marketing .................... 27,304 33,047 51,381 109,382 142,319
Research and development ................. 10,631 14,290 26,125 57,332 75,558
General and administrative ............... 4,255 6,227 12,861 26,437 33,153
Charge for purchased research and
development (1) ....................... -- -- 151,888 52,471 8,043
Other acquisition costs, including
amortization of goodwill and
purchased intangibles (1) ............. -- -- 40,412 41,775 40,570
--------- --------- --------- --------- ---------
Income (loss) from operations ............... 7,876 14,310 (182,664) (65,041) (5,776)
Microsoft merger termination fee, net (2) ... -- -- -- 41,293 --
Interest and other income and expense, net .. 151 460 1,171 3,748 7,646
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes ....................... 8,027 14,770 (181,493) (20,000) 1,870
Provision for income taxes .................. 2,930 5,350 2,481 24,296 16,225
--------- --------- --------- --------- ---------
Income (loss) from continuing operations.... 5,097 9,420 (183,974) (44,296) (14,355)
Loss from operations of discontinued
operations, net of income tax benefit
of $3,725 (3) ............................. -- -- -- -- (6,344)
--------- --------- --------- --------- ---------
Net income (loss) ........................... $ 5,097 $ 9,420 $(183,974) $ (44,296) $ (20,699)
========= ========= ========= ========= =========
Income (loss) per share from continuing
operations ............................... $ 0.24 $ 0.40 $ (5.34) $ (1.07) $ (0.32)
Loss per share from discontinued
operations ............................... -- -- -- -- (0.14)
--------- --------- --------- --------- ---------
Net income (loss) per share ................. $ 0.24 $ 0.40 $ (5.34) $ (1.07) $ (0.46)
========= ========= ========= ========= =========
Shares used in computing net income
(loss) per share ......................... 21,666 23,350 34,454 41,411 45,149
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JULY 31,
----------------------- --------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term $ 9,608 $ 41,622 $ 87,185 $197,775 $198,018
investments .........................
Working capital ........................ 9,924 41,990 68,675 164,281 169,724
Total assets ........................... 41,097 97,120 257,593 398,605 418,020
Notes payable and other long-term
liabilities........................... -- 689 3,715 8,770 5,583
Total stockholders' equity ............. 21,055 54,896 183,872 280,399 299,235
</TABLE>
- --------------
(1) See Note 2 of Notes to Consolidated Financial Statements for a discussion of
the Company's material acquisitions.
(2) See Note 9 of Notes to Consolidated Financial Statements for an explanation
of the Microsoft merger termination fee.
(3) See Note 12 of Notes to Consolidated Financial Statements for an explanation
of discontinued operations.
-29-
<PAGE> 30
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: The following discussion
contains forward-looking statements that are subject to risks and uncertainties.
Statements indicating that the Company "expects," "estimates" or "believes" are
forward-looking, as are all other statements concerning future financial
results, product offerings or other events that have not yet occurred. There are
several important factors that could cause actual results or events to differ
materially from those anticipated by the forward-looking statements contained in
this discussion and other sections of this Form 10-K. Such factors include, but
are not limited to: the growth rates of the Company's market segments; the
positioning of the Company's products in those segments; the Company's ability
to effectively manage its various businesses, and the growth of its businesses,
in a rapidly changing environment; the timing of new product introductions;
retail sell-through of the Company's products; the emergence of the Internet,
resulting in new competition and unclear consumer demands; the Company's ability
to adapt and expand its product offerings for the Internet environment;
variations in the cost of, and demand for, customer service and technical
support; price pressures and the competitive environment in the consumer and
small business software and supplies industry; the possibility of calculation
errors or other "bugs" in the Company's software products; the emergence of the
electronic financial services marketplace; the cost of implementing the
Company's electronic financial services strategy; consumer acceptance of online
financial service offerings; the Company's ability to establish successful
strategic relationships with financial institutions and processors of financial
information; changing alliances among financial institutions and other strategic
partners; the emergence of competition from these entities as well as from other
software companies; changes in laws that may govern any of the Company's
products or services; the timing and consumer acceptance of new product releases
and services (including current users' willingness to upgrade from older
versions of the Company's products); the consummation of possible acquisitions;
the Company's ability to integrate acquired operations into its existing
business; the Company's ability to successfully transition its online banking
and bill payment operations to CheckFree Corporation; possible fluctuations in
value of the Company's investment in CheckFree Corporation; and the Company's
ability to penetrate international markets and manage its international
operations. Additional information on these and other risk factors is included
elsewhere in this Form 10-K.
OVERVIEW
The Company experienced significant growth during the twelve months ended July
31, 1996. Fiscal 1996 net revenue increased 28% to $538.6 million as compared to
$419.2 million for the twelve months ended July 31, 1995. Acquisitions occurring
during the twelve months ended July 31, 1996 and 1995 and the ten months ended
July 31, 1994 are described by transaction below. Due to the pending sale of
Intuit Services Corporation (ISC), as described below and in Note 12 of Notes to
Consolidated Financial Statements, the results for fiscal year 1996 have been
adjusted to account for ISC as discontinued operations. With respect to
quarterly results, it should be noted that the Company's net revenue varies
significantly by quarter due to seasonality in consumer buying patterns,
particularly in sales of the personal and professional tax return preparation
products, which mostly occur in the November through March time frame, as well
as the timing of new and upgrade product releases.
The Company's earnings and stock price have been and may continue to be subject
to significant volatility, particularly on a quarterly basis. The Company has
previously experienced shortfalls in revenue and earnings from levels expected
by securities analysts, which has had an immediate and significant adverse
effect on the trading price of the Company's common stock. This may occur again
in the future. Additionally, the Company participates in a highly dynamic
industry, which often results in significant volatility of the Company's common
stock price. In particular, the impact of, and investors' assessment of the
impact of, the market's acceptance and adoption rate of electronic financial
services, on the Company's business may result in significant increases in the
volatility of the Company's stock price. In addition, the trend towards
Internet-based products and services could have a material adverse effect on
sales of the Company's products which may not be offset by sales of the
Company's software products.
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<PAGE> 31
In September 1996, the Company announced three Internet-related strategic
initiatives designed to accelerate the adoption of electronic financial data
exchange and communication by individuals, small businesses and their financial
service providers. First, the Company announced plans to "open" the architecture
of its software products to financial service providers so that such providers
can connect directly through the Internet to their customers who use Intuit
products. Second, the Company announced that it would coordinate efforts with
several third parties to develop a comprehensive framework for exchanging
financial data over the Internet in an integrated collection of specifications
and protocols called OpenExchange. Thirdly, the Company announced the signing of
an agreement pursuant to which it plans to sell its banking and bill payment
processing subsidiary, ISC, to CheckFree. See "Business - Internet Strategic
Initiatives" and Note 12 of Notes to Consolidated Financial Statements for
further discussion.
FISCAL YEAR CHANGE
Effective August 1, 1994, the Company changed its fiscal year end from September
30 to July 31 in order to better align its financial reporting cycle with the
business cycles of its tax and finance software products. Consequently, the
Company's audited consolidated financial statements included herein reflect the
ten months ended July 31, 1994, and the twelve months ended July 31, 1995, and
July 31, 1996. Unaudited financial information for the twelve months ended July
31, 1994 is presented below under "Results of Operations - Twelve Months Ended
July 31, 1995 and 1994" for comparative purposes.
ACQUISITIONS AND DIVESTITURE
In December 1993, the Company completed its acquisition of ChipSoft, which was
treated as a purchase for accounting purposes. The total purchase price of
$306.4 million in common stock, stock options, and acquisition costs ($255.3
million net of tangible assets acquired) and approximately $11.0 million
relating to the tax effecting of identified intangibles were allocated as
follows: $150.5 million to in-process research and development, $33.5 million to
intangible assets, and $82.3 million to goodwill.
In April 1994, the Company acquired certain assets of Best's professional tax
preparation business for an initial purchase price of $6.5 million in cash. The
purchase agreement calls for a cash "earnout" payment based on the amount of
revenue derived by the Company from former Best customers and the number of Best
customers who purchased the Company's professional tax products by April 1996.
The Company is currently negotiating this payment with Best and believes the
obligation is insignificant. Of the purchase price, $5.8 million was allocated
to intangible assets.
In July 1994, the Company completed its acquisition of National Payment
Clearinghouse, Inc., which subsequently changed its name to ISC, for
consideration of $7.6 million in common stock and cash. ISC currently provides
electronic banking back-end processing services, bill payment, stock quote
retrieval services and access to Intuit's web site for consumers via their
modems and personal computers. The acquisition was treated as a purchase for
accounting purposes. Of the purchase price, $1.4 million was allocated to
in-process research and development, $6.0 million to intangible assets, and $2.1
million to goodwill.
On September 16, 1996, the Company announced plans to sell ISC to CheckFree
Corporation in exchange for 12.6 million shares of CheckFree common stock,
approximately 23% of the resulting 54.0 million CheckFree shares outstanding. As
of September 13, 1996, the CheckFree stock to be exchanged in the transaction
was valued at approximately $227.6 million. The Company intends to account for
its investment in CheckFree using the cost method of accounting. Accordingly,
the Company plans to sell approximately two million shares of CheckFree acquired
in the transaction. Subject to regulatory and CheckFree stockholder approval, as
well as other conditions, the transaction is expected to be finalized by early
calendar year 1997. ISC's revenue accounted for less than 3% of Intuit's total
net revenue in fiscal 1996. The Company is accounting for the sale of ISC as
discontinued operations for fiscal year 1996. ISC's results in 1995 and 1994
were immaterial. See Note 12 of Notes to Consolidated Financial Statements.
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<PAGE> 32
In September 1994, the Company completed its acquisition of Parsons, which was
treated as a purchase for accounting purposes. Under the terms of the agreement,
the Company paid approximately $28.8 million in cash and issued approximately
1,800,000 shares of the Company's common stock to Parsons' stockholders at the
date of the acquisition. In the first quarter of fiscal 1996, the Company paid
an additional $2.7 million in cash as deferred consideration. The total purchase
price of approximately $67.3 million which, in addition to the above amounts,
included 138,038 shares of common stock to be paid for certain non-competition
agreements, was allocated as follows: $44.0 million to in-process research and
development, $14.0 million to intangible assets and $9.9 million to goodwill.
In June 1995, the Company completed its acquisition of PNI, a developer of
technology to provide online investment research data. The acquisition, which
was accounted for as a purchase, had an aggregate purchase price of
approximately $10.4 million in common stock and acquisition costs. Of the
purchase price, $8.5 million was allocated to in-process research and
development, $183,000 to identified intangible assets and $166,000 to goodwill.
The amount of the purchase price allocated to in-process research and
development was charged to the Company's operations at the time of the
acquisition. In addition to the in-process research and development charge, the
Company incurred acquisition-related charges of $1.6 million in fiscal 1995
related to the termination of a conflicting license agreement.
In June 1995, the Company acquired certain assets of Mysterious Pursuit for
consideration of approximately $1.1 million. Mysterious Pursuit, an Australian
company, was the Company's outside developer of tax software for the Australian,
German and United Kingdom markets. The purchase price of $1.1 million was
allocated to identified intangible assets. Mysterious Pursuit's operations were
discontinued during fiscal 1996.
In January 1996, the Company completed its acquisition of Milkyway, which was
treated as a pooling of interests for accounting purposes. Milkyway is a
provider of PC-based financial software in Japan. In addition to the issuance of
650,000 shares of common stock, the Company recorded acquisition related
expenses of $0.6 million for legal and other professional fees.
In June 1996, the Company completed its acquisition of IIS, a developer of an
Internet based system designed to allow consumers to obtain personalized
insurance information from national insurance carriers via the World Wide Web.
The acquisition, which was treated as a purchase for accounting purposes, had a
purchase price of approximately $9.0 million. Under the terms of the agreement,
the Company issued 169,181 shares of Intuit common stock and 3,255 options to
purchase Intuit common stock to IIS stockholders at the date of acquisition.
Approximately $8.0 million of in-process research and development was expensed.
Subsequent to year end, in September 1996 the Company completed its acquisition
of GALT, a provider of mutual fund information on the Internet. The acquisition
will be treated as a purchase for accounting purposes. Under the terms of the
agreement, GALT's stockholders received a combination of common stock and stock
options valued at approximately $9.0 million. The purchase price of
approximately $9.0 million will be allocated to identified intangible assets and
goodwill.
Consistent with the Company's test for internally developed software, for each
of these acquisitions the Company determined the amounts allocated to developed
and in-process research and development based on whether technological
feasibility had been achieved and whether there was any alternative future use
for the technology. Due to the absence of detailed program designs, evidence of
technological feasibility was established through the existence of a completed
working model at which point functions, features and technical performance
requirements can be demonstrated. As of the respective dates of the
acquisitions, the Company concluded that the in-process research and development
had no alternative future use after taking into consideration the potential for
usage of the software in different products, resale of the software and internal
usage.
Acquisition-related costs reduced net income by approximately $97.7 million and
$53.5 million for the twelve months ended July 31, 1995 and July 31, 1996,
respectively, including charges in these periods of $52.5 million and $8.0
million, respectively, for purchased research and development. Assuming no
additional acquisitions, other than those discussed above, and no impairment of
value causing an acceleration of amortization, the net income effect of
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<PAGE> 33
future amortization, not including amortization related to the GALT acquisition,
is anticipated to be approximately $18.4 million, $3.4 million, $1.2 million,
and $0.4 million for the years ended July 31, 1997 through 2000, respectively.
Because of the high levels of non-cash amortization expense arising from the
various acquisitions discussed above, the Company may report losses in future
periods including the fiscal year ending July 31, 1997.
Although the Company believes the above transactions were in the best interests
of the Company and its stockholders, there are significant risks associated with
these transactions. The acquisitions have expanded the Company's size, product
lines, personnel and geographic locations. The Company's ability to integrate
and organize these new businesses and successfully manage its growth will
necessitate improvements in its operational, financial and management
information systems. Although the Company has taken steps to improve its
internal processes, it has experienced significant operational difficulties in
its order entry and shipping systems and in providing technical support to
customers in the past, and there is no assurance that similar problems will not
occur in the future or that they will not have a material adverse effect on the
Company's results of operations. The divestiture of ISC, if consummated, will
result in the elimination of the Company's direct participation in the online
banking and bill payment processing business. If the divestiture of ISC to
CheckFree is concluded, the Company's planned investment in the share of
CheckFree common stock to be issued to the Company in that transaction could
decrease in value due to market fluctuations and the success or failure of
CheckFree. If such decline was determined to be other than temporary, charges to
earnings would result. There is also a risk that the Company will be unable to
divest the CheckFree common stock shares quickly because of contractual and
legal restrictions on the sale of such shares and the relatively large
percentage of proposed ownership of CheckFree common stock by the Company.
RESULTS OF OPERATIONS
Management believes that a comparison of the twelve months ended July 31, 1995
to the ten months ended July 31, 1994 is not meaningful because of the
difference in the length of reported periods. Therefore, this discussion and
analysis of results of operations compares the audited twelve-month period ended
July 31, 1996 to the audited twelve-month period ended July 31, 1995, and the
audited twelve-month period ended July 31, 1995 to the unaudited twelve-month
period ended July 31, 1994. Due to the favorable timing of the acquisition of
ChipSoft, the results for the twelve months ended July 31, 1994 include
substantially all of ChipSoft's 1994 tax season revenue. However, ChipSoft's
seasonally low revenue and high operating expenses for the period prior to
December 13, 1993 are not reflected in the Company's reported results for the
entire twelve months and, thus, the period is not representative of business
results anticipated for the Company after the ChipSoft acquisition. Results of
operations include Milkyway for all periods presented, but include other
acquisitions only from their respective acquisition dates.
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<PAGE> 34
TWELVE MONTHS ENDED JULY 31, 1996 AND 1995
Set forth below are certain consolidated statement of operations data as a
percentage of revenue for the twelve months ended July 31, 1996 and 1995:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JULY 31,
---------------------------------------------------------
1995 1996
-------------------------- --------------------------
(dollars in thousands) Dollars % of Revenue Dollars % of Revenue
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Net revenue:
Software ......................................... $ 360,032 85.9% $ 462,972 86.0%
Supplies ......................................... 59,128 14.1 75,636 14.0
--------- ----- --------- -----
419,160 100.0 538,608 100.0
Costs and expenses:
Cost of goods sold:
Product ...................................... 110,322 26.3 136,470 25.3
Amortization of purchased software and other . 11,369 2.7 1,399 0.3
Customer service and technical support ........... 75,113 17.9 106,872 19.8
Selling and marketing ............................ 109,382 26.1 142,319 26.4
Research and development ......................... 57,332 13.7 75,558 14.0
General and administrative ....................... 26,437 6.3 33,153 6.2
Charge for purchased research and development .... 52,471 12.5 8,043 1.5
Other acquisition costs, including amortization
of goodwill and purchased intangibles ........ 41,775 10.0 40,570 7.5
--------- ----- --------- -----
Total costs and expenses ................. 484,201 115.5 544,384 101.0
--------- ----- --------- -----
Loss from operations ................................. (65,041) (15.5) (5,776) (1.1)
Microsoft merger termination fee, net ................ 41,293 9.8 -- --
Interest and other income and expense, net ........... 3,748 0.9 7,646 1.4
--------- ----- --------- -----
Income (loss) from continuing operations before
income taxes ....................................... (20,000) (4.8) 1,870 0.3
Provision for income taxes ........................... 24,296 5.8 16,225 3.0
--------- ----- --------- -----
Loss from continuing operations ...................... (44,296) (10.6) (14,355) (2.7)
Loss from operations of discontinued operations,
net of income tax benefit of $3,725 ............... -- -- (6,344) (1.1)
--------- ----- --------- -----
Net loss ............................................. $ (44,296) (10.6)% $ (20,699) (3.8)%
========= ===== ========= =====
</TABLE>
NET REVENUE increased approximately 28% to $538.6 million for the twelve months
ended July 31, 1996, compared to $419.2 million for the twelve months ended July
31, 1995. This increase resulted primarily from higher sales of both personal
and professional versions of the Company's tax preparation products and, to a
lesser extent, the release of new and upgraded versions of small business
finance products such as QuickBooks 4.0, QuickBooks Pro and Kobanto in Japan,
including "deluxe" and CD-ROM versions of certain products, which have higher
average selling prices. Many of the Company's ProTax customers have also
upgraded to higher priced Power Tax products, which contributed to the increase
in net revenue over the prior year. In addition, net revenue from Parsons'
operations increased to approximately $96.4 million in fiscal 1996 from $62.0
million in the period from September 27, 1994 (date of acquisition) to July 31,
1995. Unit sales of personal finance products (predominantly Quicken) increased
in fiscal 1996 over fiscal 1995; however, since the majority of this increase
resulted from higher volumes of OEM sales, which generate substantially lower
per unit average selling prices, net revenue from these products remained flat
in fiscal 1996 as compared to fiscal 1995. While the Company receives little
revenue from these OEM sales in the short run, the Company believes this channel
is strategically important because it allows the Company to acquire large
numbers of new customers with the potential to generate future sales of software
upgrades, electronic financial services and related software.
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<PAGE> 35
Also contributing to the increase in net revenue for fiscal 1996, as compared to
fiscal 1995, was the introduction of additional international products,
particularly in the UK, Canada and France. Net revenue from European operations
was $20.2 million or 4% of net revenue in fiscal 1996, compared to $14.8 million
or 4% of total net revenue in fiscal 1995. Net revenue from Asian operations
(Milkyway) was $28.1 million or 5% of net revenue in fiscal 1996, compared to
$23.4 million or 6% of net revenue in fiscal 1995. In April 1996, Milkyway
released Kobanto, its first small business accounting software product for
Windows. Although the Company did experience significant growth in its
international operations, its German subsidiary had difficulty executing two
critical product launches in the second quarter of fiscal 1996, resulting in
late delivery of products to retail channels and excess inventory in the
distribution channel. Because of this, net revenue generated by sales in Germany
for fiscal 1996 was significantly lower than anticipated by the Company. There
can be no assurance that sales of new versions of personal and small business
finance products or international products will continue at the rate experienced
in the past or that other such product launch difficulties will not be
encountered in the future.
Software net revenue increased approximately 29% to $463.0 million for the
twelve months ended July 31, 1996 from $360.0 million in the prior year,
principally due to the increased product volumes and new product introductions
discussed above.
Supplies net revenue increased by approximately 28% to $75.6 million for fiscal
1996, as compared with $59.1 million in the prior year, due to order increases
in small business check, envelope and invoice products as the Company's customer
base continues to grow. The gradual increase in upgrade sales as a percentage of
total software revenue generally causes the growth of potential supplies
customers to be slightly slower than the growth in software revenues. In fiscal
1997, supplies net revenue may be negatively impacted as some of the Company's
software users may shift to electronic bill payment services. The Company is
unable to quantify the effect, if any, of this potential shift on future net
revenue.
Revenue is generally recognized at the time of shipment, net of allowances for
estimated future returns and for excess quantities in distribution channels,
provided that no significant vendor obligations exist and collections of
accounts receivable are probable. Reserves are provided for quantities of
current product versions that are considered excess, and for inventories of all
previous versions of products at the time new product versions are introduced.
Advance payments are recorded as deferred revenue until the products are shipped
or services are provided. Rebate costs are provided at the time revenue is
recognized. The Company provides warranty reserves at the time revenue is
recognized for the estimated cost of replacing defective products. There can be
no assurance that the reserves established by the Company will be sufficient to
cover future returns of product, warranty, and rebate obligations.
The software industry, including the Company, is selling increasingly through
alternative channels, such as OEM, or "bundling" products for a single low
price. While this strategy introduces new customers to products, it also
significantly reduces average selling prices. The software industry, including
the Company, has experienced significant platform shifts in the past, such as
from DOS to Windows and, more recently, to Windows 95. There is increased
competition on the Windows and Windows 95 platforms, including lower priced
products and free promotional products that compete with the Company's software.
In order to respond to these competitive pressures, the Company may use price
reductions and/or other promotional offers which would negatively impact net
revenue and income from operations. As platform shifts continue to occur, there
are risks that competitors could introduce new products before the Company's
products are available on a particular platform or that customers may not accept
a platform that the Company has chosen or will choose to pursue. Further
consolidation of the software industry or changes in the personal computer
industry could lead to increased competition in innovation and pricing
strategies. The Company cannot quantify how much these factors have affected or
will affect its business. In addition, a number of the Company's competitors
have greater financial resources than the Company, potentially giving them a
competitive advantage.
Although the Company believes there are opportunities in international markets,
there can be no assurance that the Company's products will be accepted in these
markets. Furthermore, there can be no assurance that the Company's new or
upgraded products will be accepted, will not be delayed or canceled, or will not
contain errors or "bugs" that could affect the performance of the product or
cause damage to a user's data. If any of these events occurs, the
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<PAGE> 36
Company may experience reduced net revenue, loss of market share, increased
maintenance release costs and higher technical support costs.
COST OF GOODS SOLD decreased to approximately 26% of net revenue for the year
ended July 31, 1996 versus 29% for the prior year. Decreased amortization of
purchased software resulting from the Company's acquisitions accounted for the
majority of this decline. Excluding acquisition-related amortization costs, cost
of goods sold would have been 25% of net revenue for fiscal 1996 and 26% for
fiscal 1995.
Software cost of goods sold, excluding acquisition-related amortization costs,
was approximately 23% of software net revenue for the year ended July 31, 1996
versus 24% for the previous twelve-month period. Supplies cost of goods sold was
approximately 42% of supplies net revenue for the year ended July 31, 1996
compared to 43% for the year ended July 31, 1995. The Company has negotiated a
long-term contract on the pricing of checks and plans to continually take
actions to reduce the materials cost of all of its supplies products. However,
there can be no assurance that margin improvements will be achieved or that
current margins will be sustained.
In March 1995, the Company announced the identification of some calculation
errors in certain circumstances in the consumer versions of the TurboTax and
MacInTax products. During the quarter ended January 31, 1995 the Company
recorded an expense of $1.3 million to cover the estimated cost of the free
revisions and other associated costs. During the quarter ended January 31, 1996,
a different set of less serious calculation errors were identified, and actions
were taken during the quarter to notify users and provide fixes, resulting in
approximately $1.2 million in warranty and related costs. There can be no
assurance that such bugs will be identified prior to shipment of products in the
future. Such bugs could have a material adverse effect on the Company's results
of operations.
OPERATING EXPENSES. During fiscal 1995, the Company experienced significant
operational problems as a result of inadequacies in certain of its systems,
procedures and controls. For example, during the quarter ended January 31, 1995
and the weeks following, the Company's direct order entry systems were unable to
process all of the orders received by the Company on a timely basis, which
resulted in a number of problems including adverse publicity, lost business and
customer dissatisfaction. These operational problems affected technical support
and customer service expenses, selling and marketing expenses, and cost of goods
sold in fiscal 1995. As described above, the Company identified calculation
errors in some of its 1995 and 1996 tax products. The Company has guaranteed
calculations in its tax products and will pay any penalties and interest due the
IRS as a result of the calculation errors. As of July 31, 1996, claims made for
such errors have been insignificant; however, additional claims may be received
in the future.
The Company is unable to quantify the effect, if any, on future revenues of the
adverse publicity the Company received regarding its operational problems or the
identification of bugs. The Company has taken steps to correct and mitigate
these problems; however, there can be no assurance that these or other problems
will not occur in the future.
CUSTOMER SERVICE AND TECHNICAL SUPPORT costs were approximately 20% and 18% of
net revenue, respectively, for the years ended July 31, 1996 and 1995. Customer
service and technical support costs were higher during the year ended July 31,
1996, as compared to the prior year, partially due to a growing number of
QuickBooks small business customers placing greater demands on customer support,
and a significant increase in capacity, staffing, and training to improve
service levels to address the problems encountered in fiscal 1995 discussed
above. In addition, the Company has significantly increased spending in building
customer and technical support capabilities to provide higher quality service to
its electronic financial services customer base. During the second and third
quarters of fiscal 1996, the Company invested in correcting operational problems
that were causing its online service customers difficulty in connecting to
network services. In addition, the year ended July 31, 1996 included technical
support costs for Parsons for the full year, while the previous year included
such costs for Parsons only from the acquisition date of September 27, 1994.
Post-contract customer support costs are accrued at the time revenue is
recognized, are included in customer service and technical support expenses and
are not included in cost of goods sold.
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<PAGE> 37
The Company incurs a fixed base of support costs, which is augmented by seasonal
staffing and third-party services during periods of seasonally higher sales. The
Company previously offered customer service and technical support without
charge. However, during fiscal 1996 the Company began charging QuickBooks
customers for support. The Company will evaluate its decision to implement
support fees and will consider adjusting its policies if there is significant
unfavorable customer reaction. There can be no assurance that these policies
will not have a material adverse effect on customer relations. See "Business -
Customer Service and Support" for a discussion of risks associated with charging
customers for support.
As discussed above, the Company received a large volume of customer calls in the
period from January through March 1995 regarding shipping delays and calculation
errors experienced in that period. Many customers called to inquire about their
orders, resulting in overloaded phone lines and long hold times. The Company has
significantly increased its capacity in this area, which has resulted in higher
costs. However, even with the increased capacity, there can be no assurance that
such delays and hold times will not occur in the future.
SELLING AND MARKETING expenses remained constant at approximately 26% of net
revenue for the years ended July 31, 1996 and 1995. Selling and marketing costs
increased in absolute dollars primarily as a result of new product launches,
concentrated marketing efforts to support business initiatives for electronic
financial services, and continued efforts to expand international market
penetration, particularly in the United Kingdom, Germany, Canada, Japan, and
France. The year ended July 31, 1996 included Parsons' sales and marketing costs
for the full year while the year ended July 31, 1995, included such costs for
Parsons only from the acquisition date of September 27, 1994. The Company
expects selling and marketing expenses to continue to increase in the future as
the Company releases and promotes new products and expands internationally;
however, there can be no assurance that increased marketing spending will result
in increased net revenue.
RESEARCH AND DEVELOPMENT expenses remained constant at approximately 14% of net
revenue for the years ended July 31, 1996 and 1995. However, these expenses
increased in absolute dollars in fiscal 1996 as the Company incurred significant
research and development costs related to integration of Internet access, and
Quicken Financial Network into its products. The Company expects to experience
significant growth of research and development expenses for development efforts
related to new and existing products and services, including foreign versions of
its products.
Because online financial services is an emerging market with different
competitors than the Company's core product offerings, there can be no assurance
that the Company's products and services will be accepted in the market, will
not be delayed or will compete effectively with competitors' products and
services.
GENERAL AND ADMINISTRATIVE expenses were 6% of net revenue for each of the years
ended July 31, 1996 and 1995. General and administrative expenses increased in
absolute dollars by $6.7 million in fiscal 1996 due to merger expenses related
to Milkyway and additional personnel and infrastructure to support the Company's
growth. In addition, bad debt expense increased by approximately $2.6 million,
primarily resulting from the increase in net revenue and higher collections
risks.
MICROSOFT TERMINATION FEE. On May 20, 1995, the Company announced that its
merger agreement with Microsoft had been terminated. The proposed merger had
been opposed in a lawsuit brought by the U.S. Department of Justice, and the two
companies were unable to agree to pursue the litigation. In the fourth quarter
of fiscal 1995, the Company received a $46.3 million termination fee from
Microsoft ($41.3 million net of related expenses). The after-tax benefit to the
Company of this termination payment was approximately $25.6 million.
INTEREST AND OTHER INCOME AND EXPENSE, NET was approximately $7.6 million and
$3.7 million for the years ended July 31, 1996 and 1995, respectively. The
increase in net interest income in fiscal 1996 was primarily due to net proceeds
of $80.1 million resulting from the Company's follow-on public offering and the
Microsoft termination fee of $41.3 million, both of which were received in the
fourth quarter of fiscal 1995, and to the increase in interest rates during
fiscal 1996 as compared to fiscal 1995. Interest expense increased by $73,000 in
the year ended July 31, 1996, as compared to the prior year, as a result of a
loan entered into in fiscal 1995 for a new support facility built by the Company
in Rio Rancho, New Mexico.
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<PAGE> 38
INCOME TAXES. For the year ended July 31, 1996, the Company recorded an income
tax provision of $16.2 million for continued operations on pre-tax income of
$1.9 million and a tax benefit of $3.7 million for discontinued operations on a
pre-tax loss of $10.1 million. The tax provision on the total loss arose because
of the non-deductible status of both the in-process research and development
charges and the amortization of goodwill. There was no valuation allowance for
net deferred tax assets of $23.6 million at July 31, 1996, based on management's
assessment that current levels of anticipated taxable income will be sufficient
to realize the net deferred tax assets.
TWELVE MONTHS ENDED JULY 31, 1995 AND 1994
Set forth below are certain consolidated statement of operations data as a
percentage of revenue for the twelve months ended July 31, 1995 and 1994:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JULY 31,
----------------------------------------------------------
1994 1995
-------------------------- ---------------------------
(unaudited)
(dollars in thousands) Dollars % of Revenue Dollars % of Revenue
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Net revenue:
Software ......................................... $ 190,920 79.7% $ 360,032 85.9%
Supplies ......................................... 48,778 20.3 59,128 14.1
--------- ----- --------- -----
239,698 100.0 419,160 100.0
Costs and expenses:
Cost of goods sold:
Product ...................................... 63,080 26.3 110,322 26.3
Amortization of purchased software and other . 18,558 7.7 11,369 2.7
Customer service and technical support ........... 40,876 17.1 75,113 17.9
Selling and marketing ............................ 59,069 24.6 109,382 26.1
Research and development ......................... 28,657 12.0 57,332 13.7
General and administrative ....................... 14,834 6.2 26,437 6.3
Charge for purchased research and development .... 151,888 63.4 52,471 12.5
Other acquisition costs, including amortization
of goodwill and purchased intangibles ........ 40,412 16.9 41,775 10.0
--------- ----- --------- -----
Total costs and expenses ................. 417,374 174.2 484,201 115.5
--------- ----- --------- -----
Loss from operations ................................. (177,676) (74.2) (65,041) (15.5)
Microsoft merger termination fee, net ................ -- -- 41,293 9.8
Interest and other income and expense, net ........... 1,329 0.6 3,748 0.9
--------- ----- --------- -----
Loss before income taxes ............................. (176,347) (73.6) (20,000) (4.8)
Provision for income taxes ........................... 4,558 1.9 24,296 5.8
--------- ----- --------- -----
Net loss ............................................. $(180,905) (75.5)% $ (44,296) (10.6)%
========= ===== ========= =====
</TABLE>
NET REVENUE increased approximately 75% to $419.2 million for the twelve months
ended July 31, 1995, compared to $239.7 million for the twelve months ended July
31, 1994. The increase resulted in part from the inclusion of approximately
$62.0 million in net revenue from Parsons' operations subsequent to September
27, 1994, and net revenue from ChipSoft's operations which increased to $104.5
million for the twelve months ended July 31, 1995, compared to $67.8 million
from the date of the ChipSoft acquisition to July 31, 1994. Net revenue from
European operations was 3% and 4% of total net revenue in 1994 and 1995,
respectively. Net revenue from Asian operations was 7% and 6% of total net
revenue in 1994 and 1995, respectively. Asian operations were the result of the
Milkyway merger in January 1996. This was accounted for as a pooling of
interests and, therefore, all reported periods have been restated to include
Milkyway.
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<PAGE> 39
Software net revenue increased approximately 89% to $360.0 million for the
twelve months ended July 31, 1995 from $190.9 million in the same period of the
prior year, principally due to increased volumes, new product introductions and
acquisitions. The release of new and upgraded finance products, including
"deluxe" and CD-ROM versions of certain products, resulted in greater unit
sales. Increases in average selling prices from "deluxe" products were partially
offset by lower average selling prices on certain products sold through the OEM
channel and a greater proportion of upgrade sales as compared with new product
sales as the Company's core product lines mature.
Supplies net revenue increased approximately 21% to $59.1 million for the fiscal
1995 period as compared with $48.8 million in the prior year due to order
increases in small business check, envelope and invoice products as the
Company's customer base continued to grow.
COST OF GOODS SOLD decreased to approximately 29% of net revenue for the twelve
months ended July 31, 1995 versus 34% for the prior twelve-month period.
Decreased amortization of purchased software resulting from the Company's
acquisitions accounted for the majority of this decline. Excluding
acquisition-related amortization costs, cost of goods sold would have been
approximately 26% of net revenue for both of the twelve-month periods ended July
31, 1995 and 1994.
Software cost of goods sold, excluding acquisition-related amortization costs,
increased to approximately 24% of software net revenue for the twelve months
ended July 31, 1995, as compared to approximately 21% in the twelve months ended
July 31, 1994. Margin declines resulted from product and freight costs
associated with expediting delayed orders and maintenance releases for consumer
tax products and upgrade revenues. In addition, Parsons' lower priced product
offerings included for the period after September 29, 1994 had higher
cost-to-net-revenue ratios than other Intuit products. The Company achieved
supplies margin improvements from a shift in product mix to business supplies
and a reduction in materials costs, including a one-time price concession on
previously purchased materials in the first quarter of fiscal 1995.
OPERATING EXPENSES. As previously discussed, during fiscal 1995, the Company
experienced significant operational problems as a result of inadequacies in
certain of its systems, procedures and controls. These operational problems
affected technical support and customer service expenses, selling and marketing
expenses, and cost of goods sold in fiscal 1995.
CUSTOMER SERVICE AND TECHNICAL SUPPORT costs were approximately 18% and 17% of
net revenue, respectively, for the twelve-month periods ended July 31, 1995 and
1994. Customer service and technical support costs were higher during the twelve
months ended July 31, 1995, as compared to the prior twelve month period,
primarily as a result of increased customer calls regarding both the shipping
delays in January 1995, discussed above, and tax product calculation errors. In
addition, due to the favorable timing of the ChipSoft acquisition, ChipSoft's
seasonally low revenues and high costs of operations from August 1 through
December 12, 1993 are not reflected in the Company's results for the twelve
months ended July 31, 1994. During fiscal 1995, the Company substantially
completed the relocation of certain support functions to lower cost locations;
however, there can be no assurance that future cost savings will be achieved.
Post-contract customer support costs are accrued at the time revenue is
recognized, are included in customer service and technical support expenses and
are not included in cost of goods sold.
SELLING AND MARKETING expenses increased to approximately 26% of net revenue in
fiscal 1995 compared to approximately 25% in fiscal 1994. Selling and marketing
costs increased both in absolute dollars and as a percentage of net revenue
primarily as a result of the inclusion of Parsons' operations from September 27,
1994, new product launches and continued efforts to expand international market
penetration. In addition, because of the seasonality of the tax business and the
timing of the 1993 ChipSoft acquisition, the Company experienced increased costs
during the first four months of fiscal 1995 without a corresponding increase in
net revenue during that period.
RESEARCH AND DEVELOPMENT expenses increased to 14% of net revenue for the twelve
months ended July 31, 1995 from 12% of net revenue in the twelve months ended
July 31, 1994. The significant increase, both in absolute dollars and as a
percentage of revenue, was due to development efforts on new and existing
products, including
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<PAGE> 40
international versions of products, and investment in electronic banking service
features. In addition, research and development expenses include Parsons'
operations from September 27, 1994 and ChipSoft's operations from December 13,
1993. Because of the seasonality of the ChipSoft business, expenses are
typically higher in the October quarter without corresponding net revenue during
the same period. Because of the timing of the ChipSoft acquisition, the twelve
months ended July 31, 1994 included the seasonally high net revenue of ChipSoft,
but did not include its operating expenses prior to December 13, 1993.
GENERAL AND ADMINISTRATIVE expenses were 6% of net revenue during each of the
twelve-month periods ended July 31, 1995 and 1994. However, general and
administrative expenses increased in absolute dollars by $11.6 million in fiscal
1995 because of the inclusion of Parsons' and ChipSoft's operations from the
dates of their respective acquisitions, as well as additional senior management
personnel and infrastructure to support revenue growth. In particular, the
Company significantly increased administrative support in its international
offices, and increased its in-house legal and finance departments domestically.
In addition, bad debt expense increased by approximately $1.4 million in
relation to the increase in net revenue.
INTEREST AND OTHER INCOME AND EXPENSE, NET was $3.7 million and $1.3 million for
the twelve months ended July 31, 1995 and 1994, respectively. The increase in
net interest income was the result of higher cash balances arising from net
proceeds of $80.1 million from a follow-on public offering of 2,200,000 shares
of the Company's common stock in June 1995, the receipt of a $46.3 million
($25.6 million net of related expenses and income taxes) merger termination fee
from Microsoft Corporation in May 1995 and cash generated from operations,
partially offset by $28.8 million in cash paid for Parsons in September 1994.
Interest expense increased by $203,237 in the twelve months ended July 31, 1995
as a result of a loan entered into in fiscal 1995 for a new support facility
built by the Company.
INCOME TAXES. For the year ended July 31, 1995, the Company recorded an income
tax provision of $24.3 million on a pretax loss of $20.0 million. The tax
provision on the operating loss arose because of the non-deductible status of
both the in-process research and development charges and goodwill amortization.
There was no valuation allowance for net deferred tax assets of $21.6 million at
July 31, 1995 based on management's assessment that current levels of taxable
income would be sufficient to realize the net deferred tax assets.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business has experienced, and is expected to continue to
experience, substantial seasonality, due principally to the timing of the tax
return preparation season, timing of production launches for new or updated
versions of products and, to a lesser extent, consumer software buying patterns.
Sales of the Company's tax products are concentrated in the period from
November, when certain professional tax products are released, through March,
when consumers purchase the products in advance of the April 15 tax return
filing deadline. Sales of the Company's Quicken products are typically strongest
during the year end holiday buying season. As a result of these seasonal
patterns, the Company generated significant income from operations before
acquisition-related charges during its fiscal quarter ended January 31, 1996,
with the quarter ended April 30, 1996 following as the second largest revenue
generating quarter of the fiscal year. Because of these seasonal factors and a
significantly increased level of operating expenses to support the Company's
expanded infrastructure and development efforts, the Company incurred
significant losses from operations before acquisition-related charges during its
fiscal quarters ended July 31, 1995 and October 31, 1995. The Company expects to
continue to report seasonal losses before acquisition-related costs and
amortization in the July and October quarters of future fiscal years.
The Company's quarterly operating results have varied in the past, and are
likely to vary in the future, significantly based upon a number of factors. In
addition to seasonal factors, the Company's quarterly operating results can be
affected significantly by the number and timing of new product or version
releases by the Company, as well as a number of other factors including the
timing of product announcements or introductions by the Company's competitors,
discretionary marketing and promotional expenditures, research and development
expenditures and a variety of non-recurring events such as acquisitions.
Products are generally shipped as orders are received and, consequently,
quarterly sales and operating results depend primarily on the volume and timing
of orders received during the quarter, which are difficult to forecast. A
significant portion of the Company's operating expenses are
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<PAGE> 41
relatively fixed and planned expenditures are based on sales forecasts. Thus, if
net revenue levels are below expectations, operating results are likely to be
materially adversely affected. In particular, net income, if any, may be
disproportionately affected because only a small portion of the Company's
expenses vary with revenue in the short term. In response to competition, the
Company may also choose to reduce prices or increase spending, which may
adversely affect the Company's operating results and financial condition.
Although the Company has experienced significant growth in revenue in recent
quarters, there can be no assurance that the Company will sustain such revenue
growth in the future or be profitable in any future period. Due to the foregoing
factors, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
The markets in which the Company competes are characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards, changing customer requirements and
new competitors. The introduction of products and services embodying new
technologies and the emergence of new industry standards and practices,
including changes in tax laws, regulations or procedures, can render existing
products obsolete and unmarketable. The Company's future success depends upon
its ability to enhance its existing products and services, develop new products
and services that address the changing requirements of its customers, develop
additional products and services for new or other platforms and environments
(such as the Internet) and anticipate or respond to technological advances,
emerging industry standards and practices and changes in tax laws, regulations
and procedures in a timely, cost-effective manner. In response to major industry
changes reflected by the increasing popularity of the Internet among consumers
and financial service providers, the Company has expanded its Internet strategy.
See "Overview - Internet Strategic Initiatives." There can be no assurance that
such initiatives can be successfully implemented or that they will result in
increased revenue or profits for the Company. Conversely, there can be no
assurance that consumers' use of the Internet, particularly for commercial
transactions, will continue to increase as rapidly as it has during the past few
years.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1996, the Company had $198.0 million in cash and short-term
investments, a $0.2 million increase from the July 31, 1995 balance of $197.8
million.
FISCAL 1996. Operating activities provided $61.5 million in cash during the year
ended July 31, 1996, principally from $55.7 million generated from net income
after adjustment for charges for purchased research and development,
amortization of goodwill and other purchased intangibles, and depreciation. The
Company's investing activities during fiscal 1996 consisted principally of $69.3
million in purchases of property and equipment and net purchases of short-term
investments of $32.0 million. The Company's financing activities during fiscal
1996 provided $9.7 million due primarily to proceeds from the exercise of stock
options.
FISCAL 1995. Operating activities provided $77.5 million in cash during the year
ended July 31, 1995, principally from $72.6 million generated from net income
after adjustment for charges for purchased research and development,
amortization of goodwill and other purchased intangibles, depreciation and a
$25.6 million (net of related expenses and income taxes) merger termination fee
from Microsoft. The Company's investing activities during fiscal 1995 consisted
principally of $59.4 million in purchases of property and equipment and payments
for acquisitions, including $28.8 million in cash paid as partial consideration
for Parsons in September 1994. In addition, the Company had net purchases of
short-term investments of $57.1 million. The Company's financing activities
during fiscal 1995 provided $91.5 million due primarily to $80.1 million in
proceeds from a follow-on public offering of 2,200,000 shares of the Company's
common stock in June 1995, and $6.9 million from stock option exercises.
The Company derives significant portions of its revenue from certain
distributors and resellers. The Company performs credit evaluations of its
customers and to date has not experienced any significant losses. However,
bankruptcy of a distributor or retailer could materially adversely affect the
Company's future revenue streams for a period of time.
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<PAGE> 42
The Company enters into leases for facilities in the normal course of its
business. Refer to Note 4 of Notes to Consolidated Financial Statements for a
summary of these commitments. The Company has no other significant expenditure
commitments, although additional cash may be used to acquire technology through
purchases and strategic acquisitions.
Due to the seasonal nature of its businesses, the Company generally earns more
than 100% of its operating income before acquisition-related charges during the
January and April quarters. The Company believes its cash and short-term
investments will be sufficient to meet the Company's anticipated seasonal
working capital and capital expenditure requirements for at least the next
twelve months.
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<PAGE> 43
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements are filed as part of this Report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, independent auditors........................ 44
Consolidated Balance Sheets as of July 31, 1995 and 1996................. 45
Consolidated Statements of Operations for the
ten months ended July 31, 1994 and the twelve months ended
July 31, 1995 and July 31, 1996.................................... 46
Consolidated Statements of Stockholders' Equity for the
ten months ended July 31, 1994 and the twelve months ended
July 31, 1995 and July 31, 1996.................................... 47
Consolidated Statements of Cash Flows for the
ten months ended July 31, 1994 and the twelve months ended
July 31, 1995 and July 31, 1996.................................... 48
Notes to Consolidated Financial Statements............................... 49
</TABLE>
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Intuit Inc. is filed as
part of this Report and should be read in conjunction with the
Consolidated Financial Statements of Intuit Inc.:
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION PAGE
-------- ----------- ----
<S> <C> <C>
II Valuation and Qualifying Accounts for the ten months
ended July 31, 1994 and the twelve months ended July
31, 1995 and July 31, 1996 61
</TABLE>
Other schedules are not filed due to being immaterial or not applicable.
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<PAGE> 44
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Intuit Inc.
We have audited the accompanying consolidated balance sheets of Intuit
Inc. as of July 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the ten months ended July
31, 1994 and the twelve months ended July 31, 1995 and July 31, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intuit Inc. at
July 31, 1995 and 1996, and the consolidated results of its operations and its
cash flows for the ten months ended July 31, 1994 and the twelve months ended
July 31, 1995 and July 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Palo Alto, California
September 6, 1996,
except for Note 12, as to which the date is
September 18, 1996
-44-
<PAGE> 45
INTUIT INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1995 1996
--------- ---------
(in thousands, except par value)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 76,298 $ 44,584
Short-term investments ............................................ 121,477 153,434
Accounts receivable, net of allowance for doubtful accounts
of $2,408 and $4,951, respectively ............................. 38,975 49,473
Inventories ....................................................... 6,576 4,448
Prepaid expenses .................................................. 4,416 9,269
Deferred income taxes ............................................. 23,785 19,205
--------- ---------
Total current assets ...................................... 271,527 280,413
Property and equipment, net ......................................... 49,877 95,611
Purchased intangibles ............................................... 28,267 16,449
Goodwill ............................................................ 46,111 15,194
Long-term deferred income tax asset ................................. -- 6,892
Other assets ........................................................ 2,823 3,461
--------- ---------
Total assets ........................................................ $ 398,605 $ 418,020
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 21,507 $ 33,972
Accrued compensation and related liabilities ...................... 15,426 15,473
Deferred revenue .................................................. 9,251 18,974
Income taxes payable .............................................. 9,607 --
Other accrued liabilities ......................................... 51,455 42,270
--------- ---------
Total current liabilities ................................. 107,246 110,689
Deferred income taxes ............................................... 2,190 2,513
Long-term notes payable ............................................. 8,770 5,583
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value
Authorized -- 3,000 shares
Issued and outstanding -- none .................................. -- --
Common stock, $0.01 par value
Authorized -- 250,000 shares
Issued and outstanding -- 44,517 and 45,807 shares, respectively 445 458
Additional paid-in capital ........................................ 490,698 530,818
Deferred compensation ............................................. (30) (1)
Cumulative translation adjustment and other ....................... 126 (501)
Accumulated deficit ............................................... (210,840) (231,539)
--------- ---------
Total stockholders' equity ................................ 280,399 299,235
--------- ---------
Total liabilities and stockholders' equity .......................... $ 398,605 $ 418,020
========= =========
</TABLE>
See accompanying notes.
-45-
<PAGE> 46
INTUIT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS TWELVE MONTHS
ENDED JULY 31, ENDED JULY 31,
1994 1995 1996
--------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C>
Net revenue ........................................... $ 210,376 $ 419,160 $ 538,608
Costs and expenses:
Cost of goods sold:
Product .......................................... 55,151 110,322 136,470
Amortization of purchased software and other ..... 18,558 11,369 1,399
Customer service and technical support .............. 36,664 75,113 106,872
Selling and marketing ............................... 51,381 109,382 142,319
Research and development ............................ 26,125 57,332 75,558
General and administrative .......................... 12,861 26,437 33,153
Charge for purchased research and development ....... 151,888 52,471 8,043
Other acquisition costs ............................. 20,434 1,600 778
Amortization of goodwill and purchased intangibles .. 19,978 40,175 39,792
--------- --------- ---------
Total costs and expenses .................... 393,040 484,201 544,384
--------- --------- ---------
Loss from operations ........................ (182,664) (65,041) (5,776)
Microsoft merger termination fee, net ................. -- 41,293 --
Interest and other income and expense, net ............ 1,171 3,748 7,646
--------- --------- ---------
Income (loss) from continuing operations before
income taxes ........................................ (181,493) (20,000) 1,870
Provision for income taxes ............................ 2,481 24,296 16,225
--------- --------- ---------
Loss from continuing operations ....................... (183,974) (44,296) (14,355)
Loss from operations of discontinued operations, net of
income tax benefit of $3,725 ....................... -- -- (6,344)
--------- --------- ---------
Net loss .............................................. $(183,974) $ (44,296) $ (20,699)
========= ========= =========
Loss per share from continuing operations ............. $ (5.34) $ (1.07) $ (0.32)
Loss per share from discontinued operations ........... -- -- (0.14)
--------- --------- ---------
Net loss per share .................................... $ (5.34) $ (1.07) $ (0.46)
========= ========= =========
Shares used in computing net loss per share ........... 34,454 41,411 45,149
========= ========= =========
</TABLE>
See accompanying notes.
-46-
<PAGE> 47
INTUIT INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Translation
--------------------------- Paid Deferred Adjustment
Shares Amount In Capital Compensation and Other
---------- ---------- ---------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 ............. 23,060,040 $ 118 $ 37,703 $ (100) $ (251)
Stock dividend shares canceled ........... -- -- (4) -- --
Issuance of common stock pursuant to
ChipSoft merger and ISC acquisition ... 14,887,522 74 302,019 -- --
Issuance of common stock upon exercise
of options ............................. 1,173,950 6 1,463 -- --
Tax benefit from option transactions ..... -- -- 9,281 -- --
Amortization of deferred compensation .... -- -- -- 37 --
Translation adjustment ................... -- -- -- -- 70
Net loss ................................. -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1994 .................. 39,121,512 198 350,462 (63) (181)
Issuance of common stock pursuant to
Parsons Technology Inc. acquisition .... 1,799,464 9 33,022 -- --
Issuance of common stock pursuant to
Personal News, Inc. acquisition ........ 216,982 1 7,202 -- --
Sale of common stock pursuant to
secondary offering, net of issuance
costs of $4,582.......................... 2,200,000 11 80,107 -- --
Issuance of common stock upon exercise
of options ............................. 1,178,950 6 6,908 -- --
Stock split .............................. -- 220 (220) -- --
Tax benefit from option transactions ..... -- -- 13,217 -- --
Amortization of deferred compensation .... -- -- -- 33 --
Translation adjustment and other ......... -- -- -- -- 307
Net loss ................................. -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 .................. 44,516,908 445 490,698 (30) 126
Issuance of common stock pursuant to
IIS acquisition ......................... 169,181 2 8,431 -- --
Issuance of common stock upon exercise
of options ............................. 1,120,847 11 12,824 -- --
Tax benefit from option transactions ..... -- -- 18,865 -- --
Amortization of deferred compensation .... -- -- -- 29 --
Translation adjustment and other ......... -- -- -- -- (627)
Net loss ................................. -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1996 .................. 45,806,936 $ 458 $ 530,818 $ (1) $ (501)
===============================================================================================================================
<CAPTION>
Earnings Total
(Accumulated Stockholders'
Deficit) Equity
------------ -------------
(dollars in thousands)
<S> <C> <C>
Balance at September 30, 1993 ............. $ 17,426 $ 54,896
Stock dividend shares canceled ........... 4 --
Issuance of common stock pursuant to
ChipSoft merger and ISC acquisition ... -- 302,093
Issuance of common stock upon exercise
of options ............................. -- 1,469
Tax benefit from option transactions ..... -- 9,281
Amortization of deferred compensation .... -- 37
Translation adjustment ................... -- 70
Net loss ................................. (183,974) (183,974)
- ------------------------------------------------------------------------------
Balance at July 31, 1994 .................. (166,544) 183,872
Issuance of common stock pursuant to
Parsons Technology Inc. acquisition .... -- 33,031
Issuance of common stock pursuant to
Personal News, Inc. acquisition ........ -- 7,203
Sale of common stock pursuant to
secondary offering, net of issuance
costs of $4,582.......................... -- 80,118
Issuance of common stock upon exercise
of options ............................. -- 6,914
Stock split .............................. -- --
Tax benefit from option transactions ..... -- 13,217
Amortization of deferred compensation .... -- 33
Translation adjustment and other ......... -- 307
Net loss ................................. (44,296) (44,296)
- ------------------------------------------------------------------------------
Balance at July 31, 1995 .................. (210,840) 280,399
Issuance of common stock pursuant to
IIS acquisition ......................... -- 8,433
Issuance of common stock upon exercise
of options ............................. -- 12,835
Tax benefit from option transactions ..... -- 18,865
Amortization of deferred compensation .... -- 29
Translation adjustment and other ......... -- (627)
Net loss ................................. (20,699) (20,699)
- ------------------------------------------------------------------------------
Balance at July 31, 1996 .................. $ (231,539) $ 299,235
==============================================================================
</TABLE>
See accompanying notes.
-47-
<PAGE> 48
INTUIT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
TEN MONTHS TWELVE MONTHS
ENDED JULY 31, ENDED JULY 31,
1994 1995 1996
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ..................................................... $(183,974) $ (44,296) $ (20,699)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Charge for purchased research and development ........... 151,888 52,471 8,043
Amortization of goodwill and purchased
intangibles .......................................... 38,536 51,544 44,502
Depreciation ............................................ 5,396 12,890 23,853
--------- --------- ---------
Net income before charges for purchased research
and development, amortization and depreciation... 11,846 72,609 55,699
Changes in assets and liabilities:
Accounts receivable .................................. 20,216 (23,781) (10,498)
Inventories .......................................... 2,962 (3,108) 2,128
Prepaid expenses ..................................... (892) 4,269 (4,817)
Deferred income tax assets and liabilities ........... (9,479) (16,536) (1,989)
Accounts payable ..................................... (2,546) 4,543 12,281
Accrued compensation and related liabilities ......... 3,335 6,010 47
Deferred revenue ..................................... (9,324) 118 9,723
Accrued acquisition liabilities ...................... 6,772 (5,074) (5,733)
Other accrued liabilities ............................ (11,822) 15,586 (4,624)
Income taxes payable ................................. (4,431) 22,842 9,258
--------- --------- ---------
Net cash provided by operating activities .......... 6,637 77,478 61,475
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ........................... (11,779) (33,087) (69,321)
Payment for acquisitions, net of cash acquired ............... (413) (26,323) 40
(Increase) decrease in other assets .......................... 1,173 1,024 (1,628)
Purchase of short-term investments ........................... (72,571) (144,651) (197,003)
Liquidation and maturity of short-term investments ........... 86,106 87,515 165,046
--------- --------- ---------
Net cash provided by (used in) investment
activities ....................................... 2,516 (115,522) (102,866)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt ..................... 3084 5,211 --
Principal payments on long-term debt ......................... -- (727) (3,187)
Decrease in other liabilities ................................ (615) -- --
Net proceeds from issuance of common stock ................... 1,469 87,015 12,864
--------- --------- ---------
Net cash provided by financing activities .......... 3,938 91,499 9,677
Net increase (decrease) in cash and cash equivalents ........... 13,091 53,455 (31,714)
Cash and cash equivalents at beginning of period ............... 9,752 22,843 76,298
--------- --------- ---------
Cash and cash equivalents at end of period ..................... $ 22,843 $ 76,298 $ 44,584
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid ................................................ $ 10 $ 232 $ 305
========= ========= =========
Income taxes paid ............................................ $ 8,870 $ 14,468 $ 5,791
========= ========= =========
</TABLE>
See accompanying notes.
-48-
<PAGE> 49
INTUIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Intuit Inc. ("Intuit" or the "Company") is a leading developer of personal
finance, small business accounting, and tax preparation software. The Company
develops, markets, and supports software products and services that enable
individuals, professionals, and small businesses to automate commonly performed
financial tasks and better organize, understand, manage, and plan their
financial lives. Principal products include personal and small business
financial software, personal and corporate tax software, online banking and bill
payment software and services, and supplies such as invoice forms and checks.
The Company markets its products through distributors and retailers and by
direct sales to OEMs and individual users. The Company's customers are located
primarily in North America, Europe, and Asia.
Principles of Consolidation and Fiscal Year Change
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Effective August 1, 1994, the Company changed
its fiscal year end from September 30 to July 31.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Significant estimates are used in determining the collectibility of accounts
receivable, reserves for returns and exchanges and in assessing the carrying
value of goodwill and purchased intangibles.
Actual results could differ from those estimates.
Net Revenue
Revenue is generally recognized at the time of shipment, net of allowances for
estimated future returns and for excess quantities in distribution channels,
provided that no significant vendor obligations exist and collections of
accounts receivable are probable. Reserves are provided for quantities of
current product versions that are considered excess and for inventories of all
previous versions of products at the time new product versions are introduced.
Advance payments are recorded as deferred revenue until the products are shipped
or services are provided. Rebate costs are provided at the time revenue is
recognized. The Company provides warranty reserves at the time revenue is
recognized for the estimated cost of replacing defective products.
Research and Development
Research and development costs incurred to establish the technological
feasibility of computer software products are charged to operations as incurred.
Customer Service and Technical Support
Customer service and technical support costs include order processing, customer
inquiries and telephone assistance. The costs of post-contract customer support
are included in customer service and technical support expenses and are not
included in cost of goods sold.
-49-
<PAGE> 50
Advertising
Advertising costs are expensed as incurred. Advertising expense for the ten
months ended July 31, 1994 and the twelve months ended July 31, 1995 and July
31, 1996 was approximately $9.1 million, $18.4 million and $21.0 million,
respectively.
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with a maturity of
three months or less at date of acquisition to be cash equivalents. The
available-for-sale securities are carried at amortized cost which approximates
fair value. For the purpose of determining gross realized gains and losses, the
cost of securities sold is based on specific identification. The following is a
summary of the estimated fair value of available-for-sale securities at July 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Certificates of deposit ............. $ 4,171 $ 10,003
Corporate notes ..................... -- 15,875
Money market funds .................. -- 10,767
Municipal bonds ..................... 82,842 77,487
Commercial paper .................... 32,546 13,866
U.S. Government securities........... 5,954 51,288
-------- --------
$125,513 $179,286
======== ========
</TABLE>
The estimated fair value of available-for-sale securities by contractual
maturity at July 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Due within one year ................. $109,129 $169,573
Due after one year .................. 16,384 9,713
-------- --------
$125,513 $179,286
======== ========
</TABLE>
Both gross unrealized gains and losses as of July 31, 1995 and 1996, and
realized gains and losses on sales of each type of security for the years ended
July 31, 1995 and 1996, were immaterial.
Total cash, cash equivalents and short-term investments at July 31, 1995 and
1996 were $197,775 and $198,018, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist primarily of materials used in software products and related supplies
and packaging materials.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets which range
from three to eight years. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives or remaining
lease terms.
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<PAGE> 51
Property and equipment consist of:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1995 1996
--------- ---------
(in thousands)
<S> <C> <C>
Machinery and equipment ............................. $ 55,991 $ 97,300
Furniture and fixtures .............................. 9,315 17,173
Leasehold improvements .............................. 5,792 18,634
Land and buildings .................................. 8,241 12,588
--------- ---------
79,339 145,695
Less accumulated depreciation and amortization ...... (29,462) (50,084)
--------- ---------
$ 49,877 $ 95,611
========= =========
</TABLE>
Goodwill and Intangible Assets
The excess cost over the fair value of net assets acquired (goodwill) is
generally amortized on a straight-line basis over periods generally not
exceeding three years. The cost of identified intangibles is generally amortized
on a straight-line basis over periods from 1 to 10 years. The carrying value of
goodwill and intangible assets is reviewed on a regular basis for the existence
of facts or circumstances, both internally and externally, that may suggest
impairment. To date no such impairment has been indicated. Should there be an
impairment in the future, the Company will measure the amount of the impairment
based on undiscounted expected future cash flows from the impaired assets. The
cash flow estimates that will be used will contain management's best estimates,
using appropriate and customary assumptions and projections at the time.
<TABLE>
<CAPTION>
LIFE IN NET BALANCE AT
YEARS JULY 31, 1995 JULY 31, 1996
----- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Goodwill............................. 3 $46,111 $15,194
Customer lists....................... 3-5 13,286 6,952
Covenant not to complete............. 4-5 6,058 4,248
Purchased technology................. 1-5 3,028 857
Other intangibles.................... 1-10 5,895 4,392
</TABLE>
Other intangibles include items such as trade names, logos, and other identified
intangible assets. The intangible asset balances presented above are net of
total accumulated amortization of $80.6 million and $125.1 million at July 31,
1995 and 1996, respectively.
Concentration of Credit Risk
The Company's product revenues are concentrated in the personal computer
software industry which is highly competitive and rapidly changing. Significant
technological changes in the industry or customer requirements, or the emergence
of competitive products with new capabilities or technologies, could adversely
affect the Company's operating results.
Financial investments that potentially subject the Company to concentration of
credit risk consist principally of short-term investments and trade accounts
receivable. The Company's investment portfolio is diversified and generally
consists of short-term investment grade securities. The credit risk in the
Company's accounts receivable is mitigated by the fact that the Company performs
ongoing credit evaluations of its customers' financial condition and that
accounts receivable are primarily derived from customers in North America.
Generally, no collateral is required. The Company maintains reserves for
estimated credit losses and such losses have historically been within
management's expectations.
-51-
<PAGE> 52
Loss Per Share
Loss per share has been computed using the weighted average number of common
shares outstanding during each period. As discussed in Note 5, all share and per
share data in the Financial Statements and notes thereto have been adjusted
retroactively to give effect to the Company's two-for-one stock split in August
1995.
Foreign Currency Translation
Gains and losses from the translation of foreign subsidiaries' financial
statements are reported as a separate component of stockholders' equity. Net
gains and losses resulting from foreign exchange transactions were immaterial in
all periods presented.
Recent Pronouncements
During March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS No. 121"), which requires the review for
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In certain
situations, an impairment loss would be recognized. The Company does not believe
that adoption of SFAS No. 121, which will become effective for the Company's
1997 fiscal year, will have a material impact on its financial condition or
operating results.
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). This
standard, which establishes a fair value based method for stock-based
compensation plans, also permits an election to continue following the
requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
with disclosures of pro forma net income and earnings per share under the new
method. The Company will continue following the requirements of APB Opinion No.
25 with disclosure of pro forma information. The disclosure requirements of SFAS
No. 123 will be effective for the Company's 1997 fiscal year.
2. ACQUISITIONS
In December 1993, the Company completed its acquisition of ChipSoft, which was
treated as a purchase for accounting purposes. The total purchase price of
$306.4 million in common stock, stock options, and acquisition costs ($255.3
million net of tangible assets acquired) and approximately $11.0 million
relating to the tax effecting of identified intangibles were allocated as
follows: $150.5 million to in-process research and development, $33.5 million to
intangible assets, and $82.3 million to goodwill.
In April 1994, the Company acquired certain assets of Best's professional tax
preparation business for an initial purchase price of $6.5 million in cash. The
purchase agreement calls for a cash "earnout" payment based on the amount of
revenue derived by the Company from former Best customers and the number of Best
customers who purchased the Company's professional tax products by April 1996.
The Company is currently negotiating this payment with Best and believes the
obligation is insignificant. Of the purchase price, $5.8 million was allocated
to intangible assets.
In July 1994, the Company completed its acquisition of ISC for consideration of
$7.6 million in common stock and cash. ISC currently provides electronic banking
back-end processing services, bill payment, stock quote retrieval services and
access to Intuit's web site for consumers via their modems and personal
computers. The acquisition was treated as a purchase for accounting purposes. Of
the purchase price, $1.4 million was allocated to in-process research and
development, $6.0 million to intangible assets, and $2.1 million to goodwill. As
further discussed in Note 12 of Notes to Consolidated Financial Statements, the
Company has entered into an agreement to sell ISC.
In September 1994, the Company completed its acquisition of Parsons, which was
treated as a purchase for accounting purposes. Under the terms of the agreement,
the Company paid approximately $28.8 million in cash and
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<PAGE> 53
issued approximately 1,800,000 shares of the Company's common stock to Parsons'
stockholders at the date of the acquisition. In the first quarter of fiscal
1996, the Company paid an additional $2.7 million in cash as deferred
consideration. The total purchase price of approximately $67.3 million, which,
in addition to the above amounts, included 138,038 shares of common stock to be
paid for certain non-competition agreements, was allocated as follows: $44.0
million to in-process research and development, $14.0 million to intangible
assets and $9.9 million to goodwill.
In June 1995, the Company completed its acquisition of PNI, a developer of
technology to provide online investment research data. The acquisition, which
was accounted for as a purchase, had an aggregate purchase price of
approximately $10.4 million in common stock and acquisition costs. Of the
purchase price, $8.5 million was allocated to in-process research and
development, $183,000 to identified intangible assets and $166,000 to goodwill.
The amount of the purchase price allocated to in-process research and
development was charged to the Company's operations at the time of the
acquisition. In addition to the in-process research and development charge, the
Company incurred acquisition-related charges of $1.6 million in fiscal 1995
related to the termination of a conflicting license agreement.
In June 1995, the Company acquired certain assets of Mysterious Pursuit for
consideration of approximately $1.1 million. Mysterious Pursuit, an Australian
company, was the Company's outside developer of tax software for the Australian,
German and United Kingdom markets. The purchase price of $1.1 million was
allocated to identified intangible assets. Mysterious Pursuit's operations were
discontinued during fiscal 1996.
On January 2, 1996, the Company completed its acquisition of Milkyway, which was
treated as a pooling of interests for accounting purposes. Milkyway is a
provider of PC-based financial software in Japan. In addition to the issuance of
650,000 shares of Intuit common stock, the Company recorded acquisition related
expenses of $0.6 million. The accompanying consolidated financial statements are
presented on a combined basis for all periods. The following information shows
revenue and net income (loss) of the separate companies during the periods
preceding the combination:
<TABLE>
<CAPTION>
TEN MONTHS TWELVE MONTHS PERIOD
ENDED JULY 31, ENDED JULY 31, ENDED JAN. 2,
1994 1995 1996
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Net revenue:
Intuit...................................... $ 194,126 $ 395,729 $ 164,696
Milkyway ................................... 16,250 23,431 14,510
--------- --------- ---------
$ 210,376 $ 419,160 $ 179,206
========= ========= =========
Net income (loss):
Intuit...................................... $(176,313) $ (45,363) $ (34,037)
Milkyway ................................... (7,661) 1,067 1,312
--------- --------- ---------
$(183,974) $ (44,296) $ (32,725)
========= ========= =========
</TABLE>
In June 1996, the Company completed its acquisition of IIS, a developer of an
Internet based system designed to allow consumers to obtain personalized
insurance information from national insurance carriers via the World Wide Web.
The acquisition, which was treated as a purchase for accounting purposes, had a
purchase price of approximately $9.0 million. Under the terms of the agreement,
the Company issued 169,181 shares of Intuit common stock and 3,255 options to
purchase Intuit common stock to IIS stockholders at the date of acquisition.
Approximately $8.0 million of in-process research and development was expensed.
Pro forma information has not been presented due to immateriality.
Consistent with the Company's test for internally developed software, for each
of these acquisitions the Company determined the amounts allocated to developed
and in-process research and development based on whether technological
feasibility had been achieved and whether there was any alternative future use
for the technology. Due to the absence of detailed program designs, evidence of
technological feasibility was established through the
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<PAGE> 54
existence of a completed working model at which point functions, features and
technical performance requirements can be demonstrated. As of the respective
dates of the acquisitions, the Company concluded that the in-process research
and development had no alternative future use after taking into consideration
the potential for usage of the software in different products, resale of the
software and internal usage.
3. OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Reserve for returns and exchanges ............................. $29,197 $24,203
Acquisition-related items, including deferred acquisition costs 9,009 3,677
Rebates ....................................................... 1,974 2,787
Post-customer contract support ................................ 2,796 3,500
Other accruals ................................................ 8,479 8,103
------- -------
$51,455 $42,270
======= =======
</TABLE>
4. NOTES PAYABLE AND COMMITMENTS
Notes Payable
In March 1995, the Company entered into a 20-year loan for $4.0 million for its
site in New Mexico. The interest rate is variable with a maximum rate of 10%. At
July 31, 1996, the interest rate was 8-1/4%. The fair value of the loan
approximates cost, as the interest rate on the borrowings is adjusted
periodically to reflect market rates.
Leases
The Company leases its office facilities and some equipment under various
operating lease agreements. The leases provide for annual rent increases up to
10%. Annual minimum commitments under these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
(in thousands) JULY 31,
------------
<S> <C>
1997 .................................... $10,110
1998 .................................... 9,809
1999 .................................... 8,652
2000 .................................... 9,114
2001 .................................... 8,843
Thereafter .............................. 28,898
-------
$75,426
=======
</TABLE>
Total rent expense for the ten months ended July 31, 1994 and the twelve months
ended July 31, 1995 and July 31, 1996 was approximately $5.4 million, $7.6
million and $9.2 million, respectively.
5. STOCKHOLDERS' EQUITY
Stock Option Plans
On January 31, 1993, the Company adopted the 1993 Equity Incentive Plan (the
"1993 Plan"), which authorizes the granting of incentive and non-qualified stock
options, restricted stock awards and stock bonuses to employees, directors,
consultants, and independent contractors of and advisors to the Company.
Exercisability, option price and other terms are determined by the Board of
Directors, but the option price will not be less than the fair market value of
the stock at the date of grant. The options have a ten-year term and generally
become exercisable over a four-year period. Options assumed in the acquisition
of ISC were assumed under the 1993 Plan.
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<PAGE> 55
In addition, the Company has several discontinued option plans pursuant to which
there are still outstanding options, including the ChipSoft option plans which
were assumed by the Company on December 12, 1993. The options have a seven-year
term and generally become exercisable over a five-year period. A summary of
activity under the Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ---------------------------------
AVAILABLE NUMBER OF PRICE PER
FOR GRANT SHARES SHARE
---------- ---------- ---------------
<S> <C> <C> <C>
Balance at September 30, 1993 ................ 1,474,910 3,122,538 $ 0.05 - $18.88
Additional shares authorized for issuance... 1,000,000
Options assumed from ChipSoft acquisition... -- 1,676,376 $ 0.45 - $18.50
Options assumed from ISC acquisition ....... (24,610) 24,610 $ 0.11
Options granted ............................ (1,284,828) 1,284,828 $15.13 - $23.50
Options exercised .......................... -- (1,173,950) $ 0.05 - $18.50
Options canceled or expired ................ 82,476 (218,942) $ 0.45 - $23.50
---------- ----------
Balance at July 31, 1994 ..................... 1,247,948 4,715,460 $ 0.05 - $23.50
Additional shares authorized ............... 5,000,000
Options granted ............................ (3,114,974) 3,114,974 $19.75 - $43.13
Options exercised .......................... -- (1,178,950) $ 0.05 - $31.00
Options canceled or expired ................ 291,396 (388,118) $ 0.45 - $43.13
---------- ----------
Balance at July 31, 1995 ................... 3,424,370 6,263,366 $ 0.05 - $43.13
Options assumed from the IIS acquisition ... (3,255) 3,255 $ 0.44 - $ 8.30
Options granted ............................ (2,001,495) 2,001,495 $35.00 - $84.00
Options exercised .......................... -- (1,120,847) $ 0.05 - $56.63
Options canceled or expired ................ 548,853 (581,296) $ 3.00 - $84.00
---------- ----------
Balance at July 31, 1996 ..................... 1,968,473 6,565,973 $ 0.05 - $84.00
========== ==========
</TABLE>
At July 31, 1994, 1995 and 1996, options under the various plans for 1,459,886,
1,480,588 and 1,894,320 shares, respectively, were exercisable. At July 31,
1996, all 1,968,473 shares available for grant were under the 1993 Plan.
On May 22, 1995, all non-officer employee grants of stock options under the
Company's 1993 Equity Incentive Plan issued between the date the proposed merger
with Microsoft Corporation ("Microsoft") was announced (October 13, 1994) and
the date of termination of the merger agreement (May 19, 1995) were repriced (a
total of 928,150 options) to reflect an exercise price of $31.00, the fair
market value on the date of repricing.
Stock Split
On July 20, 1995, the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100% stock dividend distributed on August
21, 1995 to stockholders of record on August 4, 1995. All references in the
financial statements to number of shares, per share amounts, stock option data,
and market prices of the Company's common stock have been restated.
6. PROFIT-SHARING AND BENEFIT PLANS
Profit-Sharing Plans
The Company maintains profit-sharing plans for full-time employees. Amounts
provided are determined pursuant to criteria established by the Compensation
Committee of the Board of Directors. Profit-sharing expense for the ten months
ended July 31, 1994 and the twelve months ended July 31, 1995 and July 31, 1996
was approximately $3,144,000, $5,044,000 and $1,415,000, respectively.
Benefit Plans
At July 31, 1996, the Company maintained three 401(k) retirement savings plans
for its full-time employees. Each participant may elect to contribute from 1% to
15% of his or her annual salary to the plan, subject to IRS limitations.
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<PAGE> 56
The Company, at its discretion, may make contributions to any plan. Such
contributions were approximately $300,000 for the year ended July 31, 1996.
7. INCOME TAXES
The components of the provision for income taxes consist of the following:
<TABLE>
<CAPTION>
TEN MONTHS TWELVE MONTHS
ENDED JULY 31, ENDED JULY 31,
1994 1995 1996
-------------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal ...................... $ 8,510 $ 31,899 $ 15,732
State ........................ 2,067 7,157 3,116
Foreign ...................... 1,124 1,583 1,302
-------- -------- --------
11,701 40,639 20,150
Deferred:
Federal ...................... (7,976) (13,638) (3,378)
State ........................ (1,244) (2,705) (547)
-------- -------- --------
(9,220) (16,343) (3,925)
-------- -------- --------
Total provision for income taxes $ 2,481 $ 24,296 $ 16,225
======== ======== ========
</TABLE>
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to loss before income taxes. The sources and
tax effects of the differences are as follows:
<TABLE>
<CAPTION>
TEN MONTHS TWELVE MONTHS
ENDED JULY 31, ENDED JULY 31,
1994 1995 1996
-------------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Loss before income taxes ................... $(181,493) $ (20,000) $ 1,870
--------- --------- ---------
Statutory federal income tax at 35% ........ (63,523) (7,000) 654
State income tax, net of federal benefit.... 187 2,950 1,670
Federal research and experimental credits... (350) (1,000) --
Non-deductible merger related charges ...... 63,665 29,742 13,531
Tax exempt interest ........................ (884) (630) (1,400)
Other, net ................................. 3,386 234 1,770
--------- --------- ---------
Total ............................ $ 2,481 $ 24,296 $ 16,225
========= ========= =========
</TABLE>
The current federal and state provisions do not reflect the tax savings
resulting from deductions associated with the Company's various stock option
plans. This savings was approximately $18,865,000 in fiscal 1996 and $13,217,000
in fiscal 1995. These amounts were credited to stockholders' equity.
-56-
<PAGE> 57
Significant components of the Company's deferred tax assets and liabilities for
federal and state income taxes are as follows:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Accruals and reserves not currently deductible... $19,942 $20,317
Deferred foreign taxes .......................... -- 1,641
State income taxes .............................. 878 1,390
Merger charges .................................. -- 2,458
Fixed asset adjustments ......................... 2,313 --
Other, net ...................................... 1,376 576
------- -------
Total deferred tax assets ............... 24,509 26,382
Deferred tax liabilities:
Fixed asset adjustments ......................... -- 285
Merger charges .................................. 2,914 2,513
------- -------
Total deferred tax liabilities .................... 2,914 2,798
------- -------
Total net deferred tax assets ..................... $21,595 $23,584
======= =======
</TABLE>
There was no valuation allowance for deferred tax assets at July 31, 1995 or
July 31, 1996 based on management's assessment that current levels of
anticipated taxable income will be sufficient to realize the net deferred tax
asset.
8. SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREA INFORMATION
One distributor accounted for 14% of net revenue in fiscal 1994, 12% of net
revenue in fiscal 1995 and 13% of net revenue in fiscal 1996. A second
distributor accounted for 14%, 8% and 5% of net revenue in 1994, 1995, and 1996,
respectively.
Net revenues from European and Asian (Milkyway) operations were not significant
in any period presented.
9. MICROSOFT MERGER TERMINATION
On May 20, 1995, the Company announced that its merger agreement with Microsoft
had been terminated. The proposed merger had been opposed in a lawsuit brought
by the U.S. Department of Justice, and the two companies were unable to agree to
pursue the litigation. In the fourth quarter of fiscal 1995, the Company
received a $46.3 million termination fee from Microsoft ($41.3 million net of
related expenses). The after-tax benefit to the Company was approximately $25.6
million.
10. LITIGATION
On March 29, 1994, Joann McGovern filed a class action lawsuit against ChipSoft
(which was subsequently merged into the Company) in the Chancery Division,
Circuit Court of Cook County, Illinois, on behalf of the plaintiff and other
purchasers of the 1993 HeadStart version of the Company's TurboTax tax
preparation software (the "Product"). The plaintiff asserts claims for breach of
express and implied warranties and violation of the Illinois Consumer Fraud Act
and seeks, on behalf of herself and purported class members, refund of the
purchase price as well as consequential and punitive damages. The plaintiff
claims that the packaging of the Product was false and misleading in that it did
not adequately apprise purchasers of the need to obtain the final version of
TurboTax (which the plaintiff admits was available free of charge) in order to
prepare final tax forms for filing with the IRS. In October 1995, the Company
obtained summary judgment on the plaintiff's claims for breach of express and
implied warranties. On January 4, 1996 the plaintiff's motion for class
certification for the Illinois Consumer Fraud Act claim was denied. The
plaintiff is seeking judicial review of an issue relating to this determination.
On September 19, 1996 the Company filed a motion for summary judgment on the
plaintiff's Illinois Consumer Fraud Act claim, with a hearing currently
scheduled for December 12, 1996. The Company believes that the plaintiff's
claims are without merit and intends to defend the litigation vigorously.
-57-
<PAGE> 58
On August 23, 1995, Interactive Gift Express, Inc. filed a patent infringement
suit in the United States District Court for the Southern District of New York
against the Company and seventeen other defendants alleging infringement of U.S.
Patent No. 4,528,643 and seeking unspecified damages. Interactive Gift Express
subsequently changed its name to E-Data Corp. The complaint did not specify
which products of the Company allegedly infringed the patent, and did not
indicate which claims of the patent are allegedly infringed. On August 26, 1996,
the plaintiff filed a report identifying which claims of the patent were
allegedly infringed and providing its interpretation of the claims, and also
stating that the Company was infringing the subject patent by "selling software
online." The parties have not yet begun to engage in discovery, which the
Company believes may be material. Although discovery has not yet commenced,
based on the investigation conducted by the Company to date and a review of its
products, the Company believes that the complaint is without merit and intends
to defend the litigation vigorously.
On June 26, 1996, Barbara Hubbard, a former corporate controller of the Company,
filed a lawsuit against the Company and its Chairman, its President and its
former Chief Financial Officer, in the Santa Clara County, California, Superior
Court, alleging sex discrimination, wrongful discharge, breach of contract,
defamation and violations of the California Labor Code. The complaint seeks
damages in an unspecified amount. The Company has answered the complaint,
denying all material allegations, with the individual defendants demurring.
Intuit believes that the complaint is without merit and intends to defend the
litigation vigorously.
On July 31, 1996, Trio Systems L.L.C. ("Trio") filed a lawsuit against the
Company in the U.S. District Court, Central District of California (Los Angeles)
alleging copyright infringement and violation of a license agreement. The
complaint seeks declaratory relief, rescission and $60 million in damages. Trio
alleges that the Company infringed Trio's copyrights in certain software by,
among other things, allegedly violating the license that was attached to the
software in various forms, and by allegedly making copies of the software
without the authorization of Trio, or in violation of various terms of the
license. Trio also contends that the Company has violated the terms of the
license by publishing software that contains software belonging to Trio under
conditions that allegedly violate the terms of the license. The Company answered
the complaint on September 3, 1996, denying all material allegations, and
discovery is proceeding. On September 30, 1996, Trio filed a motion for a
preliminary injunction seeking to prevent the Company from shipping any Intuit
products containing Trio software, including Quicken products. The Company has
filed a response to this motion and a hearing on the motion is scheduled for
October 28, 1996. The Company intends to oppose the motion vigorously and
expects that its new Quicken products will be available for purchase on October
24, 1996. Although discovery has just begun, based on the investigation
conducted by the Company to date and a review of its products, the Company
believes that the complaint is without merit and intends to defend the
litigation vigorously.
Financial Courseware Ltd. ("FCL"), an Irish company, has a software product
named "Intuition" that is used for teaching financial terminology within
institutions. FCL has opposed the Company's application to register "Intuit" as
a trademark in Canada, Germany, Switzerland and the United Kingdom. In
Switzerland, the Company's application was rejected, and the Company has
appealed. The oppositions remain pending in the other three countries. In
December 1995, FCL initiated proceedings against Intuit Ltd. (the Company's
United Kingdom subsidiary) in Ireland seeking to enjoin use of the Intuit mark
in Ireland and accounting for damages. A response and counterclaim have been
filed denying all claims and seeking to restrict FCL's rights under its
registration. Direct negotiations among the principals of FCL and the Company
have commenced, but it is too soon to determine how the matter will be resolved.
The Company is also subject to other legal proceedings and claims that arise in
the ordinary course of its business. Management currently believes that the
ultimate amount of liability, if any, with respect to any pending actions,
either individually or in the aggregate, will not materially affect the
financial position, results of operations or liquidity of the Company. However,
the ultimate outcome of any litigation is uncertain. If an unfavorable outcome
were to occur, the impact could be material. Furthermore, any litigation,
regardless of outcome, can have an adverse impact on the Company as a result of
defense costs, diversion of management resources and other factors.
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<PAGE> 59
11. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1995 QUARTER ENDED (1)
-----------------------------
OCTOBER 31 (2) JANUARY 31 APRIL 30 JULY 31 (3) & (4)
-------------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
Net revenue..................................... $ 73,505 $ 168,453 $ 104,798 $ 72,404
Cost of goods sold.............................. 22,993 46,041 28,450 24,207
All other costs and expenses.................... 106,259 95,169 78,792 82,290
Net income (loss)............................... (53,633) 14,563 (3,795) (1,431)
Net income (loss) per share..................... (1.34) 0.33 (0.09) (0.03)
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED
-------------------------
OCTOBER 31 JANUARY 31 APRIL 30 JULY 31 (5)
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
Net revenue..................................... $ 102,250 $ 218,996 $ 132,069 $ 85,293
Cost of goods sold.............................. 28,091 49,482 35,269 25,027
All other costs and expenses.................... 101,411 115,788 96,850 92,466
Income (loss) from continuing operations........ (18,684) 24,067 1,273 (21,011)
Loss from discontinued operations, net of
tax........................................... (1,638) (2,157) (1,581) (968)
Net income (loss)............................... (20,322) 21,910 (308) (21,979)
Net income (loss) per share..................... (0.46) 0.46 (0.01) (0.48)
</TABLE>
(1) Includes the results of Parsons from September 27, 1994 and the results of
PNI from June 8, 1995.
(2) Includes a charge of $44.0 million related to purchased research and
development at the time of the Parsons acquisition.
(3) Includes a charge of $8.5 million related to purchased research and
development at the time of the PNI acquisition.
(4) Net loss includes proceeds of $41.3 million net of related expenses ($25.6
million net of related expenses and income taxes) relating to the Microsoft
merger termination fee.
(5) Includes a charge of $8.0 million related to purchased research and
development at the time of the IIS acquisition.
12. SUBSEQUENT EVENTS
Discontinued Operations and Divestitures
On September 16, 1996, the Company announced plans to sell ISC in exchange for
12.6 million shares of CheckFree common stock, approximately 23% of the
resulting 54.0 million CheckFree shares outstanding. As of September 13, 1996,
the CheckFree stock to be exchanged in the transaction was valued at $227.6
million. Subject to regulatory and CheckFree stockholder approval, the
transaction is expected to be finalized by early calendar year 1997.
The divested online banking and bill payment business has been accounted for as
a discontinued operation and, accordingly, its operating results have been
segregated for fiscal year 1996. Segregated operating results for fiscal years
1995 and 1994 have not been presented due to immateriality. Revenue for
discontinued operations was $14.3 million for fiscal year 1996. Liabilities of
discontinued operations consist of accounts payable and other accrued
compensation and liabilities totaling $3.0 million at July 31, 1996. Assets of
discontinued operations consist of fixed assets, accounts receivable, cash,
prepaids and intangibles totaling $21.4 million at July 31, 1996.
Other Matters
On September 3, 1996, the Company completed its acquisition of GALT, a provider
of mutual fund information on the Internet. The acquisition will be treated as a
purchase for accounting purposes. Under the terms of the agreement, GALT's
stockholders received a combination of the Company's common stock and stock
options valued at
-59-
<PAGE> 60
approximately $9.0 million. The purchase price of $9.0 million will be allocated
to identified intangible assets and goodwill.
On September 18, 1996, employee grants (except for Chief Executive Officer and
Senior and Executive Vice Presidents) of stock options under the Company's 1993
Equity Incentive Plan issued between June 1, 1995 and September 17, 1996 (a
total of 1,787,924 options) were repriced to reflect an exercise price of
$32.75, the fair market value on the date of repricing. Any option holder who
elected to reprice an option will not be permitted to exercise the repriced
option, even if vested, for a certain period of time.
-60-
<PAGE> 61
SCHEDULE II
INTUIT INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BEGINNING ADDITIONS BALANCE
BEGINNING BALANCE IN CHARGED TO AT END OF
CLASSIFICATION PERIOD ACQUIRED COMPANIES EXPENSE WRITE-OFFS PERIOD
- -------------- ---------- ------------------ ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Ten months ended July 31, 1994
Allowance for doubtful accounts....... $ 1,883 $ 254 $ 753 $ (370) $ 2,520
Reserve for returns and exchanges..... $ 7,141 $ 5,936 $ 31,316 $(33,054) $ 11,339
Year ended July 31, 1995
Allowance for doubtful accounts....... $ 2,520 $ 71 $ 2,105 $ (2,288) $ 2,408
Reserve for returns and exchanges..... $11,339 $ 521 $ 61,853 $(44,516) $ 29,197
Year ended July 31, 1996
Allowance for doubtful accounts....... $ 2,408 -- $ 4,728 $ (2,185) $ 4,951
Reserve for returns and exchanges..... $29,197 -- $ 57,128 $(62,122) $ 24,203
</TABLE>
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<PAGE> 62
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to Directors may be found in
the section captioned "Election of Intuit Directors" appearing in the definitive
Proxy Statement to be delivered to stockholders in connection with the Annual
Meeting of Stockholders scheduled to be held in November 1996 (the "Proxy
Statement"). Such information is incorporated herein by reference. Information
required by this Item with respect to executive officers may be found in Part I
hereof in the section captioned "Executive Officers and Key Employees of
Registrant."
ITEM 11
EXECUTIVE COMPENSATION
Information with respect to this Item may be found in the section captioned
"Executive Compensation" appearing in the Proxy Statement. Such information is
incorporated herein by reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this Item may be found in the section captioned
"Security Ownership of Certain Beneficial Owners and Management" appearing in
the Proxy Statement. Such information is incorporated herein by reference.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this Item may be found in the section captioned
"Executive Compensation - Certain Transactions" appearing in the Proxy
Statement. Such information is incorporated herein by reference.
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<PAGE> 63
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements - See Index to Consolidated Financial
Statements in Part II, Item 8.
2. Financial Statement Schedules - See Index to Consolidated
Financial Statements in Part II, Item 8.
3. Exhibits
Exhibit 2.01* Exchange Agreement between the Company and
Kabushiki Kaisha Milkyway and its stockholders
dated December 26, 1995 (schedules and similar
attachments will be furnished to the Commission
upon request)
Exhibit 2.02* Agreement and Plan of Reorganization by and
between the Company and GALT Technologies, Inc.
dated as of September 3, 1996 and the related
Agreement of Merger (other schedules and
similar attachments will be furnished to the
Commission upon request)
Exhibit 2.03* Agreement and Plan of Merger among CheckFree
Corporation, CheckFree Acquisition Corporation
II, the Company and Intuit Services Corporation
dated September 15, 1996 (schedules and similar
attachments will be furnished to the Commission
upon request)
Exhibit 3.01(1) Certificate of Incorporation of the Company
dated February 1, 1993
Exhibit 3.02(4) Certificate of Amendment to the Company's
Certificate of Incorporation dated December 14,
1993
Exhibit 3.03(12) Certificate of Amendment to the Company's
Certificate of Incorporation dated January 18,
1996
Exhibit 3.04(1) Bylaws of the Company
Exhibit 4.01(1) Form of Specimen Certificate for the Company's
Common Stock
Exhibit 4.02(1) Investor Rights Agreement, dated as of August
21, 1990, as amended on July 7, 1992, between
the Company and various investors
Exhibit 4.03(2) Amendment to Investor Rights Agreement, dated
as of December 10, 1993, among the Company and
various investors
Exhibit 4.04(2) Registration Rights Agreement, dated as of
December 8, 1989, among ChipSoft and various
investors
Exhibit 4.05(2) Amendment to Registration Rights Agreement,
dated December 10, 1993, among ChipSoft and
various investors
Exhibit 10.01(1)+ The Company's 1988 Stock Option Plan and
related documents.
Exhibit 10.02(1)+ The Company's form of Non-Plan Non-Qualified
Stock Option Agreement
Exhibit 10.03*+ The Company's 1993 Equity Incentive Plan, as
amended through July 20, 1995
Exhibit 10.4(1) Distribution Agreement by and between the
Company and Softsel Computer Products, Inc.
(now Merisel, Inc.), dated July 1, 1986, as
amended to date
Exhibit 10.5(1) Form of Indemnification Agreement entered into
by the Company with each of its directors and
certain executive officers
Exhibit 10.6(13)+ 1992 Stock Option Plan of ChipSoft
Exhibit 10.7(13)+ Form of Non-Qualified Stock Option Agreement
under the 1992 Stock Option Plan of ChipSoft
Exhibit 10.8(13)+ 1989 Stock Option Plan of ChipSoft
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<PAGE> 64
Exhibit 10.9(13)+ Form of Non-Qualified Stock Option Agreement
under the 1989 Stock Option Plan of ChipSoft
Exhibit 10.10(13)+ Softview Acquisition Stock Option Plan of
ChipSoft
Exhibit 10.11(13)+ Form of Incentive Stock Option Agreement under
the Softview Acquisition Plan of ChipSoft
Exhibit 10.12(13)+ Restricted Stock Purchase Agreement dated as of
March 28, 1991, between ChipSoft and Alan A.
Gleicher
Exhibit 10.13(13)+ Non-Transferable, Non Qualified Stock Option
Agreement dated as of March 28, 1991, between
ChipSoft and Alan A. Gleicher
Exhibit 10.14(13)+ Non-Transferable, Non Qualified Stock Option
Agreement dated as of August 1, 1991, between
ChipSoft and William H. Harris Jr.
Exhibit 10.15(4)+ Letter Agreement of Employment dated March 30,
1994 between the Company and William V.
Campbell
Exhibit 10.16(4) Contract for Purchase of Land dated July 25,
1994 between the Company and Amrep Southwest,
Inc.
Exhibit 10.17(4) Owner and Design/Builder Agreement dated July
18, 1994 between the Company and Reid &
Elliott, Inc.
Exhibit 10.18(7)+ Severance Agreement dated September 30, 1994
between the Company and Charles H. Gaylord, Jr.
Exhibit 10.19(7) Indenture dated as of September 1, 1994 among
the City of Rio Rancho, New Mexico ("Rio
Rancho"), the Company and Sunwest Bank of
Albuquerque, N.A. ("Sunwest Bank")
Exhibit 10.20(7) Lease and Purchase Agreement dated as of
September 1, 1994 between the Company and Rio
Rancho
Exhibit 10.21(7) Bond Purchase Agreement dated October 12, 1994
among ChipSoft, Inc., Rio Rancho and the
Company
Exhibit 10.22(7) Construction Loan Agreement effective September
29, 1994 between Sunwest Bank and the Company
and the related Collateral Assignments
Exhibit 10.23(7) Mortgage dated July 24, 1994 between the
Company and Sunwest Bank, as amended September
29, 1994
Exhibit 10.24(7) Amended and Restated Real Estate Mortgage Note
dated September 29, 1994 issued by the Company
to Sunwest Bank
Exhibit 10.25(8) Option Agreement dated as of November 30, 1994
between the Company and Charleston Properties
Exhibit 10.26(8) Lease Agreement dated as of November 30, 1994
between the Company and Charleston Properties
for 2700 Coast Drive, Mountain View, California
Exhibit 10.27(8) Lease Agreement dated as of November 30, 1994
between the Company and Charleston Properties
for 2750 Coast Drive, Mountain View, California
Exhibit 10.28(8) Lease Agreement dated as of November 30, 1994
between the Company and Charleston Properties
for 2475 Garcia Drive, Mountain View,
California
Exhibit 10.29(8) Lease Agreement dated as of November 30, 1994
between the Company and Charleston Properties
for 2525 Garcia Drive, Mountain View,
California
Exhibit 10.30(8) Lease Agreement dated as of November 30, 1994
between the Company and Charleston Properties
for 2535 Garcia Drive, Mountain View,
California
Exhibit 10.31(8) Option Agreement dated as of November 30, 1994
between the Company and Charleston Properties
for 2650 Casey Drive, Mountain View, California
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<PAGE> 65
Exhibit 10.32(10) Build-to-Suit Lease Agreement dated as of June
5, 1995 between the Company and UTC Greenwich
Partners, a California limited partnership
Exhibit 10.33(10) Lease Agreement dated as of August 31, 1995
between the Company and Airport Business Center
Associates Limited Partnership, an Arizona
limited partnership
Exhibit 10.34(11) Supply Agreement dated August 23, 1995 by and
between Intuit Inc. and John H. Harland Company
Exhibit 10.35(12)+ Letter Agreement dated December 11, 1995
between the Company and William H. Lane III
Exhibit 11.01* Computation of Net Loss Per Share
Exhibit 21.01* List of the Company's Subsidiaries
Exhibit 23.01* Consent of Ernst & Young LLP, Independent
Auditors
Exhibit 24.01* Power of Attorney (see signature page)
Exhibit 27.01* Financial Data Schedule (filed only in
electronic format)
- ----------------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1,
filed February 3, 1993, as amended (File No. 33-57884) and incorporated by
reference
(2) Filed as an exhibit to the Company's Registration Statement on Form S-4,
filed September 20, 1993, as amended (File No. 33-69018) and incorporated
by reference
(3) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
December 31, 1993 and incorporated by reference
(4) Filed as an exhibit to the Company's Form 10-K as originally filed on
October 31, 1994, as amended, and incorporated by reference
(5) Filed as an exhibit to the Company's Form 8-K filed October 11, 1994 and
incorporated by reference
(6) Filed as Annex A to the preliminary proxy materials filed on November 21,
1994 by the Company and Microsoft for the Company's special meeting of
stockholders held 1995 and incorporated by reference
(7) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
October 31, 1994, filed on December 13, 1994 and incorporated by reference
(8) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
January 31, 1995, filed on March 17, 1995 and incorporated by reference
(9) Filed as an exhibit to the Company's Form 10-Q for the quarter ended April
30, 1995, filed on June 14, 1995 and incorporated by reference
(10) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
July 31, 1995 and incorporated by reference
(11) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
October 31, 1995 and incorporated by reference
(12) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
January 31, 1996 and incorporated by reference
(13) Filed as an exhibit to the ChipSoft Form S-1 registration statement filed
on February 24, 1993 (file no. 33-57692) and incorporated by reference
(14) Filed as an exhibit to the ChipSoft 1992 Form 10-K and incorporated by
reference
(15) Filed as an exhibit to the ChipSoft 1993 Form 10-K and incorporated by
reference
+ Indicates a management contract or compensatory plan or arrangement
* Filed herewith
-65-
<PAGE> 66
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter of
fiscal 1996.
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
-66-
<PAGE> 67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTUIT INC.
Dated: October 17, 1996 By: /s/ JAMES J. HEEGER
-------------------------------
James J. Heeger
Senior Vice President and Chief
Financial Officer
-67-
<PAGE> 68
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William V. Campbell and James J. Heeger,
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intends and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------ ---------------------------- -------------------
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ WILLIAM V. CAMPBELL President, Chief Executive October 17, 1996
- ------------------------------------ Officer and Director
William V. Campbell
PRINCIPAL FINANCIAL OFFICER:
/s/ JAMES J. HEEGER Senior Vice President and October 17, 1996
- ------------------------------------ Chief Financial Officer
James J. Heeger
PRINCIPAL ACCOUNTING OFFICER:
/s/ GREG J. SANTORA Corporate Controller October 17, 1996
- ------------------------------------
Greg J. Santora
ADDITIONAL DIRECTORS:
/s/ SCOTT D. COOK Chairman of the Board October 17, 1996
- ------------------------------------ of Directors
Scott D. Cook
/s/ CHRISTOPHER W. BRODY Director October 17, 1996
- ------------------------------------
Christopher W. Brody
/s/ L. JOHN DOERR Director October 17, 1996
- ------------------------------------
L. John Doerr
/s/ MICHAEL R. HALLMAN Director October 17, 1996
- ------------------------------------
Michael R. Hallman
/s/ BURTON J. MCMURTRY Director October 17, 1996
- ------------------------------------
Burton J. McMurtry
</TABLE>
-68-
<PAGE> 1
EXHIBIT 2.01
EXCHANGE AGREEMENT
BETWEEN
INTUIT INC.
AND
KABUSHIKI KAISHA MILKYWAY AND ITS STOCKHOLDERS
DECEMBER 26, 1995
<PAGE> 2
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") is entered into as of
December 26, 1995, by and among Intuit Inc., a Delaware corporation ("Intuit"),
Kabushiki Kaisha Milkyway, a corporation organized and existing under the laws
of Japan ("Milkyway"), and the stockholders of Milkyway listed on Exhibit A
attached hereto (each individually a "Stockholder" and collectively the
"Stockholders").
RECITALS
A. Intuit is engaged in the business of designing, publishing,
distributing and providing financial software and related services. Milkyway is
engaged in the business of publishing and distributing packaged accounting,
financial and administrative software and related services for businesses.
B. The Boards of Directors of Intuit and Milkyway and the Stockholders
believe that the products and services of both companies are complementary, that
Milkyway will benefit from Intuit's stronger presence in the Windows market,
personal finance market and the electronic financial services market and that
Intuit will benefit by adding Milkyway's product line, technology, brand name
and distribution channels, and therefore have determined that it is in the best
interests of both companies that Intuit acquire all of the outstanding Common
Stock of Milkyway.
C. The parties intend that, subject to the terms and conditions
hereinafter set forth, Intuit will acquire 100% of the outstanding capital stock
of Milkyway from the Stockholders pursuant to the terms and conditions set forth
herein in exchange for shares of Intuit Common Stock.
D. The Exchange is intended to be treated as (i) a "qualified stock
purchase" described in Section 338 of the Code (as defined below), and (ii) a
"pooling of interests" for accounting purposes.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS
1.1 "Balance Sheet Date" is defined in Section 3.8.
1.2 "Closing" is defined in Section 7.1.
1.3 "Closing Date" is defined in Section 7.1.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE> 3
1.5 "Confidentiality Agreement" means the Agreement for Use and
Non-Disclosure of Proprietary Information among Milkyway, Intuit, certain
Stockholders and The Kamakura Corporation dated December 13, 1995, and any
amendments thereto.
1.6 "Employee Plans" shall mean all pension, retirement,
disability, medical, dental or other health plans, life insurance or other death
benefit plans, profit sharing, deferred compensation agreements, stock, option,
bonus or other incentive plans, vacation, sick, holiday or other paid leave
plans, severance plans or other similar employee benefit plans maintained by
Milkyway.
1.7 "Employment Agreements" shall mean the agreements to be entered
into between Milkyway and each of Tohru Morii, Hiroki Orito, Hirofumi Udagawa
and Mitsuya Yahagi in the form attached to this Agreement as Exhibit B-1, and
the agreement to be entered into between Milkyway and Masashi Miki in the form
of Exhibit B-2.
1.8 "Escrow Agreement" shall mean the agreement to be entered into
among Intuit, Milkyway and the Stockholders substantially in the form attached
to this Agreement as Exhibit C.
1.9 "Escrow Period" shall mean the period beginning with the
Closing Date and continuing until the issuance by Intuit's of its release of its
audited financial results for the fiscal year ending July 31, 1996.
1.10 "Escrow Shares" shall mean five percent (5%) of the Exchange
Shares, as set forth on Exhibit A.
1.11 The "Exchange" shall mean the exchange of the Milkyway Stock
for the Exchange Shares contemplated by Section 2.1 below.
1.12 "Exchange Shares" is defined in Section 2.1.
1.13 "Material Agreement" means an agreement described in Section
3.12.
1.14 "Major Stockholder" means each of Hidemoto Yoshii, Masashi Miki
and Toshikazu Nakamura.
1.15 "Intuit Affiliates Agreement" is defined in Section 6.5.
1.16 "Intuit Ancillary Agreements" shall mean the Escrow Agreement,
the Intuit Affiliates Agreements, the Nakamura Agreement and the Yoshii
Agreement.
1.17 "Intuit Common Stock" shall mean shares of Intuit's Common
Stock, $.01 par value per share.
2
<PAGE> 4
1.18 "Intuit Options" shall mean options to purchase Intuit Common
Stock issued pursuant to Intuit's 1993 Equity Incentive Plan.
1.19 "Milkyway Ancillary Agreements" shall mean the Escrow
Agreement, the Milkyway Affiliates Agreements, the Employment Agreements, the
Yoshii Agreement and the Nakamura Agreement.
1.20 "Milkyway Certificates" shall mean the certificates for the
Stockholders' shares of Milkyway Stock.
1.21 "Milkyway Intellectual Property" is defined in Section 3.13.
1.22 "Milkyway Stock" shall mean the 80,000 shares of issued and
outstanding Common Stock of Milkyway.
1.23 "Nakamura Agreement" shall mean the Non-Competition Agreement
by and among Intuit, Milkyway and Toshikazu Nakamura, dated of even date
herewith, in the form attached hereto as Exhibit D.
1.24 "Securities Act" shall mean the U.S. Securities Act of 1933, as
amended.
1.25 "SEC" shall mean the U.S. Securities and Exchange Commission.
1.26 "Stockholders Ancillary Agreements" shall mean the Escrow
Agreement, the Milkyway Affiliates Agreements, the Employment Agreements, the
Yoshii Agreement and the Nakamura Agreement.
1.27 "U.S. Person" is defined in Section 3.24.8.
1.28 "Yoshii Agreement" shall mean the Non-Competition Agreement by
and among Intuit, Milkyway and Hidemoto Yoshii, dated of even date herewith, in
the form attached hereto as Exhibit E.
2. THE EXCHANGE
2.1 The Exchange. Subject to the terms and conditions of this
Agreement, at the Closing, the Stockholders shall transfer to Intuit all of
their shares of Milkyway Stock, the amounts of which are set forth beside their
respective names on Exhibit A attached hereto, and in exchange therefor Intuit
shall issue to each Stockholder the number of Shares of Intuit Common Stock set
forth opposite each Stockholder's name on Exhibit A, for a total of 650,000
shares of Intuit Common Stock (the "Exchange Shares").
2.2 No Adjustments. There shall be no adjustments made to the number
of Exchange Shares regardless of any fluctuation of the market price per share
of Intuit Common
3
<PAGE> 5
Stock as quoted on the Nasdaq National Market except in connection with any
stock split, reverse stock split, stock dividend, recapitalization, split-up,
combination, reorganization or reclassification of Intuit Common Stock.
2.3 Escrow Agreement. Pursuant to an Escrow Agreement to be entered
into on or before the Closing Date, Intuit will withhold the Escrow Shares.
Intuit will deposit in an escrow pursuant to the Escrow Agreement (the "Escrow")
the stock certificates representing the Escrow Shares and related stock transfer
powers. The Escrow Shares and such stock transfer powers, and any other property
with respect thereto delivered to the Escrow Agent as provided in the Escrow
Agreement, will be held as collateral to secure the indemnification obligations
of the Stockholders under Section 11.2 hereof in accordance with the Escrow
Agreement.
2.4 Securities Law Issues. Intuit shall issue the Exchange Shares
pursuant to an exemption from registration under Regulation S ("Regulation S")
promulgated under the Securities Act. The Exchange Shares will not be subject to
any restriction on transferability other than compliance with the express
requirements of Regulation S specified in Section 3.24, Section 5.14, Section
7.3 and restrictions arising under the Milkyway Affiliates Agreement.
2.5 Qualified Stock Purchase. The parties intend that the Exchange
be treated as a "qualified stock purchase" described in Section 338 of the Code.
2.6 Pooling of Interests. The parties intend that the Exchange be
treated as a "pooling of interests" for accounting purposes. At the Closing,
Intuit shall have received a letter dated as of the Closing Date, from Ernst &
Young LLP, regarding such firm's concurrence with Intuit management's and
Milkyway management's conclusions as to the appropriateness of pooling of
interests accounting for the merger under Accounting Principles Board Opinion
No. 16 if the Exchange is closed and consummated in accordance with this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND MILKYWAY
Each of the Stockholders and Milkyway jointly and severally hereby
represents and warrants to Intuit that, except as set forth in items 3.1 through
3.24 (referred to as "Items" below) in the Milkyway Disclosure Schedule,
attached as Exhibit N hereto:
3.1 Title. The Stockholder owns and holds good and valid title to
the Milkyway Stock being exchanged hereunder by such Stockholder, free and clear
of any liens, security interests, restrictions, options or encumbrances. The
Stockholder's shares of Milkyway Stock are not subject to any right of first
refusal or other restriction, no other person has any interest or right in such
shares of Milkyway Stock, and such shares of Milkyway Stock are being
transferred to Intuit in compliance with all applicable Japanese securities
laws. The Stockholder has no interest or right in Milkyway other than such
shares of Milkyway Stock.
4
<PAGE> 6
3.2 Organization. Milkyway is a corporation duly organized and
validly existing under the laws of Japan, has the corporate power and authority
to own, operate and lease its properties and to carry on its business as now
conducted. Milkyway does not own or lease any real property, has no employees
and does not maintain a place of business in any country other than Japan.
3.3 Power, Authorization and Validity.
3.3.1 The Stockholder has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement and the
Stockholders Ancillary Agreements. No filing, authorization or approval,
governmental or otherwise, is necessary to enable the Stockholder to enter into,
and to perform its obligations under, this Agreement and the Stockholders
Ancillary Agreements executed by the Stockholder. This Agreement and the
Stockholders Ancillary Agreements are, or when executed by the Stockholder will
be, valid and binding obligations of the Stockholder enforceable in accordance
with their respective terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally
and (b) rules of law governing specific performance, injunctive relief and other
equitable remedies; provided, however, that the Stockholders Ancillary
Agreements (other than the Milkyway Affiliates Agreements) will not be effective
until the Closing.
3.3.2 Milkyway has the corporate right, power, legal capacity
and authority to enter into and perform its obligations under this Agreement and
the Milkyway Ancillary Agreements. This Agreement, the Milkyway Ancillary
Agreements and the transfer and exchange of Milkyway Stock pursuant to Section
2.1 have been duly and validly approved by the Milkyway Board of Directors and
each of the Stockholders, as required by applicable law. No filing,
authorization or approval, governmental or otherwise, is necessary to enable
Milkyway to enter into, and to perform its obligations under, this Agreement and
the Milkyway Ancillary Agreements, except for the prior notification under the
Japanese Foreign Exchange Control Regulations. This Agreement and the Milkyway
Ancillary Agreements are, or when executed and delivered by Milkyway and the
other parties thereto will be, valid and binding obligations of Milkyway
enforceable against Milkyway and the Milkyway Affiliates (as applicable) in
accordance with their respective terms, except as to the effect, if any, of (a)
applicable bankruptcy and other similar laws affecting the rights of creditors
generally and (b) rules of law governing specific performance, injunctive relief
and other equitable remedies; provided, however, that the Milkyway Ancillary
Agreements (other than the Milkyway Affiliates Agreements) will not be effective
until the Closing.
3.4 Capitalization.
(a) Authorized/Outstanding Capital Stock. The authorized
capital stock of Milkyway consists of Eighty Thousand (80,000) shares of
Milkyway Common Stock, with par value of 500 yen, of which Eighty Thousand
(80,000) shares are issued and outstanding as of this date and as of the Closing
Date, and all of which issued and outstanding shares are held of record and
owned by Hidemoto Yoshii, Yuko Yoshii, Masashi Miki, Sadao Miki, Toshikazu
Nakamura and Toshimitsu Nakamura in the respective amounts set forth on Exhibit
A.
5
<PAGE> 7
Milkyway has not authorized or issued any shares of Preferred Stock. All issued
and outstanding shares of Milkyway Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, are not subject to any right
of rescission and have been offered, issued, sold and delivered by Milkyway in
compliance with all registration or qualification requirements (or applicable
exemptions therefrom) of applicable securities laws.
(b) Options/Rights. There are no rights, options, warrants,
conversion privileges or preemptive or other rights or agreements outstanding to
purchase or otherwise acquire any of Milkyway's authorized but unissued capital
stock; there are no options, warrants, conversion privileges or preemptive or
other rights or agreements to which Milkyway is a party involving the purchase
or other acquisition of any shares of Milkyway capital stock; there is no
liability for dividends accrued but unpaid; and there are no voting agreements,
registration rights, rights of first refusal or other restrictions applicable to
any of Milkyway's outstanding securities.
3.5 Subsidiaries; Not a Subsidiary. Except for Milkyway Hanbai
Kabushiki Kaisha ("Milkyway Hanbai"), which is a wholly-owned subsidiary of
Milkyway, Milkyway does not have any subsidiaries or any equity interest, direct
or indirect, in any corporation, partnership, limited liability company, joint
venture or other business entity. Milkyway has never been a subsidiary of any
corporation, partnership, limited liability company, joint venture or other
business entity. Milkyway Hanbai currently is not engaged in any business, does
not have any outstanding liabilities, and, to the best knowledge of each
Stockholder, there are no facts indicating that Milkyway Hanbai has any
outstanding or potential liability of any kind.
3.6 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement or any Milkyway Ancillary Agreement, nor the
consummation of the transactions provided for herein or therein, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, (a) any provision of the
Articles of Incorporation or rules and regulations of Milkyway, as currently in
effect, (b) any Material Agreement or (c) any national, prefecture, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable to
and that would have a material adverse effect on Milkyway or its assets or
properties. The consummation of the Exchange will not require the consent of any
third party and will not have a material adverse effect upon any such rights,
licenses, franchises, leases or agreements pursuant to the terms of the Material
Agreements other than as set forth in Item 3.6.
3.7 Litigation. Except as set forth in Item 3.7, there is no action,
proceeding or investigation pending or, to Milkyway's knowledge, threatened
against Milkyway before any court or administrative agency that, if determined
adversely to Milkyway, may reasonably be expected to have a material adverse
effect on the present or future operations or financial condition of Milkyway or
in which the adverse party or parties seek to recover in excess of 5,000,000 yen
from Milkyway. Except as set forth on Item 3.7 and except for rights under this
Agreement and the Ancillary Agreements, there is no substantial basis for any
person, firm, corporation or entity to assert a claim against Milkyway or the
Stockholders (or Intuit after the Closing) based upon: (a) ownership or rights
to ownership of any shares of Milkyway Stock or
6
<PAGE> 8
(b) any rights as a Milkyway securities holder, including, without limitation,
any option or other right to acquire any Milkyway securities, any preemptive
rights or any rights to notice or to vote.
3.8 Milkyway Financial Statements. Milkyway has delivered to Intuit
Milkyway's unaudited balance sheet as of November 30, 1995 (the "Balance Sheet
Date"), Milkyway's unaudited income statement for the period from January 1,
1995 through November 30, 1995, Milkyway's unaudited balance sheets as of and
Milkyway's unaudited income statements for the fiscal years ended December 31,
1994, 1993, and 1992 (collectively, the "Milkyway Financial Statements"). The
Milkyway Financial Statements, in all material respects, (a) are in accordance
with the books and records of Milkyway, (b) fairly and accurately represent the
financial condition of Milkyway at the respective dates specified therein and
the results of operations for the respective periods specified therein in
conformity with all applicable laws subject to adjustments required with respect
to items (i) through (iv) below, and (c) except as set forth on Item 3.8, are in
accordance with the Japanese Commercial Code except for omission of required
footnotes. Except as set forth in Item 3.8, Milkyway has no material debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected, reserved
against or disclosed in the Milkyway Financial Statements, except for (i)
employees' retirement benefit liability, (ii) directors' retirement benefit
liability, (iii) allowance for doubtful accounts, (iv) maintenance contract
obligations and (v) those that may have been incurred after the Balance Sheet
Date in the ordinary course of its business. Item 3.8 includes a brief
description (including size in yen) of items (i) through (iv) in the preceding
sentence.
3.9 Taxes. Except as set forth in Item 3.9, Milkyway has filed all
applicable tax and information returns required to be filed, has paid all taxes
required to be paid in respect of all periods for which returns have been filed,
has made all necessary estimated tax payments, and has no material liability for
taxes in excess of the amount so paid. True, correct and complete copies of all
such tax and information returns filed since fiscal year 1988 have been provided
or made available by Milkyway to Intuit. Milkyway is not delinquent in the
payment of any tax or in the filing of any tax returns, and no deficiencies for
any tax have been threatened, claimed, proposed or assessed which have not been
settled, paid or adequately provided for on Milkyway's financial statements,
books and records. Except as set forth in Item 3.9, no tax return of Milkyway
has ever been inspected by any taxing agency or authority. For the purposes of
this Agreement, the terms "tax" and "taxes" include all applicable Japanese and
foreign income, gains, franchise, excise, securities, property, sales, use,
employment, license, payroll, occupation, recording, value added or transfer
taxes, governmental charges, import, export and other fees, levies or
assessments (whether payable directly or by withholding), and, with respect to
such taxes, any estimated tax, interest and penalties or additions to tax and
interest on such penalties and additions to tax.
3.10 Title to Properties. Milkyway has good and marketable title to
all of its assets as shown on the balance sheet as of the Balance Sheet Date
included in the Milkyway Financial Statements, free and clear of all liens,
charges or encumbrances (other than for taxes not yet due and payable and
Permitted Liens as defined below), other than such material assets, set forth on
Item 3.10, as were sold by Milkyway in the ordinary course of business since the
7
<PAGE> 9
Balance Sheet Date or which are subject to capitalized leases. "Permitted Liens"
means any lien, mortgage, encumbrance or restriction which is reflected in the
Milkyway Financial Statements and which does not materially detract from the
value or materially interfere with the use, as currently utilized, of the
properties subject thereto or affected thereby or otherwise materially impair
the business operations being conducted thereon. There are no financing
statements or similar encumbrances of record with any governmental
administrative or judicial entity, naming Milkyway as debtor, except as set
forth in Item 3.10. The machinery and equipment included in such assets are in
all material respects in good condition and repair, normal wear and tear
excepted, and all leases of real or personal property to which Milkyway is a
party are fully effective and afford Milkyway peaceful and undisturbed
possession of the subject matter of the lease. To the best knowledge of each
Stockholder and Milkyway, Milkyway is not in violation of any material zoning,
building, safety or environmental ordinance, regulation or requirement or other
law or regulation applicable to the operation of owned or leased properties, and
Milkyway has not received any notice of such violation with which it has not
complied or had waived.
3.11 Absence of Certain Changes. Since the Balance Sheet Date,
except as set forth in Item 3.11, there has not been with respect to Milkyway:
(a) any change in the financial condition, properties, assets,
liabilities, business, results of operations or prospects of Milkyway, which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has had or can reasonably be
expected to have a material adverse effect on Milkyway or its ability to conduct
its operations as currently proposed by, and discussed between, Milkyway and
Intuit;
(b) any contingent liability incurred by Milkyway as guarantor
or surety with respect to the obligations of others;
(c) any material mortgage, encumbrance or lien placed on any of
the properties of Milkyway;
(d) any new Material Agreement;
(e) any purchase or sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of Milkyway other than in the ordinary course of business
or in nonmaterial amounts;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of Milkyway;
(g) any declaration, setting aside or payment of any dividend
on, or the making of any other distribution in respect of, the capital stock of
Milkyway, any split, stock dividend, combination or recapitalization of the
capital stock of Milkyway or any direct or indirect redemption, purchase or
other acquisition by Milkyway of the capital stock of Milkyway;
8
<PAGE> 10
(h) any material labor dispute or claim of material unfair
labor practices, any change in the compensation payable or to become payable to
any of Milkyway's officers, employees or agents earning compensation at an
anticipated annual rate in excess of 5,000,000 yen (including any bonus payment
or arrangement made to or with any of such officers, employees or agents); or
any change in the compensation payable or to become payable to any of Milkyway's
other officers, employees or agents other than normal annual raises in
accordance with past practice or any bonus payment or arrangement made to or
with any of such officers, employees or agents other than normal bonuses or
compensation increases noted on Item 3.11(h) hereof or other arrangements made
in accordance with past practices;
(i) any planned departure of which Milkyway is aware by any
member of the management or key personnel of Milkyway (the management and other
key personnel of Milkyway are listed on Item 3.11(i) hereof);
(j) any payment or discharge of a material lien or liability
thereof, which lien or liability was not either (i) shown on the balance sheet
as of the Balance Sheet Date included in the Milkyway Financial Statements or
(ii) incurred in the ordinary course of business after the Balance Sheet Date;
or
(k) any obligation or material liability incurred by Milkyway
to any of its officers, directors or shareholders, or any loans or advances made
to any of its officers, directors, shareholders or affiliates, except normal
compensation and expense allowances payable to officers.
3.12 Agreements and Commitments. Except as set forth in Item 3.12
delivered by Milkyway to Intuit herewith, Milkyway is not a party or subject to
any oral or written executory agreement, obligation or commitment that is
described below (collectively, the "Material Agreements"):
(a) Any contract, commitment, letter agreement, quotation or
purchase order providing for payments by or to Milkyway in an aggregate amount
of (i) 10,000,000 yen or more in the ordinary course of business or (ii)
5,000,000 yen or more not in the ordinary course of business;
(b) Any license agreement as licensor or licensee (except for
any nonexclusive software license granted by Milkyway to end-user customers
where the form of the license, excluding standard immaterial deviations, has
been provided to Intuit's counsel);
(c) Any other agreement by Milkyway to encumber, transfer or
sell rights in or with respect to any Milkyway Intellectual Property;
(d) Any agreement for the sale, lease or encumbrance of real or
personal property involving more than 1,000,000 yen per year;
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<PAGE> 11
(e) Any dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer or other agreement for the
distribution of Milkyway's products;
(f) Any franchise agreement or financing statement;
(g) Any stock redemption or purchase agreement;
(h) Any joint venture agreement, merger agreement or agreement
to transfer or purchase all or substantially all of Milkyway's or a third
party's business or assets, or any other agreement that involves a sharing of
profits with, or lease or entrustment of business to, other persons;
(i) Any instrument evidencing indebtedness for borrowed money
by way of direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee or otherwise, except for trade indebtedness or any
advance to any employee of Milkyway incurred or made in the ordinary course of
business, and except as disclosed in the Milkyway Financial Statements;
(j) Any contract containing covenants purporting to limit
Milkyway's freedom to compete in any line of business in any geographic area;
(k) Any other material agreement by which Milkyway has assigned
any rights under Milkyway Intellectual Property (as defined below) to any other
party, has waived any rights to prevent infringing use of Milkyway Intellectual
Property, or any other party has assigned any intellectual property rights of a
third party to Milkyway; or
(l) Any other agreement by which Milkyway, or another party to
a legal proceeding (including infringement claims) involving Milkyway, has
waived its rights in the legal proceeding.
Each Material Agreement listed in Item 3.12 is valid and in
full force and effect in all material respects, and except as expressly noted, a
true and complete copy of which has been delivered to Intuit or Intuit's
counsel. Except as noted on Item 3.12, neither Milkyway nor, to the knowledge of
Milkyway and the Stockholders, any other party is in breach of or default under
any material term of any Material Agreement. The Stockholders and Milkyway are
not a party to any contract or arrangement that they reasonably expect will have
a material adverse effect on Milkyway's business or prospects.
3.13 Intellectual Property and Products. Milkyway owns all right,
title and interest in, or has the right to use, all worldwide industrial and
intellectual property rights, including, without limitation, patent
applications, patents, patent rights, trademark applications, trademarks,
service marks, trade names, service mark applications, trade dress, moral
rights, copyright applications, copyrights, licenses, inventions, trade secrets,
know-how, customer lists, proprietary processes and formulae, software source
and object code, algorithms, architecture, structure, display screens, layouts,
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development tools, all documentation and media constituting, describing or
relating to the above, without limitation, manuals, memoranda and records and
other intellectual property and proprietary rights used in or reasonably
necessary to the conduct of its business as presently conducted and the business
of the development, production, marketing, licensing and sale of commercial
products using such intellectual property and proprietary rights ("Milkyway
Intellectual Property"). All Milkyway Intellectual Property developed by
Hidemoto Yoshii, Toshikazu Nakamura, Masashi Miki, Taku Okazaki and Milkyway's
employees was developed by such persons in the course of Milkyway's business and
not by them in their individual capacity and such individuals do not have any
interest in or rights to any Milkyway Intellectual Property. Milkyway has taken
all reasonable measures to protect all Milkyway Intellectual Property, and,
except as set forth on Item 3.13, Milkyway is not aware of any infringement of
any Milkyway Intellectual Property by any third party. Set forth on Item 3.13
delivered to Intuit herewith is a true and complete list of all copyright, mask
work, trademark and service mark registrations and applications and all patents
and patent applications for Milkyway Intellectual Property owned by Milkyway.
Milkyway is not aware of any material loss, cancellation, termination or
expiration of any such registration or patent except as set forth on Item 3.13.
The business of Milkyway as conducted as of the date hereof does not, and its
Published Products (as defined below) do not, and, to the best knowledge of the
Stockholders and Milkyway, the business of the development, production,
marketing, licensing and sale of Products Under Development (as defined below)
after the Closing Date will not cause Milkyway to, infringe or violate any of
the patents, trademarks, service marks, trade names, mask works, copyrights,
trade secrets, proprietary rights or other intellectual property of any other
person, and Milkyway has not received any written or oral claim or notice of
infringement or potential infringement of the intellectual property of any other
person which could be expected to have a material adverse effect on Milkyway's
business. Milkyway has the right to manufacture all of its Products (as defined
below and set forth on Item 3.13) and the right to use all of its Development
Tools (as defined below and set forth on Item 3.13), and to its knowledge, is
not using any confidential information or trade secrets of any former employer
of any past or present employees. Item 3.13 contains a complete list and brief
description of (a) all of the software products published and/or distributed by
Milkyway (the "Published Products") and all products under development or
consideration by Milkyway with a scheduled public availability date on or prior
to December 31, 1996 (the "Products Under Development," collectively with the
Published Products referred to as the "Products") and (b) all of the software
development tools used or intended to be used by Milkyway in the development of
any of the Products, except for any such tools that are generally available and
are used in their generally available form (such as standard compilers) (the
"Development Tools").
3.14 Compliance with Laws. Except as set forth in Item 3.14 and
except where the failure to comply would not have a material adverse effect on
the business, operations or financial conditions of Milkyway, Milkyway has
complied, or prior to the Closing Date will have complied, and is or will be at
the Closing Date in full compliance, in all respects material to Milkyway, with
all applicable laws, ordinances, regulations and rules, and all orders, writs,
injunctions, awards, judgments and decrees, applicable to Milkyway or to the
assets, properties and business of Milkyway, including, without limitation: (a)
all applicable securities laws and regulations, (b) all applicable national,
prefecture and local laws, ordinances and regulations, and all orders, writs,
injunctions, awards, judgments and decrees, pertaining to (i) the sale,
licensing, leasing, ownership or management of Milkyway's owned, leased or
licensed real or personal property, products or technical data, (ii)
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employment or employment practices, terms and conditions of employment, or wages
and hours or (iii) safety, health, fire prevention, environmental protection,
building standards, zoning or other similar matters, (c) the Japanese export
regulations or (d) all applicable foreign exchange control laws. Milkyway has
received all material permits and approvals from, and has made all material
filings with, third parties, including government agencies and authorities, that
are necessary to the conduct of its business as presently conducted.
3.15 Certain Transactions and Agreements. Except as set forth in
Item 3.15, no person who is a Stockholder, officer or director of Milkyway, or a
member of any Stockholder's, officer's or director's immediate family, has any
direct or indirect ownership interest in or any employment or consulting
agreement with any firm or corporation that competes with Milkyway or Intuit
(except with respect to any interest in less than 1% of the outstanding voting
shares of any corporation whose stock is publicly traded). Except as set forth
in Item 3.15, no person who is a Stockholder, officer or director of Milkyway,
or any member of any Stockholder's, officer's or director's immediate family, is
directly or indirectly interested in any material contract or informal
arrangement with Milkyway, except for compensation for services as an officer,
director or employee of Milkyway and except for the normal rights of a
shareholder. Except as set forth in Item 3.15, none of such Stockholders,
officers or directors or family members has any interest in any property, real
or personal, tangible or intangible, including, without limitation, inventions,
patents, copyrights, trademarks, trade names or trade secrets used in the
business of Milkyway, except for the normal rights of a shareholder.
3.16 Employees.
3.16.1 Except as set forth in Item 3.16.1, Milkyway has no
employment contract or material consulting agreement currently in effect (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
3.16.2 Milkyway (a) has never been and is not now subject to a
union organizing effort, (b) is not subject to any collective bargaining
agreement with respect to any of its employees, (c) is not subject to any other
contract, written or oral, with any trade or labor union, employees' association
or similar organization, and (d) has no material current labor dispute. Milkyway
has no knowledge that any of its key development employees and its key officers
(each of whom is listed on Item 3.16.2) intends to leave its employ.
3.16.3 Item 3.16.3 delivered by Milkyway to Intuit herewith
contains a list of all Employee Plans. Milkyway has delivered true and complete
copies or descriptions of all the Employee Plans to Intuit. Except as set forth
in Item 3.16.3, each of the Employee Plans, and its operation and
administration, is, in all material respects, in compliance with all applicable,
national, federal, prefecture, local and other governmental laws and ordinances,
orders, rules and regulations.
3.16.4 To Milkyway's knowledge, no employee of Milkyway is in
material violation of (a) any term of any employment contract, patent disclosure
agreement or
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noncompetition agreement or (b) any other contract or agreement, or any
restrictive covenant, relating to the right of any such employee to be employed
by Milkyway or to use trade secrets or proprietary information of others. To
Milkyway's knowledge, the mere fact of employment of any employee of Milkyway
does not subject Milkyway to any liability to any third party.
3.16.5 Except as set forth in Item 3.16.5, Milkyway is not a
party to any (a) agreement with any executive officer or other employee of
Milkyway (i) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving Milkyway in
the nature of any of the transactions contemplated by this Agreement, (ii)
providing any term of employment or compensation guarantee or (iii) providing
severance benefits or other benefits after the termination of employment of such
employee regardless of the reason for such termination of employment (provided
that Milkyway's taishoku-kin plan described in Item 3.16.5 is not considered a
severance plan), or (b) agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be materially increased, or the vesting of benefits
of which will be materially accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
3.16.6 A list of all employees, officers and development
consultants of Milkyway and their current compensation and benefits as of
November 30, 1995 is set forth on Item 3.16.6.
3.16.7 All contributions due from Milkyway with respect to any
of the Employee Plans have been made or accrued on the Milkyway Financial
Statements, and no further contributions will be due or will have accrued
thereunder as of the Closing Date.
3.17 Corporate Documents. Milkyway has made available to Intuit for
examination all documents and information listed in Items 3.1 through 3.24 or
other exhibits called for by this Agreement which have been requested by
Intuit's legal counsel, including, without limitation, the following: (a) copies
of Milkyway's Articles of Incorporation as currently in effect; (b) Milkyway's
minute book containing all records of all proceedings, consents, actions and
meetings of Milkyway's directors and shareholders since January 1, 1993; (c)
Milkyway's stock ledger, journal and other records reflecting all stock
issuances and transfers; and (d) all permits, orders and consents issued by any
regulatory agency with respect to Milkyway, or any securities of Milkyway, and
all applications for such permits, orders and consents. Milkyway does not
possess records of director or shareholder actions prior to 1993. Milkyway has
no corporate documents other than its Articles of Incorporation.
3.18 No Brokers. Except as otherwise described in Item 3.18,
Milkyway and the Stockholders are not obligated for the payment of fees or
expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or in connection with any
transaction provided for herein or therein.
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3.19 Disclosure. This Agreement, its exhibits and any of the
certificates or documents to be delivered by Milkyway to Intuit under this
Agreement, taken together, do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
3.20 Information Supplied. None of the information supplied or to be
supplied in writing by Milkyway or the Stockholders to Intuit, including the
statements in this Section 3 (as qualified by the Disclosure Schedule), contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
3.21 Books and Records. The books, records and accounts of Milkyway
(a) are in all material respects true and complete, (b) have been maintained in
accordance with reasonable business practices on a basis consistent with prior
years, (c) are stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the assets of Milkyway and (d) accurately and
fairly reflect the basis for the Milkyway Financial Statements.
3.22 Insurance. Milkyway maintains fire and casualty, workers
compensation and general liability insurance as listed on Item 3.22.
3.23 Environmental Matters.
3.23.1 During the period that Milkyway has leased the premises
currently occupied by it and those premises occupied by it since the date of its
incorporation, Milkyway has not caused any and to its actual knowledge, there
have been no disposals, releases or threatened releases of hazardous materials
from or any presence thereof on any such premises that would have a material
adverse effect upon the business or financial statements of Milkyway. Milkyway
has no knowledge of any presence, disposals, releases or threatened releases of
hazardous materials on or from any of such premises, which may have occurred
prior to Milkyway having taken possession of any of such premises that would
have a material adverse effect upon the business or financial statements of
Milkyway.
3.23.2 To its knowledge, none of the premises currently leased
by Milkyway or any premises previously occupied by Milkyway is in material
violation of any national, prefecture or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions in such
premises.
3.23.3 During the time that Milkyway has leased the premises
currently occupied by it or any premises previously occupied by Milkyway,
neither Milkyway nor, to Milkyway's knowledge, any third party, has used,
generated, manufactured or stored in such premises or transported to or from
such premises any hazardous materials that would have a material adverse effect
upon the business or financial statements of Milkyway.
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3.23.4 During the time that Milkyway has leased the premises
currently occupied by it or any premises previously occupied by Milkyway, there
has been no litigation, proceeding or administrative action brought or
threatened in writing against Milkyway, or any settlement reached by Milkyway
with, any party or parties alleging the presence, disposal, release or
threatened release of any hazardous materials on, from or under any of such
premises.
3.24 Securities Matters.
3.24.1 Each Stockholder, together with the Stockholder's
advisors, is fully aware that the Exchange Shares he or she will receive will be
received under an exemption from registration provided for in Regulation S, that
he or she will acquire the Exchange Shares without being offered or furnished
any offering literature or prospectus other than the Intuit Disclosure Package,
that this transaction has not been approved or reviewed by the SEC or by any
administrative agency charged with the administration of the securities law of
any state.
3.24.2 Each Stockholder, together with the Stockholder's
advisors, has such knowledge and experience in financial and business matters
that he or she is capable of evaluating the merits and risks of the Exchange,
the Exchange Shares and the transactions related thereto.
3.24.3 Each Stockholder confirms that he or she understands and
has fully considered for purposes of this investment the risks of this
investment and that (i) this investment is suitable only for an investor who is
able to bear the economic consequences of losing his or her entire investment,
(ii) the Exchange Shares are a speculative investment which involves a high
degree of risk of loss by Stockholder of his or her investment therein, and
(iii) for a period of not less than forty (40) days from the issuance of the
Exchange Shares, there are substantial restrictions on the transferability of
the Exchange Shares, and accordingly, it may not be possible for any Stockholder
to liquidate his or her investment in the case of emergency.
3.24.4 Each Stockholder confirms that he or she is able (i) to
bear the economic risk of this investment and (ii) to hold the Exchange Shares
for a period of time, not less than forty (40) days from the issuance of the
Exchange Shares.
3.24.5 Each Stockholder confirms that his or her
representatives and advisors, including The Kamakura Corporation, have been
given the opportunity to ask questions of, and to receive answers from, persons
acting on behalf of Milkyway and Intuit concerning the terms and conditions of
the Exchange and the business prospects of Milkyway and Intuit, and to obtain
any additional information, to the extent such persons possess such information
or can acquire it without unreasonable effort or expense and without breach of
confidentiality obligations, necessary to verify the accuracy of the information
set forth or incorporated by reference in the Intuit Disclosure Package.
3.24.6 Each Stockholder understands that the Exchange Shares
have not been registered under the Securities Act and he or she agrees that the
Exchange Shares may not be sold, transferred, or otherwise disposed of except
pursuant to an exemption from registration under the Securities Act, including
Regulation S.
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3.24.7 Each Stockholder understands the effect of the
limitations on disposition and of its representation that the Exchange Shares
will not be sold, transferred or otherwise disposed of except pursuant to an
exemption from registration under the Securities Act.
3.24.8 Each Stockholder is not a U.S. Person as defined in Rule
902(o) of Regulation S under the Securities Act. That rule defines a "U.S.
Person" to mean (i) any natural person resident in the United States; (ii) any
partnership or corporation organized or incorporated under the laws of the
United States; (iii) any estate of which any executor or administrator is a U.S.
person; (iv) any trust of which any trustee is a U.S. person; (v) any agency or
branch of a foreign entity located in the United States; (vi) any
nondiscretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States; and (viii) any partnership or
corporation if: (A) organized or incorporated under the laws of any foreign
jurisdiction; and (B) formed by a U.S. person principally for the purpose of
investing in securities not registered under the Act, unless it is organized or
incorporated, and owned, by accredited investors (as defined in Rule 501(a)
under the Securities Act) who are not natural persons, estates or trusts.
3.24.9 Each Stockholder understands that the Exchange Shares
may not be sold or transferred to a U.S. Person for a period of forty (40) days
from the date of issuance of the Exchange Shares.
4. REPRESENTATIONS AND WARRANTIES OF INTUIT
Intuit hereby represents and warrants that:
4.1 Organization and Good Standing. Intuit is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted.
4.2 Power, Authorization and Validity.
4.2.1 Intuit has full power and authority to enter into and
perform its obligations under this Agreement and the Intuit Ancillary
Agreements. The execution, delivery and performance of this Agreement and the
Intuit Ancillary Agreements have been duly and validly approved and authorized
by Intuit's Board of Directors. No vote of Intuit's shareholders is required
under applicable law or under the Certificate of Incorporation or Bylaws of
Intuit.
4.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Intuit to enter into, and to perform its
obligations under, this Agreement and the Intuit Ancillary Agreements, except
for such filings as may be required to comply with federal and state securities
laws in the United States and securities laws and foreign exchange laws in
Japan, which will be completed as follows: (1) Intuit may file a post-effective
amendment to its registration statement for its 1993 Equity Incentive Plan, (2)
Intuit will file a
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security notification and a security registration statement under the Japanese
Security Exchange Law, and (3) Intuit may file a post facto report and a prior
notification under the Japanese Foreign Exchange Control Law.
4.2.3 This Agreement and the Intuit Ancillary Agreements are,
or when executed by Intuit will be, valid and binding obligations of Intuit,
enforceable against Intuit in accordance with their respective terms, except as
to the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies.
4.3 Capitalization. The authorized capital stock of Intuit consists
of 60,000,000 shares of Intuit Common Stock, $0.01 par value, of which
approximately 44,347,470 shares were issued and outstanding and 4,377 shares
were held by Intuit in its treasury as of November 30, 1995, and 3,000,000
shares of Intuit Preferred Stock, $0.01 par value, of which no shares are issued
and outstanding. When the Exchange Shares are issued in accordance with this
Agreement, the Exchange Shares will be duly authorized and validly issued, fully
paid and nonassessable.
4.4 No Violation of Certificate or Laws. Neither the execution nor
delivery of this Agreement or any Intuit Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of (a) any provision of the
Certificate of Incorporation or Bylaws of Intuit, as currently in effect, or (b)
any federal, state, local or foreign judgment, writ, decree, order, statute or
regulation applicable to and that would have a material adverse effect on Intuit
or its assets or properties.
4.5 Disclosure. Intuit has furnished Milkyway with complete and
accurate copies of its quarterly reports on Form 10-Q for the fiscal quarters
ended October 31, 1994, January 31, 1995, April 30, 1995, and October 31, 1995,
its annual report on form 10-K for its fiscal year ended July 31, 1994, its
annual report on Form 10-K and Form 10-K/A for its fiscal year ended July 31,
1995, its Form 8-K and 8-K/A-1 filed for an event occurring on September 27,
1994, its proxy statement for its special shareholders meeting held on April 10,
1995, its proxy statement for its annual shareholders meeting held on June 20,
1995, its prospectus for a public offering of 1,100,000 (pre stock split) shares
of its Common Stock dated June 20, 1995, and all other reports or documents
required to be filed by Intuit pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended since the filing of the most recent
quarterly report on Form 10-Q (the "Intuit Disclosure Package"). All documents
contained in the Intuit Disclosure Package and filed with the SEC (including all
financial statements included therein) comply in all material respects with the
applicable SEC rules and regulations relating thereto, and as of the date of
this Agreement no additional filing or amendment to any previous filing is
required under such rules and regulations. The Intuit Disclosure Package, this
Agreement, the exhibits and schedules hereto, any certificates or documents to
be delivered to Milkyway pursuant to this Agreement, and any written materials
provided by Intuit to The Kamakura Corporation as agent for and advisor to the
Stockholders and Milkyway when taken together, do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained herein and therein, in light of the
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circumstances under which such statements were made, not misleading at the time
the statement was made or at the Closing Date. The financial statements of
Intuit included in the Intuit Disclosure Package
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complied, at the time of filing with the SEC, as to form, in all material
respects, with applicable accounting requirements and published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles, applied on a consistent basis during
the periods involved, and fairly presented, in all material respects (subject,
in the case of unaudited statements, to normal, recurring year-end audit
adjustments) the financial position of Intuit as of the dates thereof and the
results of its operations and changes in financial position for the periods then
ended.
4.6 No Brokers. Intuit is not obligated for the payment of fees or
expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or in connection with any
transaction provided for herein or therein.
4.7 Pooling. Intuit is not aware of any fact now existing relating
to Intuit, or which may arise before the Closing as a result of facts now
existing relating to Intuit, which would make Ernst & Young unable to deliver
the letter described in Section 9.9.
5. STOCKHOLDER AND MILKYWAY COVENANTS
During the period from the date of this Agreement until the Closing
Date, the Stockholders and Milkyway each individually covenant to and agree with
Intuit as follows:
5.1 Advice of Changes. Milkyway will promptly advise Intuit in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of the Stockholders or Milkyway
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue or inaccurate in any material respect and (b) of any
material adverse change in Milkyway's financial condition, properties, assets,
liabilities, business, results of operations or prospects.
5.2 Maintenance of Business. The Stockholders and Milkyway
understand and acknowledge that it is their intent to work closely together with
Intuit during the period from the date hereof until the Closing Date. If a
Stockholder or Milkyway becomes aware of a material deterioration in the
relationship with any material customer, supplier or key employee, it will
promptly bring such information to the attention of Intuit in writing and, if
requested by Intuit, will exert all reasonable efforts to restore the
relationship.
5.3 Conduct of Business. Except as provided otherwise herein or as
approved or recommended by Intuit, the Stockholders will cause Milkyway to, and
Milkyway agrees to, continue to conduct its business and maintain its business
relationships in the ordinary and usual course and the Stockholders will not
permit Milkyway to, and Milkyway agrees that it will not, without the prior
written consent of the President of Intuit, not to be unreasonably withheld:
(a) borrow any money except in the ordinary course of business
consistent with past practice;
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(b) enter into any transaction not in the ordinary course of
business or enter into any transaction or make any commitment involving an
expense of Milkyway or capital expenditure by Milkyway in excess of 2,500,000
yen;
(c) encumber or permit to be encumbered any of its assets except
in the ordinary course of its business consistent with past practice;
(d) dispose of any of its material assets except in the ordinary
course of business consistent with past practice and except as disclosed in Item
3.11;
(e) enter into any material lease or contract for the purchase
or sale of any property, real or personal, tangible or intangible, except in the
ordinary course of business consistent with past practice;
(f) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained to the
date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, royalty, increased salary (except for annual
increases in the ordinary course of business consistent with past practice and
disclosed to Intuit in writing) or special remuneration to any officer, employee
or consultant (except pursuant to existing arrangements heretofore disclosed in
writing to Intuit) or enter into any new employment or consulting agreement with
any such person, or enter into any new agreement or plan of the type described
in Section 3.16.3;
(h) change accounting methods except as necessitated by changes
which Milkyway is required to make in order to prepare its applicable tax
returns;
(i) declare, set aside or pay any cash or stock dividend or
other distribution in respect of capital stock, or redeem or otherwise acquire
any of its capital stock (except pursuant to agreements disclosed herein to
Intuit);
(j) amend or terminate any contract, agreement or license to
which it is a party (except pursuant to arrangements previously disclosed to
Intuit in writing) except those amended or terminated in the ordinary course of
business, consistent with past practice, and which are not material in amount or
effect; provided, however, that, prior to the Closing Date (1) the consulting
agreement between Milkyway and Shiizu K.K., dated November 1, 1995, and the
consulting agreement between Milkyway and Kenji Morioka, d/b/a/ Earth Themia,
shall be terminated no later than December 31, 1995 and no further payments by
Milkyway under such agreements will be due, and (2) the term of the agreement
between Milkyway and Toshikazu Nakamura regarding accounting services shall be
renewed through December 31, 1996;
(k) lend any amount to any person or entity, other than advances
for travel and expenses which are incurred in the ordinary course of business
consistent with past practice, which travel and expenses shall be documented by
receipts for the claimed amounts;
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(l) guarantee or act as a surety for any obligation except for
the endorsement of checks and other negotiable instruments in the ordinary
course of business, consistent with past practice;
(m) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
(n) issue or sell any shares of its capital stock of any class
or any other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, stock appreciation rights or
other commitments to issue shares of capital stock, or take any action other
than this transaction to accelerate the vesting of any outstanding option or
other security (except pursuant to existing arrangements disclosed in writing to
Intuit before the date of this Agreement);
(o) split or combine the outstanding shares of its capital stock
of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(p) merge, consolidate or reorganize with, or acquire any
entity;
(q) amend its Articles of Incorporation or rules and regulations
except as may be required by law;
(r) agree to any audit assessment by any tax authority or file
any applicable income or franchise tax return unless copies of such returns have
been delivered to Intuit for its review prior to filing;
(s) license any of Milkyway's technology or any Milkyway
Intellectual Property, except in the ordinary course of business consistent with
past practice;
(t) change any insurance coverage except in the ordinary course
of business consistent with past practice;
(u) terminate the employment of any key employee listed in Item
3.11(i); or
(v) agree to do any of the things described in the preceding
clauses 5.3(a) through 5.3(u).
5.4 Certain Agreements. The Stockholders and Milkyway will cause (i)
the Major Stockholders, all Milkyway Directors and all Milkyway employees of the
seniority of kacho and above engaged in development, engineering, programming
and/or related activities to execute a Japanese language version (titled
"Agreement") of the employee invention assignment and confidentiality agreement
with Milkyway attached hereto as Exhibit F to become effective at the Closing
(the "Invention Assignment Agreement"), and (ii) all present employees of and
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consultants to Milkyway engaged in development, engineering, programming and/or
related activities to execute the Invention Assignment Agreement no later than
January 19, 1996.
5.5 Regulatory Approvals. The Stockholders and Milkyway will execute
and file, or join in the execution and filing, of any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, national, federal, prefecture, local or
foreign, which may be reasonably required, or which Intuit may reasonably
request, in connection with the consummation of the transactions provided for in
this Agreement. The Stockholders and Milkyway will use all reasonable efforts to
obtain or assist Intuit in obtaining all such authorizations, approvals and
consents.
5.6 Necessary Consents. The Stockholders and Milkyway will use all
reasonable efforts to obtain such written consents and take such other actions
as may be necessary or appropriate for them, in addition to those set forth in
Section 5.5, to facilitate and allow the consummation of the transactions
provided for herein.
5.7 Litigation. The Stockholders will cause Milkyway to, and
Milkyway agrees that it will notify Intuit in writing promptly after learning of
any action, suit, proceeding or investigation by or before any court, board or
governmental agency, initiated by or against Milkyway or threatened against it.
5.8 No Other Negotiations. From the date hereof until the
termination of this Agreement (provided such termination is not a breach by
Milkyway of this Agreement) or the consummation of the Exchange, the
Stockholders and Milkyway agree that they will not, and will not authorize any
officer, director, employee or affiliate of Milkyway, or any other person, on
their behalf, directly or indirectly, to (a) solicit, facilitate, discuss or
encourage any offer, inquiry or proposal received from any party other than
Intuit, concerning the possible disposition of all or any substantial portion of
Milkyway's business, assets or capital stock by exchange, sale or any other
means or to otherwise solicit, facilitate, discuss or encourage any such
disposition (other than the Exchange), or (b) provide any confidential
information to or negotiate with any third party other than Intuit in connection
with any offer, inquiry or proposal concerning any such disposition. The
Stockholders and Milkyway immediately will notify Intuit of any such offer,
inquiry or proposal, the identity of the person making the offer, inquiry or
proposal and the terms thereof.
5.9 Access to Information. Until the Closing Date and subject to the
terms and conditions of the Confidentiality Agreement, the Stockholders will
cause Milkyway to, and Milkyway agrees that it will provide Intuit and its
agents with reasonable access to the files, books, records and offices of
Milkyway, including, without limitation, any and all information relating to
Milkyway taxes, commitments, contracts, leases, licenses, real, personal and
intangible property, and financial condition, and specifically including,
without limitation, access to Milkyway object code reasonably necessary for
Intuit to complete its diligence review of the Milkyway products and technology.
The Stockholders will cause Milkyway to, and Milkyway agrees that it will cause
its accountants to cooperate with Intuit and its agents in making available
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all financial information reasonably requested, including without limitation the
right to examine all working papers pertaining to all financial statements
prepared by such accountants.
5.10 Satisfaction of Conditions Precedent. The Stockholders and
Milkyway will use all reasonable efforts to satisfy or cause to be satisfied all
the conditions precedent which are set forth in Section 8, and the Stockholders
and Milkyway will use all reasonable efforts to cause the transactions provided
for in this Agreement to be consummated, and, without limiting the generality of
the foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
provided for herein.
5.11 Securities Laws. The Stockholders and Milkyway shall use all
reasonable efforts to assist Intuit to the extent requested by Intuit in writing
necessary to comply with the securities laws of all jurisdictions applicable in
connection with the Exchange.
5.12 Milkyway Affiliates Agreements. Concurrently with the execution
of this Agreement Milkyway shall deliver a letter to Intuit identifying all
Milkyway directors, officers, ten percent or greater shareholders and all other
persons who are "affiliates" of Milkyway within the meaning of Rule 145 or Rule
405 promulgated under the 1933 Act at the time this agreement is executed (the
"Milkyway Affiliates"), and a list of all Milkyway Affiliates will be delivered
by Milkyway to Intuit at the Closing. The Stockholders and Milkyway shall cause
each of the Milkyway Affiliates to execute and deliver to Intuit, on or prior to
Closing, a written agreement (the "Milkyway Affiliates Agreement") in
substantially the form of Exhibit G. In addition, the Stockholders and Milkyway
shall cause each person who may become a Milkyway Affiliate after the date of
this Agreement and before the Closing Date to execute and deliver to Intuit a
Milkyway Affiliates Agreement.
5.13 Pooling. Following the Closing Date, the Stockholders and
Milkyway shall not take (a) any of the actions described in Exhibit H or
(b) any other action if, prior to taking such action, the Stockholders and
Milkyway have been informed by Intuit or its accountants that, in the reasonable
opinion of Intuit or Intuit's accountants, taking such action may preclude
Intuit from accounting for the Exchange as a "pooling of interests" for
accounting purposes and Intuit or its accountants promptly give the Stockholders
and Milkyway a writing that states in reasonable detail the action that Intuit
or its accountants request the Stockholders and Milkyway not to take. The
Stockholders may borrow from a lending institution on a full recourse basis up
to One Million U.S. dollars (US$1,000,000) secured by their Exchange Shares (but
not the Escrow Shares). The Stockholders and Milkyway shall cooperate with
Intuit to cause the Exchange to be accounted for as a pooling of interests for
accounting purposes.
5.14 Assignment of Copyrights. Each of (i) Hidemoto Yoshii,
Yoshikazu Nakamura, and Masashi Miki, and (ii) Taku Okazaki shall execute an
Assignment of Copyright in the forms attached hereto as Exhibit I-1 and Exhibit
I-2, respectively (collectively, the "Assignment of Copyright"), and such
assignments shall have been duly registered pursuant to the Copyright Law of
Japan prior to the Closing Date.
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5.15 Resale of Exchange Shares. Each Stockholder has read and
understood the legends regarding resale restrictions as set forth in Section
7.3, agrees to abide by such restrictions and understands that the Company may
issue "stop transfer" instructions to its transfer agent to prevent any
transfers of the Exchange Shares received by the undersigned in violation of
such restrictions and investors' representations set forth in Section 3.24.
5.16 Shareholder Resolution. Prior to December 31, 1995, the
Stockholders shall convene an extraordinary general meeting and adopt
resolutions in the form attached hereto as Exhibit 0.
5.17 Miki Agreement. Masashi Miki shall have executed an agreement
(the "Miki Agreement") with Intuit in the form attached hereto as Exhibit P.
6. INTUIT COVENANTS
During the period from the date of this Agreement until the Closing,
Intuit covenants to and agrees with the Stockholders and Milkyway as follows:
6.1 Access to Information. Until the Closing Date, Intuit's senior
executives will meet with the Milkyway management team, discuss strategy and
present publicly available financial community projections for Intuit's future
performance, but will not provide material nonpublic information of Intuit which
would inhibit trading by Milkyway management. Intuit will provide material
nonpublic information, including internal projections, solely to The Kamakura
Corporation in its role as agent for and advisor to the Stockholders and
pursuant to the Confidentiality Agreement.
6.2 Advice of Changes. Intuit will promptly advise the Stockholders
and Milkyway in writing (a) of any event occurring subsequent to the date of
this Agreement that would render any representation or warranty of Intuit
contained in this Agreement, if made on or as of the date of such event and the
Closing Date, untrue or inaccurate in any material respect and (b) of any
material adverse change in Intuit's business, results of operations or financial
condition. In addition, Intuit will promptly deliver to the Stockholders' and
Milkyway's legal counsel a copy of each filing made with the SEC prior to the
Closing.
6.3 Satisfaction of Conditions Precedent. Intuit will use all
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 9, and Intuit will use all reasonable
efforts to cause the transactions provided for in this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for herein.
6.4 Regulatory Approvals. Intuit will execute and file, or join in
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, national, federal, state, local or foreign, which may be
reasonably required, or which the Stockholders and Milkyway may
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reasonably request, in connection with the consummation of the transactions
provided for in this Agreement. Intuit will use all reasonable efforts to obtain
all such authorizations, approvals and consents.
6.5 Intuit Affiliates Agreements. To facilitate the treatment of the
Exchange for accounting purposes as a "pooling of interests," Intuit will use
all reasonable efforts to cause each of its affiliates to execute and deliver to
Intuit, a written agreement (the "Intuit Affiliates Agreement") in substantially
the form of Exhibit J.
6.6 Litigation. Intuit will notify the Stockholders and Milkyway in
writing promptly after learning of any material action, suit, proceeding or
investigation by or before any court, board or governmental agency, initiated by
or against Intuit or threatened against it.
6.7 Securities Laws. Intuit shall use all reasonable efforts to
assist Milkyway and the Stockholders to the extent requested by them in writing
necessary to comply with the securities of all jurisdictions applicable in
connection with the Exchange.
7. CLOSING MATTERS
7.1 The Closing. Subject to the termination of this Agreement as
provided in Section 10 below, the closing of the transactions provided for
herein (the "Closing") will take place at the offices of Fenwick & West, Two
Palo Alto Square, Suite 400, Palo Alto, California 94306 at 4:30 p.m., local
time, on January 2, 1996, or, if all conditions to Closing have not been
satisfied or waived by such date, such other time and date as Milkyway, Intuit
and the Stockholders may mutually select (the "Closing Date").
7.2 Exchanges at Closing.
7.2.1 At the Closing, each Stockholder (a) will deliver to
Intuit: (i) the Milkyway Certificate(s) representing the shares of Milkyway
Stock held of record or beneficially owned by such Stockholder for the transfer
to Intuit, (ii) written stock transfer forms separate from the Milkyway
Certificate(s), duly executed by such Stockholder and assigning and transferring
all such shares to Intuit, and (iii) a completed and executed form W-8; and (b)
will deliver to Chemical Mellon Shareholder Services LLC (the "Escrow Agent") a
duly endorsed stock power for the Escrow Shares in the form of Attachment B to
the Escrow Agreement.
7.2.2 Upon receipt of the documents described in Section 7.2.1,
Intuit will direct the Escrow Agent: (a) to issue (and deliver to the Citibank,
N.A. account specified on Exhibit A) a share certificate registered in the name
of such Stockholder for the number of Exchange Shares to be issued to such
Stockholder pursuant to Section 2.1, less the Escrow Shares, as set forth on
Exhibit A, and (b) to issue (and deliver to the Escrow Agent as provided in the
Escrow Agreement) a share certificate registered in the name of such Stockholder
for the Escrow Shares. From the time of the Closing the Stockholders shall be
deemed to be beneficial owners and owners of record of all of the Exchange
Shares listed opposite their names on Exhibit A, and shall be entitled to vote
such shares, receive dividends and distributions on such shares,
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and all other rights pertaining to a holder of such shares as set forth in
Section 2(b) of the Escrow Agreement.
7.2.3 At the Closing, Intuit, Milkyway and the individuals who
are parties to each of the following agreements shall execute and deliver
counterparts of each such agreement: Employment Agreements, Miki Agreement,
Escrow Agreement, Nakamura Agreement, Yoshii Agreement, Milkyway Affiliates
Agreement and Invention Assignment Agreements executed by the Major
Stockholders, all Milkyway Directors and all Milkyway employees of the seniority
of kacho and above engaged in development, engineering, programming and/or
related activities, the Assignment of Copyright and evidence that the actions
required by Section 5.3(j) have been taken. Milkyway also will deliver to Intuit
a certified copy of the minutes of the extraordinary shareholders meeting in the
form of Exhibit O.
7.2.4 At the Closing, Intuit will cause Fenwick & West to
deliver its opinion, and Ernst & Young to deliver its letter pursuant to Section
9.9. At the Closing, Milkyway will cause Mitsui, Yasuda, Wani & Maeda to deliver
its opinion.
7.3 Each Stockholder understands and agrees that stop transfer
instructions will be given to Intuit's transfer agent with respect to
certificates evidencing the Exchange Shares to assure compliance with the
provisions of the Milkyway Affiliates Agreements and Regulation S promulgated
and that there will be placed on the certificates evidencing such Exchange
Shares legends stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND THE OTHER CONDITIONS SPECIFIED IN THAT CERTAIN
MILKYWAY ("MILKYWAY") AFFILIATES AGREEMENT DATED AS OF JANUARY __, 1996
AMONG INTUIT INC., MILKYWAY AND THE HOLDER OF SUCH SHARES, A COPY OF
WHICH AFFILIATES AGREEMENT MAY BE INSPECTED BY THE HOLDER OF THIS
CERTIFICATE AT THE OFFICES OF INTUIT INC. INTUIT INC. WILL FURNISH,
WITHOUT CHARGE, A COPY THEREOF TO THE HOLDER OF THIS CERTIFICATE, UPON
WRITTEN REQUEST THEREFOR. INTUIT INC. MAY REQUIRE AN OPINION OF U.S.
LEGAL COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO INTUIT INC., TO
THE EFFECT THAT SUCH REQUIREMENTS AND CONDITIONS HAVE BEEN MET."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE ACT WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION, AND THE COMPANY DOES NOT INTEND TO REGISTER THEM. PRIOR TO
_______, 1996 [END OF 40-DAY RESTRICTED PERIOD], THE SHARES MAY NOT BE
OFFERED OR SOLD (INCLUDING OPENING
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A SHORT POSITION IN SUCH SECURITIES) IN THE UNITED STATES OR TO U.S.
PERSONS AS DEFINED BY RULE 902(O) ADOPTED UNDER THE ACT, OTHER THAN TO
DISTRIBUTORS, UNLESS THE SHARES ARE REGISTERED UNDER THE ACT, OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE.
PURCHASERS OF SHARES PRIOR TO ________, 1996 [END OF 40-DAY RESTRICTED
PERIOD], MAY RESELL SUCH SECURITIES ONLY PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT, OR IN TRANSACTIONS EFFECTED OUTSIDE OF THE
UNITED STATES PROVIDED THEY DO NOT SOLICIT (AND NO ONE ACTING ON THEIR
BEHALF SOLICITS) PURCHASERS IN THE UNITED STATES OR OTHERWISE ENGAGE(S)
IN SELLING EFFORTS IN THE UNITED STATES. A HOLDER OF THE SECURITIES WHO
IS A DISTRIBUTOR, DEALER, SUB-UNDERWRITER OR OTHER SECURITIES
PROFESSIONAL, IN ADDITION, CANNOT PRIOR TO ___________, 1996 [END OF
40-DAY RESTRICTED PERIOD] RESELL THE SECURITIES TO A U.S. PERSON AS
DEFINED BY RULE 902(O) OF REGULATION S UNLESS THE SECURITIES ARE
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE
ACT IS AVAILABLE."
8. CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDERS
The Stockholders' obligations hereunder are subject to the fulfillment
or satisfaction, on and as of the Closing, of each of the following conditions
(any one or more of which may be waived by the Stockholders, but only in a
writing signed by Stockholders holding at least seventy percent (70%) of the
Milkyway Stock):
8.1 Accuracy of Representations and Warranties. The representations
and warranties of Intuit set forth in Section 4 shall be true and accurate in
every material respect on and as of the Closing Date with the same force and
effect as if they had been made at the Closing, and the Stockholders and
Milkyway shall have received a certificate to such effect executed on behalf of
Intuit by its Chief Financial Officer.
8.2 Covenants. Intuit shall have performed and complied in all
material respects with all of its covenants contained in Section 6 on or before
the Closing Date, except to the extent the terms of such covenants require
compliance after the Closing Date, and the Stockholders and Milkyway shall have
received a certificate to such effect executed on behalf of Intuit by its Chief
Financial Officer or a Vice President.
8.3 Compliance with Law. There shall be no order, decree, or ruling
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 Government Consents. There shall have been obtained at or prior
to the Closing Date such permits or authorizations, and there shall have been
taken such other actions, as may be required to consummate the Exchange by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to any notices to or consents
from the Bank of Japan and/or the Ministry of Finance, satisfaction of all
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requirements under applicable federal and state securities laws in the United
States and applicable securities laws in Japan.
8.5 Documents. Milkyway shall have received all written consents,
assignments, waivers, authorizations or other certificates deemed reasonably
necessary by Milkyway's legal counsel to consummate the transactions provided
for herein.
8.6 No Litigation. No litigation or proceeding shall be pending
which will have the probable effect of enjoining or preventing the consummation
of any of the transactions provided for in this Agreement. No litigation or
proceeding shall be pending which could reasonably be expected to have a
material adverse effect on the financial condition or results of operations of
Intuit that has not been previously disclosed to the Stockholders and Milkyway
in the Intuit Disclosure Package.
8.7 Opinion of Intuit's Counsel. The Stockholders and Milkyway shall
have received from Fenwick & West, counsel to Intuit, an opinion substantially
in the form of Exhibit L.
8.8 No Changes. There shall have been no (i) amendment of Intuit's
Certificate of Incorporation, issuance of Intuit Preferred Stock or other such
event which would materially affect the rights of holders of Intuit Common Stock
or (ii) agreement of Intuit to be acquired by another person.
9. CONDITIONS TO OBLIGATIONS OF INTUIT
The obligations of Intuit hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by Intuit, but only in a writing signed
on behalf of Intuit by its President or Chief Financial Officer):
9.1 Accuracy of Representations and Warranties. The representations
and warranties of the Stockholders and Milkyway set forth in Section 3 shall be
true and complete in all material respects as of the Closing Date with the same
force and effect as if they had been made at the Closing, and Intuit shall have
received a certificate to such effect executed by each Major Stockholder, the
attorney-in-fact for the other Stockholders, and on behalf of Milkyway by its
Representative Director. Counsel for Intuit also shall not have received any
evidence that an assignment has been registered or filed pursuant to the
Copyright Law of Japan which (i) pertains to any software program which has been
or is being sold or otherwise marketed by Milkyway and (ii) precedes an
application for registration pursuant to Section 5.14 above.
9.2 Covenants. Each Stockholder and Milkyway shall have performed
and complied in all material respects with all of its covenants contained in
Section 5 on or before the Closing Date and Intuit shall have received a
certificate to such effect signed by each Stockholder and on behalf of Milkyway
by its President or Chief Financial Officer.
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9.3 Compliance with Law. There shall be no order, decree, or ruling
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions provided
for in this Agreement.
9.4 Government Consents. There shall have been obtained at or prior
to the Closing Date such permits or authorizations and there shall have been
taken such other action, as may be required to consummate the Exchange by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to any notices to or consents
from the Bank of Japan and/or the Ministry of Finance, satisfaction of all
requirements under applicable federal and state securities laws in the United
States and applicable securities laws in Japan.
9.5 Opinions of the Stockholders' and Milkyway's Counsel. Intuit
shall have received from Mitsui, Yasuda, Wani & Maeda counsel to the
Stockholders and Milkyway, an opinion substantially in the form of Exhibit M.
Wilson, Sonsini, Goodrich & Rosati, U.S. counsel to Milkyway and the
Stockholders, will not be required to issue an opinion in connection with this
Agreement.
9.6 Requisite Approvals. The principal terms of this Agreement and
the transfer and exchange of Milkyway Stock pursuant to Section 2.1 shall have
been unanimously approved and adopted by the Board of Directors of Milkyway, and
a certified copy of the minutes containing the resolutions for such action(s)
shall be provided to Intuit at the Closing.
9.7 No Litigation. No litigation or proceeding shall be pending
which will have the probable effect of enjoining or preventing the consummation
of any of the transactions provided for in this Agreement. No litigation or
proceeding shall be pending which could reasonably be expected to have a
material adverse effect on the financial condition or results of operations of
Milkyway that has not been previously disclosed to Intuit herein.
9.8 Documents. Intuit shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by Intuit's legal counsel to provide for the continuation in full
force and effect of any and all material contracts and leases of Milkyway and
for Intuit to consummate the transactions contemplated hereby.
9.9 Pooling Letter. Intuit shall have received a letter from Ernst &
Young LLP, dated as of the Closing Date, regarding the appropriateness of
pooling of interests accounting for the Exchange under Accounting Principles
Board Opinion No. 16 if closed and consummated in accordance with this
Agreement; provided that the failure of Ernst & Young to deliver such a letter
shall not constitute a failure of this condition if Ernst & Young shall refuse
to issue such a letter because of either (a) actions taken by Intuit (unless
with Milkyway's consent after being informed by Intuit of the potential impact
of the proposed Intuit action on the prospects for obtaining such opinion)
between the signing of this Agreement and the Closing Date, or (b) facts
regarding Intuit that were not disclosed to Ernst & Young in writing prior to
the date hereof, or (c) documents regarding Intuit that were not provided by
Intuit to Ernst & Young in writing, prior to the signing of this Agreement or
(d) actions taken by Milkyway with the consent of Intuit or contemplated by this
Agreement.
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9.10 Certain Agreements. The Major Stockholders, all Milkyway
Directors and all Milkyway employees of the seniority of kacho and above engaged
in development, engineering, programming and/or related activities shall have
executed the Invention Assignment Agreement.
9.11 Escrow. Intuit shall have received the Escrow Agreement
executed by Milkyway and the Stockholders.
9.12 Employment and Other Agreements. Intuit shall have received
the Employment Agreements, the Miki Agreement, the Yoshii Agreement and the
Nakamura Agreement executed by all parties thereto.
9.13 Milkyway Affiliates Agreement. Intuit shall have received the
Milkyway Affiliates Agreements executed by each Milkyway Affiliate.
9.14 Modification of Certain Agreements. The agreements between
Milkyway and Shiizu K.K., Kenji Morioka d/b/a Earth Themia and Toshikazu
Nakamura, respectively, shall have been terminated or modified as described in
Section 5.3(j). Milkyway shall provide Intuit with evidence of such
modifications.
9.15 Stockholder Resolution. Intuit shall have received at the
Closing a certified copy of the minutes of an extraordinary shareholders meeting
in the form of Exhibit O.
10. TERMINATION OF AGREEMENT
10.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) By the mutual written consent of Intuit and Milkyway;
(b) Unless otherwise specifically provided herein or agreed in
writing by Intuit, Milkyway and the Stockholders holding at least seventy
percent (70%) of the Milkyway Stock, this Agreement will be terminated if all
the conditions to Closing have not been satisfied or waived on or before January
15, 1996 (the "Final Date") other than as a result of a breach of this Agreement
or any Milkyway Ancillary Agreement by the terminating party, or a breach by any
of the Milkyway Affiliates of the Milkyway Affiliates Agreements;
(c) By Milkyway or Stockholders holding at least seventy
percent (70%) of the Milkyway Stock, if there has been a breach by Intuit of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of Intuit, or if any representation of Intuit will have become untrue,
in either case which has or can reasonably be expected to have a material
adverse effect on Intuit and which Intuit fails to cure within a reasonable
time, not to exceed twenty (20) days, after written notice thereof (except that
no cure period will be provided for a breach by Intuit which by its nature
cannot be cured);
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(d) By Intuit, if there has been a breach by Milkyway or a
Stockholder of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of Milkyway or any Stockholder, or if any
representation of any Stockholder will have become untrue, in either case which
has or can reasonably be expected to have a material adverse effect on Milkyway
and which Milkyway and/or such Stockholder fails to cure within a reasonable
time not to exceed twenty (20) days after written notice thereof (except that no
cure period will be provided for a breach by Milkyway or any Stockholder which
by its nature cannot be cured); or
(e) By either Intuit or Milkyway, if a permanent injunction or
other order by any U.S. or Japanese court which would make illegal or otherwise
restrain or prohibit the consummation of the Exchange will have been issued and
will have become final and nonappealable.
Any termination of this Agreement under this Section 10.1 will be
effective by the delivery of written notice of the terminating party to the
other party hereto.
10.2 Certain Continuing Obligations. Following any termination of
this Agreement pursuant to this Section 10, the parties hereto will continue to
perform their respective obligations under Section 11 but will not be required
to continue to perform their other covenants under this Agreement.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES,
CONTINUING COVENANTS
11.1 Survival of Representations.
11.1.1 Stockholders' and Milkyway's Representations. Each
Stockholder's representations and warranties, except those specified in Section
3.1, shall become effective as of the Closing. The Stockholders' representations
and warranties in Section 3.1 are effective as of the date of this Agreement.
Milkyway's representations and warranties are effective as of the date of this
Agreement. Unless otherwise specified herein, all representations, warranties
and covenants of each Stockholder and Milkyway contained in this Agreement will
remain operative and in full force and effect (but only as of the date they were
made and as of the Closing Date) regardless of any investigation made by or on
behalf of the parties to this Agreement, until the earlier of the termination of
this Agreement in accordance with its terms or the end of the Escrow Period,
whereupon such representations, warranties, and covenants (except for (i) the
representations and warranties in Section 3.1 and (ii) intentional fraud or
willful misconduct with respect to any representations, warranties and
covenants) shall expire.
11.1.2 Intuit's Representations. Intuit's representations,
warranties and covenants contained in this Agreement will remain operative and
in full force and effect (but only as of the date they were made and as of the
Closing Date) regardless of any investigation made by or on behalf of the
parties to this Agreement, until the earlier of the termination of this
Agreement in accordance with its terms or the end of the Escrow Period,
whereupon such representations, warranties, and covenants shall expire. Any
judgment or settlement of a claim
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against Intuit for a breach of its obligations hereunder brought after the
Closing will be settled in Intuit Common Stock, valued at the average of the
closing prices per share of Intuit Common Stock as quoted on the Nasdaq National
Market System and reported in The Wall Street Journal for the ten (10) trading
days ending on (and inclusive of) the Closing Date (or if the Closing Date is
not a trading day, the trading day immediately preceding the Closing Date).
11.2 Stockholders Agreement to Indemnify.
Subject to the limitations set forth in this Section 11.2,
each Stockholder jointly and severally will indemnify and hold harmless Intuit
and its respective officers, directors, agents and employees, and each person,
if any, who controls or may control Intuit within the meaning of the Securities
Act (hereinafter in this Section 11.2 referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
any and all claims, demands, actions, causes of action, losses, costs, damages,
liabilities and expenses including, without limitation, reasonable legal fees,
net of any recoveries under insurance policies or tax savings (hereafter in this
Section 11.2 referred to as "Intuit Damages"):
(a) arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties and covenants
given or made by the Stockholders or Milkyway in this Agreement or any
certificate, document or instrument delivered by the Stockholders or on behalf
of Milkyway or by any other Stockholder pursuant hereto; or
(b) resulting from any failure of any Stockholder to
have good, valid and marketable title to the issued and outstanding Milkyway
Stock held by such Stockholder, free and clear of all liens, claims, pledges,
options, adverse claims, assessments or charges of any nature whatsoever, or to
have full right, capacity and authority to vote such Milkyway Stock in favor of
the transactions contemplated by this Agreement and the Stockholders Ancillary
Agreements.
In seeking indemnification for Intuit Damages under this Section
following the Closing, the Indemnified Persons shall first exercise their
remedies with respect to the Escrow Shares and any other assets deposited in
escrow pursuant to the Escrow Agreement; provided, however, that no such claim
for Intuit Damages under Section 11.2(a) will be asserted after the end of the
Escrow Period. Except for (i) intentional fraud or willful misconduct and (ii)
any damages of the type described in 11.2(b) above, no Stockholder shall have
any liability to an Indemnified Person under this Agreement except to the extent
of such Stockholder's Escrow Shares and any other assets deposited under the
Escrow Agreement, and the remedies set forth in this Section 11.2 shall be the
exclusive remedies of the Indemnified Persons hereunder against any Stockholder.
11.3 Option Registration. To the extent required by applicable law,
Intuit shall register, before June 30, 1996, the options granted to Milkyway's
employees to allow for the legal issuance and exercise in Japan of the options
(subject to the terms of the 1993 Equity Incentive Plan and related documents)
and unrestricted resale in the U.S. markets of the shares
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issued upon exercise of such options (provided Intuit Common Stock continues to
be listed on the Nasdaq National Market).
11.4 Announcement of Results. Intuit intends to announce results
for the fiscal quarter ending January 31, 1996 on or about March 1, 1996 but in
no event later than March 15, 1996, which shall include thirty (30) days
combined operations of Milkyway and Intuit if the Closing has occurred on
January 2, 1996. If the Closing occurs after January 2, 1996, then Intuit shall
use its best efforts to announce results for the subsequent fiscal quarter on or
about June 1, 1996, but in no event later than June 15, 1996.
11.5 Incentive Benefits. Intuit shall provide all details about the
incentive benefits described in Section 6.7 above as soon as practicable.
11.6 Work Rules. The Stockholders and Milkyway shall take all
actions necessary such that Milkyway's work rules be will changed as soon as
possible to provide for specific rules to protect Milkyway's confidential
information and Milkyway Intellectual Property, including (i) the safekeeping of
source code, and (ii) specific rules requiring all employees, consultants,
advisors and any other persons who participate in the development of Milkyway
Intellectual Property to be bound by terms substantially similar to those in the
Invention Assignment Agreement.
11.7 Financial Statements. Milkyway will provide all required
assistance to Intuit and its representatives, to enable the Milkyway Financial
Statements to be "recast" on a U.S. generally accepted accounting principles
("GAAP") basis to Intuit's fiscal periods (including fiscal quarters for fiscal
year ended 1995 and subsequent quarters) ended July 31, 1995, July 31, 1994,
September 30, 1993 and September 30, 1992.
11.8 Proxy. Each Stockholder hereby grants, conditional only on the
Closing, to Intuit such Stockholder's irrevocable proxy to vote on any matter
relating to the declaration of Milkyway dividends in 1996, to the extent such
Stockholder is entitled to vote thereon due to ownership of record of Milkyway
stock in 1995.
11.9 Issuance of Intuit Options. Intuit will grant an aggregate of
Two Hundred Thousand (200,000) Intuit Options to all Milkyway employees (i) in
the amounts set forth beside their respective levels of seniority on Exhibit K
(the "Option Pool"), (ii) pursuant to a vesting schedule whereby one-fourth
(1/4) of the options granted to each employee will become exercisable on the
first anniversary of the Vesting Commencement Date (as defined below) and
thereafter, at the end of each full succeeding month the options shall become
exercisable as to an additional one forty-eighth (1/48) of the number of shares
until such time as the options become exercisable as to all of the shares, (iii)
whereby the "Vesting Commencement Date" will be the Closing Date, (iv) at an
exercise price equal to the closing price per share of Intuit Common Stock as
quoted on the Nasdaq National Market and reported in The Wall Street Journal for
the date such Intuit Options are granted (or, if the Intuit Options are not
granted on a trading day, the trading day immediately preceding the date of
grant), and (v) to the extent permitted by Japanese law, pursuant to the terms
and conditions of Intuit's 1993 Equity Incentive Plan. Intuit will grant
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all Intuit Options from the Option Pool immediately after the Intuit Options and
Intuit Common Stock underlying the Intuit Options have been effectively
registered under Japanese securities laws. Intuit will use all reasonable
efforts to cause the security registration statement under Japanese securities
laws to be filed and declared effective as soon after the Closing as possible,
but in no event will the registration statement be filed later than June 30,
1996.
11.10 Management Incentive Plan. Intuit will offer to certain
Milkyway Employees the following incentive benefits:
(a) Intuit Options. Subject to Section 11.9, each Milkyway
employee will be granted options to purchase the number of shares set forth
beside his or her employment level as described in Exhibit K pursuant to Section
11.9.
(b) Profit Sharing. Each of Masashi Miki, Tohru Morii, Hiroki
Orito, Hirofumi Udagawa and Mitsuya Yahagi will be eligible to participate in
annual profit sharing compensation pursuant to the terms and conditions of
Milkyway's profit sharing plan adopted in February 1995 (the "Yakuin Shoyo
Plan"). Details of the Yakuin Shoyo Plan are included as Attachment A to the
Employment Agreement. Each of Masashi Miki, Tohru Morii, Hiroki Orito, Hirofumi
Udagawa and Mitsuya Yahagi will receive profit sharing pursuant to the Yakuin
Shoyo Plan for Milkyway's fiscal year ending December 31, 1996, unless such
person elects, prior to February 1, 1996, to receive profit sharing pursuant to
the Intuit profit sharing plan. If a person elects to participate in the Intuit
profit sharing plan, such person will not receive any profit sharing pursuant to
the Yakuin Shoyo Plan. The Yakuin Shoyo Plan will terminate on December 31,
1996. If such person received profit sharing pursuant to the Yakuin Shoyo Plan
with respect to Milkyway's fiscal year ending December 31, 1996, such person
will not be eligible to participate in the Intuit profit sharing plan until
February 1, 1997.
(c) Performance Bonus. Each General Manager (bucho), Deputy
Division Manager (jicho), Section Manager (kacho) and the President will be
eligible to receive from Intuit an annual performance bonus pursuant to Intuit's
AVP Plan, with participation commencing on the Closing Date. The bonus shall be
determined based on a payment goal of ten percent (10%) of such person's Base
Salary (defined below) (other than the President, for whom such payment goal
will be 20% of his base remuneration) for achievement of personal "target"
goals, with greater or lesser percentage payments for achievement above and
below the "target" in accordance with the terms and conditions of the AVP Plan.
"Base Salary" shall include the following: (i) the age based salary and the job
based salary (kihon-kyu), (ii) the manager allowance (yakushoku-teate) and (iii)
semi-annual bonuses (excluding the performance based portion of such bonuses).
The Base Salary will be equal to the amount calculated in accordance with the
salary payment rules which are in effect immediately prior to the Effective
Date. The bonus under the AVP Plan shall be determined at the end of Intuit's
fiscal year (July 31) and paid at the same time paid to other AVP Plan
participants. The amount such person receives under the AVP Plan will be
reduced, yen-for-yen, by the amount such person received as the performance
based portion of the winter bonus such person received prior to the payment of
the AVP Plan bonus, to the extent permitted under Japanese law. Payments under
the Yakuin Shoyo Plan or Intuit's profit sharing plan will not reduce AVP Plan
payments.
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(d) Other Incentives. Intuit will establish other incentive
plans, based on Intuit's incentive plans for its engineering and/or development
personnel, as applicable, for Milkyway's Assistant Section Managers (kakaricho).
12. MISCELLANEOUS
12.1 Governing Language and Law; Dispute Resolution. This
Agreement is written in English (except for the Japanese language version of the
Invention Assignment Agreement) and entered into in Palo Alto, California and
the English language shall govern. The internal laws of the State of Delaware
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto. Any dispute hereunder
("Dispute") shall be settled by arbitration in San Francisco, California, and,
except as herein specifically stated, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA Rules") then in
effect. However, in all events, these arbitration provisions shall govern over
any conflicting rules which may now or hereafter be contained in the AAA Rules.
Any judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction over the subject matter thereof. The arbitrator shall
have the authority to grant any equitable and legal remedies that would be
available in any judicial proceeding instituted to resolve a Dispute.
12.1.1 Compensation of Arbitrator. Any such arbitration will
be conducted before a single arbitrator who will be compensated for his or her
services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon reasonable hourly or daily consulting
rates for the arbitrator in the event the parties are not able to agree upon his
or her rate of compensation.
12.1.2 Selection of Arbitrator. The American Arbitration
Association will have the authority to select an arbitrator from a list of
arbitrators who are lawyers familiar with contract law; provided, however, that
such lawyers cannot work for a firm then performing services for either party,
that each party will have the opportunity to make such reasonable objection to
any of the arbitrators listed as such party may wish and that the American
Arbitration Association will select the arbitrator from the list of arbitrators
as to whom neither party makes any such objection. In the event that the
foregoing procedure is not followed, each party will choose one person from the
list of arbitrators provided by the American Arbitration Association (provided
that such person does not have a conflict of interest), and the two persons so
selected will select from the list provided by the American Arbitration
Association the person who will act as the arbitrator.
12.1.3 Payment of Costs. Intuit and the Stockholders will
bear the expense of deposits and advances required by the arbitrator in equal
proportions, but either party may advance such amounts, subject to recovery as
an addition or offset to any award. The arbitrator will award to the prevailing
party, as determined by the arbitrator, all costs, fees and
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<PAGE> 37
expenses related to the arbitration, including reasonable fees and expenses of
attorneys, accountants and other professionals incurred by the prevailing party.
If such an award would result in manifest injustice, however, the arbitrator may
apportion such costs, fees and expenses between the parties as such arbitrator
deems just and equitable.
12.1.4 Burden of Proof. For any Dispute submitted to
arbitration, the burden of proof will be as it would be if the claim were
litigated in a judicial proceeding.
12.1.5 Award. Upon the conclusion of any arbitration
proceedings hereunder, the arbitrator will render findings of fact and
conclusions of law and a written opinion setting forth the basis and reasons for
any decision reached and will deliver such documents to each party to this
Agreement along with a signed copy of the award.
12.1.6 Terms of Arbitration. The arbitrator chosen in
accordance with these provisions will not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Agreement.
12.1.7 Exclusive Remedy. Except as specifically otherwise
provided in this Agreement, arbitration will be the sole and exclusive remedy of
the parties for any Dispute arising out of this Agreement.
12.2 Assignment; Binding Upon Successors and Assigns. No party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of all the other parties hereto. This Agreement will be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in counterparts,
each of which will be an original as regards any party whose name appears
thereon and all of which together will constitute one and the same instrument.
This Agreement will become binding when one or more counterparts hereof,
individually or taken together, bear the signatures of all parties reflected
hereon as signatories.
12.5 Other Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law on such
party, and the exercise of any one remedy will not preclude the exercise of any
other.
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12.6 Amendment and Waivers. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only by a writing signed by the party to be bound thereby
(except as otherwise provided herein). The waiver by a party of any breach
hereof or default in the performance hereof will not be deemed to constitute a
waiver of any other default or any succeeding breach or default.
12.7 No Waiver. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of the
right to enforce any of the provisions hereof on any occasion will not be
construed to be a waiver of the right of such party to enforce such provision on
any other occasion.
12.8 Expenses. Intuit will bear its own expenses and the expenses
and fees of its own accountants, attorneys, investment bankers and other
professionals incurred with respect to this Agreement and the transactions
contemplated hereby. The Stockholders jointly and severally will bear (i) their
own expenses and the expenses and fees of their own accountants, attorneys,
investment bankers and other professionals (including any broker's or finder's
fees) and (ii) Milkyway's expenses and the expenses and fees of Milkyway's
accountants, attorneys, investment bankers and other professionals (including
any broker's or finder's fees) incurred with respect to this Agreement and the
transactions contemplated hereby.
12.9 Notices. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be delivered
personally or by mail or express delivery, postage prepaid, and will be deemed
given upon actual delivery or, if mailed by registered or certified mail, on the
third business day following deposit in the mails, addressed as follows:
(i) If to Intuit:
Intuit Inc.
1840 Embarcadero Way
Palo Alto, CA 94303
Attention: General Counsel
Phone: (415) 944-6656
Fax: (415) 944-6622
with a copy to:
Fenwick & West
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Gordon K. Davidson
Phone: (415) 494-0600
Fax: (415) 857-0361
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(ii) If to Milkyway:
Kabushiki Kaisha Milkyway
2-14-5
Akasaka, Minato-ku
Tokyo, Japan
Attention: President
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with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Neil J. Wolff
Phone: (415) 493-9300
Fax: (415) 493-6811
(iii) If to the Stockholders:
at the address listed below their respective names on the signature pages below
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 12.9.
12.10 Construction of Agreement. The language hereof will not be
construed for or against either party. A reference to an article, section or
exhibit will mean an article or section in, or an exhibit to, this Agreement,
unless otherwise explicitly set forth. The titles and headings in this Agreement
are for reference purposes only and will not in any manner limit the
construction of this Agreement. For the purposes of such construction, this
Agreement will be considered as a whole.
12.11 No Joint Venture. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other, and the parties'
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party will have any power or
authority to bind or commit any other. No party will hold itself out as having
any authority or relationship in contravention of this Section 12.11.
12.12 Further Assurances. Each party agrees to cooperate fully with
the other party and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by the other party to evidence and reflect the transactions provided
for herein and to carry into effect the intent of this Agreement.
12.13 Absence of Third Party Beneficiary Rights. No provisions of
this Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner or employee of any party hereto or any other person
or entity, unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement.
12.14 Public Announcement. Intuit and Milkyway will issue a press
release approved by both parties announcing the Exchange as soon as practicable
following the execution of this Agreement. Intuit may issue such press releases,
and make such other
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<PAGE> 41
disclosures regarding the Exchange, as it determines to be required or
appropriate under applicable securities laws or National Association of
Securities Dealers, Inc. rules after reasonable consultation, where possible,
with Milkyway. Milkyway will take all reasonable precautions to prevent any
trading in the securities of Intuit by officers, directors, employees and agents
of Milkyway (a) having knowledge of any material information regarding Intuit
provided hereunder until the information in question has been publicly disclosed
or (b) to the extent that such trading would adversely affect the treatment of
the Exchange as a "pooling of interests" for accounting purposes.
12.15 Time is of the Essence. The parties hereto acknowledge and
agree that time is of the essence in connection with the execution, delivery and
performance of this Agreement, and that they will each utilize their best
efforts to satisfy all the conditions to Closing on or before January 1, 1996.
12.16 Entire Agreement. This Agreement, the exhibits hereto and the
Confidentiality Agreement constitute the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof and supersede all
prior agreements or understandings, inducements or conditions, express or
implied, written or oral, between the parties with respect to the subject matter
hereof. The express terms hereof control and supersede any course of performance
or usage of trade inconsistent with any of the terms hereof. The December 1995
Letter of Intent between Milkyway and Intuit is hereby terminated.
12.17 Delivery. Delivery of any document, financial statement, tax
or information return, list or other item required to be delivered to any party
pursuant to this Agreement (each individually, a "Document") shall be deemed to
have occurred if such Document is delivered directly to the party to receive
such Document or directly to any advisor to or agent for such party, provided,
however, that such Document must be delivered in the form and language required
pursuant to this Agreement. Documents delivered by Milkyway in response to
Intuit's due diligence request were delivered in Japanese and/or English.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTUIT INC. KABUSHIKI KAISHA MILKYWAY
By: /s/ WILLIAM H. LANE By: /s/ MASASHI MIKI
--------------------------- ---------------------------
Masashi Miki
Its: President
---------------------------
STOCKHOLDERS
/s/ HIDEMOTO YOSHII /s/ YUKO YOSHII
- ------------------------------- -------------------------------
Hidemoto Yoshii Yuko Yoshii
3-11-12 Mukaibara 3-11-12 Mukaibara
Asao-ku, Kawasaki-shi Asao-ku, Kawasaki-shi
Kanagawa-ken, Japan Kanagawa-ken, Japan
/s/ MASASHI MIKI /s/ SADAO MIKI
- ------------------------------- -------------------------------
Masashi Miki Sadao Miki
2-8-5-104 Tate 1-11-17 Arajuku-machi
Shiki-shi, Saitama-ken, Japan Kawagoe-shi, Saitama-ken, Japan
/s/ TOSHIKAZU NAKAMURA /s/ TOSHIMITSU NAKAMURA
- ------------------------------- -------------------------------
Toshikazu Nakamura Toshimitsu Nakamura
2-205-1 Sengen-cho 4-41 Miya-cho
Omiya-shi, Saitama-ken, Japan Omiya-shi, Saitama-ken, Japan
SIGNATURE PAGE TO EXCHANGE AGREEMENT
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TABLE OF CONTENTS
Page
----
1. DEFINITIONS........................................................ 1
1.1 Balance Sheet Date............................................ 1
1.2 Closing ...................................................... 1
1.3 Closing Date.................................................. 1
1.4 Code ......................................................... 1
1.5 Confidentiality Agreement..................................... 2
1.6 Employee Plans................................................ 2
1.7 Employment Agreements......................................... 2
1.8 Escrow Agreement.............................................. 2
1.9 Escrow Period................................................. 2
1.10 Escrow Shares................................................. 2
1.11 The Exchange.................................................. 2
1.12 Exchange Shares............................................... 2
1.13 Material Agreement............................................ 2
1.14 Major Stockholder............................................. 2
1.15 Intuit Affiliates Agreement................................... 2
1.16 Intuit Ancillary Agreements................................... 2
1.17 Intuit Common Stock........................................... 2
1.18 Intuit Options................................................ 3
1.19 Milkyway Ancillary Agreements................................. 3
1.20 Milkyway Certificates......................................... 3
1.21 Milkyway Intellectual Property................................ 3
1.22 Milkyway Stock................................................ 3
1.23 Nakamura Agreement............................................ 3
1.24 Securities Act................................................ 3
1.25 SEC........................................................... 3
1.26 Stockholders Ancillary Agreements............................. 3
1.27 U.S. Person................................................... 3
1.28 Yoshii Agreement.............................................. 3
2. THE EXCHANGE ...................................................... 3
2.1 The Exchange.................................................. 3
2.2 No Adjustments................................................ 3
2.3 Escrow Agreement.............................................. 4
2.4 Securities Law Issues......................................... 4
2.5 Qualified Stock Purchase...................................... 4
2.6 Pooling of Interests.......................................... 4
<PAGE> 44
TABLE OF CONTENTS
Page
----
3. REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS ............................................... 4
3.1 Title ........................................................ 4
3.2 Organization ................................................. 5
3.3 Power, Authorization and Validity............................. 5
3.4 Capitalization ............................................... 5
3.5 Subsidiaries; Not a Subsidiary................................ 6
3.6 No Violation of Existing Agreements........................... 6
3.7 Litigation ................................................... 6
3.8 Milkyway Financial Statements................................. 7
3.9 Taxes ........................................................ 7
3.10 Title to Properties........................................... 7
3.11 Absence of Certain Changes.................................... 8
3.12 Agreements and Commitments.................................... 9
3.13 Intellectual Property and Products............................ 10
3.14 Compliance with Laws.......................................... 11
3.15 Certain Transactions and Agreements........................... 12
3.16 Employees .................................................... 12
3.17 Corporate Documents........................................... 13
3.18 No Brokers.................................................... 13
3.19 Disclosure.................................................... 13
3.20 Information Supplied.......................................... 14
3.21 Books and Records............................................. 14
3.22 Insurance .................................................... 14
3.23 Environmental Matters......................................... 14
3.24 Securities Matters............................................ 15
4. REPRESENTATIONS AND WARRANTIES OF INTUIT........................... 16
4.1 Organization and Good Standing ............................... 16
4.2 Power, Authorization and Validity ............................ 16
4.3 Capitalization ............................................... 17
4.4 No Violation of Certificate or Laws........................... 17
4.5 Disclosure ................................................... 17
4.6 No Brokers ................................................... 18
4.7 Pooling ...................................................... 18
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TABLE OF CONTENTS
Page
----
5. STOCKHOLDER AND MILKYWAY COVENANTS................................. 18
5.1 Advice of Changes ............................................ 18
5.2 Maintenance of Business ...................................... 18
5.3 Conduct of Business .......................................... 18
5.4 Certain Agreements ........................................... 20
5.5 Regulatory Approvals ......................................... 21
5.6 Necessary Consents ........................................... 21
5.7 Litigation ................................................... 21
5.8 No Other Negotiations ........................................ 21
5.9 Access to Information ........................................ 21
5.10 Satisfaction of Conditions Precedent.......................... 21
5.11 Securities Laws .............................................. 22
5.12 Milkyway Affiliates Agreements................................ 22
5.13 Pooling ...................................................... 22
5.14 Assignment of Copyrights...................................... 22
5.15 Resale of Exchange Shares..................................... 22
5.16 Shareholder Resolution........................................ 23
5.17 Miki Agreement................................................ 23
6. INTUIT COVENANTS .................................................. 23
6.1 Access to Information ........................................ 23
6.2 Advice of Changes ............................................ 23
6.3 Satisfaction of Conditions Precedent.......................... 23
6.4 Regulatory Approvals ......................................... 23
6.5 Intuit Affiliates Agreements.................................. 23
6.6 Litigation ................................................... 24
6.7 Securities Laws .............................................. 24
7. CLOSING MATTERS ................................................... 24
7.1 The Closing .................................................. 24
7.2 Exchanges at Closing ......................................... 24
7.3 Legend Restrictions .......................................... 25
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TABLE OF CONTENTS
Page
----
8. CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDERS...................... 26
8.1 Accuracy of Representations and Warranties.................... 26
8.2 Covenants .................................................... 26
8.3 Compliance with Law........................................... 26
8.4 Government Consents........................................... 26
8.5 Documents .................................................... 26
8.6 No Litigation ................................................ 27
8.7 Opinion of Intuit's Counsel .................................. 27
8.8 No Changes ................................................... 27
9. CONDITIONS TO OBLIGATIONS OF INTUIT................................ 27
9.1 Accuracy of Representations and Warranties.................... 27
9.2 Covenants .................................................... 27
9.3 Compliance with Law .......................................... 27
9.4 Government Consents .......................................... 27
9.5 Opinion of the Stockholders' and Milkyway's Counsel........... 28
9.6 Requisite Approvals .......................................... 28
9.7 No Litigation ................................................ 28
9.8 Documents .................................................... 28
9.9 Pooling Letter ............................................... 28
9.10 Certain Agreements............................................ 28
9.11 Escrow ....................................................... 28
9.12 Employment and Other Agreements............................... 29
9.13 Milkyway Affiliates Agreements ............................... 29
9.14 Modification of Certain Agreements............................ 29
9.15 Stockholder Resolution ....................................... 29
10. TERMINATION OF AGREEMENT .......................................... 29
10.1 Termination................................................... 29
10.2 Certain Continuing Obligations................................ 30
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TABLE OF CONTENTS
Page
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11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND
REMEDIES, CONTINUING COVENANTS................................... 30
11.1 Survival of Representations.................................. 30
11.2 Stockholders Agreement to Indemnify.......................... 30
11.3 Option Registration ......................................... 31
11.4 Announcement of Results...................................... 31
11.5 Incentive Benefits .......................................... 31
11.6 Work Rules .................................................. 32
11.7 Financial Statements ........................................ 32
11.8 Proxy ....................................................... 32
11.9 Issuance of Intuit Options................................... 32
11.10 Management Incentive Plan.................................... 32
12. MISCELLANEOUS ..................................................... 33
12.1 Governing Language and Law; Dispute Resolution............... 33
12.2 Assignment; Binding upon Successors and Assigns.............. 35
12.3 Severability ................................................ 35
12.4 Counterparts ................................................ 35
12.5 Other Remedies .............................................. 35
12.6 Amendment and Waivers........................................ 35
12.7 No Waiver ................................................... 35
12.8 Expenses .................................................... 36
12.9 Notices ..................................................... 36
12.10 Construction of Agreement ................................... 37
12.11 No Joint Venture ............................................ 37
12.12 Further Assurances .......................................... 37
12.13 Absence of Third Party Beneficiary Rights.................... 37
12.14 Public Announcement ......................................... 37
12.15 Time is of the Essence ...................................... 38
12.16 Entire Agreement ............................................ 38
12.17 Delivery .................................................... 38
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LIST OF EXHIBITS
Exhibit A Milkyway Stockholders
Exhibit B-1 Form of Employment Agreements
Exhibit B-2 Form of Representative Director Agreement
Exhibit C Form of Escrow Agreement
Exhibit D Form of Agreement with Mr. Nakamura
Exhibit E Form of Agreement with Mr. Yoshii
Exhibit F Form of Invention Assignment Agreement
Exhibit G Form of Milkyway Affiliates Agreement
Exhibit H Pooling Compliance Actions
Exhibit I-1 Form of Assignment of Copyright (Major Stockholders)
Exhibit I-2 Form of Assignment of Copyright (Okazaki)
Exhibit J Form of Intuit Affiliates Agreement
Exhibit K Employee Stock Options
Exhibit L Form of Fenwick & West Opinion
Exhibit M Form of Mitsui, Yasuda, Wani & Maeda Opinion
Exhibit N Milkyway Disclosure Schedule
Exhibit O Resolutions to be Adopted at an Extraordinary Shareholder Meeting
Exhibit P Form of Miki Agreement
The exhibits listed above will be furnished to the Commission upon
request.
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Exhibit 2.02
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made
and entered into as of October 24, 1995 (the "AGREEMENT DATE") by and between
Intuit Inc., a Delaware corporation ("INTUIT"), and GALT Technologies, Inc., a
Pennsylvania corporation ("GALT").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, a Delaware corporation to be designated by Intuit that is a
wholly-owned subsidiary of Intuit ("INTUIT SUB") shall be merged with and into
GALT in a statutory merger (the "MERGER"), with GALT to be the surviving
corporation of the Merger, all pursuant to the terms and conditions of this
Agreement and applicable law.
B. The Merger is intended to be a tax-free plan of reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"),
and is intended by the parties to qualify for "pooling of interests" accounting
treatment.
C. Upon the effectiveness of the Merger, all the capital stock of GALT
("GALT CAPITAL STOCK") outstanding immediately prior thereto shall be converted
into shares of the common stock of Intuit plus cash for eliminated fractional
shares, the employee stock options to purchase shares of GALT common stock that
are outstanding immediately prior to the Effective Time under GALT's 1995 Stock
Option Plan shall be assumed by Intuit and converted into options to purchase
Intuit common stock as provided herein and Intuit Sub shall be merged with and
into GALT, all as provided herein.
NOW, THEREFORE, in consideration of the facts set forth in the
foregoing recitals and the agreements and conditions set forth herein, the
parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
1.1 The "MERGER" shall mean the merger of Intuit Sub with and into GALT
(or, if Intuit so elects pursuant to Section 2.11 hereof, the merger of GALT
with and into Intuit Sub) contemplated by this Agreement.
1.2 "EFFECTIVE TIME" means the time and date on which an Agreement of
Merger in substantially the form of Exhibit A hereto (the "AGREEMENT OF MERGER")
regarding the Merger and conforming to the requirements of Section 252 of the
Delaware General Corporation Law is filed with the Delaware Secretary of State
pursuant to Section 252 of the Delaware General Corporation Law and Articles of
Merger regarding the Merger and conforming to the requirements of Section 1926
of the Pennsylvania Business Corporation Law (the "ARTICLES OF MERGER") are
filed with the Pennsylvania Department of State pursuant to Section 1926 of the
Pennsylvania Business Corporation Law and the Merger becomes effective under
Delaware and Pennsylvania law.
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1.3 "INTUIT COMMON STOCK" means the Common Stock, $0.01 par value, of
Intuit.
1.4 "INTUIT PRICE PER SHARE" means $47.275, which is the average of the
closing prices of Intuit Common Stock as quoted on the Nasdaq National Market
System and reported in The Wall Street Journal for the ten (10) trading days
ending on (and inclusive of) October 18, 1995.
1.5 "GALT COMMON STOCK" means the Common Stock, $0.01 par value, of
GALT.
1.6 "GALT SERIES A PREFERRED STOCK" means the Series A Participating
Preferred Stock, $0.01 par value, of GALT.
1.7 "GALT STOCK" means GALT Common Stock and GALT Series A Preferred
Stock, collectively.
1.8 "GALT OPTIONS" means options to purchase GALT Common Stock from
GALT granted by GALT to GALT employees under GALT's 1995 Stock Option Plan (the
"GALT OPTION PLAN").
1.9 "GALT DERIVATIVE SECURITIES" means, collectively, (a) any warrant,
option, right or other security that entitles the holder thereof to purchase or
otherwise acquire any shares of the capital stock of GALT ("GALT WARRANTS"); (b)
any note, evidence of indebtedness, stock or other security that is convertible
into or exchangeable for any shares of the capital stock of GALT or any GALT
Warrant ("GALT CONVERTIBLE SECURITY"); and (c) any, warrant, option, right or
other security that entitles the holder thereof to purchase or otherwise acquire
any GALT Convertible Security or any GALT Warrant; provided, however, that the
term "GALT Derivative Securities" does not include any GALT Options.
1.10 "FULLY DILUTED GALT SHARES" means that number of shares of GALT
Common Stock that is equal to the sum of: (a) the total number of shares of GALT
Common Stock that are issued and outstanding immediately prior to the Effective
Time; plus (b) the total number of shares of GALT Common Stock, if any, that are
directly or indirectly ultimately issuable by GALT upon the exercise, conversion
or exchange of all GALT Derivative Securities (including but not limited to
shares of GALT Series A Preferred Stock) that are issued and outstanding
immediately prior to the Effective Time (but excluding the shares of GALT Common
Stock, if any, that are ultimately issuable upon the exercise of all GALT
Options that are issued and outstanding immediately prior to the Effective
Time).
1.11 "GALT DISSENTING SHARES" means any shares of GALT Stock that are
held by a GALT shareholder as to which dissenter's rights to require the payment
of the fair value of such shares as provided in Chapter 15 of the Pennsylvania
Business Corporation Law have been duly and properly exercised and perfected.
1.12 "GALT SERIES A PREFERENCE AMOUNT" means the sum of $334,459.77.
1.13 "UNADJUSTED CONVERSION NUMBER" means the number equal to the
fraction (a) whose numerator is the quotient obtained by dividing the Merger
Amount (as defined below) by
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the number of shares of GALT Common Stock equal to the Fully Diluted GALT
Shares, and (b) whose denominator is the Intuit Price Per Share. As used herein,
the "MERGER AMOUNT" shall initially mean the sum of Nine Million Dollars
($9,000,000), provided that the Merger Amount shall be subject to adjustment
from time to time as provided in Sections 11.2 and 11.3 hereof, and upon each
such adjustment, the adjusted Merger Amount shall become the Merger Amount.
1.14 "GALT NON-INTUIT-RELATED REVENUE" means the aggregate amount of
revenue recognized by GALT on the accrual method of accounting during the time
period commencing on January 1, 1996 and ending on the last day of the last full
calendar month preceding the Closing (such time period being hereinafter
referred to as the "MEASURE PERIOD"), as determined in accordance with generally
accepted accounting principles consistently applied, minus all Intuit-Related
Revenue, as defined below. As used herein, the term "INTUIT-RELATED REVENUE"
means all revenue recognized by GALT on the accrual method of accounting during
the Measure Period that is derived in any manner from the Services Agreement
dated of even date herewith to be entered into by and between Intuit and GALT
concurrently with their execution of this Agreement, as determined in accordance
with generally accepted accounting principles consistently applied.
1.15 "ADJUSTMENT FACTOR" means the quotient obtained by dividing the
GALT Non-Intuit-Related Revenue by the cumulative sum of the GALT
Non-Intuit-Related Revenue projected to be recognized by GALT during the Measure
Period as indicated in the GALT Revenue Projection Schedule attached hereto as
Exhibit 1.15; provided however, that the Adjustment Factor may not be less than
one (1.00) or greater than one and eleven-hundredths (1.11) and accordingly,
notwithstanding the foregoing, if the Adjustment Factor as calculated above
would be a number less than one (1.00), then the Adjustment Factor shall be one
(1.00) and if the Adjustment Factor as calculated above would be a number
greater than one and eleven-hundredths (1.11), then the Adjustment Factor shall
be one and eleven-hundredths (1.11).
1.16 "ADJUSTED CONVERSION NUMBER" means the product obtained by
multiplying the Unadjusted Conversion Number by the Adjustment Factor.
1.17 "INTUIT MERGER SHARES" means the number of shares of Intuit Common
Stock, as presently constituted, equal to the product obtained by multiplying
the Adjusted Conversion Number by the number of shares of GALT Common Stock
equal to the Fully Diluted GALT Shares.
1.18 "INTUIT PREFERENCE SHARES" means that number of the Intuit Merger
Shares that is equal to the number obtained by dividing the GALT Series A
Preference Amount by the Intuit Price Per Share.
1.19 "INTUIT PARTICIPATION SHARES" means that number of the Intuit
Merger Shares remaining after the Intuit Preference Shares have been subtracted
from the Intuit Merger Shares.
1.20 "SERIES A PREFERENCE CONVERSION NUMBER" means that number obtained
by dividing the Intuit Preference Shares by the total number of shares of GALT
Series A Preferred Stock that are issued and outstanding immediately prior to
the Effective Time.
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1.21 "PARTICIPATION CONVERSION NUMBER" means that number obtained by
dividing the number of Intuit Participation Shares by the number of Fully
Diluted GALT Shares.
1.22 "PREFERRED PARTICIPATION CONVERSION NUMBER" means that number
obtained by multiplying the Participation Conversion Number by the number of
shares of GALT Common Stock into which each share of GALT Series A Preferred
Stock is convertible under GALT's Articles of Incorporation immediately prior to
the Effective Time.
Other capitalized terms defined elsewhere in this Agreement and not
defined in this Section 1 shall have the meanings assigned to such terms in this
Agreement.
2. PLAN OF REORGANIZATION
Subject to the terms and conditions of this Agreement, at the Effective
Time Intuit Sub shall be merged with and into GALT (unless Intuit elects
otherwise pursuant to the provisions of Section 2.11 hereof), pursuant to this
Agreement in accordance with applicable provisions of the laws of the State of
Delaware and the Commonwealth of Pennsylvania, as follows:
2.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without the need for any action on the part of any holder of any
shares of stock described below:
2.1.1 Cancellation of GALT Treasury Stock. Each share of GALT
Stock (if any) held by GALT as treasury stock immediately prior to the Effective
Time shall be canceled and no payment or other consideration whatsoever shall be
made or paid with respect thereto.
2.1.2. Conversion of Intuit Sub Stock. Each share of the
Common Stock of Intuit Sub that is issued and outstanding immediately prior to
the Effective Time shall be converted into and become one (1) share of GALT
Common Stock which shall be issued and outstanding immediately after the
Effective Time, and the shares of GALT Common Stock into which the shares of
Intuit Sub are so converted shall be the only shares of GALT Stock that are
issued and outstanding immediately after the Effective Time.
2.1.3. Conversion of GALT Stock. Each share of GALT Common
Stock and each share of GALT Series A Preferred Stock that is issued and
outstanding immediately prior to the Effective Time (other than any GALT
Dissenting Shares as provided in Section 2.4) shall be converted into shares of
Intuit Common Stock as follows, subject to the provisions of Section 2.5
regarding the elimination of fractional shares:
(a) GALT Series A Preferred Stock. Each share of
GALT Series A Preferred Stock that is issued and outstanding immediately prior
to the Effective Time shall be converted into a number of shares of Intuit
Common Stock equal to the sum of the Series A Preference Conversion Number plus
the Preferred Participation Conversion Number; and
(b) GALT Common Stock. Each share of GALT Common
Stock that is issued and outstanding immediately prior to the Effective Time
shall be converted into a number of shares of Intuit Common Stock equal to the
Participation Conversion Number.
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It is the purpose and intent of this Section 2.1.3 to carry
into effect the merger liquidation preference provisions set forth in GALT's
Articles of Incorporation as in effect on the Agreement Date. Exhibit B attached
hereto sets forth examples of the formula used to determine the Series A
Preference Conversion Number and the Participation Conversion Number for
purposes of converting the outstanding shares of GALT Common Stock and GALT
Series A Preferred Stock in the Merger into shares of Intuit Common Stock as
provided in this Section 2.1.3 and the application of the formula set forth in
Section 2.2 for converting GALT Options into Intuit Options in the Merger.
2.2 Assumption and Conversion of GALT Options.
(a) Assumption by Intuit. Each GALT Option that is outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and at
the Effective Time and without the need for any further action on the part of
any holder thereof, be assumed by Intuit and converted into an option (an
"INTUIT OPTION") to purchase that number of shares of Intuit Common Stock
determined by multiplying the number of shares of GALT Common Stock subject to
such GALT Option immediately prior to the Effective Time by the Participation
Conversion Number, at an exercise price per share of Intuit Common Stock equal
to the exercise price per share of GALT Common Stock that was in effect for such
GALT Option immediately prior to the Effective Time divided by the Participation
Conversion Number; provided, however, that if the foregoing calculation would
result in an assumed and converted GALT Option being converted into an Intuit
Option that, after aggregating all the shares of Intuit Common Stock issuable
upon the exercise of such Intuit Option, would be exercisable for a fraction of
a share of Intuit Common Stock, then the number of shares of Intuit Common Stock
subject to such Intuit Option shall be rounded down to the nearest whole number
of shares of Intuit Common Stock. The terms, exercisability, vesting schedule,
status as an "incentive stock option" under Section 422 of the Code, if
applicable, and all other terms and conditions of GALT Options (including but
not limited to the terms and conditions applicable to such options by virtue of
the GALT Option Plan) shall, to the extent permitted by law and otherwise
reasonably practicable, be unchanged. Continuous employment with GALT shall be
credited to the optionee for purposes of determining the vesting of the number
of shares of Intuit Common Stock subject to exercise under the converted GALT
Option after the Effective Time.
(b) Registration. Intuit shall use its best efforts to cause
the shares of Intuit Common Stock issuable upon exercise of the GALT Options
that are converted into Intuit Options under this Section to be registered on a
registration statement (or to be issued pursuant to a then-effective
registration statement) on Form S-8 (or successor form) promulgated by the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "1933 ACT"), no later than ninety (90) days after the Effective
Time and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as such assumed
GALT Options remain outstanding.
2.3 Adjustments for Capital Changes. If, prior to the Effective
Time of Merger, Intuit or GALT recapitalizes, either through a split-up or
subdivision of its outstanding shares into a greater number of shares, or
through a reverse split or combination of its outstanding shares into a lesser
number of shares, or reorganizes, reclassifies or otherwise changes its
outstanding shares
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into the same or a different number of shares of other classes (other than
through a split-up, subdivision, reverse split or combination of shares provided
for in the previous clause), or declares a dividend on its outstanding shares
payable in shares or securities convertible into shares (a "CAPITAL CHANGE"),
then the number of shares of Intuit Common Stock into which the shares of GALT
Stock are to be converted in the Merger, and the number of shares of Intuit
Common Stock to be issued upon exercise of the Intuit Options issued upon the
conversion of GALT Options in the Merger, shall be adjusted appropriately (as
agreed to by Intuit and GALT if it involves something other than a mathematical
adjustment) so as to maintain the proportional interests of the holders of GALT
Stock (and, indirectly, the GALT Options) in the outstanding Intuit Common
Stock; provided, however, that the provisions of this Section shall not apply to
any merger or other acquisition of GALT or any other transaction not permitted
to be undertaken by GALT under the provisions of this Agreement. In the event
that a Capital Change affecting Intuit Common Stock occurs prior to the Merger,
then the Intuit Price Per Share shall be deemed to have been equitably adjusted
to reflect such Capital Change as necessary to effect the purposes and intent of
this Section.
2.4 GALT Dissenting Shares. Holders of GALT Dissenting Shares (if any)
shall be entitled to their rights under Subchapter D (Sections 1571 et seq.) and
Section 1930 of the Pennsylvania Business Corporation Law with respect to such
shares and such GALT Dissenting Shares shall not be converted into shares of
Intuit Common Stock in the Merger. GALT Stock as to which dissenting
shareholders' rights of appraisal under the Pennsylvania Business Corporation
Law have not been properly perfected shall, when such dissenting shareholders'
rights can no longer be exercised, be converted into Intuit Common Stock as
provided in Section 2.1.3.
2.5 Fractional Shares. No fractional shares of Intuit Common Stock
shall be issued in connection with the Merger. In lieu thereof, each holder of
GALT Stock who would otherwise be entitled to receive a fraction of a share of
Intuit Common Stock, after aggregating all shares of Intuit Common Stock to be
received by such holder, shall instead receive from Intuit, within twenty (20)
business days after the Effective Time, an amount of cash equal to the Intuit
Price Per Share (as adjusted to reflect any Capital Change of Intuit) multiplied
by the fraction of a share of Intuit Common Stock to which such holder would
otherwise be entitled.
2.6 Effects of the Merger. Subject to the provisions of Section 2.11,
at and upon the Effective Time: (a) the separate existence of Intuit Sub shall
cease and Intuit Sub shall be merged with and into GALT, and GALT shall be the
surviving corporation of the Merger (the "SURVIVING CORPORATION") pursuant to
the terms of this Agreement; (b) the Articles of Incorporation of GALT shall be
amended to read as set forth in Exhibit 2.6 attached hereto and shall be the
Articles of Incorporation of the Surviving Corporation; (c) the Bylaws of GALT
shall continue unchanged and shall be the Bylaws of the Surviving Corporation;
(d) each share of GALT Stock outstanding immediately prior to the Effective Time
and each GALT Option outstanding immediately prior to the Effective Time shall
be converted as provided in this Section 2; (e) the persons who are the officers
and directors of Intuit Sub immediately prior to the Effective Time shall be the
officers and directors of the Surviving Corporation immediately after the
Effective Time; and (f) the Merger shall, from and after the Effective Time,
have all of the effects provided by applicable law.
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2.7 Further Assurances. GALT agrees that if, at any time after the
Effective Time, Intuit considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to be obtained
from GALT or its officers or directors, to consummate the Merger or to carry out
the purposes of this Agreement at or after the Effective Time, then Intuit, GALT
and their respective officers and directors may execute and deliver all such
proper deeds, assignments and assurances and do all other things necessary or
desirable to consummate the Merger and to carry out the purposes of this
Agreement, in the name of GALT or otherwise.
2.8 Fairness Hearing; Contingent Alternatives.
(a) Fairness Hearing; 3(a)(10) Exemption. Subject to the
provisions of Section 2.8(b) below, the issuance of the shares of Intuit Common
Stock to be issued in the Merger and the Intuit Options to be issued in the
Merger shall be qualified by a permit (the "PERMIT") to be issued under Sections
25121 and 25142 of the California Corporate Securities Law of 1968, as amended
(the "CALIFORNIA LAW"), after a fairness hearing (the "FAIRNESS HEARING") before
the California Commissioner of Corporations pursuant to Section 25142 of the
California Law, with the intent that the issuance of the shares of Intuit Common
Stock and Intuit Options to be issued in the Merger (but not the issuance of
Intuit Common Stock upon exercise of Intuit Options issued in the Merger) shall,
to the extent permitted by applicable law, thereby be exempt under Section
3(a)(10) of the 1933 Act from the registration requirements of the 1933 Act. As
promptly as practicable after the date of this Agreement, but in any event by no
later than December 31, 1995, Intuit (with GALT's full and prompt best efforts
cooperation) shall prepare and file with the California Department of
Corporations (the "DEPARTMENT") an application for qualification of the shares
of Intuit Common Stock and the Intuit Options to be issued in the Merger at the
Closing (as defined herein) and an application for the Fairness Hearing to be
held in connection therewith (collectively, the "PERMIT APPLICATION"), together
with any information or proxy statement included therein (the "INFORMATION
STATEMENT"), and any other documents required by the California Law in
connection with the Merger. Intuit shall use its best efforts to have the Permit
issued under the California Law as promptly as practicable after such filing and
GALT shall fully cooperate with Intuit in good faith to assist in such efforts.
Intuit shall also take any action required to be taken under any applicable
state securities or "blue sky" laws in connection with the issuance of the
shares of Intuit Common Stock in the Merger. GALT shall timely furnish to Intuit
all information concerning GALT, its financial condition, its officers,
directors, shareholders, option holders and other security holders as may be
reasonably requested in connection with any action contemplated by this Section.
Intuit shall bear all expenses incurred by Intuit with respect to the Permit
Application or the Fairness Hearing, including without limitation (i) any filing
fees or other fees payable to the California Department of Corporations with
respect to the Permit Application and the Fairness Hearing and (ii) the costs of
any court reporter or stenographer selected by Intuit who prepares the
transcript of the Fairness Hearing, and (iii) all fees and costs of Intuit's
counsel incurred in connection with the Permit and the Fairness Hearing.
(b) Possible Form S-4 Registration. If despite Intuit's and
GALT's good faith best efforts to obtain the Permit: (A) the Department denies
Intuit's Permit Application and refuses to issue the Permit; or (B) the Permit
has not been issued by March 1, 1996; then Intuit shall instead register the
Intuit Common Stock to be issued in the Merger under the 1933 Act on
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Form S-4 promulgated thereunder (or such other registration form as may then be
available to register for the issuance of shares of Intuit Common Stock in the
Merger), in which case, Intuit and GALT shall prepare and file with the SEC such
form of registration statement (the "REGISTRATION FORM") together with the
prospectus/proxy statement included therein (the "PROSPECTUS/PROXY STATEMENT")
and any other documents required by the 1933 Act or the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT") in connection with the Merger as soon
as reasonably practicable after the occurrence of either of the events described
in clause (A) or (B) of the first sentence of this Section 2.8(b). In such case,
Intuit and GALT shall use their best efforts to have the Registration Form
declared effective under the 1933 Act as promptly as practicable after such
filing, Intuit shall also take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of the Intuit Common Stock in the Merger, and GALT shall furnish to Intuit all
information concerning GALT and the GALT stockholders as may be reasonably
requested in connection with any action contemplated by this Section 2.8(b).
2.9 Tax Free Reorganization. The parties intend to adopt this Agreement
as a tax-free plan of reorganization and (subject to the provisions of Section
2.11 hereof) to consummate the Merger as a reverse triangular merger in
accordance with the provisions of Section 368(a)(1)(A) by virtue of the
provisions of Section 368(a)(2)(E) of the Code. The Intuit Common Stock issued
in the Merger shall be issued solely in exchange for the GALT Stock, and no
other transaction other than the Merger represents, provides for or is intended
to be an adjustment to, the consideration paid for the GALT Stock. Except for
cash paid in lieu of fractional shares, and cash paid for dissenting shares, if
any, no consideration that could constitute "other property" within the meaning
of Section 356(b) of the Code is being paid by Intuit for the GALT Stock in the
Merger. The parties shall not take a position on any tax returns inconsistent
with this Section 2.9. In addition, Intuit represents as of the date of this
Agreement, and as of the Closing Date, that it presently intends to continue
GALT's historic business or use a significant portion of GALT's business assets
in a business. Both Intuit and GALT agree to execute tax representation
certificates consistent with this treatment of the Merger. GALT will use its
best efforts to cause the GALT Affiliates to execute similar tax representation
letters.
2.10 Pooling of Interests. The parties intend that the Merger be
treated as a "pooling of interests" for accounting purposes.
2.11 Option of Intuit. Notwithstanding the foregoing, the parties agree
that Intuit shall have the right, at its sole option, to restructure the Merger
as a tax-free forward triangular reorganization in which GALT is merged with and
into Intuit Sub, with Intuit Sub to be the Surviving Corporation of such Merger
on the terms and conditions stated herein, and the parties agree that, in such
case, this Agreement, the Agreement of Merger, the Articles of Merger and other
documents related to the Merger shall be modified accordingly.
3. REPRESENTATIONS AND WARRANTIES OF GALT
GALT hereby represents and warrants to Intuit that, except as set forth
in a letter addressed to Intuit dated the Agreement Date and delivered by GALT
to Intuit concurrently herewith (the "GALT DISCLOSURE LETTER") (which GALT
Disclosure Letter shall be deemed to be
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representations and warranties made to Intuit by GALT under this Section 3),
each of the following representations and statements in this Section 3 are true
and correct as of the Agreement Date:
3.1 Organization and Good Standing. GALT is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Pennsylvania, has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which a failure to be so qualified could reasonably be
expected to have a material adverse effect on its operations or financial
condition.
3.2 Power, Authorization and Validity.
3.2.1 GALT has the full corporate right, power and authority
to enter into, execute, deliver and perform its obligations under this Agreement
and each other agreement or document to which GALT is to be a party or which
GALT is to execute pursuant to, or with Intuit concurrently with the execution
of, this Agreement, including the Intuit Loan Agreement (as defined in Section
6.2) and the Services Agreement being entered into by and between GALT and
Intuit concurrently with their execution of this Agreement (collectively, the
"GALT ANCILLARY AGREEMENTS"), and GALT has all requisite corporate power and
authority to consummate the Merger in accordance with the terms of this
Agreement (including but not limited to the provisions of Section 2.11), subject
to obtaining the requisite approval of the Merger by GALT's shareholders. The
execution, delivery and performance of this Agreement and each of the GALT
Ancillary Agreements have been duly and validly approved and authorized by all
necessary corporate action on the part of GALT's Board of Directors. To the best
knowledge of GALT, Robert Frasca, Joel Maske and David Stubenvoll, three
principal shareholders of GALT (collectively, the "PRINCIPAL SHAREHOLDERS") have
all requisite power and authority to enter into the Non-Competition Agreements
and GALT Affiliate Agreements they are required to execute and deliver to Intuit
pursuant to Section 9.
3.2.2 No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to enable GALT to enter
into, and to perform its obligations under, this Agreement and/or any of the
GALT Ancillary Agreements, except for (a) the filing of the Agreement of Merger
with the offices of the Delaware Secretary of State and the filing of the
Articles of Merger with the Pennsylvania Department of State and the filing of
appropriate documents with the relevant authorities of other states in which
GALT is qualified to do business, if any, (b) such filings as may be required to
comply with federal and state securities laws, and (c) the approval by the GALT
shareholders of the transactions contemplated hereby.
3.2.3 This Agreement and the GALT Ancillary Agreements are, or
when executed by GALT shall be, valid and binding obligations of GALT,
enforceable in accordance with their respective terms.
3.3 Capitalization of GALT.
3.3.1 Outstanding Stock. The authorized capital stock of GALT
consists entirely of 2,500,000 shares of Common Stock, par value $0.01 per
share, of which 1,987,085
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shares are issued and outstanding and 32,889 shares of Preferred Stock, par
value $0.01 per share, of which 32,889 shares are designated Series A
Participating Preferred Stock, par value $0.01 per share, all of which shares
are issued and outstanding, and no other shares of the capital stock of GALT are
authorized, issued or outstanding. Each share of GALT Series A Preferred Stock
is convertible into ten (10) shares of GALT Common Stock as a result of a
dividend in shares of GALT Common Stock that was paid to holders of GALT Common
Stock on December 13, 1994. All issued and outstanding shares of GALT's capital
stock have been duly authorized and validly issued, are fully paid and
nonassessable, have been offered, issued, sold and delivered by GALT in
compliance with all registration or qualification requirements (or applicable
exemptions therefrom) of all applicable federal and state securities laws, are
not subject to any claim, lien or preemptive right created by any action or
agreement of GALT or any right of rescission enforceable against GALT, and, to
the best knowledge of GALT, are not subject to any claim, lien, preemptive right
or right of rescission created by any act or omission of any GALT shareholder. A
list of all holders of GALT's capital stock and the number of shares held by
each is set forth in Exhibit 3.3.1.
3.3.2 No Options, Warrants or Rights. Except for options to
purchase a total of 139,135 shares of GALT Common Stock granted under the GALT
Option Plan which are outstanding on the Agreement Date and except for the
32,889 outstanding shares of GALT Series A Preferred Stock described in Section
3.3.1, there are no options, warrants, convertible securities or other
securities, calls, commitments, conversion privileges, preemptive rights or
other rights or agreements outstanding to purchase or otherwise acquire (whether
directly or indirectly) any shares of GALT's authorized but unissued capital
stock or any securities convertible into or exchangeable for any shares of
GALT's capital stock or obligating GALT to grant, issue, extend, or enter into
any such option, warrant, convertible security, other security, call,
commitment, conversion privilege, preemptive right or other right or agreement,
and there is no liability for dividends accrued but unpaid. A total of 166,303
shares of GALT Common Stock are reserved for issuance under the GALT Option
Plan, none of which shares have been issued as of the Agreement Date. To the
best knowledge of GALT, no person or entity holds or has any option, warrant or
other right to acquire any issued and outstanding shares of the capital stock of
GALT from any holder of shares of the capital stock of GALT and no GALT
shareholder is obligated to enter into or grant any such option, warrant or
other right. A list of all holders of GALT Options and the number of GALT
Options held by each such person is set forth in Exhibit 3.3.2. During the two
(2) year period immediately prior to the Agreement Date, GALT has not
authorized, or taken any action to authorize, the acceleration of the time
during which any holder of any option, warrant or other right to purchase or
acquire any share of capital stock of GALT may exercise such option, warrant or
right.
3.3.3 No Voting Arrangements or Registration Rights. There are
no voting agreements, voting trusts, rights of first refusal or other
restrictions (other than normal restrictions on transfer under applicable
federal and state securities laws) under any agreements, contracts or
understanding to which GALT is a party or which are binding on GALT that are
applicable to any of GALT's outstanding securities or to any securities issuable
upon the conversion of any GALT securities in the Merger. To GALT's best
knowledge, there are no voting agreements, voting trusts, rights of first
refusal or other restrictions (other than normal restrictions on transfer under
applicable federal and state securities laws) under any agreement,
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contract or understanding not described in the first sentence of this Section
3.3.3 that apply to any of GALT's outstanding securities or to any securities
issuable upon the conversion of any GALT securities in the Merger. GALT is not
under any obligation to register under the 1933 Act any of its presently
outstanding securities or any securities that may be subsequently issued by
GALT.
3.4 No Subsidiaries; Not a Subsidiary. GALT does not have any
subsidiaries or any interest, direct or indirect, in any corporation,
partnership, limited liability company, joint venture or other business entity.
GALT has never been a subsidiary of any corporation, partnership, limited
liability company, joint venture or other business entity.
3.5 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor any GALT Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, shall conflict with, or
(with or without notice or lapse of time, or both) result in: (a) a termination,
breach or violation of (i) any provision of the Articles of Incorporation or
Bylaws of GALT, as currently in effect, or (ii) any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable to
GALT or its assets or properties; or (b) a termination, material breach,
impairment or violation of any material instrument, agreement, contract or
commitment to which GALT is a party or by which GALT or its assets or properties
are bound. The consummation of the Merger by GALT shall not require the consent
of any third party (other than the legally required approval of GALT's
shareholders) and no agreement to which GALT is a party requires that any other
party thereto consent to the Merger.
3.6 Litigation. There is no action, suit, arbitration, proceeding,
claim or investigation pending against GALT or any officer or director of GALT
in their capacity as such, or to the best knowledge of GALT, against any
shareholder or other security holder of GALT in their capacity as such, before
any court, administrative agency, tribunal, arbitrator or arbitration panel or
other dispute resolution forum that, if determined adversely to GALT or any
officer, director, shareholder or other security holder of GALT, may reasonably
be expected to have a material adverse effect on the present or future
operations or financial condition of GALT, nor, to the best of GALT's knowledge,
has any such action, suit, arbitration, proceeding, claim or investigation been
threatened. No person, firm, corporation or other entity has a legally valid
claim upon which legal or equitable relief may be had against GALT, or, to the
best knowledge of GALT, against any GALT security holder or Intuit based upon:
(a) ownership, rights to ownership, or options, warrants or other rights to
acquire ownership, of any shares of the capital stock of GALT; or (b) any rights
as a GALT shareholder, including any option, warrant or preemptive rights or
rights to notice or to vote. There is no judgment, decree, injunction, rule or
order of any governmental entity or agency, court, arbitrator or other dispute
resolution forum outstanding against GALT. There is, to the best of GALT's
knowledge, no basis for any party to successfully assert a claim for any
material damages or injunctive or other equitable relief against GALT or Intuit
based on a claim that any product or service developed, owned, marketed,
provided, distributed or used by GALT (a) infringes any intellectual property
rights of any third party, (b) was or is defective in any material respect, or
did not or shall not perform in accordance with any warranty, (c) was not or is
not suitable for a use for which it was intended, or (d) did not conform to or
comply with applicable law.
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3.7 Taxes. GALT has timely filed all federal, state, local and foreign
tax returns required to be filed, has timely paid all taxes required to be paid
in respect of all periods for which returns have been filed, has established an
adequate accrual or reserve for the payment of all taxes payable in respect of
the periods subsequent to the periods covered by the most recent applicable tax
returns, has made all necessary estimated tax payments, and has no material
liability for taxes in excess of the amount so paid or accruals or reserves so
established. GALT is not delinquent in the payment of any tax and is not
delinquent in the filing of any tax returns, and no deficiencies for any tax
have been threatened, claimed, proposed or assessed. GALT has not received any
notification that any material issues have been raised (and are currently
pending) by the Internal Revenue Service or any other taxing authority
(including but not limited to any sales tax authority) and no tax return of GALT
has ever been audited by the Internal Revenue Service or any other taxing agency
or authority. No tax liens have been filed against any assets of GALT. GALT is
not a "personal holding company" within the meaning of Section 542 of the Code.
For the purposes of this Agreement, the terms "TAX" and
"TAXES" include all federal, state, local and foreign income, alternative or
add-on minimum income, gains, franchise, excise, property, sales, use,
employment, license, payroll, ad valorem, stamp, occupation, recording, value
added or transfer taxes, governmental charges, fees, customs duties, tariffs,
levies or assessments (whether payable directly or by withholding), and, with
respect to such taxes, any estimated tax, interest and penalties or additions to
tax and interest on such penalties and additions to tax.
3.8 GALT Financial Statements. GALT has delivered to Intuit as Exhibit
3.8: (i) GALT's draft audited balance sheet as of December 31, 1994, and draft
audited statements of operations, changes in shareholders' equity and cash flows
for the year ended December 31, 1994 and (ii) GALT's unaudited balance sheet
(the "BALANCE SHEET") as of September 30, 1995 (the "BALANCE SHEET DATE") and
unaudited statement of operations, and statement of cash flows for the
nine-month period ended September 30, 1995 (such balance sheets and such
statements of operations, changes in shareholders' equity and cash flows are
hereinafter collectively referred to as the "GALT FINANCIAL STATEMENTS"). The
GALT Financial Statements (a) are in accordance with the books and records of
GALT, and (b) fairly present the financial condition of GALT at the dates
therein indicated and the results of operations for the periods therein
specified. GALT has no material debt or liability of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
that is not reflected or reserved against in the Balance Sheet, except for those
that may have been incurred after the date of the Balance Sheet in the ordinary
course of its business consistent with past practice. All reserves established
by GALT and set forth in the Balance Sheet were reasonably adequate. At the
Balance Sheet Date, there were no material loss contingencies (as such term is
used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) which are not adequately
provided for in the Balance Sheet as required by said Statement No. 5.
3.9 Title to Properties. GALT has good and marketable title to all of
its assets and properties as shown on the Balance Sheet, free and clear of all
liens, mortgages, security interests, claims, charges, restrictions or
encumbrances. All machinery, vehicles, equipment and
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other tangible personal property included in such assets and properties are in
good condition and repair, normal wear and tear excepted, and all leases of real
or personal property to which GALT is a party are fully effective and afford
GALT peaceful and undisturbed possession of the property leased thereunder in
accordance with the terms of such leases. To its best knowledge, GALT is not in
violation of any zoning, building, safety or environmental ordinance, regulation
or requirement or other law or regulation applicable to the operation of owned
or leased properties (the violation of which would have a material adverse
effect on its business), and GALT has not received any notice of violation with
which it has not complied. GALT does not own any real property.
3.10 Absence of Certain Changes. Since the Balance Sheet Date, there
has not been with respect to GALT any:
(a) material adverse change in the condition (financial or
otherwise), properties, assets, liabilities, businesses, operations, results of
operations or prospects of GALT that occurred prior to the Agreement Date;
(b) amendments or changes in the Articles of Incorporation or
Bylaws of GALT;
(c) (i) incurrence, creation, assumption or guarantee by GALT
of (A) any mortgage, security interest, pledge, lien or other encumbrance on any
of the assets or properties of GALT or (B) any material obligation, liability or
indebtedness for borrowed money; or (ii) issuance or sale of any debt or equity
securities of GALT or any options or other rights to acquire from GALT, directly
or indirectly, any debt or equity securities of GALT;
(d) payment or discharge of a material lien or liability
thereof, which lien was not either shown on the Balance Sheet or incurred in the
ordinary course of business after the date of the Balance Sheet;
(e) purchase, license, sale or other disposition, or any
agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the assets or properties of GALT other than in the
ordinary course of business;
(f) damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of GALT;
(g) declaration, setting aside or payment of any dividend on,
or the making of any other distribution in respect of, any of the capital stock
of GALT, any split, combination or recapitalization of any of the capital stock
of GALT or any direct or indirect redemption, purchase or other acquisition by
GALT of any of the capital stock of GALT or any change in any rights,
preferences, privileges or restrictions of any outstanding security of GALT;
(h) change or increase in the compensation payable or to
become payable to any of the officers or employees of GALT, or any bonus or
pension, insurance or other benefit payment or arrangement (including without
limitation stock awards, stock appreciation rights or stock option grants) made
to or with any of such officers, employees or agents except in
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connection with normal employee salary or performance reviews or otherwise in
the ordinary course of business consistent with past practice;
(i) addition, resignation or termination of members of the
management, supervisory or other key personnel of GALT;
(j) obligation or liability incurred by GALT to any of its
officers, directors or shareholders except normal compensation and expense
allowances payable to officers;
(k) making of any loan, advance or capital contribution to, or
any investment in, any officer, director or shareholder other than (i) travel
loans or advances made in the ordinary course of business of GALT and (ii) other
loans and advances in an aggregate amount which does not exceed $25,000
outstanding at any time;
(l) entering into, amendment of, relinquishment, termination
or non-renewal by GALT of any material contract, lease transaction, commitment
or other material right or obligation other than in the ordinary course of
business;
(m) any transfer or grant of a right under any of the GALT IP
Rights (as defined in Section 3.13 below), other than those transferred or
granted in the ordinary course of GALT's business consistent with past
practices; or
(n) any agreement or arrangement made by GALT to take any
action which, if taken prior to the date of this Agreement, would have made any
representation or warranty of GALT set forth in this Agreement untrue or
incorrect as of the date when made.
3.11 Contracts and Commitments. Exhibit 3.11 sets forth a list of each
of the following written or oral contracts, agreements, commitments or other
instruments which are currently in effect and to which GALT is a party or to
which GALT or any of its assets or properties is bound:
(a) contract with or commitment to any labor union;
(b) continuing contract for the future purchase, sale or
manufacture of products, material, supplies, equipment or services requiring
payment to or from GALT in an amount in excess of $25,000 per annum which is not
terminable on 120 days' or less notice without cost or other liability to GALT
at or at any time after the Effective Time or in which GALT has granted or
received manufacturing rights, most favored nations pricing provisions or
exclusive marketing rights relating to any product, group of products or
territory;
(c) contract providing for the development of software by or
for GALT, or for the license of software to or from GALT, which software is used
or incorporated in any products currently distributed or services currently
provided by GALT or is contemplated to be used or incorporated in any products
to be distributed or services to be provided by GALT (other than software
generally available to the public which is currently licensed to GALT at a per
copy license fee of less than $1,000 per copy);
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(d) joint venture or partnership contract or agreement or
other agreement which involves a sharing of profits or losses in excess of
$25,000 per annum with any other party;
(e) contract or commitment for the employment of any officer,
employee or consultant of GALT or any other type of contract or understanding
with any officer, employee or consultant of GALT which is not immediately
terminable by GALT without cost or other liability in excess of $1,000;
(f) indenture, mortgage, promissory note, loan agreement,
guarantee, security agreement or other agreement or commitment for the borrowing
of money, for a line of credit or for a leasing transaction of a type required
to be capitalized in accordance with Statement of Financial Accounting Standards
No. 13 of the Financial Accounting Standards Board;
(g) lease or other agreement under which GALT is lessee of or
holds or operates any items of tangible personal property or real property owned
by any third party and under which payments to such third party exceed $20,000
per annum;
(h) agreement or arrangement for the sale of any assets,
properties or rights having a value in excess of $20,000, other than in the
ordinary course of business consistent with past practice;
(i) agreement which restricts GALT from engaging in any aspect
of its business or competing in any line of business in any geographic area;
(j) GALT IP Rights Agreement (as defined in Section 3.13
below);
(k) any agreement relating to the sale, issuance, grant,
exercise, award, purchase, repurchase or redemption of any shares of capital
stock or other securities of GALT or any options, warrants or other rights to
purchase or otherwise acquire any such shares of stock, other securities or
options, warrants or other rights therefor; or
(l) any other agreement, contract, commitment or instrument
that is material to the business of GALT or involves a commitment in excess of
$25,000 by GALT.
A copy of each agreement or document required to be listed on
Exhibit 3.11 (collectively, the "GALT MATERIAL AGREEMENTS") has been delivered
to Intuit's counsel. No consent or approval of any third party (including but
not limited to any consent to assignment) is required to ensure that, following
the Closing of the Merger, any GALT Material Agreement (other than the
agreements of GALT listed in Exhibit 3.11A hereto) shall continue to be in full
force and effect without any breach or violation thereof caused by virtue of the
Merger or any other transaction called for by this Agreement.
3.12 No Default. GALT is not in breach or default in any material
respect under any contract, agreement, commitment or other instrument or
obligation that is required to be listed on Exhibit 3.11 or that is otherwise
material to the business of GALT. GALT is not a party to any contract, agreement
or arrangement which has had or could reasonably be expected to have a
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material adverse effect on its business. GALT has no material liability for
renegotiation of government contracts or subcontracts, if any.
3.13 Intellectual Property.
3.13.1 As used herein, the term "INTELLECTUAL PROPERTY RIGHTS"
means, collectively, all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service mark
applications, trade dress, moral rights, copyrights, copyright applications,
licenses, inventions, know-how, trade secrets, customer lists, proprietary
processes and formulae, software source and object code, algorithms,
architecture, structure, display screens, layouts, inventions, development tools
and all documentation and media constituting, describing or relating to the
above, including, without limitation, manuals, memoranda and records. GALT owns,
or has the right to use, sell or license, all Intellectual Property Rights that
are necessary or required for the conduct of its business as presently conducted
(such Intellectual Property Rights being hereinafter collectively referred to as
the "GALT IP RIGHTS"), and such rights to use, sell or license are sufficient
for such conduct of its business as presently conducted.
3.13.2 The execution, delivery and performance of this
Agreement and the consummation of the Merger and the other transactions
contemplated hereby shall not constitute a material breach or default of any
instrument, contract, license or other agreement granting, licensing or
otherwise governing or affecting any GALT IP Right (the "GALT IP RIGHTS
AGREEMENTS"), shall not cause the forfeiture or termination or give rise to a
right of forfeiture or termination, of any GALT IP Right or materially impair
the right of GALT or the Surviving Corporation to use, sell or license any GALT
IP Right or portion thereof (except where such breach, forfeiture or termination
would not have a material adverse effect on GALT). There are no royalties,
honoraria, fees or other payments payable by GALT to any person by reason of the
ownership, use, license, sale or disposition of any of the GALT IP Rights.
3.13.3 Neither the manufacture, marketing, license, sale or
presently intended use of any product or service currently licensed, marketed,
sold or provided by GALT or currently under development by GALT violates any
license or agreement between GALT and any third party or, in its current form,
infringes any Intellectual Property Right of any other party (except that, to
the extent that the foregoing representation as to non-infringement applies to
third-party Intellectual Property Rights that are being infringed by standard
industry practices of GALT's competitors or other businesses engaged in
commercial activity involving the Internet or other on-line products, services
or technologies, such representation is only made as to GALT's best knowledge
and belief); and there is no pending or threatened claim or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any GALT IP Right nor, to the best knowledge of GALT, is there any basis for any
such claim, nor has GALT received any notice asserting that any GALT IP Right or
the proposed use, sale, license or disposition thereof conflicts or shall
conflict with the rights of any other party, nor, to the best knowledge of GALT,
is there any basis for any such assertion. To the best knowledge of GALT, no
employee, consultant or independent contractor of GALT is in violation of any
term of any non-competition agreement relating to the right of any such
employee, consultant or independent contractor to be employed or hired by GALT.
No product or technology licensed, marketed or sold by GALT or
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currently under development by GALT incorporates, uses or is based on, any
misappropriated Intellectual Property Rights of any third party.
3.13.4 GALT has taken reasonable and practicable steps
designed to protect, preserve and maintain the secrecy and confidentiality of
all its proprietary software and other trade secrets and all GALT's proprietary
rights therein. All officers, employees, consultants and independent contractors
of GALT who (a) have had access to proprietary information of GALT or any of its
suppliers, vendors, licensees or customers or (b) who have participated in any
manner in the creation, design or development of any software, technology,
product or service developed by or for GALT, have executed and delivered to GALT
an agreement regarding the protection of such proprietary information and the
assignment of inventions to GALT in the form provided to Intuit's counsel, and
copies of all such executed agreements have been delivered to Intuit's counsel.
3.13.5 Exhibit 3.13 contains a list of all worldwide
applications, registrations, filings and other formal actions made or taken
pursuant to federal, state and foreign laws by GALT to secure, perfect or
protect its interest in GALT IP Rights, including, without limitation, all
patents, patent applications, copyrights (whether or not registered), copyright
applications, trademarks and service marks (whether or not registered) and
trademark and service mark applications.
3.14 Compliance with Laws. GALT has complied, and is in full
compliance, in all material respects, with all applicable federal, state, local
or foreign laws, ordinances, regulations, and rules, and all orders, writs,
injunctions, awards, judgments, and decrees applicable to it, its business or
its assets and properties (the violation of which would have a material adverse
effect upon its business). GALT holds all permits, licenses, consents and
approvals from, and has made all filings with any government agencies and
authorities that are necessary in connection with its present business. GALT is
not required to be registered as an investment adviser under the Investment
Adviser's Act of 1940, as amended.
3.15 Certain Transactions and Agreements. None of the officers or
directors of GALT, nor any member of their immediate families, has any direct or
indirect ownership interest in any firm or corporation that directly competes
with, or does business with, or has any contractual arrangement with GALT
(except with respect to any interest in less than one percent (1%) of the stock
of any corporation whose stock is publicly traded). None of said officers or
directors, nor any member of their immediate families, is directly or indirectly
interested in any contract or informal arrangement with GALT, except for normal
compensation for services as an officer, director or employee thereof that have
been disclosed to Intuit. None of said officers or directors or family members
has any interest in any property, real or personal, tangible or intangible,
including any GALT IP Rights or any other Intellectual Property Rights, used in
or pertaining to the business of GALT, except for the normal rights of a
shareholder.
3.16. Employees, ERISA and Other Compliance.
3.16.1 GALT is in compliance in all material respects with all
applicable laws, agreements and contracts relating to employment, employment
practices, wages, hours, and terms and conditions of employment, including, but
not limited to, employee compensation
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matters. A list of all employees, officers and consultants of GALT and their
current compensation is set forth on Exhibit 3.16.1, which has been delivered to
Intuit. GALT does not have any employment contracts or consulting agreements
currently in effect that are not terminable at will (other than agreements with
the sole purpose of providing for the confidentiality of proprietary information
or assignment of inventions).
3.16.2 GALT (i) has never been, and is not now, subject to a
union organizing effort, (ii) is not subject to any collective bargaining
agreement with respect to any of its employees, (iii) is not subject to any
other contract, written or oral, with any trade or labor union, employees'
association or similar organization, and (iv) has no current labor disputes.
GALT has good labor relations, and has no knowledge of any facts indicating that
the consummation of the transactions contemplated hereby shall have a material
adverse effect on such labor relations, and has no knowledge that any of its key
employees intends to leave its employ.
3.16.3 Exhibit 3.16.3 identifies (a) each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and (b) all other written plans or agreements
involving direct or indirect compensation or benefits (including any employment
agreements entered into between GALT and any employee of GALT, but excluding
worker's compensation, unemployment compensation and other government-mandated
programs) currently or previously maintained, contributed to or entered into by
GALT under which GALT or any ERISA Affiliate (as defined below) of GALT has any
present or future obligation or liability (collectively, the "GALT EMPLOYEE
PLANS"). For purposes of this Section, "ERISA AFFILIATE" means any entity which
is a member of (A) a "controlled group of corporations," as defined in Section
414(b) of the Code, (B) a group of entities under "common control," as defined
in Section 414(c) of the Code, or (C) an "affiliated service group," as defined
in Section 414(m) of the Code, or treasury regulations promulgated under Section
414(o) of the Code, any of which includes GALT. Copies of all GALT Employee
Plans (and, if applicable, related trust agreements) and all amendments thereto
and written interpretations thereof (including summary plan descriptions) have
been delivered to Intuit or its counsel. All GALT Employee Plans which
individually or collectively would constitute an "employee pension benefit
plan," as defined in Section 3(2) of ERISA (collectively, the "GALT PENSION
PLANS"), are identified as such in Exhibit 3.16.3. All contributions due from
GALT with respect to any of the GALT Employee Plans have been made as required
under ERISA or have been accrued on GALT's financial statements as of the
Balance Sheet Date. Each GALT Employee Plan has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including, without limitation, ERISA and the
Code, which are applicable to such GALT Employee Plans.
3.16.4 No GALT Pension Plan constitutes, or has since the
enactment of ERISA constituted, a "multiemployer plan," as defined in Section
3(37) of ERISA. No GALT Pension Plans are subject to Title IV of ERISA. No
"prohibited transaction," as defined in Section 406 of ERISA or Section 4975 of
the Code, has occurred with respect to any GALT Employee Plan which is covered
by Title I of ERISA which would result in a material liability to GALT,
excluding transactions effected pursuant to a statutory or administrative
exemption. Nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any GALT Employee Plan has or shall make
GALT or any officer or director of
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GALT subject to any material liability under Title I of ERISA or liable for any
material tax (as defined in Section 3.7) or penalty pursuant to Sections 4972,
4975, 4976 or 4979 of the Code or Section 502 of ERISA.
3.16.5 Any GALT Pension Plan which is intended to be qualified
under Section 401(a) of the Code (a "GALT 401(a) PLAN") is so qualified and has
been so qualified during the period from its adoption to date, and the trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. GALT has delivered to Intuit or its counsel a complete and correct copy of
the most recent Internal Revenue Service determination letter with respect to
each GALT 401(a) Plan.
3.16.6 Exhibit 3.16.6 lists each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors which (a) is not a GALT Employee Plan, (b)
is entered into, maintained or contributed to by GALT and (c) covers any
employee or former employee of GALT. Such contracts, plans and arrangements as
are described in this Section 3.16.6 are hereinafter collectively referred to as
the "GALT BENEFIT ARRANGEMENTS." Each GALT Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations that are
applicable to such GALT Benefit Arrangement. GALT has delivered to Intuit or its
counsel a complete and correct copy or description of each GALT Benefit
Arrangement.
3.16.7 Since December 31, 1994 there has been no amendment to,
written interpretation or announcement (whether or not written) by GALT relating
to, or change in employee participation or coverage under, any GALT Employee
Plan or GALT Benefit Arrangement that would increase materially the expense of
maintaining such GALT Employee Plan or GALT Benefit Arrangement.
3.16.8 GALT has provided, or shall have provided prior to the
Closing, to individuals entitled thereto all required notices and coverage
pursuant to Section 4980B of the Code and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date, and no material Tax payable on account
of Section 4980B of the Code has been incurred with respect to any current or
former employees of GALT (or their beneficiaries).
3.16.9 No benefit payable or which may become payable by GALT
pursuant to any GALT Employee Plan or any GALT Benefit Arrangement or as a
result of or arising under this Agreement shall constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise Tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code. GALT is not a party
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to any (a) agreement with any executive officer or other key employee of GALT
(i) the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving GALT in the nature of
any of the transactions contemplated by this Agreement and the Merger, (ii)
providing any term of employment or compensation guarantee, or (iii) providing
severance benefits or other benefits after the termination of employment of such
employee regardless of the reason for such termination of employment, or (b)
agreement or plan, including, without limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of which
shall be materially increased, or the vesting of benefits of which shall be
materially accelerated, by the occurrence of any of the transactions
contemplated by this Agreement and the Merger or the value of any of the
benefits of which shall be calculated on the basis of any of the transactions
contemplated by this Agreement and the Merger.
3.17 Corporate Documents. GALT has made available to Intuit for
examination all documents listed in the GALT Disclosure Letter or other Exhibits
called for by this Agreement which have been requested by Intuit's legal
counsel, including, without limitation, the following: (a) copies of GALT's
Articles of Incorporation and Bylaws as currently in effect; (b) GALT's Minute
Book containing all records of all proceedings, consents, actions, and meetings
of GALT's shareholders, board of directors and any committees thereof; (c)
GALT's stock ledger and journal reflecting all stock issuances and transfers;
and (d) all permits, orders, and consents issued by any regulatory agency with
respect to GALT, or any securities of GALT, and all applications for such
permits, orders, and consents.
3.18 No Brokers. GALT is not obligated for the payment of fees or
expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or the Merger or in
connection with any transaction contemplated hereby or thereby.
3.19 Books and Records. The books, records and accounts of GALT and its
Subsidiaries (a) are in all material respects true, complete and correct, (b)
have been maintained in accordance with commercially reasonable business
practices on a basis consistent with prior years, (c) are stated in reasonable
detail and accurately and fairly reflect the transactions and dispositions of
the assets of GALT, and (d) accurately and fairly reflect the basis for the GALT
Financial Statements. GALT maintains a system of internal accounting controls
sufficient to permit preparation of financial statements in conformity with
generally accepted accounting principles.
3.20 Insurance. GALT maintains fire and casualty, general liability,
business interruption, product liability, errors and omissions, and sprinkler
and water damage insurance which GALT believes to be reasonably prudent for
similarly sized and similarly situated businesses.
3.21 Environmental Matters.
3.21.1 To the best knowledge of GALT, during the period that
GALT has leased or owned its properties or owned or operated any facilities,
there have been no disposals, releases or threatened releases of Hazardous
Materials (as defined below) on, from or under such properties or facilities.
GALT has no knowledge of any presence, disposals, releases or
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threatened releases of Hazardous Materials on, from or under any of
such properties or facilities, which may have occurred prior to GALT having
taken possession of any of such properties or facilities. For the purposes of
this Agreement, the terms "DISPOSAL," "RELEASE," and "THREATENED RELEASE" shall
have the definitions assigned thereto by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq., as amended ("CERCLA"). For the purposes of this AgreEment "HAZARDOUS
MATERIALS" shall mean any hazardous or toxic substance, material or waste which
is or becomes prior to the Closing regulated under, or defined as a "hazardous
substance," "pollutant," "contaminant," "toxic chemical," "hazardous materials,"
"toxic substance" or "hazardous chemical" under (a) CERCLA; (b) any similar
federal, state or local law; or (c) regulations promulgated under any of the
above laws or statutes.
3.21.2 To the best knowledge of GALT, none of the properties
or facilities of GALT is in violation of any federal, state or local law,
ordinance, regulation or order relating to industrial hygiene or to the
environmental conditions on, under or about such properties or facilities,
including, but not limited to, soil and ground water condition. During the time
that GALT has owned or leased its properties and facilities, neither GALT nor to
GALT's best knowledge, any third party, has used, generated, manufactured or
stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials other than those
present in normal and lawful amounts in normal office cleaning supplies.
3.21.3 During the time that GALT has owned or leased its
properties and facilities: (a) there has been no litigation brought or
threatened against GALT or any settlement reached by GALT with, any party or
parties alleging the presence, disposal, release or threatened release of any
Hazardous Materials on, from or under any of such properties or facilities; and
(b) to the best of GALT's knowledge, there has been no litigation brought or
threatened against any lessor or owner of real property leased by GALT or any
settlement reached by such lessor or owner with any party or parties alleging
the presence, disposal, release or threatened release of any Hazardous Materials
on, from or under any of such properties or facilities.
3.22 Full Disclosure. All of the representations and warranties made by
GALT under Section 3 of this Agreement (as qualified by the GALT Disclosure
Letter) are true, correct and complete in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make such representations, warranties or statements,
in light of the circumstances under which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF INTUIT
Intuit hereby represents and warrants, that, except as set forth in a
letter addressed to GALT dated the Agreement Date and delivered by Intuit to
GALT concurrently herewith (the "INTUIT DISCLOSURE LETTER") (which Intuit
Disclosure Letter shall be deemed to be representations and warranties made to
GALT by Intuit under this Section 4), each of the following representations and
statements in this Section 4 are true and correct as of the Agreement Date:
4.1 Organization and Good Standing. Intuit is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate
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power and authority to own, operate and lease its properties and to carry on its
business as now conducted and as proposed to be conducted.
4.2 Power, Authorization and Validity.
4.2.1 Intuit has the right, power, legal capacity and
authority to enter into, execute and perform its obligations under this
Agreement and all agreements to which Intuit is or shall be a party that are to
be executed by Intuit pursuant to, or with GALT concurrently with, the execution
of this Agreement, including the Intuit Loan Agreement (as defined in Section
6.2) and the Services Agreement being entered into by and between GALT and
Intuit concurrently with their execution of this Agreement (collectively, the
"INTUIT ANCILLARY AGREEMENTS"). The execution, delivery and performance of this
Agreement and the Intuit Ancillary Agreements have been duly and validly
approved and authorized by Intuit's Board of Directors.
4.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Intuit to enter into and to perform its
obligations under this Agreement and the Intuit Ancillary Agreements, except for
(a) the filing of the Agreement of Merger with the offices of the Delaware
Secretary of State and the filing of the Articles of Merger with the
Pennsylvania Department of State and the filing of appropriate documents with
the relevant authorities of other states in which Intuit is qualified to do
business, if any; (b) the filing of the Permit Application with the Department
and such other filings as may be required to comply with federal and state
securities laws; and (d) any filing (if any) that may be required by the
Hart-Scott-Rodino Antitrust Improvements Act ("HSR ACT").
4.2.3 This Agreement and the Intuit Ancillary Agreements are,
or when executed by Intuit shall be, valid and binding obligations of Intuit
enforceable in accordance with their respective terms, except as to the effect,
if any, of (a) applicable bankruptcy and other similar laws affecting the rights
of creditors generally, and (b) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies.
4.3 Capital Structure. The authorized capital stock of Intuit
consists of 60,000,000 shares of Intuit Common Stock, $0.01 par value, and
3,000,000 shares of Preferred Stock, $0.01 par value (the "INTUIT PREFERRED
STOCK"), of which 144,918 shares are designated Series A Preferred Stock,
1,655,082 shares are formerly authorized shares of Series A Preferred Stock that
are not currently issuable by Intuit under the terms of Intuit's Certificate of
Incorporation and 1,200,000 shares are undesignated. At the close of business on
October 13, 1995, approximately 44,201,321 shares of Intuit Common Stock were
issued and outstanding, and 4,377 shares of Intuit Common Stock were held by
Intuit in its treasury. No shares of Intuit Preferred Stock are issued or
outstanding.
4.4 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor any Intuit Ancillary Agreement, nor the
consummation of the transactions contemplated hereby and thereby, shall conflict
with, or (with or without notice or lapse of time, or both) result in: (a) a
termination, breach, impairment or violation of (i) any provision of the
Certificate of Incorporation or Bylaws of Intuit, as currently in effect or (ii)
any federal, state, local or foreign judgment, writ, decree, order, statute,
rule or regulation applicable to Intuit or its assets or properties; or (b) a
termination, or a material breach, impairment or violation, of any
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material instrument, agreement, contract or commitment to which Intuit is a
party or by which Intuit or its assets or properties are bound that would have a
material adverse effect on the business or financial condition of Intuit and its
subsidiaries, taken as a whole.
4.5 Intuit Disclosure Package. Intuit has delivered to GALT or its
counsel the proxy materials dated June 20, 1995 that were distributed by Intuit
to its stockholders in connection with Intuit's Annual Meeting of Stockholders
held on July 20, 1995 and a copy of the Prospectus dated June 20, 1995 covering
a registered public offering of Intuit Common Stock (collectively, the "INTUIT
DISCLOSURE PACKAGE").
4.6 Financial Statements. The financial statements of Intuit included
in the documents in the Intuit Disclosure Package complied as to form in all
material respects with the then applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may have been indicated
in the notes thereto or, in the case of any unaudited statements, as permitted
by the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, year-end audit adjustments) the consolidated financial
position of Intuit and its consolidated subsidiaries as at the respective dates
thereof and the consolidated results of their operations and cash flows.
4.7 Validity of Shares. The shares of Intuit Common Stock to be issued
pursuant to the Merger shall, when issued, (a) be duly authorized, validly
issued, fully paid and nonassessable, (b) assuming the Permit is issued by the
Department following, and pursuant to, the Fairness Hearing so as to qualify for
the exemption from registration afforded by Section 3(a)(10) of the 1933 Act, be
free and clear of any restrictions, liens and encumbrances except for applicable
restrictions on transfer under Rule 145(d) as promulgated under the 1933 Act and
under any GALT Affiliate Agreement to be executed pursuant to this Agreement and
(c) not be subject to any preemptive rights created by statute, the Certificate
of Incorporation or the Bylaws of Intuit.
4.8 Absence of Litigation. There is no claim, action, proceeding or
investigation pending or, to the best knowledge of Intuit, threatened against
Intuit or any property or asset of Intuit, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which is not disclosed in the Intuit Disclosure Package or which,
individually or in the aggregate, would have a material adverse effect on
Intuit. Neither Intuit nor any property or asset of Intuit, is subject to any
order, writ, judgment, injunction, decree, determination or award which would
have, individually or in the aggregate, a material adverse effect on the
business or financial condition of Intuit and its subsidiaries, taken as a
whole.
5. GALT COVENANTS
5.1 Preclosing Covenants. During the period from the Agreement Date
until the earlier to occur of (i) the Effective Time or (ii) the termination of
this Agreement in accordance with Section 10, GALT covenants and agrees with
Intuit as follows:
5.1.1 Cooperation; Advice of Changes. GALT shall promptly
advise Intuit in writing (a) of any event occurring subsequent to the Agreement
Date of which GALT becomes aware that would render any representation or
warranty of GALT contained in Section 3 of this
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Agreement (as qualified by the GALT Disclosure Letter) materially inaccurate if
such representation or warranty had been made on or as of the date of any such
event and (b) of any material adverse change in GALT's business, results of
operations or financial condition of which GALT becomes aware. GALT shall
deliver to Intuit within fifteen (15) days after the end of each full calendar
month ending after the Agreement Date and before the Closing Date, an unaudited
balance sheet, statement of operations and statement of cash flows for such
monthly period. GALT shall use best efforts to assist Intuit to ensure that the
Surviving Corporation has all authorizations, approvals, registrations, licenses
and other consents of any governmental or other regulatory body necessary to
conduct its business as contemplated hereby.
5.1.2 Maintenance of Business. GALT shall use its best efforts
to carry on and preserve its business and its relationships with customers,
suppliers, licensors, employees and others in substantially the same manner as
it has prior to the date hereof.
5.1.3 Conduct of Business. GALT shall continue to conduct its
business and maintain its business relationships in the ordinary course.
5.1.4 Certain Actions. GALT shall not, without the prior
written consent of the Chief Executive Officer of Intuit:
(a) borrow or lend any money (other than (i) funds
borrowed from Intuit pursuant to the Intuit Loan Agreement referred to in
Section 6.2 hereof or (ii) pursuant to any bank credit line or similar credit
facility approved in writing by Intuit) or encumber or voluntarily permit any of
its assets to be encumbered or subject to any lien except to secure loans
permitted under the foregoing provisions of this subparagraph (a) and except in
the ordinary course of its business consistent with past practice and to an
extent which is not material;
(b) enter into, amend or terminate any transaction,
lease, contract or other agreement that (i) would materially increase GALT's
working capital requirements in amounts that can not be reasonably satisfied by
the amount of funds that Intuit is required to loan to GALT under the Intuit
Loan Agreement (as defined in Section 6.2 hereof) or any other bank credit line
or similar credit facility of GALT that has been approved in writing by Intuit;
(ii) would adversely affect Intuit's ability to operate, or obtain the financial
benefit of, the business of GALT following the Effective Time; or (iii) that
contains any terms or conditions that would make consummation of the Merger a
breach or violation of such transaction, lease, contract or other agreement;
(c) sell, lease or otherwise dispose of any of its
assets that are material to it, whether individually or in the aggregate, or
license any of its technology or intellectual property on any exclusive basis or
in any other manner that would adversely affect Intuit's ability to successfully
exploit such technology or intellectual property after the Effective Time
consistent with GALT's historic business practices;
(d) pay (or make any commitment to pay) any bonus,
increased salary or special remuneration to any officer or to any employee who
owns GALT Stock representing more than five percent (5%) of the voting power of
all outstanding GALT Stock (except for normal salary increases consistent with
past practices not to exceed ten percent (10%)
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of such officer's or employee's base annual salary, and except pursuant to
existing arrangements previously disclosed in the GALT Disclosure Letter or
disclosed by GALT in writing to Intuit and approved in writing by Intuit, after
the Agreement Date) or enter into any new employment agreement with any such
person;
(e) change any of its accounting methods in any
material respect that is not approved by Intuit's independent auditors (such
approval not to be unreasonably withheld);
(f) guarantee, or act as a surety for, any
obligation of any third party;
(g) declare, set aside or pay any cash or stock
dividend or other distribution in respect of capital stock, or redeem,
repurchase or otherwise acquire any of its capital stock;
(h) issue or sell any shares of its capital stock
of any class (except for an issuance of GALT Common Stock upon the exercise of a
GALT Option that is disclosed in Section 3.3 as, and is in fact, outstanding on
the Agreement Date or upon the exercise of a GALT Option that is permitted to be
granted under the following provisions of this subparagraph (h)), or any other
of its securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue any shares of
capital stock or other securities of GALT (except for the grant to GALT
employees of GALT Options to purchase not more than an aggregate total of
183,697 shares of GALT Common Stock, as now constituted, pursuant to the GALT
Stock Option Plan, where such grants are made in the ordinary course of business
at levels and for purposes consistent with GALT's past practices and with the
consent of Intuit, which consent shall not be unreasonably withheld consistent
with the ability to have the Merger accounted for as a "pooling of interests"
transaction);
(i) split, combine or reclassify any outstanding
shares of its capital stock of any class or series, enter into any
recapitalization affecting the number of outstanding shares of its capital stock
of any class or affecting any other of its securities, modify any rights of any
of its securities, accelerate the vesting of any outstanding option or other
security, or otherwise change the equity interest of any of its voting
securities;
(j) merge, consolidate or reorganize with, or
acquire any entity other than Intuit Sub or Intuit;
(k) amend its Articles of Incorporation or Bylaws;
or
(l) agree to do any of the things described in the
preceding clauses 5.1.4(a) through 5.1.4(k).
provided, however, that notwithstanding the foregoing, GALT shall be excused
from compliance with the foregoing provisions of this subparagraph 5.1.4 to the
extent that they prohibit GALT from borrowing money and encumbering its assets
in connection with such borrowing or prohibit GALT from issuing shares of GALT
Common Stock and/or GALT Series A Preferred stock if, and only if Intuit has
materially breached its obligation to advance loans to GALT under the
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Intuit Loan Agreement and failed to cure such material breach within three (3)
business days after receiving written notice of such material breach from GALT.
5.1.5 Shareholder Approval. GALT shall, in cooperation with
Intuit, call and hold a special meeting of GALT's shareholders or solicit the
written consent of GALT's shareholders at the earliest practicable date after
the conclusion of the Fairness Hearing (unless Intuit requests GALT to defer
such meeting or consent) to submit this Agreement, the Agreement of Merger, the
Merger and related matters for the consideration and approval of GALT's
shareholders, which approval shall be recommended by GALT's Board of Directors
(such vote or consent of the GALT shareholders is hereinafter referred to as the
"GALT SHAREHOLDER VOTE").
5.1.6 Preparation of Permit Application, Hearing Request and
Hearing Notice. GALT shall cooperate in good faith with Intuit to have the
Permit Application promptly prepared, filed and to have the notice of the
Fairness Hearing in the form approved by the Commissioner promptly sent to all
GALT's security holders so that the Permit can be issued and declared effective
under the California Law as promptly as practicable, and shall cause at least
one GALT officer and GALT's counsel to attend the Fairness Hearing. GALT shall
be solely responsible for any statement, information or omission relating to
GALT or its affiliates that is contained in the Permit Application, the Fairness
Hearing notice or the Information Statement.
5.1.7 Regulatory Approvals. GALT shall use reasonable, good
faith efforts to obtain, and to cooperate with Intuit to obtain, all
authorizations, approvals and consents of any governmental body, which may be
reasonably required in connection with the consummation of the Merger and/or any
other transaction contemplated by this Agreement in accordance with the terms of
this Agreement.
5.1.8 Necessary Consents. GALT shall cooperate with Intuit to
obtain such written consents, waivers or approvals as are required to allow the
consummation of the transactions contemplated hereby, to allow Intuit and Intuit
Sub to carry on GALT's business after the Closing and to allow Intuit (or Intuit
Sub) to enjoy the full benefit of any material lease, mortgage, contract,
agreement or instrument to which GALT is a party or by which GALT or its
property is or may be bound at the Closing Date.
5.1.9 Litigation. GALT shall notify Intuit in writing promptly
after learning of any material action, suit, claim, arbitration, proceeding or
investigation by or before any court, arbitrator or arbitration panel, board or
governmental agency, initiated by or against it, or known by it to be threatened
against it.
5.1.10 No Other Negotiations. GALT shall not, and shall not
authorize, encourage or direct any officer, director, employee or affiliate of
GALT, or any other person, on its behalf to, directly or indirectly, solicit or
encourage any offer from any party or consider any inquiries or proposals
received from any other party, participate in any negotiations regarding, or
furnish to any person any information with respect to, or otherwise cooperate
with, facilitate or encourage, any effort or attempt by any person (other than
Intuit), concerning any agreement or transaction regarding the possible
disposition of all or any substantial portion of GALT's business, assets or
capital stock by merger, consolidation, sale of assets or any other means of
business combination (an "ALTERNATIVE TRANSACTION"). GALT shall promptly notify
Intuit orally
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and in writing of any such inquiries or proposals. In addition GALT shall not
execute, enter into or become bound by (a) a letter of intent or other agreement
between GALT and any third party that is related to an Alternative Transaction
and pursuant to which GALT makes any agreement that would be binding on Intuit
if the Merger occurred or that may adversely affect GALT's assets or the
consummation of the Merger, or (b) an agreement or commitment between GALT and a
third party providing for an Alternative Transaction.
5.1.11 Access to Information. Until the Closing, GALT shall
allow Intuit and its agents reasonable access to the files, books, records and
offices of GALT, including, without limitation, any and all information relating
to GALT's taxes, commitments, contracts, leases, licenses, and real, personal,
intangible and intellectual property and financial condition, subject to the
terms of the letter confidentiality agreement between GALT and Intuit dated as
of October 17, 1995 (the "CONFIDENTIALITY AGREEMENT"). GALT shall authorize and
request its accountants to cooperate with Intuit and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
5.1.12 Satisfaction of Conditions Precedent. GALT shall use
its best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8 and 9 (insofar as satisfaction of
such conditions is within GALT's reasonable control), and GALT shall use its
best efforts to cause the transactions contemplated by this Agreement to be
consummated.
5.1.13 GALT Affiliates Agreements. Concurrently with the
execution of this Agreement GALT shall deliver to Intuit a letter identifying
all GALT's directors, officers, ten percent or greater shareholders and all
persons who are "affiliates" of GALT within the meaning of Rule 145 or Rule 405
under the 1933 Act at the time this Agreement is executed ("GALT AFFILIATES").
GALT shall cause each GALT Affiliate to deliver to Intuit, concurrently with the
signing of this Agreement, a written agreement (the "GALT AFFILIATES
AGREEMENT"), in the form of Exhibit 5.1.12. In addition, GALT shall cause each
person who may become a GALT Affiliate after the Agreement Date and before the
Effective Time to execute and deliver to Intuit a GALT Affiliate Agreement.
5.2 Elimination of Certain GALT Warrants and Notes. Concurrently with
its execution of this Agreement: (a) GALT has caused all warrants to purchase
shares of GALT Capital Stock that were outstanding at such time to be exercised
solely for shares of GALT Common Stock so that such warrants are no longer
exercisable or outstanding; and (b) has caused all indebtedness for borrowed
money (including all principal, accrued interest and other charges owed) that is
owed by GALT to any shareholder, director, officer or employee of GALT or to any
affiliate of the foregoing to be repaid in full.
5.3 Derivative Securities. GALT shall take all actions necessary to
ensure that no GALT Derivative Securities (other than the shares of GALT Series
A Preferred Stock that are outstanding on the Agreement Date and reflected in
Section 3.3 or are permitted to be issued by GALT under the terms of Section
5.1.4 hereof) are issued or outstanding immediately prior to the Effective Time.
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5.4 Securities Compliance. GALT shall use its reasonable good faith
efforts to cooperate with Intuit to enable Intuit to offer and issue all Intuit
securities to be issued pursuant to this Agreement to be issued in compliance
with all applicable securities laws and the requirements of the Nasdaq Stock
Market and/or any other securities exchange on which Intuit Common Stock is
traded.
5.5 Certain Investments, Agreements. GALT does not own, and shall not
make any purchase or other acquisition of, or investment in, any shares of
Intuit Common Stock or other securities of Intuit. GALT shall not enter into any
agreement with any holders of Intuit shares calling for either GALT or Intuit to
retire or reacquire all or part of the Intuit shares to be issued pursuant to
the Merger. GALT shall not enter into any financial arrangements for the benefit
of any GALT shareholder which, in effect, would negate the exchange of equity
securities contemplated under this Agreement, including without limitation, any
loan or other financial arrangement at abnormally low interest rates, or any
guarantee of loans secured by Intuit shares to be issued pursuant to the Merger.
5.6 Pooling. Following the Agreement Date, GALT shall not take (a) any
of the actions described in Exhibit 5.6 or (b) any other action if, prior to
taking such action, GALT has been informed by Intuit or its accountants that, in
the opinion of Intuit's accountants, taking such action may preclude Intuit from
accounting for the Merger as a "pooling of interests" for accounting purposes
and Intuit or its accountants promptly give GALT a writing that states in
reasonable detail the action that Intuit or its accountants request GALT not to
take. GALT shall cooperate with Intuit to cause the business combination to be
effected by the Merger to be accounted for as a pooling of interests for
accounting purposes.
5.7 GALT Dissenting Shares. As promptly as practicable after the date
of the GALT Shareholder Vote and prior to the Closing Date, GALT shall furnish
Intuit with the name and address of each holder of any GALT Dissenting Shares
(if any) and the number of GALT Dissenting Shares owned by each such holder.
5.8 Termination of Registration and Voting Rights. All registration
rights agreements and voting agreements applicable to or affecting any
outstanding shares or other securities of GALT shall be duly terminated and
canceled by no later than the Effective Time.
5.9 Invention Assignment and Confidentiality Agreements. Each employee
and consultant of GALT who has had access to any software or other technology
owned or developed by GALT, or to any other confidential or proprietary
information of GALT, shall have executed and delivered to GALT an invention
assignment and confidentiality agreement in a form reasonably acceptable to
Intuit.
5.10 Closing of Merger. GALT shall not refuse to effect the Merger if,
on or before the Closing Date, all the conditions precedent to GALT's
obligations to effect the Merger under Section 8 hereof have been satisfied or
waived by GALT.
6. INTUIT COVENANTS
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6.1 Preclosing Covenants. During the period from the Agreement Date
until the earlier to occur of (i) the Effective Time or (ii) the termination of
this Agreement in accordance with Section 10, Intuit covenants and agrees as
follows:
6.1.1 Regulatory Approvals. Intuit shall execute and file, or
join in the execution and filing, of any application or other document that may
be necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be legally
required, in connection with the consummation of the transactions contemplated
by this Agreement. Intuit shall use its best efforts to obtain, and to cooperate
with GALT to obtain, all such authorizations, approvals and consents.
6.1.2 Satisfaction of Conditions Precedent. Intuit shall use
its best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8 and 9 (insofar as satisfaction of
such conditions is within Intuit's reasonable control), and Intuit shall use its
best efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to enable it to effect the transactions
contemplated hereby.
6.1.3 Preparation of Permit Application, Hearing Request and
Hearing Notice. As promptly as practicable after the date hereof (but in no
event later than December 31, 1995), Intuit, with GALT's assistance, shall
prepare and file with the Department the Permit Application, a request for a
Fairness Hearing and any other documents required by the California Law in
connection with such Permit Application. Intuit, with GALT's assistance, shall
participate in the Fairness Hearing and use its best efforts to have the Permit
declared effective under the California Law as promptly as practicable after
such filing. Intuit shall be solely responsible for any statement, information
or omission in the Permit Application (and the exhibits thereto) that relates to
Intuit or its affiliates. If Section 2.8(b) hereof becomes operative, then
Intuit shall use its best efforts to comply with its obligations thereunder.
6.1.4 Litigation. Intuit shall notify GALT in writing promptly
after learning of any material action, suit, arbitration, proceeding or
investigation by or before any court, arbitrator or arbitration panel, board or
governmental agency, initiated by or against Intuit or known by it to be
threatened against it, which could reasonably be expected to materially and
adversely affect Intuit or the prospects for consummation of the Merger if such
action, suit, arbitration, proceeding or investigation were decided adversely to
Intuit.
6.1.5 Advice of Changes. Intuit shall promptly advise GALT in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Intuit contained in Section 4 of
this Agreement (as qualified by the Intuit Disclosure Letter), if made on or as
of the date of such event or the Closing Date, untrue or inaccurate in any
material respect and (b) of any material adverse change in Intuit's business,
results of operations or financial condition; provided, however, that Intuit
shall not be obligated to disclose such information to GALT at any time or in
any manner that might subject Intuit to liability under applicable securities
laws.
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6.2 Working Capital Loan. Concurrently with the execution of this
Agreement by the parties, GALT and Intuit shall each enter into, execute and
deliver the Credit Agreement, Secured Revolving Promissory Note and Security
Agreement in the forms attached hereto as Exhibit 6.2 (such agreements being
collectively referred to as the "INTUIT LOAN AGREEMENT"). Subject to the terms
and conditions of the Loan Agreement, Intuit will lend GALT the principal amount
of not more than Three Million Eleven Thousand Ninety-Six Dollars ($3,011,096),
with the proceeds of any such loan or loans to be used by GALT solely for
working capital and any other purposes specified in the Intuit Loan Agreement.
All loans or advances of funds made by Intuit under the Intuit Loan Agreement
are hereinafter referred to as "INTUIT LOANS." The parties acknowledge and agree
that the repayment of all Intuit Loans shall be secured by GALT's grant to
Intuit, pursuant to the terms and conditions of the Intuit Loan Agreement, of a
first and senior lien and security interest in and to all of the assets and
properties of GALT, whether now owned or hereafter acquired. GALT further agrees
that, if so requested by Intuit, it shall use its best efforts to cooperate with
Intuit to obtain, as soon as practicable, replacement loan financing from a bank
or other lending institution that will be used to pay off all then outstanding
Intuit Loans.
6.3 Post-Merger Grant of Options. If the Merger is consummated as
contemplated by this Agreement, then as soon as reasonably practicable following
the closing and consummation of the Merger, and subject to the customary
approval of the Compensation Committee of Intuit's Board of Directors or its
delegate(s), Intuit shall grant to those persons who are GALT employees at the
date of the Closing of the Merger and who continue as GALT employees thereafter,
options to purchase shares of Intuit Common Stock in amounts determined by
Intuit in its sole discretion but consistent with the option grant levels that
are then customary for new Intuit employees of similar responsibility and
status, determined without regard to the number of Intuit Options issued to such
GALT employees in the Merger. The options to be granted pursuant to this Section
shall be granted at an exercise price equal to the then-current fair market
value of Intuit stock on the date of option grant as determined by Intuit
consistent with Intuit's past practice, with the right to exercise such options
to vest over a four-year period beginning on the first date of the optionee's
employment with the Surviving Corporation or Intuit after the Effective Time in
accordance with the vesting formulas then generally afforded to options granted
to new Intuit employees.
6.4 Closing of Merger. Intuit shall not refuse to effect the Merger if,
on or before September 30, 1996, all the conditions precedent to Intuit's
obligations to effect the Merger under Section 9 hereof have been satisfied or
waived by Intuit.
7. CLOSING MATTERS
7.1 The Closing; Closing Date.
(a) Closing. The closing of the transactions for consummation of
the Merger (the "CLOSING") shall take place at the offices of Fenwick & West,
Two Palo Alto Square, Palo Alto, California 94306 on that date occurring on or
before September 30, 1996 that Intuit, in its sole discretion, chooses to be the
date of the Closing and gives GALT at least thirty (30) days' advance written
notice of in accordance with this Agreement. If Intuit fails to give GALT such
advance written notice of the scheduled Closing by August 15, 1996, then the
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Closing shall be held on September 1, 1996 unless the parties otherwise agree.
Nothing in this Section is intended to waive or eliminate the conditions
precedent to the parties' obligations to effect the Merger in Sections 8 and 9
hereof.
(b) Actions at Closing; Closing Date. Concurrently with the
Closing, the Agreement of Merger and the Articles of Merger shall be filed in
the offices of the Delaware Secretary of State and the Pennsylvania Department
of State, respectively. As used herein, the "CLOSING DATE" shall mean the date
on which the Closing occurs.
7.2 Exchange of Certificates.
7.2.1 At the Closing, each holder of shares of GALT capital stock
shall surrender to Intuit for cancellation the certificate(s) for such shares
(each a "GALT CERTIFICATE"), duly endorsed to Intuit or accompanied by duly
executed stock powers and assignments separate from certificate transferring
title to such shares to Intuit. At the Closing, or as promptly as practicable
after the Effective Time, and against receipt of such GALT Certificates, Intuit
shall issue to each tendering holder of a GALT Certificate a certificate for the
number of shares of Intuit Common Stock to which such holder is entitled
pursuant to Section 2 hereof. All Intuit Common Stock delivered upon the
surrender of GALT Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such GALT
Stock.
7.2.2 No dividends or distributions payable to holders of record of
Intuit Common Stock after the Effective Time, or cash payable in lieu of
fractional shares, shall be paid to the holder of any unsurrendered GALT
Certificate until the holder of the GALT Certificate(s) surrenders such GALT
Certificate to Intuit as provided above. Subject to the effect, if any, of
applicable escheat and other laws, following surrender of any GALT Certificate,
there shall be delivered to the person entitled thereto, without interest, the
amount of any dividends and distributions therefor paid with respect to Intuit
Common Stock so withheld as of any date subsequent to the Effective Time and
prior to such date of delivery.
7.2.3 After the Effective Time there shall be no further
registration of transfers on the stock transfer books of GALT or its transfer
agent of the GALT Stock. If, after the Effective Time, GALT Certificates are
presented for any reason, they shall be canceled and exchanged as provided in
this Section 7.2.
7.2.4 Until GALT Certificates representing GALT Stock outstanding
prior to the Effective Time are surrendered pursuant to Section 7.2.1 above,
such GALT Certificates shall be deemed, for all purposes, to evidence ownership
of the number of shares of Intuit Stock into which the GALT Stock shall have
been converted pursuant to Section 2.
7.3 Converted GALT Options. Upon the Effective Time, all original GALT
stock option grant agreements representing GALT Options that were outstanding
immediately prior to the Effective Time ("GALT OPTION GRANTS") shall represent
the Intuit Options into which such GALT Options were converted in the Merger and
may be presented to Intuit for exercise of such Intuit Options. Intuit, in its
sole discretion, may elect to replace such GALT Option Grants with
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new Intuit Option Grant documents that do not change the terms on which the GALT
Options are to be converted into Intuit Options under Section 2.2 hereof.
8. CONDITIONS TO OBLIGATIONS OF GALT
GALT's obligations to effect the Merger hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by GALT, but only in a
writing signed by GALT):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of Intuit set forth in Section 4 (as qualified by the Intuit
Disclosure Letter) shall have been true and accurate in every material respect
on and as of the Agreement Date, and GALT shall have received a certificate to
such effect executed by Intuit's President, Executive Vice President or Chief
Financial Officer.
8.2 Covenants. Intuit shall have performed and complied in all material
respects with all its covenants in Section 6 on or before the Closing (or cured
any such failure to perform and comply with such covenants), and GALT shall have
received a certificate to such effect signed by Intuit's President, Executive
Vice President or Chief Financial Officer.
8.3 Compliance with Law; No Legal Restraints. The parties shall be able
to consummate the Merger without violation of any law, judgment, order or
decree, and all authorizations or consents required to be obtained from any
governmental authority to lawfully consummate the Merger shall have been
obtained.
8.4 Requisite GALT Shareholder Approvals. The principal terms of this
Agreement, the Agreement of Merger and the Merger shall have been approved and
adopted by GALT's shareholders, as required by applicable law and GALT's
Articles of Incorporation and Bylaws.
8.5 Opinion of Intuit's Counsel. GALT shall have received from Fenwick
& West, counsel to Intuit, an opinion substantially in the form of Exhibit 8.5.
8.6 Transferability of Securities. The shares of Intuit Common Stock to
be issued upon the conversion of GALT Stock in the Merger pursuant to the
provisions of Section 2.1.3 hereof shall either (i) be transferable, in the
opinion of Intuit's counsel that is reasonably acceptable to GALT, pursuant to
the provisions of Rule 145(d) under the 1933 Act; or (ii) be registered under
the 1933 Act.
9. CONDITIONS TO OBLIGATIONS OF INTUIT
The obligations of Intuit to effect the Merger hereunder are subject to
the fulfillment or satisfaction on, and as of the Closing, of each of the
following conditions (any one or more of which may be waived by Intuit, but only
in a writing signed by Intuit):
9.1 Covenants. GALT shall have performed and complied in all material
respects with all of its covenants contained in Section 5 hereof (except for (a)
the covenants contained in Sections 5.1.1, 5.1.2, 5.1.3, 5.1.9, 5.1.11 and 5.7
and (b) the covenants contained in Section 5.12,
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but only if GALT's violation of its covenants in Section 5.12 has not impaired
the satisfaction of any conditions to the parties' obligations to effect the
Merger under Section 8 or this Section 9, or caused Intuit to breach this
Agreement) on or before the Closing (or cured any such failure to perform or
comply with such covenants) and Intuit shall have received a certificate to such
effect signed by GALT's President and Chief Financial officer.
9.2 Compliance with Law; No Legal Restraints. The parties shall be able
to consummate the Merger without violation of any law, judgment, order or
decree, and all authorizations or consents required to be obtained from any
governmental authority to lawfully consummate the Merger shall have been
obtained.
9.3 Securities Law Compliance; Transferability of Securities. Either
the Commissioner shall have issued the Permit, or other action shall have been
taken so that Intuit may lawfully offer and issue the shares of Intuit Common
Stock and Intuit Options to be issued in the Merger.
9.4 Outstanding Securities; No Intuit Stockholder Vote. The shares of
GALT Capital Stock outstanding immediately prior to the Effective Time shall
consist only of (i) the shares of GALT Common Stock and GALT Series A Preferred
Stock represented by GALT as being outstanding on the Agreement Date in Section
3.3 hereof, and (ii) any shares of GALT stock that GALT is permitted to issue
under Section 5 hereof, provided that such stock consists only of GALT Common
Stock or GALT Series A Preferred Stock. No GALT Derivative Securities (other
than any shares of GALT Series A Preferred Stock referred to in the preceding
sentence) shall be outstanding immediately prior to the Effective Time. The
number of shares of Intuit Common Stock that Intuit must issue upon the
conversion of outstanding shares of GALT Stock and converted GALT Options shall
not exceed the number of shares of Intuit Common Stock that would require Intuit
to seek the approval of the Merger by its stockholders under applicable law or
the bylaws, rules or regulations of the Nasdaq Stock Market or any other stock
exchange on which Intuit Common Stock is traded.
9.5 Resignation of Directors. The directors of GALT in office
immediately prior to the Effective Time of the Merger shall have resigned as
directors of the Surviving Corporation effective as of the Effective Time.
9.6 Opinion of GALT's Counsel. Intuit shall have received from Buchanan
Ingersoll, counsel to GALT, an opinion substantially in the form of Exhibit 9.6.
9.7 Requisite GALT Shareholder Approvals. The principal terms of this
Agreement, the Agreement of Merger and the Merger shall have been approved and
adopted by GALT's shareholders, as required by applicable law and GALT's
Articles of Incorporation and Bylaws, and by GALT's Board of Directors and
holders of the issued and outstanding shares of GALT capital stock representing
at least ninety-three percent (93%) of the voting power of all issued and
outstanding shares of GALT capital stock shall have duly and validly
affirmatively voted to approve this Agreement, the Agreement of Merger and the
Merger in accordance with all applicable laws.
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9.8 Limits on Dissenting Shares. The shares of GALT Stock with respect
to which any GALT shareholders shall be eligible to exercise or perfect any
statutory appraisal rights of dissenting shareholders shall not exceed that
number (and class or series) of shares of GALT Stock that, but for the exercise
of such statutory appraisal rights, would be entitled to receive seven percent
(7%) or more of the total number of shares of Intuit Common Stock that would be
issuable in the Merger upon the conversion of all shares of GALT Stock that are
outstanding immediately prior to the Effective Time.
9.9 No Violation of Agreements. No GALT Affiliate who has executed a
GALT Affiliate Agreement with Intuit pursuant to Section 5.13 shall have,
breached, attempted to cancel or void such GALT Affiliate Agreement or asserted
that it is unenforceable and no Principal Shareholder who has executed a
Non-Competition Agreement with Intuit shall have attempted to cancel or void
such Non-Competition Agreement or asserted that it is unenforceable.
10. TERMINATION OF AGREEMENT AND MERGER
10.1 Termination.
10.1.1 By Consent. This Agreement, the Agreement of Merger, the
Merger and all transactions related thereto may be terminated at any time prior
to the Effective Time by the mutual written consent of Intuit and GALT.
10.1.2 Termination on Termination Date. Unless the Merger has
occurred, or unless otherwise agreed in writing by the parties hereto, this
Agreement, the Agreement of Merger, the Merger and all transactions related
thereto will automatically terminate without the need for action on the part of
any party hereto at Midnight Pacific Time on September 30, 1996 (such time and
date being hereinafter referred to as the "TERMINATION DATE") if by that time
all of the conditions precedent to the parties' obligation to effect the Merger
set forth in Sections 8 and 9 hereof have not been satisfied or waived in
writing by the appropriate party.
10.1.3 Termination by Intuit for Certain GALT Breaches and
Remedies Therefor. If: (i) GALT enters into an agreement or commitment with a
third party providing for an Alternative Transaction; (ii) all of the conditions
precedent to GALT's and Intuit's obligations to effect the Merger under Sections
8 and 9 hereof have been fulfilled (or waived in writing by the party whose
obligation to close would otherwise be subject to such condition precedent) by
the date on which the Closing is to be held pursuant to Section 7.1(a) hereof
(the "SCHEDULED CLOSING DATE") and Intuit stands ready, willing and able to
effect the Closing and the Merger, and GALT nevertheless refuses or fails to
effect and consummate the Merger on the Scheduled Closing Date; (iii) Point
Venture Partners, L.P., Point Venture Partners Pennsylvania, L.P., Donald H.
Jones, Robert A. Frasca, D. Joel Maske, or David J. Stubenvoll fail to vote all
their GALT shares in favor of this Agreement and the Merger at the GALT
Shareholder Vote or otherwise or attempt to exercise statutory dissenting
shareholders' appraisal rights; or (iv) the shareholders of GALT fail to approve
this Agreement and the Merger by the percentage vote required in Section 9.7
hereof; then (a) Intuit may immediately terminate this Agreement, the Agreement
of Merger, the Merger and all transactions related thereto by giving GALT
written notice of such termination, (b) the entire principal amount of, and all
accrued interest due under,
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all Intuit Loans made under the Intuit Loan Agreement shall accelerate and
become immediately due and payable to Intuit in full; (c) all Intuit's
obligations to loan funds to GALT under the Intuit Loan Agreement shall
automatically and immediately terminate without the need for any further action
on the part of either party thereto; and (d) the Services Agreement being
entered into by GALT and Intuit concurrently herewith shall automatically and
immediately terminate without the need for any further action on the party of
either party thereto. Intuit's remedies under this Section 10.1.3 are not
exclusive and shall not preclude it from recovering actual damages for its lost
profits, transaction expenses and other quantifiable damages, as well as to
enforce any other rights or remedies to which it may be entitled under
applicable law.
10.1.4 Termination for Breach by Intuit and Remedies Therefor. If
all of the conditions precedent to GALT's and Intuit's obligations to effect the
Merger under Sections 8 and 9 hereof have been fulfilled (or waived in writing
by the party whose obligation to close would otherwise be subject to such
condition precedent) and GALT stands ready, willing and able to effect the
Closing and the Merger, and notwithstanding the fulfillment and/or waiver of all
such conditions precedent and GALT's willingness and ability to effect the
Closing and the Merger, Intuit refuses or fails to effect and consummate the
Merger by the Termination Date, then on the Termination Date this Agreement, the
Agreement of Merger, the Merger and all transactions related thereto shall
automatically terminate without the need for any further action by any party
hereto. Such failure or refusal by Intuit to consummate the Merger shall
constitute a material breach of this Agreement. In the event of such breach,
Intuit shall be liable to and shall pay to GALT the sum of Four Million Dollars
($4,000,000) in cash, which sum the parties agree shall constitute liquidated
damages intended to reasonably and justly compensate GALT for the harm that it
will suffer in the form of loss of goodwill with its customers, injury to its
reputation and lost business opportunity, which damages the parties agree would
be difficult to measure or prove. Such liquidated damages do not include and
GALT's recovery of such damages shall not preclude it from recovering actual
damages for its lost profits, transaction expenses and other quantifiable
damages, as well as to enforce any other rights or remedies to which it may be
entitled under applicable law. Intuit shall pay to GALT the foregoing liquidated
damages upon ten (10) days' prior written notice from GALT. Notwithstanding the
foregoing, Intuit shall not be obligated to pay GALT the Four Million Dollar
($4,000,000) liquidated damages payment referenced above, if, on the Termination
Date, any amount of principal or accrued interest under any Intuit Loans made by
Intuit to GALT under the Intuit Loan Agreement remain outstanding and unpaid for
any reason and, within thirty (30) days after the Termination Date and prior to
any payment of liquidated damages, GALT has not (i) repaid to Intuit in full all
amounts of principal and accrued interest outstanding and unpaid under all
Intuit Loans made by Intuit under the Loan Agreement and (ii) executed and
delivered to Intuit a written agreement irrevocably releasing Intuit of all
Intuit's further obligations under the Intuit Loan Agreement.
10.2 No Liability; Survival of Certain Terms. Any termination of this
Agreement in accordance with the provisions of this Section 10 (other than a
termination of this Agreement pursuant to Section 10.1.3 or Section 10.1.4) will
be without further obligation or liability upon any party in favor of the other
party hereto other than the obligations of the parties set forth in the
Confidentiality Agreement, which provides for certain mutual nondisclosure
agreements between GALT and Intuit (but only for the length of time expressly
contemplated by the Confidentiality Agreement).
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11. SURVIVAL OF REPRESENTATIONS; REDUCTION OF MERGER CONSIDERATION
11.1 Survival of Representations. All representations and warranties of
GALT in Section 3 hereof, and all representations and warranties of Intuit in
Section 4 hereof, will survive execution of this Agreement and continue in
effect until the Closing and the consummation of the Merger (except that the
representations and warranties of Intuit in Section 4.7 hereof shall survive the
Closing), although the timing of certain claims with respect to GALT's
representations and warranties is limited by the final sentence of Section
11.2.1 hereof.
11.2 Adjustment of Merger Consideration for Breach of GALT
Representations and Warranties.
11.2.1 Price Adjustment Claims. Subject to the terms and
conditions of this Section 11, in the event that, at any time or from time to
time prior to the Closing, Intuit asserts a claim that any representation or
warranty made by GALT in Section 3 of this Agreement (as qualified by the GALT
Disclosure Letter) was false, untrue, incorrect or inaccurate in any respect as
of the Agreement Date (a "PRICE ADJUSTMENT CLAIM"), then Intuit may initiate an
arbitration proceeding as provided herein for the purpose of seeking a reduction
of the number of shares of Intuit Common Stock issuable by Intuit upon the
conversion of GALT Stock in the Merger, and the number of Intuit Options to be
issued upon the assumption of GALT Options as provided in Section 2.2 hereof.
Intuit shall initiate a Price Adjustment Claim by giving GALT written notice of
such Price Adjustment Claim as provided in Section 12.9 hereof (a "CLAIM
NOTICE"). The Claim Notice shall identify the representations and warranties of
GALT in Section 3 of this Agreement that Intuit asserts were false, untrue,
incorrect or inaccurate in any respect as of the Agreement Date (the "CLAIM
REPRESENTATIONS") and shall specify in reasonable detail the nature and basis of
Intuit's Price Adjustment Claim. For purposes of this Agreement, a Price
Adjustment Claim shall be deemed to have been made by Intuit on the date on
which the Claim Notice for such Price Adjustment Claim is effectively given and
served on GALT pursuant to Section 12.9 hereof. No Price Adjustment Claim may be
made by Intuit later than ninety (90) days prior to the date that Intuit selects
to be the Closing Date as set forth in the written notice of the Closing that
Intuit is required to give under Section 7.1(a) hereof, or, if no such notice of
Closing is given by Intuit by August 15, 1996, the default date of September 1,
1996.
11.2.2 Arbitration of Price Adjustment Claims.
(a) Arbitration. If Intuit makes a Price Adjustment Claim,
then the parties agree that the Price Adjustment Claim shall be submitted to,
and shall be resolved by, final, mandatory and binding arbitration (the
"ARBITRATION"). Subject to the provisions of this Section 11.2, the Arbitration
of each Price Adjustment Claim shall be governed exclusively by Pennsylvania law
and the arbitration shall take place according to the Commercial Arbitration
Rules of the American Arbitration Association (the "AAA RULES") and held in
Pittsburgh, Pennsylvania, and shall be decided by a single arbitrator chosen
according to such AAA Rules (the "ARBITRATOR"). If Intuit makes a Price
Adjustment Claim, then it shall initiate the Arbitration by filing with the
Pittsburgh, Pennsylvania office of the AAA an appropriate submission and request
for arbitration pursuant to the AAA rules not later than three (3) days
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after giving the Claim Notice to GALT. Except as permitted by law, neither party
may appeal or contest the decision and award (if any) of the Arbitrator (the
"ARBITRATION AWARD") and the parties agree that they shall be finally bound by
the Arbitration Award. Intuit shall pay and advance the fees of the Arbitrator
and all applicable administrative costs and fees of the AAA charged by the AAA
for such Arbitration, subject to any right that Intuit may be granted to recover
such payment of fees and costs under the Arbitration Award.
(b) Timing and Procedures. The Arbitration hearing will
commence thirty (30) days after Intuit gives the Claim Notice. The parties agree
that the Arbitration hearing shall be concluded no later than thirty (30) days
after it has commenced and that the Arbitration Award shall be announced and
delivered in writing to the parties within ten (10) days after the Arbitration
hearing has concluded. The Arbitrator shall agree to be bound and abide by the
time requirements of this Section and no arbitrator shall be chosen who cannot
comply with these time requirements. Neither party shall have any right to
request a delay or postponement of the Arbitration hearing without the other
party's written consent. Unless otherwise agreed by the parties, pre-hearing
discovery shall be limited to the following: (i) production of all documents
that will be introduced at the Arbitration hearing; (ii) production of written
or recorded statements; (iii) production of documents relied on by experts in
the Arbitration hearing; and (iv) not more than two (2) depositions per side.
All pre-hearing discovery shall be concluded within twenty (20) days of Intuit's
filing of its submission with the AAA. The parties agree that the provisions of
this Section shall be strictly construed and enforced by the Arbitrator.
(c) Decisions of Arbitrator; Arbitration Award. In the
Arbitration, the Arbitrator shall decide and determine only the following
issues: (i) whether or not any of the Claim Representations that Intuit, in its
Claim Notice, claims to have been false, untrue, incorrect or inaccurate in any
respect as of the Agreement Date was in fact false, untrue, incorrect or
inaccurate in any respect as of the Agreement Date; (ii) the amount of Damages
(as defined below), if any, that Intuit has actually incurred as a result of the
falsity, untruth, incorrectness or inaccuracy of any Claim Representation (the
"ACTUAL DAMAGES"); (iii) the amount of Damages that Intuit will incur as a
result of the falsity, untruth, incorrectness or inaccuracy of any Claim
Representation if the Merger is consummated (the "FUTURE DAMAGES"); and (iv) who
should bear (or the proportion that each side will bear) the costs of the
Arbitration and each side's reasonable legal and other professional fees and
expenses incurred in connection with the Arbitration, given the equities of the
Price Adjustment Claim. The Arbitration Award shall clearly set forth in writing
the Arbitrator's decision and determination as to each of the above issues and
shall be issued and delivered to the parties within the ten (10) day time period
set forth in Section 11.2.2(b) above. The Arbitrator shall have no authority to
amend or modify the terms of this Agreement or to award punitive or exemplary
damages and the Arbitration Award may be enforced by a judgment entered with any
court of competent jurisdiction.
(d) Damages Defined. As used herein, the term "DAMAGES"
means all judgments, arbitration or similar awards (other than the Arbitration
Award), amounts paid in settlement, damages, losses, liabilities, penalties,
fines, taxes, costs and expenses (including, without limitation, reasonable
attorneys' fees, other professionals' and experts' reasonable fees and court or
arbitration costs ) arising from any falsity, untruth, incorrectness or
inaccuracy of any Claim Representation set forth in Intuit's Claim Notice.
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(e) Intent of Expedited Procedure. The parties hereto
acknowledge and agree that the procedures set forth herein for Arbitration of a
Price Adjustment Claim are intended to expedite the rapid resolution of each
Price Adjustment Claim. The parties desire to rigorously enforce the timing and
other procedural provisions set forth in Section 11.2 to facilitate a rapid and
final resolution of each Price Adjustment Claim and acknowledge that the parties
shall be bound by each Arbitration Award of a Price Adjustment Claim,
notwithstanding the fact that subsequently it may be determined that the amount
of Damages or Future Damages determined by the Arbitration Award is incorrect in
any amount, whether or not material. Further, the parties also agree to release
and hold harmless the Arbitrator from any liability whatsoever relating to any
Arbitration Award or the conduct of any Arbitration by such Arbitrator, other
than any claim a party may have for willful misconduct on the part of such
Arbitrator.
11.2.3 Reduction in Merger Consideration. If any Arbitration Award
rendered pursuant to the Arbitration of a Price Adjustment Claim finds that
Intuit has actually incurred Actual Damages and/or will incur Future Damages,
then the Merger Amount (as defined in Section 1.13 hereof) shall, subject to the
following provisions of this Section 11.2.3, be adjusted by being reduced,
dollar-for-dollar, by the sum of the Actual Damages and Future Damages,
determined by such Arbitration Award and the resulting adjusted Merger Amount
shall be used to calculate the Unadjusted Conversion Number and hence the Series
A Preference Conversion Number, the Participation Conversion Number and the
Preferred Participation Conversion Number for all purposes of determining the
conversion of GALT Stock pursuant to Section 2.1.3 and the assumption and
conversion of GALT Options pursuant to Section 2.2 hereof. The determination of
Actual Damages and/or Future Damages in any Arbitration Award shall be
conclusive and binding on the parties. Notwithstanding the foregoing, there
shall be no adjustment to the Merger Amount by virtue of an Arbitration Award
unless and until the aggregate cumulative sum of all Actual Damages plus all
Future Damages determined by such Arbitration Award and any prior Arbitration
Awards exceeds a cumulative total of One Hundred Thousand Dollars ($100,000), in
which event the Merger Amount shall be adjusted by being reduced,
dollar-for-dollar, by the full cumulative aggregate amount of all Actual Damages
plus all Future Damages determined by all Arbitration Awards.
11.2.4 Exclusive Remedy for Breach of Representations. The
reduction in the number of shares of Intuit Common Stock and Intuit Options
issuable in the Merger effected pursuant to Section 11.2.3 as a result of Price
Adjustment Claims made by Intuit under this Section 11.2 shall be Intuit's sole
and exclusive remedy for any breach of GALT's representations and warranties
under Section 3 of this Agreement.
11.3 Further Merger Amount Adjustment.
(a) In the event that at the Closing Date the product obtained by
multiplying (i) the aggregate number of shares of Intuit Common Stock to be
issued in the Merger pursuant to the provisions of Section 2.1.3 hereof,
computed without regard to this Section 11.3 (such aggregate number of shares of
Intuit Common Stock being hereinafter referred to as the "BASE NUMBER OF MERGER
SHARES") by (ii) the average of the closing prices of Intuit Common Stock as
quoted on the Nasdaq National Market System and reported in The Wall Street
Journal for the
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ten (10) trading days ending three (3) business days prior to the Closing Date
(the "INTUIT AVERAGE CLOSING PRICE") would be less than Eight Million Dollars
($8,000,000) (the "BASE AMOUNT") then:
(i) the number of shares of Intuit Common Stock to be issued
upon the conversion of all shares of GALT Stock that are outstanding immediately
prior to the Effective Time pursuant to Section 2.1.3 shall be increased to that
number of shares of Intuit Common Stock (the "ADJUSTED MERGER SHARES") that,
when multiplied by the Intuit Average Closing Price equals the Base Amount; and
(ii) the Series A Preference Conversion Number, the
Participation Conversion Number and the Preferred Participation Conversion
Number shall each be increased to the respective numbers that would result in
the issuance of a number of shares of Intuit Common Stock equal to the Adjusted
Merger Shares (and not more) pursuant to the conversion of GALT Stock under
Section 2.1.3, with such increase to be effected so as to maintain the same
relative ratios of the Series A Preference Conversion Number, the Participation
Conversion Number and the Preferred Participation Conversion Number as existed
prior to the adjustment called for by this Section, and the resulting increased
Participation Conversion Number shall be used to compute the conversion of GALT
Options into Intuit Options pursuant to Section 2.2 hereof; and
(iii) notwithstanding anything herein to the contrary, in the
event that the Merger Amount has at any time been reduced pursuant to the
provisions of Section 11.2 hereof, then, notwithstanding the foregoing, the Base
Amount for all purposes of this Section shall not be Eight Million Dollars
($8,000,000), but instead shall be reduced to that amount obtained by
multiplying Eight Million Dollars ($8,000,000) by a fraction whose numerator is
the Merger Amount in effect on the Closing Date and whose denominator is Nine
Million Dollars ($9,000,000);
provided, however, that notwithstanding anything to the contrary in this Section
11.3, in no event shall the aggregate total number of shares of Intuit Common
Stock issued upon the conversion of the outstanding shares of GALT Stock in the
Merger pursuant to Section 2.1.3 hereof exceed that number of shares of Intuit
Common Stock that is obtained by multiplying (a) 2.5 by (b) the Base Number of
Merger Shares.
12. MISCELLANEOUS
12.1 Governing Law; Venue. The laws of the Commonwealth of Pennsylvania
(irrespective of its choice of law principles) shall govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto. The parties agree that any
controversy or claim arising out of or relating to this Agreement, with the
exception of any Price Adjustment Claim described in Section 11.2, shall be
litigated in the United States District Court for the Western District of
Pennsylvania sitting in Pittsburgh, Pennsylvania.
12.2 Assignment; Binding Upon Successors and Assigns. Neither party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other
39
<PAGE> 40
party hereto. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. In the
event that a third party should acquire ownership of Intuit, whether by merger
or otherwise, such third party shall be obligated to cause Intuit to comply with
its obligations and to perform its duties under this Agreement, subject to the
terms and conditions hereof. In the event that Intuit enters into a definitive
agreement pursuant to which Intuit is to be acquired by a third party ("BUYER"),
then, if in Intuit's sole and absolute judgment and discretion, the acquisition
of Intuit by Buyer will not in any manner be adversely affected, delayed or
subject to potentially adverse tax or accounting treatment by acceleration of
the Closing of the Merger, then Intuit will, subject to any agreement between
Intuit and Buyer to the contrary, Intuit will use good faith reasonable efforts
to accelerate the date of the Closing.
12.3 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as reasonably to
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that shall achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as regards any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of both parties reflected hereon as signatories.
12.5 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party shall be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy shall not preclude the exercise of any other.
12.6 Amendment and Waivers. Any term or provision of this Agreement may
be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof
shall not be deemed to constitute a waiver of any other default or any
succeeding breach or default. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The Agreement may be amended by the
parties hereto at any time before or after approval of the shareholders of GALT,
but, after such approval, no amendment shall be made which by applicable law
requires the further approval of the shareholders of GALT without obtaining such
further approval.
12.7 Construction of Agreement. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof shall
not be construed for or against either party. A reference to a Section or an
exhibit shall mean a Section in, or exhibit to,
40
<PAGE> 41
this Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
12.8 Attorneys' Fees. Except as provided in Section 11.2, should suit
be brought to enforce or interpret any part of this Agreement, the prevailing
party shall be entitled to recover, as an element of the costs of suit and not
as damages, its reasonable attorneys' fees, and other costs and expenses
incurred in such suit to be fixed by the judge (including without limitation,
costs, expenses and fees on any appeal) regardless of whether the trial is
before a jury or a judge alone. The prevailing party shall be entitled to
recover its attorneys' fees, other reasonable costs and expenses of such suit,
regardless of whether such suit proceeds to final judgment. The presiding judge
or the motions judge, if there is no presiding judge, shall finally decide the
amount of attorneys' fees, costs and expenses that may be recovered by a
prevailing party under this Section and the identity of the prevailing party.
12.9 Notices. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be either hand
delivered in person, sent by telecopier, sent by certified or registered first
class mail, postage pre-paid, or sent by nationally recognized express courier
service. Such notices and other communications shall be deemed to have been
given and served effective upon receipt if hand delivered or sent by telecopier,
three (3) days after mailing if sent by mail, and one (l) day after dispatch if
sent by express courier, to the following addresses, or such other addresses as
any party may notify the other parties in accordance with this Section:
(i) If to Intuit:
Intuit Inc.
155 Linfield Avenue
Menlo Park, CA 94025
Attention: General Counsel
with a copy to:
Fenwick & West
Two Palo Alto Square, Suite 800
Palo Alto, CA 94306
Attention: Kenneth A. Linhares, Esq.
(ii) If to GALT:
GALT Technologies, Inc.
5001 Baum Boulevard, Suite 750
Pittsburgh, PA 15213
Attention: President
41
<PAGE> 42
with a copy to:
Buchanan Ingersoll
One Oxford Centre
301 Grant Street, 20th Floor
Pittsburgh, PA 15219-1410
Attention: Carl Cohen, Esq.
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.9.
12.10 No Joint Venture. Nothing contained in this Agreement shall be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall have
the power to control the activities and operations of any other and their status
is, and at all times shall continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section.
12.11 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the
[REST OF PAGE INTENTIONALLY LEFT BLANK]
42
<PAGE> 43
transactions described herein and contemplated hereby and to carry into
effect the intents and purposes of this Agreement.
12.12 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof shall be personal solely between the parties
to this Agreement; provided, however, that after the Effective Time, any holders
of GALT options who are entitled to have the shares of Intuit Common Stock that
are issuable upon exercise of their Intuit Options issued in the Merger
registered on Form S-8 under the 1933 Act under Section 2.2(b) hereof shall be
third party beneficiaries of Section 2.2(b) hereof solely for the purpose of
obtaining such Form S-8 Registration of such shares.
12.13 Public Announcement. Until Intuit has made a public press release
announcing its entry into this Agreement, GALT shall not disclose the fact of
the entry into and execution of this Agreement by the parties without Intuit's
prior written consent. Intuit may, at such time or times as its may deem
appropriate, issue such press releases, and make such other disclosures
regarding the parties entry into and execution of this Agreement, the Merger and
other subject matter of this Agreement, as Intuit determines are necessary or
appropriate, or required under applicable laws, rules or regulations.
12.14 Entire Agreement. This Agreement and the exhibits and schedules
hereto and the GALT Disclosure Letter and the Intuit Disclosure Letter
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto other than the
Confidentiality Agreement. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any of the terms
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"INTUIT" "GALT"
INTUIT INC. GALT TECHNOLOGIES, INC.
By: /s/ WILLIAM H. HARRIS, JR. By: /s/ ROBERT O. FRASCA
---------------------------- --------------------------------
Its: Executive Vice President Its: President
----------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
43
<PAGE> 44
LIST OF EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Example of Merger Conversion Formulas
Exhibit 1.15 GALT Revenue Projection Schedule
Exhibit 2.6 Articles of Incorporation of Surviving Corporation
Exhibit 3.3.1 List of GALT Shareholders
Exhibit 3.3.2 List of GALT Option Holders
Exhibit 3.8 GALT Financial Statements
Exhibit 3.11 Contracts of GALT
Exhibit 3.11A Contracts Requiring Third Party Consents
Exhibit 3.13 GALT IP Rights
Exhibit 3.16.1 List of GALT Employees, Officers and Consultants
Exhibit 3.16.3 GALT Employee Plans
Exhibit 3.16.6 GALT Benefit Arrangements
Exhibit 5.6 Pooling Compliance Actions
Exhibit 5.1.13 GALT Affiliate Agreement
Exhibit 8.5 Opinion of Intuit's Counsel
Exhibit 9.6 Opinion of GALT's Counsel
The exhibits listed above will be furnished to the Commission
upon request.
<PAGE> 45
STIPULATION AND AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
This Stipulation and Amendment No. 1 to Agreement and Plan of
Reorganization (this "STIPULATION AND AMENDMENT") is made and entered into
effective as of November 3, 1995 by and between Intuit Inc., a Delaware
corporation ("INTUIT") and GALT Technologies, Inc., a Pennsylvania corporation
("GALT").
RECITALS
A. Intuit and GALT have previously entered into a certain Agreement and
Plan of Reorganization dated as of October 24, 1995 (the "REORGANIZATION
AGREEMENT"), providing for the merger (the "MERGER") of a subsidiary of Intuit
with and into GALT (or, at Intuit's election, the merger of GALT with and into a
subsidiary of Intuit). Capitalized terms used but not defined herein shall have
the same meanings given to them in the Reorganization Agreement.
B. On November 3, 1995 GALT entered into a Mutual Release (the "RELEASE
AGREEMENT") with Adams Capital Management, Inc. ("ADAMS") and the P/A Fund, L.P.
("P/A FUND"), pursuant to which GALT has paid $70,000 to Adams and the P/A Fund
in order to settle and obtain releases from Adams and the P/A Fund of certain
claims. A total of $50,000 of such payment was not anticipated by or known to
Intuit at the time the Reorganization Agreement was entered into. The parties
desire to enter into this Stipulation and Amendment to stipulate and memorialize
their agreement that such $50,000 payment constitutes Actual Damages incurred by
Intuit within the meaning of Section 11.2.2(c) of the Reorganization Agreement,
and to waive any requirement under the Agreement that such matter be resolved
through arbitration.
NOW THEREFORE, Intuit and GALT hereby stipulate and agree as follows:
1. STIPULATION, AGREEMENT, WAIVER. Intuit and GALT each hereby
acknowledge, agree and stipulate that:
(a) for purposes of Section 11.2 of the Reorganization Agreement,
Intuit has actually incurred Actual Damages of $50,000 by virtue of GALT's
payment of $50,000 of the total amount paid to Adams and P/A Fund under the
Release Agreement;
(b) the arbitration provisions of Section 11 of the Agreement are
hereby waived with respect to (and solely with respect to) the determination
that Intuit has actually incurred Actual Damages of $50,000 as provided in
paragraph (a) of this Section; and
(c) Intuit is not limited by this stipulation from making a Price
Adjustment Claim for any other Actual Damages and/or Future Damages arising from
or related to the Release Agreement, the subject matter of the claims released
thereby, any breach or violation of the Release Agreement or any assertion or
attempt by any party to the Release Agreement to assert its invalidity or
unenforceability.
2. AMENDMENT. Section 11.2.1 of the Reorganization Agreement is hereby
amended by inserting the following sentences after the last sentence of Section
11.2.1.:
<PAGE> 46
"Notwithstanding the foregoing, Intuit and GALT may agree by
written stipulation and without the need to resort to the
Arbitration of a Price Adjustment Claim, that Intuit has incurred
Actual Damages and/or Future Damages (as defined below). Any such
stipulated damages will be treated, for purposes of this Section
11.2, as if they were determined by an Arbitration Award rendered
pursuant to the Arbitration of a Price Adjustment Claim."
3. EXECUTION IN COUNTERPARTS. This Stipulation and Amendment may be
executed in counterparts, each of which shall be deemed an original and all of
which shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned execute this Stipulation and
Amendment effective as of the date first written above.
INTUIT INC. GALT TECHNOLOGIES, INC.
By: /s/ WILLIAM H. HARRIS, JR. By: /s/ ROBERT O. FRASCA
---------------------------- --------------------------------
Its: Executive Vice President Its: President
----------------------------
<PAGE> 47
AMENDMENT NO. 2
TO
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment No. 2 to Agreement and Plan of Reorganization (this
"AMENDMENT") is made and entered into effective as of January 7, 1996 by and
between Intuit Inc., a Delaware corporation ("INTUIT") and GALT Technologies,
Inc., a Pennsylvania corporation ("GALT").
RECITALS
A. Intuit and GALT have previously entered into a certain Agreement and
Plan of Reorganization dated as of October 24, 1995, as amended by a Stipulation
and Amendment No. 1 to Agreement and Plan of Reorganization dated as of November
3, 1995 (the "REORGANIZATION AGREEMENT"), providing for the merger (the
"MERGER") of a subsidiary of Intuit with and into GALT (or, at Intuit's
election, the merger of GALT with and into a subsidiary of Intuit). The
capitalized terms used but not defined herein shall have the same meanings given
to them in the Reorganization Agreement.
B. Intuit and GALT now desire to further amend the Reorganization
Agreement in certain respects.
NOW THEREFORE, Intuit and GALT hereby agree as follows:
1. AMENDMENT OF SECTION 5.1.4(H). Section 5.1.4(h) of the
Reorganization Agreement is hereby amended to read in its entirety as follows:
"(h) issue or sell any shares of its capital stock of any class, or
any other of its securities, or issue or create any warrants,
obligations, subscriptions, options, convertible securities, or
other commitments to issue any shares of capital stock or other
securities of GALT, except that: (i) GALT may issue up to 650,000
shares of GALT Common Stock upon the exercise of GALT Options that
are either (A) included among the options to purchase up to 139,135
shares of GALT Common Stock that are disclosed in Section 3.3 as
being outstanding on the Agreement Date or (B) permitted to be
granted by GALT under the provisions of the following clause (ii);
and (ii) GALT may grant to GALT employees GALT Options to purchase
not more than an aggregate total of 510,865 shares of GALT Common
Stock, as now constituted, pursuant to the GALT Stock Option Plan
("POST-SIGNING GALT OPTION GRANTS"), provided such Post-Signing GALT
Option grants (1) are made in the ordinary course of GALT's business
at levels and for purposes consistent with GALT's past practices and
with the consent of Intuit, which consent shall not be unreasonably
withheld, provided that GALT's and Intuit's respective accountants
do not believe that such Post-Signing GALT Option grants are
inconsistent with the ability to have the Merger accounted for as a
"pooling of interests" transaction, and (2) have an exercise price
equal to the fair market value of GALT Common Stock on the date of
grant, determined after taking into consideration the existence of
this Agreement;"
2. AMENDMENT OF SECTION 6.3. Section 6.3 of the Reorganization
Agreement is hereby amended to read in its entirety as follows:
"6.3 Post-Merger Grant of Options. If the Merger is consummated as
contemplated by this Agreement, then as soon as reasonably
practicable following the closing and consummation of
<PAGE> 48
the Merger, and subject to the customary approval of the
Compensation Committee of Intuit's Board of Directors or its
delegate(s), Intuit shall grant to those persons who are GALT
employees at the date of the Closing of the Merger and who continue
as GALT employees thereafter ("ELIGIBLE GALT Employees"), options to
purchase shares of Intuit Common Stock in amounts determined by
Intuit in its sole discretion but at least in amounts equal to 75%
of the range of Intuit stock option grant levels that Intuit applied
to make Intuit stock option grants to new Intuit employees of
similar responsibility and status in the fall of 1995, determined
without regard to the number of Intuit Options issued to such
Eligible GALT Employees in the Merger; provided, however, that
notwithstanding the foregoing, the number of shares of Intuit Common
Stock to be subject to any stock option granted to an Eligible GALT
Employee pursuant to Section 6.3 shall be directly reduced, on a
share for share basis, by the sum of (i) the number of shares of
Intuit Common Stock that, immediately after the Closing of the
Merger, are subject to any Intuit Option that is issued to such
Eligible GALT Employee in the Merger upon the conversion and
assumption (pursuant to Section 2.2) of any GALT Option granted to
such Eligible GALT Employee on or after October 24, 1995
("POST-SIGNING GALT OPTIONS") plus (ii) the number of shares of
Intuit Common Stock that are issued to such Eligible GALT Employee
in the Merger upon the conversion (pursuant to Section 2.1) of any
shares of GALT Common Stock that such Eligible GALT Employee
acquired by exercising a Post-Signing GALT Option. The options to be
granted by Intuit pursuant to this Section shall be granted at an
exercise price equal to the then-current fair market value of Intuit
common stock on the date of option grant as determined by Intuit
consistent with Intuit's past practice, with the right to exercise
such options to vest over a four-year period beginning on the first
date of the optionee's employment with the Surviving Corporation or
Intuit after the Effective Time in accordance with the vesting
formulas then generally afforded to options granted to new Intuit
employees."
3. EFFECT OF AMENDMENT. The Reorganization Agreement, as amended
hereby, shall remain in full force and effect. In the event of any inconsistency
or conflict between this Amendment and the Reorganization Agreement, this
Amendment shall supersede and govern.
4. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment
effective as of the date first written above.
INTUIT INC. GALT TECHNOLOGIES, INC.
By: /s/ WILLIAM H. HARRIS, JR. By: /s/ ROBERT O. FRASCA
---------------------------- --------------------------------
Its: Executive Vice President Its: President
----------------------------
-2-
<PAGE> 49
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "AGREEMENT") is made and entered into as
of September 3, 1996 (the "AGREEMENT DATE") by and between Intuit Merger Sub,
Inc., a Delaware corporation ("SUB") that is a wholly-owned subsidiary of Intuit
Inc., a Delaware corporation ("INTUIT"), and GALT Technologies, Inc., a
Pennsylvania corporation ("GALT").
RECITALS
A. Intuit and GALT have entered into an Agreement and Plan of
Reorganization, dated as of October 24, 1995 (the "PLAN"), providing for certain
representations, warranties and agreements in connection with the transactions
contemplated hereby, in accordance with the Pennsylvania Business Corporation
Law (the "PENNSYLVANIA LAW") and the Delaware General Corporation Law (the
"DELAWARE LAW").
B. The Boards of Directors of Intuit, Sub and GALT have determined it
to be advisable and in the respective interests of Intuit, Sub and GALT and
their stockholders that Sub be merged with and into GALT through a statutory
merger of Sub into GALT, in which GALT will be the surviving corporation of such
merger.
C. The Plan, this Agreement and the Merger (as defined below) have been
approved by Intuit, in its own right and in its capacity as the sole stockholder
of Sub and by the stockholders of GALT in accordance with Pennsylvania and
Delaware law.
NOW, THEREFORE, Sub and GALT hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
1.1 The "MERGER" means the merger of Sub with and into GALT
contemplated by this Agreement.
1.2 "EFFECTIVE TIME" means the time and date on which this Agreement
(or, under Delaware law, a Certificate of Merger conforming to the requirements
of Section 252 of the Delaware Law) and any required officers' certificates are
filed with the offices of the Delaware Secretary of State and the Pennsylvania
Department of State and the Merger becomes effective under Delaware and
Pennsylvania law.
1.3 "INTUIT COMMON STOCK" means the Common Stock, $0.01 par value, of
Intuit.
1.4 "INTUIT PRICE PER SHARE" means $47.275, which is the average of the
closing prices of Intuit Common Stock as quoted on the Nasdaq National Market
System and reported in The Wall Street Journal for the ten (10) trading days
ending on (and inclusive of) October 18, 1995.
<PAGE> 50
1.5 "GALT COMMON STOCK" means the Common Stock, $0.01 par value, of
GALT.
1.6 "GALT SERIES A PREFERRED STOCK" means the Series A Participating
Preferred Stock, $0.01 par value, of GALT.
1.7 "GALT STOCK" means GALT Common Stock and GALT Series A Preferred
Stock, collectively.
1.8 "GALT OPTIONS" means options to purchase GALT Common Stock from
GALT granted by GALT to GALT employees under GALT's 1995 Stock Option Plan (the
"GALT OPTION PLAN").
1.9 "GALT DERIVATIVE SECURITIES" means, collectively, (a) any warrant,
option, right or other security that entitles the holder thereof to purchase or
otherwise acquire any shares of the capital stock of GALT ("GALT WARRANTS"); (b)
any note, evidence of indebtedness, stock or other security that is convertible
into or exchangeable for any shares of the capital stock of GALT or any GALT
Warrant ("GALT CONVERTIBLE SECURITY"); and (c) any, warrant, option, right or
other security that entitles the holder thereof to purchase or otherwise acquire
any GALT Convertible Security or any GALT Warrant; provided, however, that the
term "GALT Derivative Securities" does not include any GALT Options.
1.10 "FULLY DILUTED GALT SHARES" means that number of shares of GALT
Common Stock that is equal to the sum of: (a) the total number of shares of GALT
Common Stock that are issued and outstanding immediately prior to the Effective
Time; plus (b) the total number of shares of GALT Common Stock, if any, that are
directly or indirectly ultimately issuable by GALT upon the exercise, conversion
or exchange of all GALT Derivative Securities (including but not limited to
shares of GALT Series A Preferred Stock) that are issued and outstanding
immediately prior to the Effective Time (but excluding the shares of GALT Common
Stock, if any, that are ultimately issuable upon the exercise of all GALT
Options that are issued and outstanding immediately prior to the Effective
Time).
1.11 "GALT DISSENTING SHARES" means any shares of GALT Stock that are
held by a GALT shareholder as to which dissenter's rights to require the payment
of the fair value of such shares as provided in Chapter 15 of the Pennsylvania
Business Corporation Law have been duly and properly exercised and perfected.
1.12 "GALT SERIES A PREFERENCE AMOUNT" means the sum of $334,459.77.
1.13 "UNADJUSTED CONVERSION NUMBER" means the number equal to the
fraction (a) whose numerator is the quotient obtained by dividing the Merger
Amount (as defined below) by the number of shares of GALT Common Stock equal to
the Fully Diluted GALT Shares, and (b) whose denominator is the Intuit Price Per
Share. As used herein, the "MERGER AMOUNT" shall initially mean the sum of Nine
Million Dollars ($9,000,000), provided that the Merger Amount shall be subject
to adjustment from time to time as provided in Sections 11.2 and 11.3 of the
Plan, and upon each such adjustment, the adjusted Merger Amount shall become the
Merger Amount.
4
<PAGE> 51
1.14 "GALT NON-INTUIT-RELATED REVENUE" means the aggregate amount of
revenue recognized by GALT on the accrual method of accounting during the time
period commencing on January 1, 1996 and ending on August 31, 1996 (such time
period being hereinafter referred to as the "MEASURE PERIOD"), as determined in
accordance with generally accepted accounting principles consistently applied,
minus all Intuit-Related Revenue, as defined below. As used herein, the term
"INTUIT-RELATED REVENUE" means all revenue recognized by GALT on the accrual
method of accounting during the Measure Period that is derived in any manner
from the Services Agreement dated of even date herewith to be entered into by
and between Intuit and GALT concurrently with their execution of this Agreement,
as determined in accordance with generally accepted accounting principles
consistently applied.
1.15 "ADJUSTMENT FACTOR" means the quotient obtained by dividing the
GALT Non-Intuit-Related Revenue by the cumulative sum of the GALT
Non-Intuit-Related Revenue projected to be recognized by GALT during the Measure
Period as indicated in the GALT Revenue Projection Schedule attached to the Plan
as Exhibit 1.15; provided however, that the Adjustment Factor may not be less
than one (1.00) or greater than one and eleven-hundredths (1.11) and
accordingly, notwithstanding the foregoing, if the Adjustment Factor as
calculated above would be a number less than one (1.00), then the Adjustment
Factor shall be one (1.00) and if the Adjustment Factor as calculated above
would be a number greater than one and eleven-hundredths (1.11), then the
Adjustment Factor shall be one and eleven-hundredths (1.11). The parties
acknowledge and agree that the Adjustment Factor has been determined to be one
(1.00).
1.16 "ADJUSTED CONVERSION NUMBER" means the product obtained by
multiplying the Unadjusted Conversion Number by the Adjustment Factor.
1.17 "INTUIT MERGER SHARES" means the number of shares of Intuit Common
Stock, as presently constituted, equal to the product obtained by multiplying
the Adjusted Conversion Number by the number of shares of GALT Common Stock
equal to the Fully Diluted GALT Shares.
1.18 "INTUIT PREFERENCE SHARES" means that number of the Intuit Merger
Shares that is equal to the number obtained by dividing the GALT Series A
Preference Amount by the Intuit Price Per Share.
1.19 "INTUIT PARTICIPATION SHARES" means that number of the Intuit
Merger Shares remaining after the Intuit Preference Shares have been subtracted
from the Intuit Merger Shares.
1.20 "SERIES A PREFERENCE CONVERSION NUMBER" means that number obtained
by dividing the Intuit Preference Shares by the total number of shares of GALT
Series A Preferred Stock that are issued and outstanding immediately prior to
the Effective Time.
1.21 "PARTICIPATION CONVERSION NUMBER" means that number obtained by
dividing the number of Intuit Participation Shares by the number of Fully
Diluted GALT Shares.
1.22 "PREFERRED PARTICIPATION CONVERSION NUMBER" means that number
obtained by multiplying the Participation Conversion Number by the number of
shares of GALT Common
5
<PAGE> 52
Stock into which each share of GALT Series A Preferred Stock is convertible
under GALT's Articles of Incorporation immediately prior to the Effective Time.
Other capitalized terms defined elsewhere in this Agreement and not
defined in this Section 1 shall have the meanings assigned to such terms in this
Agreement.
2. THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement,
Sub shall be merged with and into GALT pursuant to this Agreement in accordance
with applicable provisions of the laws of the State of Delaware and the
Commonwealth of Pennsylvania, as follows:
2.1.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without the need for any action on the part of any holder of any
shares of stock described below, and subject to the provisions of Section 2.9
hereof:
(a) Cancellation of GALT Treasury Stock. Each share of GALT
Stock (if any) held by GALT as treasury stock immediately prior to the Effective
Time shall be canceled and no payment or other consideration whatsoever shall be
made or paid with respect thereto.
(b) Conversion of Sub Stock. Each share of the Common Stock
of Sub that is issued and outstanding immediately prior to the Effective Time
shall be converted into and become one (1) share of GALT Common Stock which
shall be issued and outstanding immediately after the Effective Time, and the
shares of GALT Common Stock into which the shares of Sub are so converted shall
be the only shares of GALT Stock that are issued and outstanding immediately
after the Effective Time.
2.1.2. Conversion of GALT Stock. Each share of GALT Common Stock
and each share of GALT Series A Preferred Stock that is issued and outstanding
immediately prior to the Effective Time (other than any GALT Dissenting Shares
as provided in Section 2.4) shall be converted into shares of Intuit Common
Stock as follows, subject to the provisions of Section 2.5 regarding the
elimination of fractional shares:
(a) GALT Series A Preferred Stock. Each share of GALT Series
A Preferred Stock that is issued and outstanding immediately prior to the
Effective Time shall be converted into a number of shares of Intuit Common Stock
equal to the sum of the Series A Preference Conversion Number plus the Preferred
Participation Conversion Number; and
(b) GALT Common Stock. Each share of GALT Common Stock that
is issued and outstanding immediately prior to the Effective Time shall be
converted into a number of shares of Intuit Common Stock equal to the
Participation Conversion Number.
2.2 Assumption and Conversion of GALT Options. Subject to the
provisions of Section 2.9 hereof, each GALT Option that is outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and at
the Effective Time and without the need for any
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further action on the part of any holder thereof, be assumed by Intuit and
converted into an option (an "INTUIT OPTION") to purchase that number of shares
of Intuit Common Stock determined by multiplying the number of shares of GALT
Common Stock subject to such GALT Option immediately prior to the Effective Time
by the Participation Conversion Number, at an exercise price per share of Intuit
Common Stock equal to the exercise price per share of GALT Common Stock that was
in effect for such GALT Option immediately prior to the Effective Time divided
by the Participation Conversion Number; provided, however, that if the foregoing
calculation would result in an assumed and converted GALT Option being converted
into an Intuit Option that, after aggregating all the shares of Intuit Common
Stock issuable upon the exercise of such Intuit Option, would be exercisable for
a fraction of a share of Intuit Common Stock, then the number of shares of
Intuit Common Stock subject to such Intuit Option shall be rounded down to the
nearest whole number of shares of Intuit Common Stock. The terms,
exercisability, vesting schedule, status as an "incentive stock option" under
Section 422 of the Code, if applicable, and all other terms and conditions of
GALT Options (including but not limited to the terms and conditions applicable
to such options by virtue of the GALT Option Plan) shall, to the extent
permitted by law and otherwise reasonably practicable, be unchanged. Continuous
employment with GALT shall be credited to the optionee for purposes of
determining the vesting of the number of shares of Intuit Common Stock subject
to exercise under the converted GALT Option after the Effective Time.
2.3 Adjustments for Capital Changes. If after the date of this
Agreement and prior to the Effective Time, Intuit or GALT recapitalizes, either
through a split-up or subdivision of its outstanding shares into a greater
number of shares, or through a reverse split or combination of its outstanding
shares into a lesser number of shares, or reorganizes, reclassifies or otherwise
changes its outstanding shares into the same or a different number of shares of
other classes (other than through a split-up, subdivision, reverse split or
combination of shares provided for in the previous clause), or declares a
dividend on its outstanding shares payable in shares or securities convertible
into shares (a "CAPITAL CHANGE"), then the number of shares of Intuit Common
Stock into which the shares of GALT Stock are to be converted in the Merger, and
the number of shares of Intuit Common Stock to be issued upon exercise of the
Intuit Options issued upon the conversion of GALT Options in the Merger, shall
be adjusted appropriately (as agreed to by Intuit and GALT if it involves
something other than a mathematical adjustment) so as to maintain the
proportional interests of the holders of GALT Stock (and, indirectly, the GALT
Options) in the outstanding Intuit Common Stock; provided, however, that the
provisions of this Section shall not apply to any merger or other acquisition of
GALT or any other transaction not permitted to be undertaken by GALT under the
provisions of this Agreement. In the event that a Capital Change affecting
Intuit Common Stock occurs after the date of this Agreement and prior to the
Effective Time, then the Intuit Price Per Share shall be deemed to have been
equitably adjusted to reflect such Capital Change as necessary to effect the
purposes and intent of this Section.
2.4 GALT Dissenting Shares. Holders of GALT Dissenting Shares (if
any) shall be entitled to their rights under Subchapter D (Sections 1571 et
seq.) and Section 1930 of the Pennsylvania Business Corporation Law with respect
to such shares and such GALT Dissenting Shares shall not be converted into
shares of Intuit Common Stock in the Merger. GALT Stock as to which dissenting
shareholders' rights of appraisal under the Pennsylvania Business
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Corporation Law have not been properly perfected shall, when such dissenting
shareholders' rights can no longer be exercised, be converted into Intuit Common
Stock as provided in Section 2.1.2.
2.5 Fractional Shares. No fractional shares of Intuit Common Stock
shall be issued in connection with the Merger. In lieu thereof, each holder of
GALT Stock who would otherwise be entitled to receive a fraction of a share of
Intuit Common Stock, after aggregating all shares of Intuit Common Stock to be
received by such holder, shall instead receive from Intuit, within twenty (20)
business days after the Effective Time, an amount of cash equal to the Intuit
Price Per Share (as adjusted to reflect any Capital Change of Intuit) multiplied
by the fraction of a share of Intuit Common Stock to which such holder would
otherwise be entitled.
2.6 Effects of the Merger. At and upon the Effective Time: (a) the
separate existence of Sub shall cease and Sub shall be merged with and into
GALT, and GALT shall be the surviving corporation of the Merger (the "SURVIVING
CORPORATION") pursuant to the terms of this Agreement; (b) the Articles of
Incorporation of GALT shall be amended to read as set forth in Attachment A
hereto and shall be the Articles of Incorporation of the Surviving Corporation;
(c) the Bylaws of GALT shall continue unchanged and shall be the Bylaws of the
Surviving Corporation; (d) each share of GALT Stock outstanding immediately
prior to the Effective Time and each GALT Option outstanding immediately prior
to the Effective Time shall be converted as provided in this Section 2; (e) the
persons who are the officers and directors of Sub immediately prior to the
Effective Time shall be the officers and directors of the Surviving Corporation
immediately after the Effective Time; and (f) the Merger shall, from and after
the Effective Time, have all of the effects provided by applicable law.
2.7 Tax Free Reorganization. It is intended that the Plan and the
Merger be a tax-free plan of reorganization in accordance with the provisions of
Section 368(a)(1)(A) of the Code by virtue of the provisions of Section
368(a)(2)(E) of the Code.
2.8 Pooling of Interests. The parties intend that the Merger be treated
as a "pooling of interests" for accounting purposes.
2.9 Section 11 Adjustments. Notwithstanding the foregoing provisions of
this Section 2, the number of shares of Intuit Common Stock issuable to holders
of GALT Stock in the Merger, and number of Intuit Options issuable to holders of
GALT Options in the Merger, is subject to adjustment and increase as provided in
Section 11 of the Plan.
3. CLOSING MATTERS
3.1 Exchange of Certificates.
3.1.1 At or before the Effective Time, each holder of shares of
GALT capital stock shall surrender to Intuit for cancellation the certificate(s)
for such shares (each a "GALT CERTIFICATE"), duly endorsed to Intuit or
accompanied by duly executed stock powers and assignments separate from
certificate transferring title to such shares to Intuit. Promptly after the
Effective Time, and against receipt of such GALT Certificates, Intuit shall
issue to each tendering holder of a GALT Certificate a certificate for the
number of shares of Intuit Common
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Stock to which such holder is entitled pursuant to Section 2 hereof. All Intuit
Common Stock delivered upon the surrender of GALT Stock in accordance with the
terms hereof shall be deemed to have been delivered in full satisfaction of all
rights pertaining to such GALT Stock.
3.1.2 No dividends or distributions payable to holders of record of
Intuit Common Stock after the Effective Time, or cash payable in lieu of
fractional shares, shall be paid to the holder of any unsurrendered GALT
Certificate until the holder of the GALT Certificate(s) surrenders such GALT
Certificate to Intuit as provided above. Subject to the effect, if any, of
applicable escheat and other laws, following surrender of any GALT Certificate,
there shall be delivered to the person entitled thereto, without interest, the
amount of any dividends and distributions therefor paid with respect to Intuit
Common Stock so withheld as of any date subsequent to the Effective Time and
prior to such date of delivery.
3.1.3 After the Effective Time there shall be no further
registration of transfers on the stock transfer books of GALT or its transfer
agent of the GALT Stock that was outstanding prior to the Effective Time. If,
after the Effective Time, GALT Certificates are presented for any reason, they
shall be canceled and exchanged as provided in this Section 3.1.
3.1.4 Until GALT Certificates representing GALT Stock outstanding
prior to the Effective Time are surrendered pursuant to Section 3.1.1 above,
such GALT Certificates shall be deemed, for all purposes, to evidence ownership
of the number of shares of Intuit Stock into which the GALT Stock shall have
been converted pursuant to Section 2.
3.2 Converted GALT Options. Upon the Effective Time, all original GALT
stock option grant agreements representing GALT Options that were outstanding
immediately prior to the Effective Time ("GALT OPTION GRANTS") shall represent
the Intuit Options into which such GALT Options were converted in the Merger and
may be presented to Intuit for exercise of such Intuit Options. Intuit, in its
sole discretion, may elect to replace such GALT Option Grants with new Intuit
Option Grant documents that do not change the terms on which the GALT Options
are to be converted into Intuit Options under Section 2.2 hereof.
4. TERMINATION AND AMENDMENT
4.1 Agreement Subject to Termination by Written Mutual Consent. This
Agreement, the Merger and all transactions related thereto may be terminated at
any time prior to the Effective Time by the mutual written consent of Intuit and
GALT.
4.2 Agreement Subject to Termination Upon Termination of Plan. This
Agreement will terminate immediately in the event that the Plan is terminated in
accordance with its terms.
4.3 Effect of Termination. In the event of the termination of this
Agreement in accordance with Section 4.1 or Section 4.2 above, this Agreement
will immediately become void and there will be no liability on the part of
either Sub or GALT or their respective officers and directors on account of such
termination, except as otherwise provided in the Plan.
4.4 Amendment. This Agreement may be amended by the parties hereto at
any time before or after approval by the shareholders of GALT, but, after such
approval, no amendment
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will be made which by applicable law requires the further approval of GALT's
shareholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of Sub and GALT.
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5. MISCELLANEOUS
5.1 Plan. The Plan and this Agreement are intended to be construed
together in order to effectuate their purposes.
5.2 Governing Law; Venue. The laws of the Commonwealth of Pennsylvania
(irrespective of choice of law principles) shall govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
5.3 Assignment; Binding Upon Successors and Assigns. Neither party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
5.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as regards any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument.
5.5 Agent for Service of Process. GALT hereby agrees that it may be
served with process in the State of Delaware in any proceeding for enforcement
of any obligation of Sub, as well as for enforcement of any obligations of GALT
arising from the Merger, including any suit or other proceeding to enforce the
right of any stockholders as determined in appraisal proceedings pursuant to the
provisions of Section 262 of the DGCL, and GALT hereby irrevocably appoints the
Secretary of State of the State of Delaware as its agent to accept service of
process in any such suit or other proceedings, and a copy of such process shall
be mailed by the Secretary of State to GALT at 5001 Baum Boulevard, Suite 750,
Pittsburgh, PA 15213.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"SUB" "GALT"
INTUIT MERGER SUB, INC. GALT TECHNOLOGIES, INC.
By: /s/ JAMES J. HEEGER By: /s/ ROBERT O. FRASCA
----------------------------- ------------------------------
James J. Heeger, President Robert O. Frasca, President
By: /s/ JAMES J. HEEGER By: /s/ D. JOEL MASKE
----------------------------- ------------------------------
James J. Heeger, Secretary D. Joel Maske, Secretary
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<PAGE> 1
EXHIBIT 2.03
AGREEMENT AND PLAN OF MERGER
AMONG
CHECKFREE CORPORATION
CHECKFREE ACQUISITION CORPORATION II
INTUIT INC.
AND
INTUIT SERVICES CORPORATION
Dated as of September 15, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER
SECTION 1.01 The Merger
SECTION 1.02 Effect of the Merger
SECTION 1.03 Consummation of the Merger
SECTION 1.04 Charter; By-Laws; Directors and Officers
SECTION 1.05 Acknowledgement Regarding the Company's Assets
SECTION 1.06 Further Assurances
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Securities of the Company
SECTION 2.02 Merger Consideration Adjustment
SECTION 2.03 Release of Escrow Shares.
SECTION 2.04 Conversion of Acquisition Common Stock
SECTION 2.05 Surrender and Exchange of Shares
SECTION 2.06 Closing of Stock Transfer Books
SECTION 2.07 Closing
SECTION 2.08 Tax-Free Reorganization
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of Holdings and the Company
SECTION 3.02 Representations and Warranties of Holdings
SECTION 3.03 Representations and Warranties of Parent
SECTION 3.04 Representations and Warranties of Acquisition
ARTICLE IV
COVENANTS
SECTION 4.01 Conduct of the Company's Business
SECTION 4.02 Registration Statement; Stockholder Approval, Etc.
SECTION 4.03 Access to Information
SECTION 4.04 Further Assurances
SECTION 4.05 Inquiries and Negotiations
SECTION 4.06 Notification of Certain Matters
SECTION 4.07 Compliance with the Securities Act
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SECTION 4.08 Conduct of Parent's Business
SECTION 4.09 Employment and Severance Liabilities
SECTION 4.10 Contractual Obligations
SECTION 4.11 Indemnity
SECTION 4.12 Agreements Executed
SECTION 4.13 Stockholder Agreements and Proxies
SECTION 4.14 Revenue Make-Up
SECTION 4.15 Board Visitation Rights
SECTION 4.16 Reimbursement for Certain Charges and Costs
SECTION 4.17 Debt
ARTICLE V
CONDITIONS TO THE MERGER
SECTION 5.01 Conditions to Each Party's Obligation to Effect the Merger
SECTION 5.02 Conditions to the Obligation of Holdings and the Company
to Effect the Merger
SECTION 5.03 Conditions to the Obligation of Parent and Acquisition
to Effect the Merger
ARTICLE VI
TERMINATION AND ABANDONMENT
SECTION 6.01 Termination and Abandonment
SECTION 6.02 Effect of Termination
ARTICLE VII
INDEMNIFICATION
SECTION 7.01 Indemnification by Holdings
SECTION 7.02 Claims
SECTION 7.03 Notice and Defense of Third-Party Claims
SECTION 7.04 Settlement or Compromise
SECTION 7.05 Limitations on Indemnification
ARTICLE VIII
NONCOMPETITION AGREEMENT
SECTION 8.01 Certain Acknowledgments
SECTION 8.02 Noncompetition Agreement
SECTION 8.03 Exception
SECTION 8.04 No Objection or Defense
SECTION 8.05 Enforcement of Noncompetition Agreement
SECTION 8.06 Early Termination of Noncompetition Agreement
SECTION 8.07 Effect on Acquiror
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Survival of Representations and Warranties
SECTION 9.02 Interpretation of Representations and Warranties
SECTION 9.03 Reliance by Parent and Acquisition
SECTION 9.04 Expenses, Etc.
SECTION 9.05 Publicity
SECTION 9.06 Execution in Counterparts
SECTION 9.07 Notices
SECTION 9.08 Waivers
SECTION 9.09 Amendments, Supplements, Etc.
SECTION 9.10 Entire Agreement
SECTION 9.11 Applicable Law
SECTION 9.12 Binding Effect, Benefits
SECTION 9.13 Assignability
SECTION 9.14 Severability
SECTION 9.15 Variation and Amendment
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INDEX TO SCHEDULES AND EXHIBITS
Schedule Description
- -------- -----------
1.05 Illinois-Located Assets and Properties Owned by Holdings
3.01(c) Capitalization/Stockholders
3.01(e) Certain Conflicts
3.01(f) Consents
3.01(g) Certain Liabilities
3.01(h) Certain Changes or Events
3.01(j) Litigation
3.01(k) Liens and Encumbrances
3.01(l) Real Property Interests
3.01(m) Intellectual Property Rights
3.01(n) Labor Matters
3.01(o) Severance Arrangements
3.01(p) Taxes
3.01(q) Permits
3.01(r) Employee Benefit Plans
3.01(s) Environmental Matters
3.01(u) Material Contracts
3.01(v) Insurance
3.01(x) Claims Against Officers and Directors
3.01(y) Customers; Suppliers, etc.
3.01(z) Improper Payments
3.01(aa) Brokers
3.01(bb) Accounts Receivable
3.02(d) Certain Conflicts
3.02(e) Consents
3.02(g) Brokers
3.03(b) Subsidiaries
3.03(c) Capitalization
3.03(f) Consent
3.03(j) Registration Rights
3.03(k) Brokers
4.09 Employment and Severance Liabilities
4.10 Contractual Obligations of Holdings
4.16 Reimbursement Matters
9.04 Expenses
4
<PAGE> 6
Exhibits Description
- -------- -----------
Exhibit A Parent Tax Representation Certificate
Exhibit B Services and License Agreement
Exhibit C Assignment and License Agreement
Exhibit D Stock Restriction Agreement
Exhibit E Shareholder Agreement and Proxy
Exhibit F Escrow Agreement
Exhibit G Registration Rights Agreement
Exhibit H Opinions of Porter, Wright, Morris & Arthur
Exhibit I Opinions of Fenwick & West LLP
The exhibits and schedules listed above will be furnished to the Commission
upon request.
5
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 15, 1996 (the
"Effective Date"), among CHECKFREE CORPORATION, a Delaware corporation
("Parent"), CHECKFREE ACQUISITION CORPORATION II, a Delaware corporation and a
wholly owned subsidiary of Parent ("Acquisition"), INTUIT INC., a Delaware
corporation ("Holdings"), and INTUIT SERVICES CORPORATION, a Delaware
corporation (the "Company"). The Company and Acquisition are hereinafter
sometimes referred to as the "Constituent Corporations" and the Company as the
"Surviving Corporation."
WHEREAS, Parent, Acquisition, Holdings, and the Company desire that
Acquisition merge with and into the Company (the "Merger"), upon the terms and
conditions set forth herein and in accordance with the General Corporation Law
of the State of Delaware (the "Delaware GCL") with the result that the Company
shall continue as the surviving corporation and the separate existence of
Acquisition shall cease; and
WHEREAS, Parent, Acquisition, Holdings, and the Company desire that at
the Effective Time (as hereinafter defined) all outstanding shares of the
capital stock of the Company be converted into the right to receive fully paid
and nonassessable shares of Common Stock, $.01 par value, of Parent ("Parent
Common Stock"), as hereinafter provided; and
WHEREAS, Parent, Acquisition, Holdings, and the Company desire that,
immediately after the Effective Time and solely as a result of the Merger,
Parent will own all the issued and outstanding shares of the capital stock of
the Surviving Corporation; and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"); and
WHEREAS, the respective Boards of Directors of Parent, Acquisition,
Holdings, and the Company, have approved the Merger;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the mode of carrying the
same into effect, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, in accordance with this Agreement and the
Delaware GCL, Acquisition shall be merged with and into the Company, the
separate existence of Acquisition shall cease, and the
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Company shall continue as the Surviving Corporation under the corporate name of
"CHECKFREE SERVICES CORPORATION."
SECTION 1.02 Effect of the Merger. Upon the effectiveness of the
Merger, the Surviving Corporation shall succeed to, and assume all the rights
and obligations of, the Company and Acquisition in accordance with the Delaware
GCL and the Merger shall otherwise have the effects set forth in Section 259 of
the Delaware GCL.
SECTION 1.03 Consummation of the Merger. As soon as practicable after
the satisfaction or waiver of the conditions to the obligations of the parties
to effect the Merger set forth herein, provided that this Agreement has not
previously been terminated in accordance with the provisions of Section 6.01
hereof, the parties hereto will cause the Merger to be consummated by filing
with the Secretary of State of the State of Delaware a properly executed
certificate of merger in accordance with the Delaware GCL (the time of such
filing being referred to herein as the "Effective Time").
SECTION 1.04 Charter; By-Laws; Directors and Officers. The Certificate
of Incorporation of the Surviving Corporation from and after the Effective Time
shall be the Certificate of Incorporation of Acquisition as in effect
immediately prior to the Effective Time, until thereafter amended in accordance
with the provisions thereof and as provided by the Delaware GCL, except that, at
the Effective Time, Article I thereof shall be amended to read as follows: "The
name of the Corporation is "CHECKFREE SERVICES CORPORATION." The By-Laws of the
Surviving Corporation from and after the Effective Time shall be the By-Laws of
Acquisition as in effect immediately prior to the Effective Time, continuing
until thereafter amended in accordance with the provisions thereof and the
provisions of the Certificate of Incorporation of the Surviving Corporation and
as provided by the Delaware GCL. The initial directors and officers of the
Surviving Corporation shall be the directors and officers, respectively, of
Acquisition immediately prior to the Effective Time, in each case until their
removal or until their respective successors are duly elected and qualified.
SECTION 1.05 Acknowledgement Regarding the Company's Assets. For
purposes of clarifying the rights to be acquired upon consummation of the
Merger, Parent and Acquisition hereby acknowledge and agree with Holdings and
the Company that the assets set forth on Schedule 1.05 hereto, located at 2001
Butterfield Road, Suite 700, 800 and 900, Downer's Grove, Illinois and 444 North
Commerce Street, Aurora, Illinois are as of the Effective Date of this
Agreement, owned by Holdings.
SECTION 1.06 Further Assurances. Subject to the provisions of Section
1.05 hereof, if at any time after the Effective Time the Surviving Corporation
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are necessary, desirable or proper (i) to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation,
its right, title or interest in, to or under any of the rights, privileges,
powers, franchises, properties or assets of either of the Constituent
Corporations, or (ii) otherwise to carry out the purposes of this Agreement, the
Surviving Corporation and its proper officers and directors or their designees
shall be authorized to execute and deliver, in the name and on behalf of either
of the Constituent Corporations, all such deeds, bills of sale, assignments and
assurances and do, in the name and on behalf of such Constituent Corporation,
all such other acts
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<PAGE> 9
and things necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement; provided, however, that the
Surviving Corporation shall have no rights under this Section 1.06 in connection
with any of Holdings' assets, properties, services, businesses or properties.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Securities of the Company. By virtue of the
Merger and without the need for any action on the part of the holders of the
capital stock of the Company, at the Effective Time, all outstanding shares of
the capital stock of the Company (excluding shares held in the treasury of the
Company, which shall be canceled as provided in paragraph (c) below, and subject
to Section 2.05(c) hereof) shall be converted into the right to receive fully
paid and nonassessable shares of Parent Common Stock on the following basis:
(a) Merger Consideration. The shares of Common Stock, $1.00
par value, of the Company (the "Company Common Stock") that are issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive 12,600,000 shares of Parent Common Stock, subject to the
potential adjustment set forth in Section 2.02 hereof, as follows (the "Merger
Consideration"):
(i) 11,340,000 shares of Parent Common Stock shall be
issued to the sole stockholder of the Company Common Stock at Closing
(as hereinafter defined); and
(ii) 1,260,000 shares of Parent Common Stock (the
"Escrow Shares") shall be issued to the sole stockholder of the Company
Common Stock subject to Section 2.03 below. Upon any adjustment of the
Merger Consideration pursuant to Section 2.02, the number of shares of
Parent Common Stock that are Escrow Shares shall be reduced in
proportion to such Merger Consideration Adjustment (as hereinafter
defined).
If, prior to the Effective Time, Parent recapitalizes through a subdivision of
its outstanding shares into a greater number of shares, or a combination of its
outstanding shares into a lesser number of shares, or reorganizes, reclassifies
or otherwise changes its outstanding shares into the same or a different number
of shares of other classes or series, or declares a dividend on its outstanding
shares payable in shares of its capital stock or securities convertible into
shares of its capital stock (a "Capital Change"), then the number of shares of
Parent Common Stock constituting the Merger Consideration shall be adjusted
appropriately to reflect each such Capital Change.
(b) Company Common Stock. At the Effective Time, each share of
Company Common Stock that is issued and outstanding immediately prior to the
Effective Time shall be canceled and converted into the right to receive that
number of shares of Parent Common Stock equal to the quotient obtained by
dividing the Merger Consideration by the number of shares of Company Common
Stock that are issued and outstanding immediately prior to the Effective Time.
3
<PAGE> 10
(c) Treasury Stock. At the Effective Time, each share of
capital stock of the Company that is then held in the treasury of the Company
(if any) shall be canceled and retired and no capital stock of Parent and no
cash or other consideration shall be paid or delivered in exchange therefor.
SECTION 2.02 Merger Consideration Adjustment. In the event that, after
the date of this Agreement and prior to the Closing, the Company incurs,
realizes, or otherwise experiences a Material Adverse Change (as hereinafter
defined) in its financial condition, properties, assets, liabilities, Business
(as defined herein), operations, or results of operations, then at or prior to
the Effective Time, the Merger Consideration shall be adjusted as follows:
(a) Change Notice. If Parent believes that the Company has
incurred, realized, or otherwise experienced a Material Adverse Change in its
financial condition, properties, assets, liabilities, Business (as defined
herein), operations, or results of operations and Parent desires a Merger
Consideration Adjustment (as defined below), then Parent must prior to Closing
give Holdings and the Company written notice of Parent's claim that such a
Material Adverse Change has occurred (the "Change Notice"), which Change Notice
shall state with specificity the grounds on which Parent contends that such
Material Adverse Change has occurred and Parent's proposal for a Merger
Consideration Adjustment. Parent may only make one (1) request for a Merger
Consideration Adjustment.
(b) Attempt to Agree. Following their receipt of the Change
Notice, Parent, Holdings and the Company will in good faith consider Parent's
assertions set forth in the Change Notice and will use their best efforts to in
good faith reach a mutual agreement, as promptly as practicable, as to the
amount by which the Merger Consideration shall be reduced by reason of the
Material Adverse Change described in the Change Notice (the "Merger
Consideration Adjustment"). In attempting to reach an agreement as to the Merger
Consideration Adjustment, the parties will consider, among other things, the
extent (if any) to which the fair market value of the Company has been
diminished by the Material Adverse Change described in the Change Notice. If
Parent, Holdings and the Company agree to a Merger Consideration Adjustment,
then they shall execute a written agreement to such effect (the "Merger
Consideration Agreement") setting forth the amount of the Merger Consideration
Adjustment they have agreed to.
(c) Dispute Resolution Procedure.
(i) Agreement on Material Adverse Change. If Parent,
Holdings and the Company agree that a Material Adverse Change in the Company's
financial condition, properties, assets, liabilities, Business, operations, or
results of operations occurred after the Effective Date of this Agreement and
prior to the Closing Date (as hereinafter defined), but are unable to mutually
agree in writing on the amount of a Merger Consideration Adjustment within ten
(10) days after the date on which Holdings and the Company receive the Change
Notice (the "Receipt Date"), then the amount of the Merger Consideration
Adjustment (if any) shall be determined in accordance with the appraisal
procedure set forth in Section 2.02(c)(iii) below.
(ii) No Agreement on Material Adverse Change. If
Holdings and the Company do not agree with Parent's assertion in the Change
Notice that a Material Adverse Change in the Company's financial condition,
properties, assets, liabilities, Business, operations,
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or results of operations occurred after the Effective Date of this Agreement and
prior to the Closing Date, and Parent, Holdings and the Company have not agreed
in writing on the amount of a Merger Consideration Adjustment within ten (10)
days after the Receipt Date, then, within twenty (20) days after the Receipt
Date, the parties shall submit to mandatory binding arbitration the sole issue
of whether or not such a Material Adverse Change occurred. Such arbitration
shall be conducted in Chicago, Illinois in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
shall be concluded within thirty (30) days to the extent reasonably practicable.
The arbitration will be conducted by a single arbitrator, mutually selected by
the parties, who shall decide only the issue of whether or not a Material
Adverse Change in the Company's financial condition, properties, assets,
liabilities, Business, operations, or results of operations occurred after the
Effective Date of this Agreement and prior to the Closing Date in the manner set
forth in the Change Notice. The arbitrator's determination as to whether or not
such a Material Adverse Change occurred after the Effective Date of this
Agreement and prior to the Closing Date shall be conclusive, final,
non-appealable and binding upon each of the parties to this Agreement and
judgment may be entered upon the arbitrator's determination in accordance with
applicable law in any court having competent jurisdiction over the matter. In
connection with the arbitration proceedings, the parties will be entitled to
conduct discovery in scope, timing, types, and under such procedures as such
parties would otherwise be afforded had the dispute or controversy hereunder
been subject to the Federal Rules of Civil Procedure. If the arbitrator
determines that no Material Adverse Change occurred after the Effective Date of
this Agreement, then no Merger Consideration Adjustment shall be made; and if
the arbitrator determines that a Material Adverse Change has occurred after the
Effective Date of this Agreement, then the amount of the Merger Consideration
Adjustment shall be determined by the appraisal procedure set forth in Section
2.02(c)(iii) below (unless the parties otherwise agree in writing). The
foregoing agreement to arbitrate shall be specifically enforceable under the
prevailing arbitration law.
(iii) Appraisal Procedure. When the appraisal
procedure set forth in this subparagraph is required to be used by the
provisions of subparagraph 2.02(c)(i) or (ii), then the amount of the Merger
Consideration Adjustment shall be determined as follows. Within twenty (20) days
after the Receipt Date (or within ten (10) days after the completion of the
arbitration referred to in Section 2.02(c)(ii) if such arbitration occurs) (A)
Parent, on the one hand, and Holdings and the Company, on the other hand, shall
each select one Qualified Appraiser (as defined below) (the "Selected
Appraiser") to determine the amount of the Merger Consideration Adjustment (if
any) arising from the Material Adverse Change set forth in the Change Notice;
and (B) Parent, on the one hand, and Holdings and the Company, on the other
hand, shall each give the other written notice (the "Appraiser Notice") of the
identity of their respective Selected Appraiser. Parent's Selected Appraiser is
sometimes hereinafter called the "Parent Appraiser" and the Selected Appraiser
of Holdings and the Company is sometimes hereinafter called the "Holdings
Appraiser." The Company shall provide each side's Selected Appraiser with full
access during normal business hours to the Company's facilities, products,
personnel, books, records and financial statements (subject to the execution of
reasonable confidentiality agreements by such Selected Appraisers) solely for
purposes of assisting the Selected Appraisers in determining the amount of the
Merger Consideration Adjustment. Each Selected Appraiser shall attempt to
determine the amount of the Merger Consideration Adjustment, which, for purposes
of such appraisal, shall be the number of shares of the Parent's Common Stock
equal to the quotient obtained by dividing (i) the amount (if any) by which the
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fair market value of the Company was diminished from the Effective Date of this
Agreement to the Closing Date as a result of the Material Adverse Change
described in the Change Notice, by (ii) the average closing price per share of
the Parent's Common Stock as reported on the Nasdaq National Market (the "Nasdaq
NM") for the five (5) trading days immediately preceding the Effective Date of
this Agreement. Within ten (10) days after a Selected Appraiser has been
selected, the Parent Appraiser and the Holdings Appraiser shall each deliver to
Parent and Holdings a brief written report (the "Appraisal Report") setting
forth such Selected Appraiser's appraisal and determination of the amount of the
Merger Consideration Adjustment and, unless the parties otherwise agree in
writing to the amount of the Merger Consideration Adjustment, the Parent
Appraiser and the Holdings Appraiser shall select a third appraiser (the
"Determining Appraiser") which shall also be a Qualified Appraiser. The
Determining Appraiser will review the Appraisal Reports and the amount of the
Merger Adjustment will be the amount set forth in the Appraisal Report which is,
in the judgment of the Determining Appraiser, the most nearly correct; provided,
however, that notwithstanding the foregoing, if there is only one Selected
Appraiser because Parent, on the one hand, or Holdings or the Company, on the
other hand, fail to select its Selected Appraiser, then unless the parties
otherwise agree in writing to the amount of the Merger Consideration Adjustment,
the amount of the Merger Consideration Adjustment shall conclusively be deemed
to be the amount thereof determined by such Selected Appraiser in its Appraisal
Report. Parent, on the one hand, and Holdings, on the other hand, shall pay the
fees and expenses charged by such party's Selected Appraiser and shall share
equally the fees and expenses charged by the Determining Appraiser. As used
herein, the term "Qualified Appraiser" means an investment banking firm of
national or regional reputation that is substantially experienced in
representing and valuing software companies in underwritten public offerings
and/or merger and acquisition transactions, provided that such investment
banking firm and its affiliates do not have a family relationship, or a
then-currently active significant business relationship with the party who
selected such appraiser, or advised or represented any of the parties in
connection with this Agreement and the transactions contemplated hereunder.
(iv) Efforts to Agree. Nothing in this paragraph
shall prevent the parties from further efforts to reach a mutual agreement on
the amount of the Merger Consideration Adjustment (if any) while the arbitration
procedure and/or the appraisal procedure described in Sections 2.02(c)(ii) and
(iii) above is pending and any mutual written agreement reached by Parent,
Holdings and the Company regarding the amount of the Merger Consideration
Adjustment shall be the conclusive, final, non-appealable and determinative
resolution of the amount of the Merger Consideration Adjustment, binding upon
each of the parties hereto.
(d) Material Adverse Change. As used herein, "Material Adverse
Change" means a material adverse change other than a change arising or
resulting, directly or indirectly, from industry conditions or the public
announcement of, or the response or reaction of customers, vendors, licensors,
investors, Company employees or others to, this Agreement, the Merger, or any of
the agreements or transactions contemplated by this Agreement or entered into in
connection with this Agreement or the Merger.
(e) Meaning of Merger Consideration. From and after the
effectiveness of any Merger Consideration Adjustment in accordance with this
Section 2.02, the term "Merger Consideration" as used in this Agreement, shall
mean the reduced amount of Merger
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Consideration to be paid to Holdings as the sole stockholder of the
Company pursuant to Section 2 of this Agreement, as modified by the Merger
Consideration Adjustment.
SECTION 2.03 Release of Escrow Shares. The Escrow Shares shall be
released from escrow and delivered to Holdings one (1) year after the Closing
Date, subject to the terms of the Escrow Agreement (as hereinafter defined) and
the provisions of Article VII. The rights of Parent and Acquisition under
Article VII shall not be in any manner limited to the Escrow Shares, but shall
be subject to the limitations set forth in Article VII.
SECTION 2.04 Conversion of Acquisition Common Stock. At the Effective
Time, each share of Common Stock, $.01 par value, of Acquisition that is issued
and outstanding immediately prior to the Effective Time shall remain outstanding
and, by virtue of the Merger, automatically and without the need for any action
on the part of the holder thereof, shall be converted into and become one (1)
validly issued, fully paid and nonassessable share of Common Stock of the
Surviving Corporation.
SECTION 2.05 Surrender and Exchange of Shares.
(a) At the Effective Time, each holder of an outstanding
certificate or certificates that immediately prior thereto represented shares of
the capital stock of the Company shall surrender the same to Parent or its
agent, and each such holder shall be entitled upon such surrender to receive in
exchange therefor, without cost to it, the number of shares of Parent Common
Stock into which the shares theretofore represented by the certificate so
surrendered shall have been converted as provided in Section 2.01 hereof, and
the certificate or certificates so surrendered in exchange for such
consideration shall forthwith be canceled by Parent.
(b) If a certificate representing shares of the capital stock
of the Company has been lost, stolen or destroyed, the holder of such
certificate shall submit an affidavit describing the lost, stolen or destroyed
certificate, the number of shares evidenced thereby and affirming the status of
that certificate in lieu of surrendering such certificate to Parent, which shall
deem such certificate canceled; provided that Parent may require the holder of
such certificate to provide Parent with a bond in such amount as Parent may
direct as a condition to paying any consideration hereunder. Until so
surrendered, the outstanding certificates that, prior to the Effective Time,
represented shares of the capital stock of the Company that shall have been
converted as aforesaid shall be deemed for all corporate purposes, except as
hereinafter provided, to evidence the ownership of the Merger Consideration into
which such shares have been so converted.
(c) No certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
certificates held by stockholders of the Company, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of Parent. Each holder of shares of the capital stock of the Company
who would otherwise have been entitled to receive in the Merger a fraction of a
share of Parent Common Stock (after taking into account all certificates
surrendered by such holder) shall be entitled to receive from Parent at the
Effective Time, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a share of Parent Common Stock multiplied by the average
of the per share closing prices on the Nasdaq NM of shares of Parent Common
Stock
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during the five (5) consecutive trading days immediately preceding the
Effective Date of this Agreement. It is understood (i) that the payment of cash
in lieu of fractional shares of Parent Common Stock is solely for the purpose of
avoiding the expense and inconvenience to Parent of issuing fractional shares
and does not represent separately bargained-for consideration; and (ii) that no
holder of shares of Company capital stock will receive cash in lieu of
fractional shares of Parent Common Stock in an amount greater than the value of
one full share of Parent Common Stock.
SECTION 2.06 Closing of Stock Transfer Books. On and after the
Effective Time, there shall be no transfers on the stock transfer books of the
Company or Parent of shares of capital stock of the Company that were issued and
outstanding immediately prior to the Effective Time.
SECTION 2.07 Closing. The closing (the "Closing") shall be scheduled to
occur at the offices of Porter, Wright, Morris & Arthur, Columbus, Ohio at 10:00
a.m. local time, on a date as soon as practicable (but in any event not later
than the third business day, unless otherwise agreed) after the satisfaction or
waiver of the conditions to the obligations of the parties to effect the Merger
set forth herein. The Closing, and all transactions to occur at the Closing,
shall be deemed to have taken place at, and shall be effective as of, the close
of business on the date of closing (the "Closing Date").
SECTION 2.08 Tax-Free Reorganization. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 368(a)(1)(A) of the Internal Revenue
Code by virtue of the provisions of Section 368(a)(2)(E) of the Internal Revenue
Code. The parties believe that the value of the Parent Common Stock to be issued
to Holdings as the sole stockholder of the Company in the Merger is equal to the
value of the Company Common Stock to be surrendered in exchange therefor. The
Parent Common Stock issued in the Merger will be issued solely in exchange for
the Company's outstanding Common Stock, and no other transaction other than the
Merger represents, provides for or is intended to be an adjustment to, the
consideration paid for the Company's Common Stock. Except for cash paid in lieu
of fractional shares, no consideration that could constitute "other property"
within the meaning of Section 356 of the Internal Revenue Code is being paid by
Parent for the Company Common Stock in the Merger. The parties will not take a
position on any tax returns that is inconsistent with the provisions of this
Section. In addition, Parent represents now, and as of the Effective Time, that
it intends to continue the Company's historic business or use a significant
portion of the Company's business assets in a business. Concurrently herewith,
and again at the Closing, Parent shall execute and deliver to Holdings a
certificate substantially in the form of Exhibit A. The provisions and
representations contained or referred to in this Section 2.08 and in Exhibit A
shall survive until the expiration of the applicable statute of limitations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of Holdings and the
Company. Holdings and the Company, jointly and severally, represent and warrant
to Parent and Acquisition, except as set forth in the Holdings/Company
Disclosure Letter dated of even date
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herewith that is being delivered to Parent concurrently herewith (the
"Holdings/Company Disclosure Letter"), as follows:
(a) Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own or lease and operate its properties and assets and to carry on its business
as it is now being conducted. The Company is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction in
which the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not have a Company Material Adverse Effect (as hereinafter
defined). As used in this Agreement, the term "Company Material Adverse Effect"
shall mean a material adverse effect on the properties, assets, financial
condition, operating results or business of the Company, taken as a whole;
provided, however, that the term "Company Material Adverse Effect" shall not
include any such material adverse effect arising or resulting, directly or
indirectly, from industry conditions or the public announcement of, or the
response or reaction of customers, vendors, licensors, investors, Company
employees or others to, this Agreement, the Merger, or any of the agreements or
transactions contemplated by this Agreement or entered into in connection with
this Agreement or the Merger.
(b) Subsidiaries. The Company does not have any subsidiaries
or ownership of any equity interest in any corporation, partnership, joint
venture, or other business entity.
For purposes of this Agreement, the term "subsidiary,"
when used with respect to Holdings or the Company, shall mean any corporation or
other business entity a majority of whose outstanding equity securities is at
the time owned, directly or indirectly, by either Holdings, the Company, and/or
one or more of their other subsidiaries.
(c) Capitalization. The authorized capital stock of the
Company consists of 1,000,000 shares of Company Common Stock, $1.00 par value
per share. A total of 100 shares of Company Common Stock are issued and
outstanding, all of which were duly authorized and validly issued and are fully
paid and nonassessable. No subscription, warrant, option, call, commitment,
convertible security, stock appreciation or other right (contingent or other) to
purchase or acquire any shares of any class of capital stock of the Company is
authorized or outstanding and there is not any commitment of the Company to
issue any shares, warrants, options, or other such rights or to distribute to
holders of any class of its capital stock any evidences of indebtedness or
assets. Except as set forth on Schedule 3.01(c), the Company does not have any
obligation (contingent or other) to purchase, redeem or otherwise acquire any
shares of its capital stock or any interest therein or to pay any dividend or
make any other distribution in respect thereof. Schedule 3.01(c) sets forth a
complete and correct list of the holders of record of the Company Common Stock
and the holders of all options or other rights, if any, to purchase Company
Common Stock, including by name of the holder the number of shares or the number
of shares obtainable on exercise of options or rights held.
(d) Authority Relative to Agreement. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement by the
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Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by the Company's Board of Directors and no other corporate
approvals or proceedings on the part of the Company are necessary to authorize
this Agreement and the transactions contemplated hereby, other than the approval
and adoption of this Agreement by the sole stockholder of the Company as
required by the Delaware GCL. This Agreement has been duly executed and
delivered by the Company and, subject to obtaining such stockholder approval,
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to the effect, if any,
of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (b) rules of law governing specific performance, injunctive
relief and other equitable remedies, and (c) the limitations imposed by public
policy on the enforceability of provisions requiring indemnification in
connection with the offering, issuance or sale of securities. The Company's
Board of Directors has by the requisite vote (i) determined that this Agreement
and the Merger is advisable and fair and in the best interests of the Company
and its sole stockholder and (ii) resolved to recommend the approval of this
Agreement and the Merger by the Company's sole stockholder and to submit this
Agreement and the Merger to the Company's sole stockholder for its consideration
and approval when the Company is permitted to do so by applicable law. The
affirmative vote of the holders of a majority of the outstanding Company Common
Stock is the only vote of the holders of any class or series of the Company's
capital stock necessary to approve this Agreement, the Merger and the
transactions contemplated hereby and thereby.
(e) Non-Contravention. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) violate or conflict with any provision of the
Certificate of Incorporation or By-Laws of the Company or (ii) except as set
forth on Schedule 3.01(e) hereof, result in any violation of, conflict with, or
default (or an event which with notice or lapse of time or both would constitute
a default) or loss of a benefit under, or permit the termination of or the
acceleration of any obligation under, any material mortgage, indenture, lease,
agreement or other instrument to which the Company is a party or by which its
assets are bound, permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
business conducted by the Company (the "Business") or to the Company or their
respective properties, or (iii) result in the creation or imposition of any
liens, claims, charges, restrictions, rights of others, security interests,
prior assignments or other encumbrances (collectively, "Claims") in favor of any
third person or entity upon any of the assets of the Company, other than any
such violation, conflict, default, loss, termination or acceleration that would
not have a Company Material Adverse Effect.
(f) Consents. Except as set forth on Schedule 3.01(f), no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Federal, state, local or foreign governmental or regulatory
authority is required to be made or obtained by the Company in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for (i)
compliance by the Company with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act"), (ii) the filing of a certificate of merger with the
Secretary of State of the State of Delaware in accordance with the Delaware GCL
and (iii) such consents, approvals, orders or authorizations which if not
obtained, or registrations, declarations or filings which if not made, would not
have a Company Material Adverse Effect or materially adversely affect the
ability of
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the Company to consummate the transactions contemplated hereby or the ability of
the Surviving Corporation or any of its subsidiaries to conduct the Business
after the Effective Time.
(g) Financial Statements, Etc. The Company has furnished to
Parent the unaudited balance sheet of the Company of July 31, 1996 and the
related statements of operations for each of the two years ended July 31, 1996
and 1995, certified by the principal financial officer of the Company. The
foregoing unaudited financial statements of the Company shall be collectively
referred to as the "Financial Statements." All such Financial Statements
(including any related schedules and/or notes, if any) have been prepared in a
manner consistent with the manner with which Holdings has prepared financial
statements for the Company and Holdings' other subsidiaries under accounting
principles consistently applied and consistent with prior periods, except that
such statements are subject to year end adjustments (which consist of normal
recurring accruals) and do not contain footnote disclosures. Such balance sheet
fairly presents in all material respects the financial position of the Company
as of its respective date, and such statements of operations fairly present in
all material respects the results of operations of the Company for the
respective periods then ended, subject to normal year-end adjustments and the
absence of footnote disclosures.
Except as and to the extent (i) reflected on the unaudited
balance sheet of the Company as of July 31, 1996 referred to above, (ii)
incurred since July 31, 1996 in the ordinary course of business consistent with
past practice, or (iii) set forth on Schedule 3.01(g) hereto, the Company does
not have any liabilities or obligations of any kind or nature, whether known or
unknown or secured or unsecured (whether absolute, accrued, contingent or
otherwise, and whether due or to become due) that would be required to be
reflected on a balance sheet, or the notes thereto, prepared in accordance with
generally accepted accounting principles. Between July 31, 1996 and the
Effective Date of this Agreement, the Company has not suffered any Company
Material Adverse Effect.
(h) Absence of Certain Changes or Events. Except as set forth
on Schedule 3.01(h) hereto, or as otherwise disclosed in the Financial
Statements of the Company, since July 31, 1996, the Company has not (i) issued
any stock, bonds or other corporate securities, (ii) borrowed or refinanced any
amount or incurred any liabilities (absolute or contingent) in excess of
$50,000, other than trade payables incurred in the ordinary course of business
consistent with past practice, (iii) discharged or satisfied any claim in excess
of $100,000 or incurred or paid any obligation or liability (absolute or
contingent) other than current liabilities shown on the balance sheet of the
Company as of July 31, 1996 and current liabilities incurred since the date of
such balance sheet in the ordinary course of business consistent with past
practice, (iv) declared or made any payment or distribution to stockholders or
purchased or redeemed any shares of its capital stock or other securities, (v)
mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, other than liens for current real property taxes not yet due and
payable, (vi) sold, assigned or transferred any of its tangible assets, or
canceled any debts or claims, except in the ordinary course of business
consistent with past practice or as otherwise contemplated hereby, (vii) sold,
assigned or transferred any Intellectual Property Rights (as hereinafter
defined) or other intangible assets, (viii) waived any rights of substantial
value, whether or not in the ordinary course of business, (ix) entered into,
adopted, amended or terminated any bonus, profit sharing, compensation,
termination, stock option, stock appreciation right, restricted stock,
performance unit, pension, retirement, deferred compensation,
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employment, severance or other employee benefit plan, agreement, trust, fund or
other arrangement for the benefit of any director, officer or employee of the
Company, or increased in any manner the compensation or fringe benefits of any
director or officer of the Company, or increased the compensation or fringe
benefits of any executive officer of the Company other than in the ordinary
course of business consistent with past practices, or made any payment of a cash
bonus to any director or officer or to any employee of, or consultant or agent
to, the Company or made any other material change in the terms or conditions of
employment, (x) announced any plan or legally binding commitment to create any
employee benefit plan, program or arrangement or to amend or modify in any
material respect any existing employee benefit plan, program or arrangement,
(xi) eliminated the vesting conditions or otherwise accelerated the payment of
any compensation, (xii) suffered any damage, destruction or loss to any of its
assets or properties, (xiii) made any change in its accounting systems,
policies, principles or practices, (xiv) made any loans to any person, (xv)
incurred damage, destruction, or loss, whether or not covered by insurance,
affecting the properties, assets, or Business of the Company, (xvi) made any
change with respect to management, supervisory, or other key personnel of the
Company, (xvii) paid or discharged a lien or liability not appearing on the
Financial Statements, or (xviii) to the extent not otherwise set forth herein,
taken any action described in Section 4.01 hereof. Between July 31, 1996 and the
Effective Date of this Agreement, there has not been a Material Adverse Change
(as defined in Section 2.02(d)) in the financial condition, properties, assets,
liabilities, Business, operations, results of operations of the Company.
(i) Certain Information. Provided that Parent allows Holdings
and the Company to modify any information regarding Holdings or the Company
contained therein, none of the information supplied by the Company for inclusion
in the Registration Statement or the Proxy Statement/Prospectus (as hereinafter
defined) will, at the respective times such documents or any amendments or
supplements thereto are filed with the SEC, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that no representation is made by the Company with
respect to information supplied by Parent which relates to the Parent,
Acquisition, or any affiliate or associate of Parent for inclusion in the
Registration Statement or the Proxy Statement/Prospectus. Provided that Parent
allows Holdings and the Company to modify any information regarding Holdings or
the Company contained therein, none of the information relating to the Company
included in the Registration Statement or the Proxy Statement/Prospectus that
has been supplied by the Company and/or Holdings will, at the time the Proxy
Statement/Prospectus is distributed to the Company's and/or Parent's
stockholders, be false or misleading with respect to any material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(j) Actions Pending. Except as set forth on Schedule 3.01(j)
hereto, (i) there is no action, suit, dispute, investigation, proceeding or
claim pending or, to the knowledge of Holdings and the Company, threatened
against or affecting the Company, or its properties or rights, or the Business,
before any court, administrative agency, governmental body, arbitrator, mediator
or other dispute resolution body, and the Company is not aware of any facts or
circumstances which are reasonably likely to give rise to any such action, suit,
dispute, investigation, proceeding or claim, (ii) the Company is not subject to
any order, judgment, decree, injunction, stipulation, or consent order of or
with any court or other governmental
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agency, and (iii) the Company has not entered into any agreement to settle or
compromise any proceeding pending or threatened against it which has involved
any obligation other than the payment of money or for which the Company has any
continuing obligation, which (in the case of each of clauses (i), (ii) and (iii)
of this Section 3.01(j)) is reasonably likely to have a Company Material Adverse
Effect or which might materially and adversely affect the ability of the Company
to consummate the transactions contemplated hereby, or materially and adversely
affect the ability of Parent to conduct the Business after the Effective Time.
(k) Title to Properties. The Company has good and valid title
to the properties and assets reflected on the unaudited balance sheet of the
Company as of July 31, 1996 other than nonmaterial properties and assets
disposed of in the ordinary course of business consistent with past practice
since the date of such balance sheet, and all such properties and assets are
free and clear of Claims, except (i) as described on Schedule 3.01(k) hereto,
(ii) liens for current taxes not yet due, and (iii) minor imperfections of
title, if any, not material in amount and not materially detracting from the
value or impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company (collectively, "Permitted
Liens"). Such properties and assets constitute all of the assets necessary to
conduct the Business substantially in the same manner as it has been conducted
prior to the date hereof.
(l) Real Property Interests. Schedule 3.01(l) hereto sets
forth a complete and accurate list of (i) the real properties owned by the
Company (the "Fee Properties") and (ii) the real properties leased by the
Company (the "Leased Properties"). The Company has good and marketable fee
simple title to the Fee Properties and good and marketable leasehold title to
the Leased Properties, listed on Schedule 3.01(l), free and clear of all Claims,
tenants and occupants except for Permitted Liens. Complete and accurate copies
of all leases or other agreements relating to the Leased Properties have been
delivered to Parent and there have been no material changes or amendments to
such leases or agreements since such delivery. The Company is the lawful owner
of all improvements and fixtures located on the Fee Properties and all moveable
fixtures located at the Leased Properties, free and clear of all Claims except
for Permitted Liens. Each lease or other agreement relating to the Leased
Properties is a valid and subsisting agreement, without any material default of
the Company thereunder and without any material default thereunder of the other
party thereto, and such leases and agreements give the Company the right to use
or occupy, as the case may be, all real properties as are sufficient and
adequate to operate the Business as it is currently being conducted. Except as
set forth on Schedule 3.01(l), the Company's possession of such property has not
been disturbed nor has any claim relating to the Company's title to or
possession of such property been asserted against the Company that would have a
Company Material Adverse Effect.
(m) Intellectual Property Rights. The patents, trademarks and
trade names, trademark and trade name registrations, service mark, brand mark
and brand name registrations, copyrights, inventions, know-how, trade secrets,
proprietary processes and information, software source and object code, the
applications therefor and the licenses with respect thereto (collectively,
"Intellectual Property Rights") listed on Schedule 3.01(m) hereto constitute all
material proprietary rights owned or held by the Company that are necessary to
the conduct of the Business. Except as set forth on Schedule 3.01(m), (i) the
Company conducts the Business without any known infringement or claim of
infringement of any Intellectual Property Right of others and the conduct by the
Surviving Corporation after the Effective Time of the Business, in
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substantially the same manner as it is currently conducted, will not constitute
a breach or violation of any agreement relating to the Intellectual Property
Rights listed on Schedule 3.01(m) (other than as a result of agreements to which
Parent or any of its affiliates is a party); (ii) the Company is, and after the
consummation of the Merger will be, the sole and exclusive owner of each
Intellectual Property Right listed on Schedule 3.01(m), free and clear of any
Claims (other than Permitted Liens), and, to the knowledge of Holdings and the
Company, no person is challenging, infringing, misappropriating or otherwise
violating any such Intellectual Property Rights or claiming that the conduct of
the Business, infringes, misappropriates or otherwise violates the Intellectual
Property Rights of any third party; (iii) the Company is not aware of any
impediment to the registration of any trademark that is the subject of any
application for registration listed on Schedule 3.01(m) that would have a
Company Material Adverse Effect; (iv) none of the Intellectual Property Rights
listed on Schedule 3.01(m) is the subject of any outstanding order, ruling,
decree, judgment or stipulation specifically binding on the Company; (v) to the
knowledge of Holdings and the Company, none of the activities of any employee of
the Company on behalf thereof violates any obligations of such employee to third
parties, including, without limitation, confidentiality or noncompetition
obligations under agreements with a former employer; (vi) the Company is not
aware of any unauthorized use by a third party of any computer software programs
or applications that the Company considers to be a trade secret belonging to the
Company; (vii) the Company has taken and is taking reasonable precautions to
protect all material trade secrets and other confidential information relating
to its proprietary computer software programs and applications or included in
the Intellectual Property Rights that are material to the conduct of the
Business; and (viii) the execution, delivery, and performance of this Agreement
and the consummation of the Merger will not constitute a breach or default of
any Intellectual Property Rights that are material to the conduct of the
Business.
(n) Labor Matters. The Company is not a party to any
collective bargaining or union agreement, and no such agreement is applicable to
any employees of the Company. There are not any controversies between the
Company and any of such employees that might reasonably be expected to result in
a Company Material Adverse Effect, or any unresolved labor union grievances or
unfair labor practice or labor arbitration proceedings pending, or threatened
relating to the Business. There are no labor unions or other organizations
representing or purporting to represent any employees of the Company and there
are not any organizational efforts currently being made or threatened involving
any of such employees. Except as set forth on Schedule 3.01(n) hereto, the
Company is in compliance in all material respects with all laws and regulations
or other legal or contractual requirements regarding the terms and conditions of
employment of employees, former employees or prospective employees or other
labor related matters, including, without limitation, laws, rules, regulations,
orders, rulings, conciliation agreements, decrees, judgments and awards relating
to wages, hours, the payment of social security and similar taxes, equal
employment opportunity, employment discrimination, fair labor standards and
occupational health and safety, wrongful discharge or violation of the personal
rights of employees, former employees or prospective employees. The Company is
not liable for any material amount of arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing.
(o) Severance Arrangements. Except as set forth on Schedule
3.01(o) hereto, the Company is not party to any agreement with any employee (i)
the benefits of which (including, without limitation, severance benefits) are
contingent, or the terms of which are
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materially altered, upon the occurrence of a transaction involving the Company
of the nature of any of the transactions contemplated by this Agreement or (ii)
providing severance benefits in excess of those generally available under the
Company's severance policies (which are described on Schedule 3.01(o)), or which
are conditioned upon a change of control, after the termination of employment of
such employees regardless of the reason for such termination of employment, and
the Company is not a party to any employment agreement or compensation guarantee
extending for a period longer than one year. Schedule 3.01(o) sets forth all
employment agreements and compensation guarantees, regardless of duration, to
which the Company is a party. Except as a result of actions taken by Parent or
the Surviving Corporation, no amounts will be due or payable to any employee of
the Company under any such severance arrangement or otherwise by virtue of the
refusal of such employee to accept the offer of employment of the Surviving
Corporation.
(p) Taxes.
(i) Except as set forth on Schedule 3.01(p) hereto,
the Company or an affiliate on behalf of the Company has (A) timely
filed all Federal and all material state, local and foreign returns,
declarations, reports, estimates, information returns and statements
relating to the Company's operations ("Returns") required to be filed
by it in respect of any Taxes (as hereinafter defined), (B) timely paid
all Taxes that are due and payable with respect to the periods covered
by the Tax Returns referred to in clause (A) without regard to whether
such Taxes have been assessed (except for audit adjustments not
material in the aggregate or to the extent that liability therefor is
reserved for in the Company's most recent unaudited financial
statements), (C) established reserves that are adequate for the payment
of all Taxes not yet due and payable with respect to the results of
operations of the Company, and (D) complied in all material respects
with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes and has in all material respects timely
withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over.
(ii) The Company has no liability for the Taxes of
any Person or entity other than the Company under Regulation 1.1502-6
of the Internal Revenue Code.
(iii) Schedule 3.01(p) sets forth the last taxable
period through which the Federal income Tax Returns of the Company have
been examined by the Internal Revenue Service or otherwise closed. All
deficiencies asserted as a result of such examinations and any
examination by any applicable state, local or foreign taxing authority
which have not been or will not be appealed or contested in a timely
manner have been paid, fully settled or adequately provided for in the
Company's most recent audited financial statements. Except as set forth
on Schedule 3.01(p), no Federal, state, local or foreign Tax audits or
other administrative proceedings or court proceedings are currently
pending with regard to any Federal or material state, local or foreign
Taxes for which the Company would be liable, and no deficiency for any
such Taxes has been proposed, asserted or assessed or threatened
pursuant to such examination of the Company by such Federal, state,
local or foreign taxing authority with respect to any period.
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<PAGE> 22
(iv) Except as set forth on Schedule 3.01(p), the
Company has not executed or entered into (or prior to the Effective
Time will execute or enter into) with the Internal Revenue Service or
any taxing authority (A) any agreement or other document extending or
having the effect of extending the period for assessments or collection
of any Federal, state, local or foreign Taxes for which the Company
would be liable or (B) a closing agreement pursuant to Section 7121 of
the Internal Revenue Code, or any predecessor provision thereof or any
similar provision of state, local or foreign income tax law that
relates to the assets or operations of the Company.
(v) Except as set forth on Schedule 3.01(p), the
Company is not a party to any agreement providing for the allocation or
sharing of liability for any Taxes.
(vi) The Company has made available to Parent
complete and accurate copies of all income and franchise Tax Returns
pertaining solely to the Company and all material other Tax Returns
pertaining solely to the Company filed by or on behalf of the Company
for the taxable years ending on or prior to July 31, 1996.
(vii) The Company is not a "U.S. real property
holding corporation" (as defined in Section 897(c)(2) of the Internal
Revenue Code), and neither the Company nor any stockholder of the
Company is a non-resident alien individual, foreign corporation,
foreign partnership, or foreign trust.
For purposes of this Agreement, "Taxes" shall mean
all Federal, state, local, foreign or other taxing authority income, franchise,
sales, use, ad valorem, property, payroll, social security, unemployment,
assets, value added, withholding, excise, severance, transfer, employment,
alternative or add-on minimum and other taxes, charges, fees, levies, imposts,
duties or other assessments, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority.
(q) Compliance with Law; Permits. The Company is not in
default in any material respect under any order or decree of any court,
governmental authority, arbitrator or arbitration board or tribunal that is
specifically binding on the Company or under any laws, ordinances, governmental
rules or regulations to which the Company or any of its respective properties or
assets is subject. Schedule 3.01(q) hereto sets forth a list of all material
permits, authorizations, approvals, registrations, variances and licenses
("Permits") issued to or used by the Company in connection with the conduct of
the Business; such Permits constitute all Permits necessary for the Company to
own, use and maintain its properties and assets or required for the conduct of
the Business in substantially the same manner as it is currently conducted. Each
Permit listed on Schedule 3.01(q) is in full force and effect and no proceeding
is pending or threatened to modify, suspend, revoke or otherwise limit any of
such Permits and no administrative or governmental actions have been taken or
threatened in connection with the expiration or renewal of any of such Permits.
Except as set forth on Schedule 3.01(q), neither the Company nor Parent or
Acquisition will be required, as a result of the consummation of the
transactions contemplated hereby, to obtain or renew any Permits.
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<PAGE> 23
(r) Employee Benefit Plans.
(i) Schedule 3.01(r) hereto sets forth a complete and
accurate list of each plan, program, arrangement, agreement or
commitment that is an employment, consulting or deferred compensation
agreement, or an executive compensation, incentive bonus or other
bonus, employee pension, profit-sharing, savings, retirement, stock
option, stock purchase, severance pay, life, health, disability or
accident insurance plan, or vacation or other employee benefit plan,
program, arrangement, agreement or commitment, including, without
limitation, each employee benefit plan (as defined under Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") in which employees of the Company participate that is (i)
maintained by the Company or any trade or business (whether or not
incorporated) which, together with the Company, would be treated as a
single employer under Title IV of ERISA or Section 414 of the Internal
Revenue Code (collectively, the "ERISA Affiliates") or (ii) to which
any ERISA Affiliate contributes or has any obligation to contribute to,
or has or may have any liability (including, without limitation, a
liability arising out of an indemnification, guarantee, hold harmless
or similar agreement) (collectively, the "Plans"). Each Plan is
identified on Schedule 3.01(r), to the extent applicable, as one or
more of the following: an "employee pension plan" (as defined in
Section 3(2)(A) of ERISA), an "employee welfare plan" (as defined in
Section 3(1) of ERISA), or as a plan intended to be qualified under
Section 401 of the Internal Revenue Code.
(ii) The Plans have been, and currently are in
compliance, in all material respects, with all laws and regulations
applicable to the Plans under which noncompliance would have a Company
Material Adverse Effect, including, without limitation, ERISA and the
Internal Revenue Code.
(iii) Except as set forth on Schedule 3.01(r), no
ERISA Affiliate has maintained, adopted or established, contributed to
or been required to contribute to, or otherwise participated in or been
required to participate in, any employee benefit plan or other program
or arrangement subject to Title IV of ERISA (including, without
limitation, a "multi-employer plan" (as defined in Section 3(37) of
ERISA), a multiple employer plan (as defined in Section 210 of ERISA)
and a defined benefit plan (as defined in Section 3(35) of ERISA)).
(iv) Except as set forth on Schedule 3.01(r), the
Company neither provides nor may be required to provide and no Plan,
other than a Plan that is an employee pension benefit plan (within the
meaning of Section 3(2)(A) of ERISA), provides or may be required to
provide benefits, including, without limitation, death, health or
medical benefits (whether or not insured), with respect to current or
former employees of the Company beyond their retirement or other
termination of service with the Company (other than (A) coverage
mandated by applicable law, (B) deferred compensation benefits accrued
as liabilities on the books of the Company, or (C) benefits the full
cost of which is borne by the current or former employee (or his or her
beneficiary)). No ERISA Affiliate maintains any Plan under which any
employee or former employee of the Company may receive medical benefits
which cannot be modified or terminated by the ERISA Affiliates at any
time without the consent of any
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<PAGE> 24
person, and no employees or former employees of the Company will have
any claim in respect of such benefits as of the Effective Time.
(v) The transactions contemplated hereby will not
result in (i) any portion of any amount paid or payable by the Company
to a "disqualified individual" (within the meaning of Section 280G(c)
of the Internal Revenue Code and the regulations promulgated
thereunder), whether paid or payable in cash, securities of the Company
or otherwise and whether considered alone or in conjunction with any
other amount paid or payable to such a "disqualified individual," being
an "excess parachute payment" within the meaning of Section 280G(b)(1)
of the Internal Revenue Code and the regulations promulgated
thereunder, (ii) any employee of the Company being entitled to
severance pay, unemployment compensation (other than payments by state
unemployment compensation program), or any other payment, (iii) an
acceleration of the time of payment (other than eligibility for a
distribution from a defined contribution plan) or vesting or an
increase in the amount of compensation due to any such employee or
former employee of the Company or (iv) any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code for which an exemption is not available.
(vi) No ERISA Affiliates has incurred any material
liability with respect to any Plan under ERISA (including, without
limitation, Title I or Title IV thereof, other than liability for
premiums due to the Pension Benefit Guaranty Corporation which are
current if applicable), the Internal Revenue Code or other applicable
law for which the Company may be held liable, which has not been
satisfied in full or been accrued on the balance sheet of the Company
as of July 31, 1996 pending full satisfaction, and no event has
occurred, and there exists no condition or set of circumstances, which
could result in the imposition of any material liability on the Company
not set forth in or reserved in the Company's unaudited balance sheet
at July 31, 1996 under ERISA, the Internal Revenue Code or other
applicable law with respect to any Plan.
(vii) With respect to each Plan subject to Section
412 of the Internal Revenue Code that is funded wholly or partially
through an insurance policy, all premiums required to have been paid to
date under the insurance policy have been paid, and, except as set
forth on Schedule 3.01(r), as of the Effective Time there will be no
liability of the Company under any such insurance policy or ancillary
agreement with respect to such insurance policy in the nature of a
retroactive rate adjustment, loss sharing arrangement or other actual
or contingent liability arising wholly or partially out of events
occurring prior to the Effective Time.
(viii) None of the ERISA Affiliates has made any
contribution to any Plan that may be subject to any excise tax under
Section 4972 of the Internal Revenue Code for which the Company may be
held liable.
(s) Environmental Matters. The Company is in compliance in all
material respects with all Federal, state or local statutes, ordinances, orders,
judgments, rulings or regulations relating to environmental pollution or to
environmental regulation or control. Except as set forth on Schedule 3.01(s)
hereto, neither the Company nor any of its respective officers,
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<PAGE> 25
employees, representatives or agents has treated, stored, processed, discharged,
spilled or otherwise disposed of any substance defined as hazardous or toxic by
any applicable Federal, state or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at any real property or any other
facility owned, leased or used by the Company, in material violation of any
applicable statutes, regulations, ordinances or directives of any governmental
authority or court, which violations may result in any material liability to the
Company, taken as a whole. Except as set forth on Schedule 3.01(s), no employee
of the Company or other person has ever made a claim or demand against the
Company based on alleged damage to health caused by any such hazardous or toxic
substance or by any waste or by-product thereof. Except as set forth on Schedule
3.01(s), the Company has not been charged by any governmental authority with
improperly using, handling, storing, discharging or disposing of any such
hazardous or toxic substance or waste or by-product thereof or with causing or
permitting any pollution of any body of water. Except as set forth on Schedule
3.01(s), to the best knowledge of Holdings and the Company, the Fee or Leased
Properties and the Business are not subject to any pending or threatened
administrative or judicial proceeding under any environmental law and there are
no facts or circumstances known to the Company which are reasonably likely to
give rise to any proceeding. Except as set forth on Schedule 3.01(s), to the
best knowledge of Holdings and the Company, there are no inactive, closed, or
abandoned storage or disposal areas or facilities or underground storage tanks
on the Fee or Leased Properties.
(t) Personal Property. The Company has provided Parent lists
of (i) all of the tangible personal property used by the Company in its business
having an original acquisition cost of $50,000 or more, and (ii) all leases of
personal property binding upon the Company having an annual rental in excess of
$25,000. All of such tangible personal property is presently utilized by the
Company in the ordinary course of its business and is in good repair, ordinary
wear and tear excepted.
(u) Contracts. Schedule 3.01(u) lists all contracts and
arrangements of the following types to which the Company is a party or by which
it is bound and which are material to the conduct of the Business or to the
financial condition or results of operations of the Company, taken as a whole,
including without limitation the following:
(i) any contract or arrangement with a sales
representative, distributor, dealer, broker, sales agency, advertising
agency or other person engaged in sales, distribution or promotional
activities, or any contract to act as one of the foregoing on behalf of
any person, which is not terminable by the Company on 30 or fewer days
notice;
(ii) any contract or arrangement of any nature which
involves the payment or receipt of cash or other property, an
unperformed commitment, or goods or services, having a value in excess
of $100,000;
(iii) any contract or arrangement pursuant to which
the Company has made or will make loans or advances, or has or will
have incurred indebtedness for borrowed money or become a guarantor or
surety or pledged its credit on or otherwise become responsible with
respect to any undertaking of another (except for the negotiation
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<PAGE> 26
or collection of negotiable instruments in transactions in the ordinary
course of business) in excess of $50,000;
(iv) any indenture, credit agreement, loan agreement,
note, mortgage, security agreement, lease of real property or personal
property, loan commitment or other contract or arrangement relating to
the borrowing of funds, an extension of credit or financing;
(v) any contract or arrangement involving a
partnership, a limited liability company, a joint venture or other
cooperative undertaking requiring a sharing of assets or technology of
the Company;
(vi) any contract or arrangement involving any
restrictions with respect to the geographical area of operations or
scope or type of business of the Company;
(vii) any power of attorney or agency agreement or
arrangement with any person pursuant to which such person is granted
the authority to act for or on behalf of the Company, or the Company is
granted the authority to act for or on behalf of any person;
(viii) any contract not fully performed and relating
to any acquisition or disposition of the Company or any predecessor in
interest of the Company, or any acquisition or disposition of any
subsidiary, division, line of business, or real property of the
Company;
(ix) any contract or arrangement with a customer or
financial institution;
(x) all such contracts and arrangements between the
Company and Holdings or its affiliates that are material to the
operations of the Company; and
(xi) any contract not specified above which the
cancellation, breach, or nonperformance of would constitute a Company
Material Adverse Effect.
The Company has delivered to Parent complete and accurate copies of the
contracts and agreements set forth on Schedule 3.01(u), and each such contract
or agreement is a valid and subsisting agreement, without any material default
of the Company thereunder and, to Holdings' and the Company's knowledge, without
any material default thereunder of the other party thereto. Except as set forth
on Schedule 3.01(u), the Company has not received notice of any cancellation or
termination of, or of any threat to cancel or terminate, any of such contracts
or agreements required to be listed on Schedule 3.01(u) where such cancellation
or termination would have a Company Material Adverse Effect.
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(v) Insurance.
(i) All policies of fire, liability, workers'
compensation and other forms of insurance providing insurance coverage
to or for the Company for events or occurrences arising or taking place
in the case of occurrence type insurance, and for claims made and/or
suits commenced in the case of claims-made type insurance, between the
Effective Date of this Agreement and the Effective Time, are listed on
Schedule 3.01(v) hereto, and, except as set forth on Schedule 3.01(v),
all premiums with respect thereto have been paid, and no notice of
cancellation or termination has been received with respect to any such
policy. All such policies are in full force and effect, and, except as
set forth on Schedule 3.01(v), provide insurance in such amounts and
against such risks as Holdings and the Company believe are customary
for companies engaged in similar businesses to protect the employees,
properties, assets, businesses and operations of the Company. All such
policies will remain in full force and effect and will not be adversely
modified or affected by, or terminate or lapse by reason of, any of the
transactions contemplated hereby, except by reason of an insurer's
assessment of Parent or the conduct of the Business after the Effective
Time.
(ii) The Company has provided Parent information
concerning all claims, which (including related claims which in the
aggregate) exceed $50,000 and which have been made by the Company in
the last two years under any workers' compensation, general liability,
property, directors' and officers' liability or other insurance policy
applicable to the Company or any of its properties. Except as set forth
in written materials provided by the Company to Parent, there are no
pending or threatened claims under any insurance policy, the outcome of
which would have a Company Material Adverse Effect.
(w) Pending Transactions. Except for this Agreement and the
transactions contemplated hereby, the Company is not a party to or bound by any
agreement, negotiation, discussion, commitment or undertaking with respect to a
merger or consolidation with, or an acquisition of all or substantially all of
the property and assets of, any other corporation or person or the sale, lease
or exchange of all or substantially all of its properties and assets to any
other person.
(x) Claims Against Officers and Directors. Except as set forth
on Schedule 3.01(x), to the knowledge of Holdings and the Company, there are no
pending or threatened claims against any director, officer, employee or agent of
the Company which could give rise to any claim for indemnification against the
Company.
(y) Customers, Suppliers, Etc. The Company has provided Parent
information concerning the 15 largest customers of the Company in terms of
revenue to the Company ("Major Customers") and the 10 largest suppliers in terms
of charges to the Company ("Major Suppliers") during the fiscal year ended July
31, 1996. Except to the extent set forth in Schedule 3.01(y), between July 31,
1996 and the Effective Date of this Agreement: (i) there has not been any
material dispute between the Company and any Major Customer or Major Supplier;
(ii) the Company did not receive notice from any Major Customer stating that
such Major Customer intends to reduce its purchases from the Company; or (iii)
the Company did not receive notice
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<PAGE> 28
from any Major Supplier stating that such Major Supplier intends to reduce its
sale of goods or services to the Company.
(z) Improper and Other Payments. Except as set forth on
Schedule 3.01(z), neither the Company nor, to the knowledge of Holdings and the
Company, any director, officer, employee, agent or representative of the
Company, nor any person acting on behalf of any of them, has (i) made, paid or
received any bribes, kickbacks or other similar payments to or from any person,
whether lawful or unlawful, (ii) made any unlawful contributions, directly or
indirectly, to a domestic or foreign political party or candidate, or (iii) made
any improper foreign payment (as defined in the Foreign Corrupt Practices Act).
(aa) Brokers. Except as set forth on Schedule 3.01(aa), the
Company has not used any broker or finder in connection with the transactions
contemplated hereby, and the Company has not nor will have any liability or
otherwise suffer or incur any loss as a result of or in connection with any
brokerage or finder's fee or other commission of any person retained by the
Company or the sole stockholder of the Company in connection with any of the
transactions contemplated by this Agreement.
(bb) Accounts Receivable and Advances. Except as disclosed on
Schedule 3.01(bb), (i) each account receivable of the Company (collectively, the
"Accounts Receivable") represents a sale made in the ordinary course of business
other than to affiliates and which arose pursuant to an enforceable written
contract for a bona fide sale of goods or for services performed, and the
Company has performed all of its obligations to produce the goods or perform the
services to which such Accounts Receivable relates, and (ii) no Account
Receivable is subject to any claim for reduction, counterclaim, set-off,
recoupment or other claim for credit, allowances or adjustments by the obligor
thereof, in an amount individually or in the aggregate that would have a Company
Material Adverse Effect.
(cc) OCC Examination. The Office of the Comptroller of the
Currency ("OCC") has not notified the Company of, nor imposed upon the Company,
any order, judgment, decree, injunction, stipulation, liability, obligation,
violation, fine, penalty, or burden that has material and adverse financial
consequences on the Company or its Business.
(dd) Accuracy of Statements. Neither this Agreement, the
Holdings/Company Disclosure Letter, nor any schedule, exhibit, statement, list,
document, certificate or other information furnished or to be furnished by or on
behalf of the Company to Parent in connection with this Agreement, when read
together, or any of the transactions contemplated hereby contains or will
contain any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they are made, not misleading.
SECTION 3.02 Representations and Warranties of Holdings. Except as set
forth in the Holdings/Company Disclosure Letter, Holdings represents and
warrants to Parent and Acquisition as follows:
(a) Organization and Qualification. Holdings is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
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(b) Ownership. Holdings owns beneficially and of record 100%
of the Company Common Stock, free and clear of any liens, claims, charges,
restrictions, rights of others, security interests, prior assignments or other
encumbrances.
(c) Authority Relative to Agreement. Holdings has all
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement by Holdings and the consummation by Holdings of
the transactions contemplated hereby have been duly authorized by Holdings'
Board of Directors and no other corporate approvals or proceedings on the part
of Holdings are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Holdings and constitutes the legal, valid and binding obligation of Holdings,
enforceable against Holdings in accordance with its terms, subject to the
effect, if any, of (a) applicable bankruptcy and other similar laws affecting
the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies, and (c) the
limitations imposed by public policy on the enforceability of provisions
requiring indemnification in connection with the offering, issuance or sale of
securities. No approval of the holders of any class or series of Holdings'
capital stock is necessary to approve this Agreement, the Merger and the
transactions contemplated hereby and thereby.
(d) Non-Contravention. The execution and delivery of this
Agreement by Holdings and the consummation by Holdings of the transactions
contemplated hereby will not (i) violate or conflict with any provision of the
Certificate of Incorporation or By-Laws of Holdings or (ii) except as set forth
on Schedule 3.02(d) hereof, result in any violation of, conflict with, or
default (or an event which with notice or lapse of time or both would constitute
a default) or loss of a benefit under, or permit the termination of or the
acceleration of any obligation under, any mortgage, indenture, lease, agreement
or other instrument, permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company's Business as conducted by the Company or the Company's properties, or
(iii) result in the creation or imposition of any Claim in favor of any third
person or entity upon any of the assets of the Company or the Company's
Business, other than any such violation, conflict, default, loss, termination or
acceleration that would not have a Company Material Adverse Effect.
(e) Consents. Except as set forth on Schedule 3.02(e), no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Federal, state, local or foreign governmental or regulatory
authority is required to be made or obtained by Holdings or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
Holdings or the consummation by Holdings of the transactions contemplated
hereby, except for (i) compliance by Holdings with the HSR Act, (ii) filing with
the SEC of such reports, schedules, and information under Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated by the
SEC thereunder, as may be required to be filed by Holdings in connection with
this Agreement, the Merger, and other transactions contemplated hereby, (iii)
the filing of a certificate of merger with the Secretary of State of the State
of Delaware in accordance with the Delaware GCL, and (iv) such consents,
approvals, orders or authorizations which if not obtained,
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<PAGE> 30
or registrations, declarations or filings which if not made, would not
materially adversely affect the ability of Holdings to consummate the
transactions contemplated hereby and thereby.
(f) Certain Information. Provided that Parent allows Holdings
and the Company to modify any information regarding Holdings or the Company
contained therein, none of the information supplied by Holdings for inclusion in
the Registration Statement or the Proxy Statement/Prospectus will, at the
respective times such documents or any amendments or supplements thereto are
filed with the SEC, contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that no
representation is made by Holdings with respect to information supplied by
Parent which relates to the Parent or any affiliate or associate of Parent for
inclusion in the Registration Statement or the Proxy Statement/Prospectus.
Provided that Parent allows Holdings and the Company to modify any information
regarding Holdings or the Company contained therein, none of the information
relating to Holdings and its subsidiaries included in the Registration Statement
or the Proxy Statement/Prospectus that has been supplied by Holdings or its
subsidiaries will, at the time the Proxy Statement/Prospectus is distributed to
the Company's and/or Parent's stockholders, be false or misleading with respect
to any material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(g) Brokers. Except as set forth on Schedule 3.02(h), neither
Holdings nor any of its subsidiaries has used any broker or finder in connection
with the transactions contemplated hereby, and neither Holdings nor any of its
subsidiaries has or shall have any liability or otherwise suffer or incur any
loss as a result of or in connection with any brokerage or finder's fee or other
commission of any person retained by Holdings, any of its subsidiaries, or the
stockholders of Holdings in connection with any of the transactions contemplated
by this Agreement.
(h) Accuracy of Statements. Neither this Agreement nor any
schedule, exhibit, statement, list, document, certificate or other information
furnished or to be furnished by or on behalf of Holdings to Parent in connection
with this Agreement or any of the transactions contemplated hereby contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
SECTION 3.03 Representations and Warranties of Parent. Except as set
forth in the Parent Disclosure Letter dated of even date herewith, Parent
represents and warrants to Holdings and the Company as follows:
(a) Organization and Qualification. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own or
lease and operate its properties and assets and to carry on its business as it
is now being conducted. Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Parent Material Adverse Effect (as
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hereinafter defined). As used in this Agreement, the term "Parent Material
Adverse Effect" shall mean a material adverse effect on the properties, assets,
financial condition, operating results or business of Parent, taken as a whole;
provided, however, that the term "Parent Material Adverse Effect" shall not
include any such material adverse effect arising or resulting, directly or
indirectly, from industry conditions or the public announcement of, or the
response or reaction of customers, vendors, licensors, investors, Parent
employees or others to, this Agreement, the Merger, or any of the agreements or
transactions contemplated by this Agreement or entered into in connection with
this Agreement or the Merger.
(b) Subsidiaries. Schedule 3.03(b) includes a complete and
accurate list of each subsidiary of the Parent, indicating the jurisdiction of
incorporation and the nature and level of ownership in such subsidiary by the
Parent, any subsidiary of the Parent and any other person. Complete and correct
copies of the certificate of incorporation and by-laws of the Parent and of each
subsidiary of the Parent have previously been delivered to the Company. Except
as set forth on Schedule 3.03(b) hereto, neither the Parent nor any of its
subsidiaries owns of record or beneficially, directly or indirectly, (i) any
shares of outstanding capital stock or securities convertible into capital stock
of any other corporation or (ii) any participating interest in any partnership,
joint venture or other noncorporate business enterprise. Each subsidiary of the
Parent is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all requisite
corporate power and authority to own or lease and operate its properties and
assets and to carry on its business as it is now being conducted. Each
subsidiary of the Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Parent Material Adverse Effect. All the outstanding shares of capital
stock of the Parent's subsidiaries are duly authorized, validly issued, fully
paid and nonassessable and, except as set forth on Schedule 3.03(b), are owned
by the Parent or by a wholly owned subsidiary of the Parent free and clear of
any Claims, and there are no proxies or voting or transfer agreements or
understandings outstanding with respect to any such shares. Without limiting the
foregoing representations and warranties, Parent owns beneficially of record all
of the issued and outstanding shares of the capital stock of Acquisition free
and clear of all Claims.
For purposes of this Agreement, the term "subsidiary,"
when used with respect to the Parent, shall mean any corporation or other
business entity a majority of whose outstanding equity securities is at the time
owned, directly or indirectly, by the Parent and/or one or more other
subsidiaries of the Parent.
(c) Capitalization. The authorized capital stock of Parent
consists of 150,000,000 shares of Parent Common Stock and 15,000,000 shares of
Parent Preferred Stock, and, as of August 31, 1996, 41,669,035 shares of Parent
Common Stock were issued and outstanding, all of which were duly authorized and
validly issued and are fully paid and nonassessable, and no shares of Parent
Preferred Stock were issued and outstanding. As of August 31, 1996, Parent had
outstanding options to purchase up to a total of 3,387,803 shares of Parent
Common Stock. Except as provided in the immediately preceding sentence or in
Schedule 3.03(c) hereto, Parent has, no subscription, warrant, option,
convertible security, stock appreciation or other right (contingent or other) to
purchase or acquire any shares of any class of capital stock of Parent that is
authorized or outstanding and there is not any commitment of
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Parent to issue any shares, warrants, options or other such rights or to
distribute to holders of any class of its capital stock any evidences of
indebtedness or assets. Except as disclosed in Schedule 3.03, Parent does not
have any obligation (contingent or other) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
(d) Authority Relative to Agreements. Parent has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Parent
and the consummation by Parent of the transactions contemplated hereby have been
duly authorized by the Board of Directors of Parent, and except for approval by
the stockholders of Parent, no other corporate approvals or proceedings on the
part of Parent are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and constitutes the legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, subject to the effect,
if any, of (a) applicable bankruptcy and other similar laws affecting the rights
of creditors generally, (b) rules of law governing specific performance,
injunctive relief and other equitable remedies, and (c) the limitations imposed
by public policy on the enforceability of provisions requiring indemnification
in connection with the offering, issuance or sale of securities. The Parent's
Board of Directors has by the requisite vote of its Board of Directors present
(i) determined that this Agreement and the Merger is advisable and fair and in
the best interests of the Parent and its stockholders, and (ii) resolved to
recommend the approval of this Agreement and the Merger by the Parent's
stockholders and directed that the Merger be submitted for consideration by such
stockholders. The affirmative vote of the holders of a majority of the
outstanding Parent Common Stock is the only vote of the holders of any class or
series of the Parent's capital stock necessary to approve this Agreement, the
Merger, and the transactions contemplated hereby and thereby.
(e) Non-Contravention. The execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby will not (i) violate or conflict with any provision of the
Certificate of Incorporation or By-Laws of Parent, (ii) result in any violation
of, conflict with, or default (or an event which with notice or lapse of time or
both would constitute a default) or loss of a benefit under, or permit the
termination of or the acceleration of any obligation under, any material
mortgage, indenture, lease, agreement or other instrument to which Parent is a
party or by which its assets are bound, permit, concession, grant, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any of its subsidiaries or their respective properties,
or (iii) result in the creation or imposition of any Claim in favor of any third
person or entity upon any of the assets of Parent or any of its subsidiaries,
other than any such violation, conflict, default, loss, termination or
acceleration that would not have a Parent Material Adverse Effect or adversely
affect the ability of Parent to consummate the Merger or any other transaction
contemplated hereby.
(f) Consents. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Federal, state, local or
foreign governmental or regulatory authority is required to be made or obtained
by Parent in connection with the execution and delivery of this Agreement by
Parent or the consummation by Parent of the transactions contemplated hereby,
except for (i) compliance by Parent with the HSR Act, (ii) filings pursuant
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to the Securities Act as contemplated by Section 4.02 hereof, (iii) the filing
of a certificate of merger with the Secretary of State of the State of Delaware
in accordance with the Delaware GCL, (iv) any licenses, permits, franchises or
other governmental authorizations pertaining to the Business that are required
as a result of the consummation of the transactions contemplated hereby, (v) the
consents described in Schedule 3.03(f), and (vi) such consents, approvals,
orders or authorizations which if not obtained, or registrations, declarations
or filings which if not made, would not have a Parent Material Adverse Effect or
materially adversely affect the ability of Parent to consummate the transactions
contemplated hereby or to conduct the Business after the Effective Time.
(g) SEC Filings. Parent has filed all forms, reports and
documents required to be filed with the SEC since September 28, 1995, and Parent
has made available to the Company, as filed with the SEC, complete and accurate
copies of all reports, statements and registration statements (including Current
Reports on Form 8-K) filed by Parent with the SEC since September 28, 1995, in
each case including all amendments and supplements (collectively, the "Parent
SEC Filings"). The Parent SEC Filings (including, without limitation, any
financial statements or schedules included therein) (i) were prepared in
compliance with the requirements of the Securities Act or Exchange Act, as the
case may be, and (ii) did not at the time of filing (or if amended, supplemented
or superseded by a filing prior to the date hereof, on the date of that filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
The financial statements of Parent included in the Parent SEC
Filings have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied and consistent with prior periods
indicated (except as otherwise noted therein or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present (subject,
in the case of unaudited statements, to normal, recurring year-end adjustments
and any other adjustments described therein) the consolidated financial position
of Parent and its consolidated subsidiaries as at the dates thereof and the
consolidated results of operations and cash flows of Parent and its consolidated
subsidiaries for the periods then ended. Since June 30, 1996, there has been no
change in any of the significant accounting (including tax accounting) policies,
practices or procedures of the Parent or any of its subsidiaries. Except for
liabilities or obligations that are accrued or reserved against in Parent's
financial statements included in the Parent SEC Reports neither of Parent or its
subsidiaries has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) that would be
required by GAAP to be reflected on a consolidated balance sheet, or the notes
thereto, or which would have a Parent Material Adverse Affect.
(h) Absence of Certain Changes or Events. Except as set forth
in the Parent SEC Filings made through the date hereof, (i) Parent has not
conducted its business and operations other than in the ordinary course of
business and consistent with past practices or taken any of the actions set
forth in Section 4.02 hereof and (ii) there has not been any fact, event,
circumstance or change affecting or relating to Parent or its subsidiaries that
has caused or is reasonably likely to cause a Material Adverse Change in
Parent's financial condition, properties, assets, liabilities, business,
operations, or results of operations. As used with reference Parent, the term
"Material Adverse Change" refers to a material adverse change other
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than a change arising or resulting, directly or indirectly, from industry
conditions or the public announcement of, or the response or reaction of
customers, vendors, licensors, investors, Parent employees or others to, this
Agreement, the Merger, or any of the agreements or transactions contemplated by
this Agreement or entered into in connection with this Agreement of the Merger.
(i) Certain Information. None of the information supplied by
Parent or Acquisition for inclusion in the Registration Statement or the Proxy
Statement/Prospectus (as defined in Section 4.02 hereof) will, at the respective
times such documents or any amendments or supplements thereto are filed with the
SEC, contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except no
representation is made by Parent or Acquisition with respect to information
supplied by the Company which relates to the Company or any affiliate or
associate of the Company for inclusion in the Registration Statement or the
Proxy Statement/Prospectus. None of the information relating to Parent included
in the Registration Statement or the Proxy Statement/Prospectus that has been
supplied by Parent will, at the time the Proxy Statement/Prospectus is
distributed to the Company's and/or Parent's stockholders, be false or
misleading with respect to any material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(j) Registration Rights. Except as set forth on Schedule
3.03(j) and except as otherwise provided for in this Agreement, Parent is not a
party to any agreement obligating or requiring it to register under the
Securities Act any Parent Common Stock or other security of Parent.
(k) Brokers. Except as set forth on Schedule 3.03(k), neither
Parent nor any of its subsidiaries has used any broker or finder in connection
with the transactions contemplated hereby, and neither Parent nor any of its
subsidiaries has or shall have any liability or otherwise suffer or incur any
loss as a result of or in connection with any brokerage or finder's fee or other
commission of any person retained by Parent or any of its subsidiaries in
connection with any of the transactions contemplated by this Agreement.
(l) Title to Properties. Parent has good and valid title to
the properties and assets reflected on the audited balance sheet of Parent as of
June 30, 1996 other than nonmaterial properties and assets disposed of in the
ordinary course of business consistent with past practice since the date of such
balance sheet, and all such properties and assets are free and clear of Claims,
except (i) as described in the Parent SEC Filings, (ii) liens for current taxes
not yet due, and (iii) minor imperfections of title, if any, not material in
amount and not materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations or proposed operations of
the Company (collectively, "Permitted Liens"). Such properties and assets
constitute all of the assets necessary to conduct Parent's business
substantially in the same manner as it has been conducted prior to the date
hereof.
(m) Intellectual Property Rights. The patents, trademarks and
trade names, trademark and trade name registrations, service mark, brand mark
and brand name registrations, copyrights, inventions, know-how, trade secrets,
proprietary processes and information, software
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source and object code, the applications therefor and the licenses with respect
thereto (collectively, "Intellectual Property Rights") currently owned by, or
licensed to, Parent and its subsidiaries hereto constitute all material
proprietary rights owned or held by Parent or its subsidiaries that are
necessary to the conduct of Parent's business as currently conducted. Except as
set forth in the Parent SEC Filings, Parent and its subsidiaries conduct their
business without any known infringement or claim of infringement of any
Intellectual Property Right of others; (ii) to the knowledge of Parent, no
person is challenging, infringing, misappropriating or otherwise violating any
such Intellectual Property Rights or claiming that the conduct by Parent of its
business, infringes, misappropriates or otherwise violates the Intellectual
Property Rights of any third party; (iii) none of the Intellectual Property
Rights currently used by Parent is the subject of any outstanding order, ruling,
decree, judgment or stipulation specifically binding on Parent; (v) to the
knowledge of Parent, none of the activities of any employee of Parent or its
subsidiaries on behalf thereof violates any obligations of such employee to
third parties, including, without limitation, confidentiality or noncompetition
obligations under agreements with a former employer; (vi) Parent is not aware of
any unauthorized use by a third party of any computer software programs or
applications that Parent considers to be a trade secret belonging to the
Company; (vii) Parent has taken and is taking reasonable precautions to protect
all material trade secrets and other confidential information relating to its
proprietary computer software programs and applications or included in the
Intellectual Property Rights that are material to the conduct of its business;
and (viii) the execution, delivery, and performance of this Agreement and the
consummation of the Merger will not constitute a breach or default of any
Intellectual Property Rights that are material to the conduct of Parent's
business.
(n) Environmental Matters. Parent and its subsidiaries are in
compliance in all material respects with all Federal, state or local statutes,
ordinances, orders, judgments, rulings or regulations relating to environmental
pollution or to environmental regulation or control. Parent has not been charged
by any governmental authority with improperly using, handling, storing,
discharging or disposing of any such hazardous or toxic substance or waste or
by-product thereof or with causing or permitting any pollution of any body of
water. To the best knowledge of Parent no properties or facilities used by
Parent or its subsidiaries are subject to any pending or threatened
administrative or judicial proceeding under any environmental law and there are
no facts or circumstances known to Parent which are reasonably likely to give
rise to any proceeding. To the best knowledge of Parent, there are no inactive,
closed, or abandoned storage or disposal areas or facilities or underground
storage tanks on the properties or facilities used by Parent or its
subsidiaries.
(o) Insurance. All policies of fire, liability, workers'
compensation and other forms of insurance providing insurance coverage to or for
Parent are in full force and effect, and provide insurance in such amounts and
against such risks as Parent believes are customary for companies engaged in
similar businesses to protect the employees, properties, assets, businesses and
operations of Parent and its subsidiaries. All such policies will remain in full
force and effect and will not be adversely modified or affected by, or terminate
or lapse by reason of, any of the transactions contemplated hereby, except by
reason of an insurer's assessment of Parent or the conduct of the Business after
the Effective Time.
(p) Pending Transactions. Except for this Agreement and the
transactions contemplated hereby, Parent is not a party to or bound by any
agreement, negotiation, discussion,
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commitment or undertaking with respect to a merger or consolidation with, or an
acquisition of all or substantially all of the property and assets of, any other
corporation or person or the sale, lease or exchange of all or substantially all
of its properties and assets to any other person.
(q) Claims Against Officers and Directors. To the knowledge of
Parent, there are no pending or threatened claims against any director, officer,
employee or agent of the Company which could give rise to any claim for
indemnification against the Company.
SECTION 3.04 Representations and Warranties of Acquisition. Acquisition
represents and warrants to Holdings and the Company as follows:
(a) Organization and Qualification. Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own or lease and operate its properties and assets and to carry on its business
as it is now being conducted. Acquisition is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction in
which the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the financial condition,
operating results or business of Acquisition.
(b) Capitalization. The authorized capital stock of
Acquisition consists of 3,000 shares of Common Stock, $.01 par value. As of the
date hereof, 100 shares of Common Stock are issued and outstanding, all of which
were duly authorized and validly issued and are fully paid and nonassessable,
and all such shares are owned of record and beneficially by Parent free of all
Claims, and no shares of Common Stock are held in the treasury of Acquisition.
Acquisition has no commitments to issue or sell any shares of its capital stock
or any securities or obligations convertible into or exchangeable for, or giving
any person any right to subscribe for or acquire from Acquisition, any shares of
its capital stock, and no securities or obligations evidencing any such rights
are outstanding.
(c) Authority Relative to Agreement. Acquisition has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by Acquisition and the consummation by Acquisition of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Acquisition and by Parent as its sole stockholder, and no other corporate
approvals or proceedings on the part of Acquisition are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Acquisition and constitutes the legal, valid and
binding obligation of Acquisition, enforceable against Acquisition in accordance
with its terms subject to the effect, if any, of (a) applicable bankruptcy and
other similar laws affecting the rights of creditors generally, (b) rules of law
governing specific performance, injunctive relief and other equitable remedies,
and (c) the limitations imposed by public policy on the enforceability of
provisions requiring indemnification in connection with the offering, issuance
or sale of securities.
(d) Non-Contravention. The execution and delivery of this
Agreement by Acquisition and the consummation by Acquisition of the transactions
contemplated hereby will not (i) violate or conflict with any provision of the
Certificate of Incorporation or By-Laws of Acquisition or (ii) result in any
violation of, conflict with, or default (or an event which with
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notice or lapse of time or both would constitute a default) or loss of a benefit
under, or permit the termination of or the acceleration of any obligation under,
any material mortgage, indenture, lease, agreement, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Acquisition or
its properties.
(e) Consents. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Federal, state, local or
foreign governmental or regulatory authority is required to be made or obtained
by Acquisition in connection with the execution and delivery of this Agreement
by Acquisition or the consummation by Acquisition of the transactions
contemplated hereby, except for (i) compliance by Acquisition with the HSR Act,
(ii) the filing of a certificate of merger with the Secretary of State of the
State of Delaware in accordance with the Delaware GCL, and (iii) any licenses,
permits, franchises or other governmental authorizations pertaining to the
Business that are required as a result of the consummation of the transactions
contemplated hereby.
(f) Other Matters. Acquisition has been formed for the sole
purpose of effecting the Merger and, except as contemplated by this Agreement,
Acquisition has not conducted any business activities and does not have any
material liabilities or obligations.
ARTICLE IV
COVENANTS
SECTION 4.01 Conduct of the Company's Business. The Company covenants
and agrees that, prior to the Effective Time, unless Parent shall otherwise
consent in writing and except as otherwise expressly contemplated by this
Agreement or by any other contract or agreement that the Company may enter into
with Parent and/or Holdings:
(a) the business of the Company shall be conducted only in,
and the Company shall not take any action except in, the ordinary
course of business consistent with past practice and the Company shall
use its best efforts to preserve intact its present business
organization, keep available the services of its current officers and
employees, maintain its assets (other than those permitted to be
disposed of hereunder) in good repair and condition, maintain its books
of account and records in the usual, regular and ordinary manner and
preserve its goodwill and ongoing business;
(b) the Company shall not directly or indirectly do any of the
following: (i) issue, sell, pledge, dispose of or encumber any property
or assets (including Intellectual Property Rights) of the Company,
except inventory and immaterial assets in the ordinary course of
business consistent with past practice; (ii) amend or propose to amend
its Certificate of Incorporation or By-Laws; (iii) split, combine or
reclassify any outstanding shares of its capital stock, or declare, set
aside or pay any dividend payable in cash, stock, property or otherwise
with respect to such shares (except for any dividends paid in the
ordinary course to the Company); (iv) redeem, purchase, acquire or
offer to acquire (or permit any of its subsidiaries to redeem,
purchase, acquire or offer to acquire) any shares of its capital stock;
(v) incorporate or otherwise form or create any subsidiary; (vi)
materially change the Company's equipment or technology; or (vii) enter
into any
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contract, agreement, commitment or arrangement with respect to any of
the matters set forth in this paragraph (b);
(c) the Company shall not (i) issue, sell, pledge or dispose
of, or agree to issue, sell, pledge or dispose of, any additional
shares of, or securities convertible or exchangeable for, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock of any class or other property or assets; (ii) acquire
(by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division
thereof or any material amount of assets; (iii) incur or guarantee any
indebtedness for borrowed money other than in the ordinary course of
business and consistent with past practices, or refinance any such
indebtedness or issue or sell any debt securities; (iv) enter into or
modify any material contract, lease, agreement or commitment, or permit
or perform any act that would cause a material breach of any such
contract, lease, agreement or commitment; (v) terminate, modify,
assign, waive, release or relinquish any material contract rights or
amend any material rights or claims; (vi) discharge or satisfy any
material claim or settle or compromise any material claim, action, suit
or proceeding pending or threatened against the Company (or, if the
Company may be liable or obligated to provide indemnification to its
directors or officers), against the Company's directors or officers,
before any court, governmental agency or arbitrator; (vii) make any
loans, advances or capital contributions to or investments in, any
other person, except as may be required under agreements in effect as
of and identified on Schedule 3.01(u) hereto and upon prior notice to
Parent; (viii) alter through merger, liquidation, reorganization,
restructuring or in any other manner the corporate structure or
ownership of the Company; (ix) violate or fail to perform, in any
material respect, any obligation imposed upon the Company by any
applicable laws, orders or decrees, ordinances, government rules or
regulations or conciliation agreements; or (x) to the extent not
described herein, take any action described in Section 3.01(h) hereof;
(d) the Company shall not grant any increase in the salary or
other compensation of its directors, officers or employees, except
reasonable salary increases for employees or executive officers of the
Company, in the ordinary course of business consistent with past
practice, or grant any bonus to any employee or enter into any
employment agreement or make any loan to or enter into any material
transaction of any other nature with any employee of the Company;
(e) the Company shall not take any action to institute any new
severance or termination pay practices with respect to any directors,
officers or employees of the Company or to increase the benefits
payable under its severance or termination pay practices;
(f) the Company shall not adopt or amend, in any material
respect, any plan for the benefit or welfare of any directors, officers
or employees of the Company, except as contemplated hereby or as may be
required by applicable law or regulation;
(g) the Company shall use its best efforts, to the extent not
prohibited by the foregoing provisions of this Section 4.01, to
maintain its relationships with its suppliers and customers, clients,
and others having business dealings with it, and if and as
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requested by Parent or Acquisition, (i) the Company shall use its best
efforts to make reasonable arrangements for representatives of Parent
or Acquisition to meet with customers and suppliers of the Company, and
(ii) the Company shall schedule, and the management of the Company
shall participate in, meetings of representatives of Parent or
Acquisition with employees of the Company for purposes of dealing with
the transition issues related to the Merger;
(h) the Company shall provide to Parent a draft of any Federal
income Tax return pertaining only to the Company or material state,
local or foreign Tax return (other than state or local sales and use
taxes) pertaining only to the Company required to be filed on behalf of
the Company between the Effective Date of this Agreement and the
Effective Time at least 15 days prior to the date on which such return
is due; and
(i) the Company shall respond to inquiries of and shall
consult with Parent as to the management, Business, and affairs of the
Company; provided, however, that the final decisions as to the conduct
of the management, Business, and affairs of the Company shall remain
with the Company.
SECTION 4.02 Registration Statement; Stockholder Approval; Etc.
(a) Parent, Holdings, and the Company shall, in consultation
with each other, prepare a joint proxy statement pertaining to the Merger and
containing the recommendation of the Board of Directors of each of Parent and
the Company to approve and adopt this Agreement and the Merger as promptly as
reasonably practicable after the date hereof. The Company's proxy or information
statement shall also constitute the prospectus included in the Registration
Statement to be filed by Parent pursuant to Section 4.02(b) hereof (the "Proxy
Statement/Prospectus"). Parent, Holdings, and the Company shall cooperate fully
with each other in the preparation of the Proxy Statement/Prospectus and any
amendments and supplements thereto, and Parent, Holdings, and the Company will
provide any audited and unaudited financial statements that may be required by
the applicable rules of the Securities and Exchange Commission or otherwise to
be included in the Proxy Statement/Prospectus. The Proxy Statement/Prospectus
shall not be distributed, and no amendment or supplement thereto shall be made
by Parent, Holdings, or the Company, without the prior consent of any other
party and its counsel. Each of Parent and the Company shall cause a definitive
Proxy Statement/Prospectus to be distributed to its stockholders entitled to
vote upon the Merger promptly following the effective date of the Registration
Statement.
(b) (i) As promptly as reasonably practicable after the date
hereof, Parent shall prepare and file with the SEC under the Exchange Act and
the Securities Act, a Registration Statement on Form S-4 (the "Registration
Statement") with respect to the approval of the Merger and the issuance of the
shares of Parent Common Stock to be issued in the Merger, and shall use its best
efforts to have the Proxy Statement and Registration Statement declared
effective by the SEC as promptly as practicable. Parent shall also take any
action required to be taken under state blue sky or other securities laws in
connection with the issuance of shares of Parent Common Stock in the Merger.
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(ii) As soon as reasonably practicable after the
effective date of the Registration Statement, Parent shall take all action
necessary, subject to and in accordance with the Delaware GCL and its
Certificate of Incorporation and By-Laws, to obtain the requisite approval and
adoption of this Agreement and the Merger by the Parent's stockholders at a duly
called meeting pursuant to the Delaware GCL and shall take such other actions as
may be required by applicable law and the applicable rules of the Nasdaq NM. The
Board of Directors of the Parent has determined that the Merger is advisable and
in the best interests of the stockholders of the Parent and shall recommend that
Parent's stockholders vote to approve and adopt this Agreement and the Merger
and any other matters to be submitted to Parent's stockholders in connection
therewith.
(iii) Holdings and the Company shall cooperate fully
with Parent in the preparation of the Proxy Statement/Prospectus and the
Registration Statement and any amendments and supplements thereto and shall
furnish Parent with all information and shall take such other action as Parent
may reasonably request in connection therewith. Holdings and the Company shall
provide Parent with all pro forma financial information required by Regulation
S-X to be included in the Registration Statement or in any other filing that is
required to be made by Parent pursuant to the Securities Act or the Exchange Act
in connection with the Merger. All such pro forma financial information shall be
prepared in accordance with Regulation S-X and shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) As soon as reasonably practicable after the effective date
of the Registration Statement, the Company and Parent shall take all action
necessary, subject to and in accordance with the Delaware GCL and its
Certificate of Incorporation and By-Laws, to obtain the requisite approval and
adoption of this Agreement and the Merger by their respective stockholders at a
duly called meeting or by written consents pursuant to Section 228 of the
Delaware GCL and shall take such other actions as may be required by applicable
law. The Board of Directors of the Company and Parent have each determined that
the Merger is advisable and in the best interests of their respective
stockholders and shall recommend that their respective stockholders vote to
approve and adopt this Agreement and the Merger and any other matters to be
submitted to such stockholders in connection therewith.
(d) Parent shall notify Holdings and the Company of the
receipt of any comments of the SEC with respect to (and of any requests by the
SEC for amendments or supplements to) the Proxy Statement/Prospectus or the
Registration Statement, or for additional information within 24 hours after
receipt thereof from the SEC, and shall promptly supply Holdings and the Company
with copies of all correspondence between Parent (or its representatives) and
the SEC (or its staff) with respect thereto within 24 hours after receipt
thereof from the SEC. If, at any time prior to the approval of the Merger by
Parent's or the Company's stockholders, any event should occur relating to or
affecting Holdings, the Company, Parent or Acquisition, or to their respective
officers or directors, which event should be described in an amendment or
supplement to the Proxy Statement/Prospectus or the Registration Statement, the
parties shall promptly inform one another and shall cooperate in promptly
preparing, filing and clearing with the SEC and, if required by applicable
securities laws, distributing to Parent's or the Company's stockholders, such
amendment or supplement.
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(e) Parent shall cause the Parent Common Stock to be issued in
the Merger, to be listed on the Nasdaq NM, subject to official notice of
issuance.
SECTION 4.03 Access to Information.
(a) Each of Parent, Holdings, and the Company shall, and shall
cause its respective subsidiaries, officers, directors, employees,
representatives, advisors and agents to, afford, from the date hereof to the
Effective Time, the officers, employees, representatives, advisors and agents of
the other party complete access at all reasonable times to its officers,
employees, agents, properties, books, records and workpapers, and shall furnish
each other party all financial, operating and other information and data as
Parent, Holdings, or Company, through its officers, employees or agents, may
reasonably request and shall promptly furnish to the other monthly operating and
financial reports in such form as Parent, Holdings, or the Company shall
reasonably request. For each calendar month that ends between August 1, 1996
through the Closing Date, the Company will within thirty days after the end of
such month prepare and deliver to Parent unaudited monthly balance sheets and
statements of operations for the Company, that shall fairly present the
financial condition and the results of operations of the Company in all material
respects.
(b) The Company, at least three business days prior to the
Effective Time, shall deliver to Parent a list setting forth the names and
locations of each bank or other financial institution at which the Company has
an account (giving the account numbers) or safe deposit box and the names of all
persons authorized to draw thereon or have access thereto, and the names of all
persons, if any, now holding powers of attorney or comparable delegation of
authority from the Company and a summary statement thereof.
(c) Each of Parent, Holdings, and the Company shall, and shall
cause its respective officers, directors, employees, representatives, advisors
and agents to, afford the officers, employees, representatives, advisors and
agents of the other party with access to such information concerning Parent or
the Company as may be necessary for each party to ascertain the accuracy and
completeness of the information supplied by Parent, Holdings, or the Company for
inclusion in any pre-merger notification report filed under the HSR Act (and any
additional information or documentary material supplied in response to any
request pursuant to Section 7A(e) of the HSR Act and the regulations thereunder)
or in the Proxy Statement/Prospectus.
(d) If this Agreement is terminated, each of the parties
hereto shall, and shall cause its officers, employees, representatives, advisors
and agents to, destroy or return to the other party all confidential documents,
work papers and other materials, and all copies thereof, obtained by it or on
its behalf from such other party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution and delivery hereof.
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(e) Each of the parties hereto and its officers and employees
shall not disclose or use any information so obtained, except as required by
applicable law or legal process or by any applicable rules or regulations of a
national securities exchange or the NASD upon the advice of counsel, without the
prior written consent of the other party; provided that any such information may
be disclosed to a party's financial advisors, accountants, counsel and other
representatives, as may be appropriate or required in connection with the
transactions contemplated hereby, but only if such persons shall be specifically
informed by such party of the confidential nature of such information and agree
to comply with the restrictions contained herein. The agreements contained in
this Section 4.03(e) do not apply to information that (i) is or becomes
generally available to the public other than as a result of a disclosure by a
receiving party or its representatives, (ii) can be demonstrated to have been
known to the receiving party on a non-confidential basis prior to its receipt,
(iii) becomes available to a party on a non-confidential basis from a source not
bound by any duty of confidentiality to the other party or (iv) is independently
developed by a receiving party without reference to any confidential
information.
If any party or any of its respective representatives becomes
required by law (by deposition, interrogatory, request for documents, subpoena,
civil investigative demand, or similar process) or otherwise become required to
disclose any confidential information or material the recipient party will
provide the disclosing party with prompt prior written notice of such
requirement so that the disclosing party may seek a protective order or other
remedy, or waive compliance with the terms of this Agreement. If such protective
order or other remedy is not obtained, or if the disclosing party is required to
waive compliance with the provisions hereof, the recipient party will furnish
only that portion of the confidential information or material which it is
advised by written opinion of counsel is legally required and exercise all
reasonable efforts to obtain assurance that confidential treatment, if
available, will be accorded such confidential information or material.
(f) No investigation pursuant to this Section 4.03 shall
affect, add to, or subtract from any representations or warranties of the
parties hereto or the conditions to the obligations of the parties hereto to
effect the Merger.
SECTION 4.04 Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Merger and all other transactions contemplated by
this Agreement, including, without limitation, using all reasonable efforts to
obtain all necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to cause the conditions to Closing set forth in
Article V hereof to be promptly fulfilled; provided, that the foregoing shall
not require Parent to agree to make, or to require or permit the Company to
make, or require Holdings to make any divestiture of a significant asset in
order to obtain any waiver, consent or approval.
SECTION 4.05 Inquiries and Negotiations. Neither Holdings, the Company
nor any of their subsidiaries, nor any of their respective affiliates,
directors, officers, employees, representatives, advisors or agents, shall,
directly or indirectly, encourage, solicit or initiate any discussions,
submissions of proposals or offers or negotiations with, or, subject to the
fiduciary
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obligations of the Board of Directors of the Company and the Board of Directors
of Holdings under applicable law as advised by counsel, participate in any
negotiations or discussions with, or provide any information or data of any
nature whatsoever to, or otherwise cooperate in any other way with, or assist or
participate in, facilitate or encourage any effort or attempt by, any person,
other than Parent and its affiliates, representatives and agents, concerning any
merger, consolidation, sale of substantial assets, sale of shares of capital
stock or other equity securities, recapitalization, debt restructuring or
similar transaction involving the Company, or any division of the Company (such
transactions being hereinafter referred to as "Alternative Transactions").
Holdings and the Company shall immediately notify Parent if any proposal, offer,
inquiry or other contact is received by, any information is requested from, or
any discussions or negotiations are sought to be initiated or continued with,
the Company in respect of an Alternative Transaction, and shall, in any such
notice to Parent, indicate the identity of the offeror and the terms and
conditions of any proposals or offers or the nature of any inquiries or
contacts, and thereafter shall keep Parent informed of the status and terms of
any such proposals or offers and the status of any such discussions or
negotiations. The Company shall not release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which the Company
is a party. Nothing herein shall prevent Holdings from participating in any
merger or other business combination that does not involve the transfer of the
Company Common Stock or the Company's assets; provided, however, that any third
party acquiror of Holdings expressly consents to abide by the terms, conditions,
and obligations of this Agreement.
SECTION 4.06 Notification of Certain Matters. Holdings and the Company
shall give prompt notice to Parent and Acquisition, and Parent and Acquisition
shall give prompt notice to Holdings and the Company, of (i) the occurrence, or
failure to occur, of any event that such party believes would cause any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time and (ii) any failure of Holdings, the Company, Parent or
Acquisition, as the case may be, or any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that failure to
give such notice shall not constitute a waiver of any defense that may be
validly asserted.
SECTION 4.07 Compliance with the Securities Act. Prior to the Effective
Time, the Company shall deliver to Parent a list identifying all persons who
might, in its opinion, be deemed to be "affiliates" of the Company for purposes
of Rule 145 under the Securities Act (the "Affiliates"). The Company shall use
its best efforts to cause each person who is identified as an Affiliate to
deliver to Parent on or prior to the Effective Time a written agreement, in such
form as may be agreed to by the parties, that he will not offer to sell, sell or
otherwise dispose of any of the shares of Parent Common Stock issued to him in
connection with the Merger, except pursuant to an effective registration
statement or in compliance with Rule 145 or pursuant to an exemption from the
registration requirements of the Securities Act. Parent shall be entitled to
place appropriate legends on the certificates evidencing the Parent Common Stock
to be received by Affiliates pursuant to the terms of this Agreement, and to
issue appropriate stock transfer instructions to the transfer agent for Parent
Common Stock, to the effect that the shares received or to be received by such
Affiliate pursuant to this Agreement may only be sold, transferred or otherwise
conveyed, and the holder thereof may only reduce his interest in or risks
relating to such shares, pursuant to an effective registration statement under
the Securities Act or in accordance with the provisions of paragraph (d) of Rule
145 or pursuant to an exemption from registration provided under the Securities
Act. The foregoing restrictions on the transferability of Parent Common Stock
shall apply to all purported sales, transfers and other conveyances of the
shares received or to be received by such Affiliate pursuant to this Agreement
and to all purported reductions in the interest in or risks relating to
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such shares, whether or not such Affiliate has exchanged the certificates
previously evidencing shares of the Company's capital stock, into which such
shares were converted.
SECTION 4.08 Conduct of Parent's Business. Parent covenants and agrees
that, prior to the Effective Time, unless the Company shall otherwise agree in
writing, or as otherwise expressly contemplated by this Agreement:
(a) the business of Parent and its subsidiaries shall be
conducted only in the ordinary course of business consistent with past practice;
(b) Parent shall not (i) amend its Certificate of
Incorporation (other than to increase the number of authorized shares of capital
stock of Parent) or (ii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property;
(c) Parent shall not authorize for issuance, issue or sell or
agree to issue or sell any shares of, or rights to acquire or convert into any
shares of, its capital stock, except for (i) the issuance of options or rights
pursuant to existing employee benefit plans or arrangements in a manner and in
amounts consistent with past practice, (ii) the issuance of shares of Parent
Common Stock upon the exercise of options or other rights to purchase Parent
Common Stock outstanding on the Effective Date of this Agreement or upon the
exercise of options or other rights described in the immediately preceding
clause (i), (iii) the issuance of Parent Common Stock pursuant to the agreements
set forth on Schedule 3.03(c), and (iv) the issuance of up to an additional
5,000,000 shares (as may be adjusted from time to time for stock splits or stock
dividends) of Parent Common Stock, or options or rights to purchase such shares
of stock, for any other corporate purpose, including acquisitions; and
(d) neither Parent nor Acquisition shall take any action that
would jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
SECTION 4.09 Employment and Severance Liabilities. Holdings covenants
and agrees that it will retain any and all employment and severance liabilities
and obligations for the employees and former employees of the Company
specifically listed on Schedule 4.09 hereof.
SECTION 4.10 Contractual Obligations. Holdings covenants and agrees
that it will honor and comply in all material respects with any and all
obligations and/or liabilities that it is contractually bound to, or otherwise
obligated for under the contracts, agreements, and arrangements listed on
Schedule 4.10 hereof insofar as they involve the Business of the Company.
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SECTION 4.11 Indemnity. Parent agrees to defend, indemnify and hold
Holdings harmless from and against, any and all suits, claims, demands, actions,
causes of action, loss, damages, liabilities, cost and expense (including but
not limited to reasonably attorneys' fees and court costs and costs of other
professionals) arising in any manner out of any failure of Parent or the Company
after the Effective Time, to comply with or perform any contractual or other
obligation to which the Company is now, or hereafter becomes, bound or
obligated.
SECTION 4.12 Agreements Executed. Concurrently with their execution of
this Agreement, the applicable parties hereto shall execute and deliver to each
other: (a) that certain Services and License Agreement by and among Parent,
Holdings and the Company, a copy of which is attached hereto as Exhibit B and
incorporated herein by reference (the "Services and License Agreement"); (b) an
Assignment and License Agreement by and between Holdings and the Company which
is attached hereto as Exhibit C and incorporated herein by reference; (c) a
Stock Restriction Agreement, which is attached hereto as Exhibit D and
incorporated herein by reference.
SECTION 4.13 Stockholder Agreements and Proxies. Peter J. Kight and
Mark A. Johnson shall, concurrently with the execution of this Agreement by
Holdings and the Company, each have executed and delivered to Holdings (i) a
Stockholder Agreement and (ii) an Irrevocable Proxy, copies of which are
attached hereto as Exhibit E and incorporated herein by reference. Parent shall
use its best efforts to cause Tribune Company to also execute and deliver such a
Stockholder Agreement and Irrevocable Proxy as soon as practicable.
SECTION 4.14 Revenue Make-Up.
(a) As soon as reasonably practicable after July 31, 1997,
Parent shall deliver to Holdings the Company's unaudited statement of operations
for the twelve-month period beginning on August 1, 1996 and ending on July 31,
1997 (such twelve-month period being hereinafter called the "Revenue Period"),
prepared by Parent's auditors in accordance with generally accepted accounting
principles consistently applied and consistent with the Company's revenue
recognition policies for its fiscal year ended July 31, 1996 (such unaudited
statement of operations is hereinafter called the "Revenue Statement"). As used
herein, the term "Gross Revenues" means the Company's total gross revenues
derived during the Revenue Period determined in accordance with generally
accepted accounting principles consistently applied and consistent with the
Company's revenue recognition policies for its fiscal year ended July 31, 1996.
The Company and Parent shall maintain complete and accurate books and records
relating to the determination of Gross Revenues.
(b) If the Company's Gross Revenues are less than Forty-Six
Million Dollars ($46,000,000), then, provided that (i) Parent and the Company
have, at all times after the Effective Time, used their respective good faith
efforts to maximize the Gross Revenues of the Company during the Revenue Period;
(ii) the Company has not discontinued or disposed of any material portion of its
business or assets (as such exist immediately prior to the Effective Time);
(iii) Parent has fully and timely paid to Holdings all fees required to be paid
to Holdings under Section 8.1.5 of the Services and License Agreement; and (iv)
Holdings has received from the Company the Revenue Statement stating that the
Company's Gross Revenues for the Revenue Period are less than Forty-Six Million
Dollars ($46,000,000), Holdings shall, within sixty-five (65) days after its
receipt of the Revenue Statement, pay to Parent, in cash, a sum equal to
Forty-
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Six Million Dollars ($46,000,000) minus the amount of the Gross Revenues (the
"Revenue Make-Up Payment"), subject to the provisions of paragraph (c) below.
(c) Within thirty (30) days after it receives the Revenue
Statement, Holdings may request an audit of the Company's and Parent's records
pertaining to the determination of the Gross Revenues by Holdings' auditors (the
"Audit") by giving the Company and Parent written notice (the "Audit Notice").
Upon timely submission of the Audit Notice, Holdings' auditor may perform the
Audit during business hours and the Company and Parent shall cooperate in good
faith in facilitating such Audit and promptly making available all records
necessary to enable Holdings' Auditor to perform the Audit. The Audit shall be
completed within sixty (60) days after Holdings receives the Revenue Statement
(subject to potential extension due to failure by the Company or Parent to
cooperate and provide records as required above). If the Audit reveals that the
Gross Revenues are higher than indicated in the Revenue Statement, then the
amount of the Revenue Make-Up Payment shall be reduced to the sum equal to
Forty-Six Million Dollars ($46,000,000) minus the Gross Revenues as determined
by the Audit.
SECTION 4.15 Board Visitation Rights. So long as Holdings holds no less
than ten percent (10%) of the outstanding shares of the Parent Common Stock,
Parent will permit one (1) representative of Holdings (the "Designee") to attend
all meetings of Parent's Board of Directors in a non-voting observer capacity.
Parent will also timely provide such Designee with copies of all notices,
minutes and other materials that it provides to its directors with respect to
such meetings. Holdings may change its Designee from time to time with the prior
written consent of Parent, which will not unreasonably be withheld. Holdings'
initial designee will be Eric C. W. Dunn. Nothing contained herein shall require
Parent to permit the Designee to have access to information, including Board
minutes, or to attend or to participate in meetings of the Board of Directors
which, in the reasonable judgment of Parent's Board of Directors, pertains to
matters with respect to which Holdings' interests may conflict with those of
Parent prior to public disclosure by Parent of such matters or which the
Parent's Board of Directors deems the presence of such Designee would unduly
prohibit the full discussion of any matter before Parent's Board of Directors.
In addition, the Designee would be required to first sign a reasonable
nondisclosure and confidentiality agreement as appropriate for a public company
and which would impose on the Designee the same confidentiality obligations he
would have if he were in fact a member of Parent's Board of Directors.
SECTION 4.16 Reimbursement for Certain Charges and Costs.
(a) Holdings covenants and agrees that it will reimburse
Parent for any charges, costs, or penalties associated with, or arising out of
matters listed on Schedule 4.16.
(b) Reimbursements made pursuant to this Section 4.16 shall be
paid in cash and shall be in addition to, not in lieu of, and not set off
against any right of payment, by indemnification or otherwise, or Merger
Consideration Adjustment, required by any other provision of this Agreement.
(c) Prior to any obligation on Holdings to reimburse Parent,
Parent must give notice of such right to reimbursement within six (6) months
after the Effective Time (except for Item G on Schedule 4.16 which shall be
within eighteen (18) months after the Effective Date of
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this Agreement) and shall provide Holdings with reasonable documentation of
Parent's reimbursement claim.
SECTION 4.17 Debt. Holdings covenants and agrees that, at Closing, the
Company will have no debt and will have $3,000,000 in cash.
ARTICLE V
CONDITIONS TO THE MERGER
SECTION 5.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) this Agreement and the Merger shall have been approved and
adopted by the requisite vote of (i) the sole stockholder of the Company and
(ii) the stockholders of Parent;
(b) the expiration or earlier termination of any waiting
period under the HSR Act shall have occurred;
(c) no preliminary or permanent injunction or other order,
decree or ruling issued by any court of competent jurisdiction nor any statute,
rule, regulation or order entered, promulgated or enacted by any governmental,
regulatory or administrative agency or authority shall be in effect that would
prevent the consummation of the Merger as contemplated hereby;
(d) the Registration Statement shall have been declared
effective and no stop order with respect thereto shall be in effect at the
Effective Time;
(e) the execution and delivery by Parent and Holdings of an
escrow agreement (the "Escrow Agreement"), a copy of which is attached hereto as
Exhibit F and incorporated herein by reference; and
(f) the execution and delivery by Parent and Holdings of a
Registration Rights Agreement, which is attached hereto as Exhibit G and
incorporated herein by reference.
SECTION 5.02 Conditions to the Obligation of Holdings and the Company
to Effect the Merger. The obligation of Holdings and the Company to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following additional conditions:
(a) Parent and Acquisition shall have performed and complied
in all material respects with all their obligations, covenants, and agreements
required to be performed and complied with by them under this Agreement at or
prior to the Effective Time;
(b) the representations and warranties made by Parent and/or
Acquisition in Sections 3.03 and 3.04 hereof (as qualified by the schedules
hereto and the Parent Disclosure Letter), shall not, as of the Effective Date of
this Agreement, have been incorrect, untrue or false in any respect that failed
to correctly state facts in existence on the Effective Date of this
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Agreement that constituted a Parent Material Adverse Effect on the Effective
Date of this Agreement;
(c) Holdings and the Company shall have received a certificate
from the Chief Executive Officer of Parent and Acquisition, dated as of the
Effective Time, to the effect that the conditions set forth in paragraphs (a)
and (b) above have been satisfied;
(d) the shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing on the Nasdaq NM, subject to
official notice of issuance; and
(e) Holdings and the Company shall have received the opinion
of Porter, Wright, Morris & Arthur, counsel to Parent and Acquisition, with
respect to the matters set forth on Exhibit H and incorporated herein by
reference, subject to appropriate limitations and qualifications.
SECTION 5.03 Conditions to the Obligation of Parent and Acquisition to
Effect the Merger. The obligation of Parent and Acquisition to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following additional conditions:
(a) Holdings and the Company shall have performed and complied
in all material respects with all their obligations, covenants, and agreements
required to be performed and complied with by them under this Agreement at or
prior to the Effective Time;
(b) the representations and warranties made by Holdings and/or
the Company in Sections 3.01 and 3.02 hereof (as qualified by the schedules
hereto and the Holdings/Company Disclosure Letter), shall not, as of the
Effective Date of this Agreement, have been incorrect, untrue or false in any
respect that failed to correctly state facts in existence on the Effective Date
of this Agreement that constituted a Company Material Adverse Effect as of the
Effective Date of this Agreement;
(c) Parent shall have received a certificate from the Chief
Executive Officer and the Chief Financial Officer of Holdings and the Company,
dated as of the Effective Time, to the effect that the conditions set forth in
paragraphs (a) and (b) above have been satisfied;
(d) Parent shall have received a certificate from the Chief
Executive Officer and the Chief Financial Officer of Holdings and the Company,
dated as of the Effective Time, to the effect that the Company has not incurred,
realized, or otherwise experienced a Material Adverse Change; provided, however;
the existence of such Material Adverse Change will not entitle Parent to
terminate this Agreement pursuant to Article VI;
(e) Parent shall have received the consents described in
Schedule 3.03(f); and
(f) Parent and Acquisition shall have received the opinion of
Fenwick & West LLP, counsel to Holdings and the Company, with respect to the
matters set forth on Exhibit I and incorporated herein by reference, subject to
appropriate limitations and qualifications.
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ARTICLE VI
TERMINATION AND ABANDONMENT
SECTION 6.01 Termination and Abandonment. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval by the stockholders of Parent and the
Company:
(a) by mutual written consent approved by the Boards of
Directors of Parent, Holdings, and the Company;
(b) by Holdings or the Company if the conditions set forth in
Sections 5.01 or 5.02 shall not have been complied with, waived or performed and
such noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated), by Parent and Acquisition on or
before March 31, 1997; or
(c) by Holdings or the Company, if Parent's Board of Directors
fails to recommend approval of this Agreement or the Merger to Parent's
stockholders or recommends against approval of this Agreement or the Merger to
Parent's stockholders; or
(d) by Parent or Acquisition, if the conditions set forth in
Sections 5.01 or 5.03 shall not have been complied with, waived or performed and
such noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated), by Holdings and the Company on or
before March 31, 1997; or
(e) by Parent, if the representations and warranties made by
Holdings and/or the Company in Sections 3.01 and 3.02 hereof (as qualified by
the schedules hereto and the Holdings/Company Disclosure Letter), shall, as of
the Effective Date of this Agreement, have been incorrect, untrue or false in
any respect that failed to correctly state facts in existence on the Effective
Date of this Agreement that constituted a Company Material Adverse Effect on the
Effective Date of this Agreement; or
(f) by Holdings or the Company, if the representations and
warranties made by Parent and/or Acquisition in Sections 3.03 and 3.04 hereof
(as qualified by the schedules hereto and the Parent Disclosure Letter), shall,
as of the Effective Date of this Agreement, have been incorrect, untrue or false
in any respect that failed to correctly state facts in existence on the
Effective Date of this Agreement that constituted a Parent Material Adverse
Effect on the Effective Date of this Agreement.
SECTION 6.02 Effect of Termination. In the event of the termination of
this Agreement and the abandonment of the Merger pursuant to Section 6.01, this
Agreement shall thereafter become void and have no effect, and no party hereto
shall have any liability to any other party hereto or its stockholders or
directors or officers on account of such termination, and each party shall be
responsible for its own expenses, except as follows: (i) the obligations imposed
by Sections 4.03(d) and 4.03(e) hereof shall survive the termination of this
Agreement, and (ii) nothing herein shall relieve any party from liability for
any willful breach hereof.
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ARTICLE VII
INDEMNIFICATION
SECTION 7.01 Indemnification by Holdings. Subject to the terms,
conditions, and limitations set forth herein, if the Merger is consummated,
Holdings agrees to indemnify Parent against, and agrees to hold Parent harmless
from, any and all actions, suits, losses, costs, claims, damages and expenses
(including reasonable attorneys' fees) (the "Losses"), incurred or suffered by
them relating to or arising out of or in connection with any material breach of,
or any material misrepresentation or inaccuracy in, any representation or
warranty made by Holdings and/or the Company in Section 3.01 or Section 3.02 of
this Agreement (as qualified by the Holdings/Company Disclosure Letter and the
schedules hereto) where such material breach or material misrepresentation or
inaccuracy existed as of the Effective Date of this Agreement; provided,
however, that the amount of Losses recoverable under the indemnity provisions of
this Article shall be reduced, dollar-for-dollar, by the amount of any insurance
proceeds paid to Parent and by the amount of tax benefits realized by Parent in
respect of such Losses. In addition, notwithstanding anything herein to the
contrary, the term "Losses" shall not include, and Parent shall not be entitled
to indemnification for, any actions, suits, losses, costs, claims, damages and
expenses (including reasonable attorneys' fees), to the extent that Parent has
recovered or been compensated or reimbursed therefor by virtue of (a) the Merger
Consideration Adjustment pursuant to Section 2.02 hereof, or (b) a Revenue
Makeup Payment made pursuant to Section 4.14 hereof, or (c) a payment made
pursuant to Section 4.16 hereof, with the purpose and intent that Parent shall
not receive a redundant or double recovery of any Losses.
SECTION 7.02 Claims. The provisions of this Section shall be subject to
Section 7.03. As soon as is reasonably practicable after becoming aware of a
claim for indemnification under this Agreement, Parent shall promptly give
written notice to Holdings of such claim and the amount Parent believes it will
be entitled to receive hereunder in indemnification from Holdings under this
Article VII in respect of such claim; provided, that the failure of Parent to
promptly give such notice shall not relieve Holdings of its obligations except
to the extent (if any) that Holdings shall have been prejudiced thereby. If
Holdings does not object in writing to such indemnification claim within 30 days
of receiving written notice thereof, Parent shall be entitled to recover, on the
60th day after such written notice was given, from Holdings the amount of such
claim, and no later objection by Holdings shall be permitted; if Holdings agrees
that it has an indemnification obligation but objects that it is obligated to
pay only a lesser amount, Parent shall nevertheless be entitled to recover from
Holdings, on the 60th day after such notice was given, the lesser amount,
without prejudice to Parent's claim for the difference. In addition to the
amounts recoverable by Parent from Holdings pursuant to the foregoing
provisions, Parent shall also be entitled to recover from Holdings interest on
such amounts at the rate equal to the published prime rate at The Chase
Manhattan Bank, New York, New York, from, and including, the 60th day after such
notice of an indemnification claim is given to, but not including, the date such
recovery is actually made by Parent.
SECTION 7.03 Notice and Defense of Third Party Claims. Parent shall
give written notice as promptly as is reasonably practicable to Holdings of the
assertion of any claim, or the commencement of any suit, action or proceeding,
by any person or entity not a party hereto in respect of which indemnity may be
sought under Article VII of this Agreement ("Third Party
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Claim"); provided that the failure of Parent to promptly give such notice shall
not relieve Holdings of its obligations except to the extent (if any) that
Holdings shall have been prejudiced thereby. If Parent does not promptly elect
to defend or contest the Third Party Claim, then Holdings, at its sole option
(i) shall be free to assume and control the prosecution or defense of any such
Third Party Claim in a reasonable manner, (ii) may take all reasonably necessary
steps to contest the Third Party Claim or to prosecute such Third Party Claim to
conclusion or settlement satisfactory to Holdings, (iii) shall notify Parent of
the progress of any such Third Party Claim, (iv) shall permit Parent, at the
sole cost of such Parent, to participate in such prosecution or defense, and (v)
shall provide Parent with reasonable access to all relevant information and
documentation relating to the Third Party Claim and Holdings' prosecution or
defense thereof. In any case, the party not in control of the defense or
prosecution of the Third Party Claim shall cooperate with the other party in the
conduct of the prosecution or defense of such Third Party Claim. If, however,
Parent reasonably determines in its judgment that representation by Holdings'
counsel of both Holdings and Parent would present such counsel with a conflict
of interest, then Parent may employ separate counsel to represent or defend it
in any such claim, action, suit or proceeding and Holdings shall pay the fees
and disbursements of such separate counsel. Whether or not Holdings chooses to
defend or prosecute any such claim, suit, action or proceeding, all of the
parties hereto shall cooperate in the defense or prosecution thereof.
SECTION 7.04 Settlement or Compromise. Neither party shall compromise
or settle any Third Party Claim without the prior written consent of either
Holdings (if Parent controls and defends such Third Party Claim) or Parent (if
Holdings controls and defends such Third Party Claim), such consent not to be
unreasonably withheld (provided, that, in the case of Parent, such consent shall
be deemed to be unreasonably withheld if Parent will, as part of the terms of
such compromise or settlement, be fully released of liability arising from such
Third Party Claim). The person controlling the defense of such Third Party Claim
will give the other person at least 20 days' notice of any proposed settlement
or compromise of any Third Party Claim for which it is controlling the defense.
SECTION 7.05. Limitations on Indemnification.
(a) Basket. Any indemnification pursuant to this Agreement
shall be subject to the requirement that no claim may be made until the
aggregate amount of Losses exceeds $500,000, after which time claims for
indemnification may be made for the aggregate amount of all Losses, subject to
the terms, conditions and limitations set forth herein.
(b) Maximum Liability. Holdings' total and maximum aggregate
lifetime liability under this Article VII shall not exceed a dollar amount equal
to thirty-five percent (35%) of the Merger Consideration, as adjusted pursuant
to Section 2.02 hereof, multiplied by the per share closing price of Parent
Common Stock as reported on the Nasdaq NM for the five (5) trading days
immediately preceding the Effective Date of this Agreement.
(c) Deadline for Indemnity Claims. Except as otherwise
provided in Section 7.01, Holdings shall have no liability with respect to any
matter or claim for indemnification hereunder, unless Parent notifies Holdings
in accordance with this Article VII no later than the close of business on the
first (1st) anniversary of the Effective Time of a claim for
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indemnification hereunder; provided, however, that (i) claims of indemnification
for Loss suffered as a result of a material breach of the representations and
warranties under Sections 3.01(p) and (r) hereof (the "Tax Warranties") shall
survive until six (6) months after the expiration of the applicable statute of
limitations with respect to Taxes, including any extensions thereof; and (ii)
such limitation shall not apply in any matter involving intentional
misrepresentation or fraud on the part of Holdings.
ARTICLE VIII
NONCOMPETITION AGREEMENT
SECTION 8.01 Certain Acknowledgments. Holdings expressly acknowledges
that the noncompetition agreements set forth in this Article VIII are a material
part of this Agreement and are an integral part of the obligations of Holdings
hereunder; and the noncompetition agreements set forth in this Article VIII are
reasonable and necessary to protect the legitimate business interests of Parent
following the consummation of the Merger.
SECTION 8.02 Noncompetition Agreement. Except as provided in Section
8.03 below, during the period beginning on the Effective Time and ending on the
fifth (5th) anniversary of the Effective Time, except with Parent's prior
written consent, Holdings shall not, directly or indirectly, own or operate a
back-end computer-based system for processing consumer or small business remote
payment instructions in order to generate remittance information and payment
(via remote check printing or electronic funds transfer) to merchants in the
United States of America (the "Competing Business"). The parties agree, without
limitation, that Holdings shall not be deemed to be engaged in the Competing
Business by virtue of, nor shall Holdings be at any time prohibited from: (a)
developing and providing client-software or web/Internet-based applications
which create and transmit payment instructions or remittance information to
third parties; or (b) developing and providing client-software or
web/Internet-based applications which facilitate the on-line purchase of goods
or services.
SECTION 8.03 Exception. The ownership by Holdings or any subsidiary or
affiliate controlled by Holdings of not more than five percent in the aggregate
of the outstanding securities of any public company shall not, by itself,
constitute a breach of the noncompetition agreement in Section 8.02, even if
such public company competes with Parent or engages in the Competing Business.
SECTION 8.04 No Objection or Defense. Holdings expressly waives any
objection to or defense regarding the scope, duration or geographic area of the
restriction on competition set forth in this Article VIII.
SECTION 8.05 Enforcement of Noncompetition Agreement. Holdings
expressly acknowledges that it would be extremely difficult to measure the
damage that might result form any breach of the noncompetition agreements in
this Article VIII, and that any such breach will result in irreparable injury to
Parent for which money damages could not adequately compensate. If a breach of
the noncompetition agreements in this Article VIII occurs, then Parent shall be
entitled, in addition to all other rights or remedies that it may have at law or
in equity. to have an injunction issued by any competent court enjoining and
restraining Holdings and all other persons involved therein from continuing such
breach. The existence of any claim or cause of
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action that Holdings or any such other person may have against Parent shall not
constitute a defense or bar to the enforcement of any of the noncompetition
agreements under this Article VIII. If Parent must resort to litigation to
enforce any of the noncompetition agreements under this Article VIII that has a
fixed term, then such term shall be extended for a period of time equal to the
period during which a breach of such agreement was occurring, beginning on the
date of a final court order (without further right of appeal) holding that such
breach occurred or, if later, the last day of the original fixed term of such
agreement.
SECTION 8.06 Early Termination of Noncompetition Agreement. In the
event that Holdings is merged or consolidated with, or a majority of Holdings'
voting stock or all or substantially all of Holdings' assets are acquired by, a
person, corporation or other party who, at the time of such merger,
consolidation, stock or asset acquisition, is engaged in the Competing Business,
then upon the consummation of such merger, consolidation, sale, acquisition or
similar business combination, all Holdings' obligations, duties and covenants
under this Article VIII shall automatically immediately terminate and expire.
SECTION 8.07 Effect on Acquiror. In the event that Holdings is merged
or consolidated with, or a majority of Holdings' voting stock or all or
substantially all of Holdings' assets are acquired by, a person, corporation or
other party (the "Acquiror"), and the provisions of Section 8.06 do not apply,
then the Acquiror shall not be bound by or obligated under any of Holdings'
obligations or duties under this Article VIII; except that such Acquiror may not
utilize technology or personnel of Holdings to engage in the Competing Business
so long as Holdings' obligations, duties and covenants under this Article VIII
remain in effect.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Survival of Representations and Warranties. Except as
otherwise specified, the representations and warranties of Holdings and the
Company contained herein shall survive the Closing for a period expiring at the
close of business on the first (1st) anniversary of the Effective Time;
provided, however, that the Tax Warranties shall survive until six (6) months
after the expiration of the applicable statute of limitations with respect to
Taxes, including any extensions thereof.
SECTION 9.02 Interpretation of Representations and Warranties. Each
representation and warranty made in this Agreement or pursuant hereto is
independent of all other representations and warranties made by the same
parties, whether or not covering related or similar matters, and must be
independently and separately satisfied. Exceptions or qualifications to any such
representation or warranty shall qualify, and shall be exceptions to, any other
representation or warranty.
SECTION 9.03 Reliance by Parent and Acquisition. Notwithstanding the
right of Parent and Acquisition to investigate the business, assets, and
financial condition of Holdings and/or the Company, and notwithstanding any
knowledge determinable by Parent or Acquisition as a result of such
investigation, Parent and Acquisition have the unqualified right to rely upon,
and have relied upon, each of the representations and warranties made by
Holdings and/or the Company in
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this Agreement or pursuant hereto, as qualified by the Holdings/Company
Disclosure Letter and the schedules hereto, except to the extent that Parent or
Acquisition had actual knowledge to the contrary at the Effective Date of this
Agreement.
SECTION 9.04 Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, neither Holdings and the
Company, on the one hand, and Parent and Acquisition, on the other hand, shall
have any obligation to pay any of the fees and expenses of the other incident to
the negotiation, preparation and execution of this Agreement, including the fees
and expenses of counsel, accountants, investment bankers and other experts and
Parent shall pay all such fees and expenses incurred by Acquisition. Holdings
and the Company, on the one hand, and Parent and Acquisition, on the other hand,
shall indemnify the other and hold it harmless from and against any claims for
finders' fees or brokerage commissions in relation to or in connection with such
transactions as a result of any agreement or understanding between such
indemnifying party and any third party. The Company represents that, in
connection with the transactions contemplated by this Agreement, the Company has
committed to pay only the fees and expenses set forth on Schedule 9.04 hereto.
SECTION 9.05 Publicity; Confidentiality. Holdings, the Company, and
Parent agree that this Agreement and the exchange of information pursuant
thereto is confidential and they will not disclose or issue any press release or
make any other public announcement concerning this Agreement or the transactions
contemplated hereby without the prior consent of the other party, which will not
be unreasonably withheld, except that Holdings, the Company, or Parent may make
such public disclosure that it believes in good faith to be required by law or
any applicable rules and regulations of a national securities exchange or the
NASD (in which event such party shall consult with the other prior to making
such disclosure).
SECTION 9.06 Execution in Counterparts. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 9.07 Notices. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered by hand or national
overnight courier service, transmitted by telecopy or mailed by registered or
certified mail, postage prepaid, and shall be deemed given upon receipt, as
follows:
If to Parent to:
CHECKFREE CORPORATION
8275 North High Street
Columbus, Ohio 43235
Telecopy Number: (614) 825-3244
Attention: Peter J. Kight
Chairman
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with copies to:
CHECKFREE CORPORATION
8275 North High Street
Columbus, Ohio 43235
Telecopy Number: (614) 825-3244
Attention: William C. Buckham
General Counsel
and
PORTER, WRIGHT, MORRIS & ARTHUR
41 South High Street
Columbus, Ohio 43215
Telecopy Number: (614) 227-2100
Attention: Curtis A. Loveland, Esq.
If to Holdings and/or the Company, to:
INTUIT INC.
2535 Garcia Avenue
Mountain View, California 94043
Telecopy Number: (415) 944-3060
Attention: William H. Harris,
Executive Vice President
with a copies to:
INTUIT INC.
2535 Garcia Avenue
Mountain View, California 94043
Telecopy Number: (415) 944-6622
Attention: Catherine Valentine, Esq.
General Counsel
and
FENWICK & WEST LLP
Two Palo Alto Square
Palo Alto, California 94306
Telecopy Number: (415) 857-0361
Attention: Kenneth A. Linhares, Esq.
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
SECTION 9.08 Waivers. Holdings and the Company, on the one hand, and
Parent and Acquisition, on the other hand, may, by written notice to the other,
(i) extend the time for the
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performance of any of the obligations or other actions of the other under this
Agreement; (ii) waive any inaccuracies in the representations or warranties of
the other contained in this Agreement or in any document delivered pursuant to
this Agreement; (iii) waive compliance with any of the conditions of the other
contained in this Agreement; or (iv) waive performance of any of the obligations
of the other under this Agreement. Except as provided in the preceding sentence,
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 of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.
SECTION 9.09 Amendments, Supplements, Etc. At any time, this Agreement
may be amended or supplemented by such additional agreements, articles or
certificates, as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by all of the parties
hereto.
SECTION 9.10 Entire Agreement. This Agreement and its schedules and
exhibits, and the documents to be executed or delivered at the Effective Time in
connection herewith, constitute the entire agreement among the parties hereto
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof. No representation, warranty, promise, inducement or
statement of intention has been made by any party that is not embodied in this
Agreement or such other documents, and none of the parties shall be bound by, or
be liable for, any alleged representation, warranty, promise, inducement or
statement of intention not embodied herein or therein.
SECTION 9.11 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to conflict of laws principles.
SECTION 9.12 Binding Effect, Benefits. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Except for the provisions of Article VII hereof, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 9.13 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
SECTION 9.14 Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms
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and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction.
SECTION 9.15 Variation and Amendment. This Agreement may be varied or
amended at any time before or after the approval and adoption of this Agreement
by the stockholders of Parent and the Company by action of the respective Boards
of Directors of Holdings, the Company, Parent, and Acquisition, without action
by the stockholders thereof, provided that after approval and adoption of this
Agreement by Parent's stockholders no such variance or amendment shall, without
consent of such stockholders, increase the consideration that the holders of the
capital stock of the Company shall be entitled to receive upon the Effective
Time pursuant to Section 2.01 hereof.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
CHECKFREE CORPORATION
By /s/ Peter J. Kight
CHECKFREE ACQUISITION CORPORATION II
By /s/ Peter J. Kight
INTUIT INC.
By /s/ James J. Heeger
INTUIT SERVICES CORPORATION
By /s/ Catherine L. Valentine
52
<PAGE> 1
EXHIBIT 10.03
INTUIT INC.
1993 EQUITY INCENTIVE PLAN
As Adopted February 1, 1993
and Amended and Restated through July 20, 1995
1. PURPOSE. The purpose of the Plan is to provide
incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock,
Stock Bonuses and Performance Awards. Capitalized terms not defined in the text
are defined in Section 24.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to
Sections 2.2 and 19, the total number of Shares reserved and available for grant
and issuance pursuant to Awards under the Plan shall be 8,000,000* Shares.
Subject to Sections 2.2 and 19, Shares shall again be available for grant and
issuance in connection with future Awards under the Plan that: (a) are subject
to issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option or (b) are subject to an Award
that otherwise terminates without Shares being issued and for which the
participant did not receive any benefits of ownership (other than voting
rights).
2.2 Adjustment of Shares. In the event that the
number of outstanding Shares is changed by a stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under the Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards shall be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee; and provided, further, that the
Exercise Price of any Option may not be decreased to below the par value of the
Shares.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may
be granted only to employees (including officers and directors who are also
employees) of the Company or of a
- -----------------------
* Reflects 8/4/95 stock split
<PAGE> 2
Parent or Subsidiary of the Company. All other Awards may be granted to
employees, officers, directors, consultants, independent contractors and
advisors of the Company or any Parent, Subsidiary or Affiliate of the Company;
provided such consultants, contractors and advisors render bona fide services
not in connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under the Plan. Each
person is eligible to receive up to an aggregate maximum of 1,000,000 Shares
over the term of the Plan.
4. ADMINISTRATION.
4.1 Committee Authority. The Plan shall be
administered by the Committee. Subject to the general purposes, terms and
conditions of the Plan, the Committee shall have full power to implement and
carry out the Plan. The Committee shall have the authority to:
(a) construe and interpret the Plan, any Award Agreement
and any other agreement or document executed pursuant
to the Plan;
(b) prescribe, amend and rescind rules and regulations
relating to the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination, or in tandem with, in replacement of, or
as alternatives to, other Awards under the Plan or any
other incentive or compensation plan of the Company or
any Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile
any inconsistency in the Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable
for the administration of the Plan.
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<PAGE> 3
4.2 Committee Discretion. Any determination made
by the Committee with respect to any Award shall be made in its sole discretion
at the time of grant of the Award or, unless in contravention of any express
term of the Plan or Award, at any later time, and such determination shall be
final and binding on the Company and all persons having an interest in any Award
under the Plan. The Committee may delegate to one or more officers of the
Company the authority to grant an Award under the Plan to Participants who are
not Insiders of the Company.
4.3 Exchange Act Requirements. If two or more
members of the Board are Outside Directors, the Committee shall be comprised of
at least two members of the Board, all of whom are Outside Directors and
Disinterested Persons. The Company will take appropriate steps to comply with
the disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two persons (who are members of the Board), each of
whom is a Disinterested Person. It is the intent of the Company that the Plan
and Awards hereunder satisfy and be interpreted in a manner, that, in the case
of Participants who are or may be Insiders, satisfies the applicable
requirements of Rule 16b-3 (or its successor) of the Exchange Act. If any
provision of the Plan or of any Award would otherwise conflict with the intent
expressed in this Section 4.3, that provision to the extent possible shall be
interpreted and deemed amended so as to avoid such conflict.
5. OPTIONS. The Committee may grant Options to eligible
persons and shall determine whether such Options shall be Incentive Stock
Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options
("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the
Option, the period during which the Option may be exercised, and all other terms
and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted
under the Plan shall be evidenced by an Award Agreement which shall expressly
identify the Option as an ISO or NQSO ("Stock Option Agreement"), and be in such
form and contain such provisions (which need not be the same for each
Participant) as the Committee shall from time to time approve, and which shall
comply with and be subject to the terms and conditions of the Plan.
5.2 Date of Grant. The date of grant of an Option
shall be the date on which the Committee makes the determination to grant such
Option, unless otherwise specified by the Committee. The Stock Option Agreement
and a copy of the Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 Exercise Period. Options shall be exercisable
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement; provided, however, that no Option shall be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall be exercisable after the expiration of
five (5) years from the date the Option
3
<PAGE> 4
is granted. The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in such
number or percentage as the Committee determines.
5.4 Exercise Price. The Exercise Price shall be
determined by the Committee when the Option is granted and may be at less than
Fair Market Value (but not less than the par value of the Shares) if permitted
by the Exchange Act; provided, that (i) the Exercise Price of an ISO shall be
not less than 100% of the Fair Market Value of the Shares on the date of grant
and (ii) the Exercise Price of any ISO granted to a Ten Percent Shareholder
shall not be less than 110% of the Fair Market Value of the Shares on the date
of grant. Payment for the Shares purchased may be made in accordance with
Section 8 of the Plan.
5.5 Method of Exercise. Options may be exercised
only by delivery to the Company of a written exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to information
and other matters, if any, as may be required or desirable by the Company to
comply with applicable securities laws, together with payment in full of the
Exercise Price for the number of Shares being purchased.
5.6 Termination. Notwithstanding the exercise
periods set forth in the Stock Option Agreement, exercise of an Option shall
always be subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then Participant may exercise such
Participant's Options only to the extent that such
Options would have been exercisable upon the
Termination Date no later than three (3) months after
the Termination Date (or such longer time period not
exceeding five years as may be determined by the
Committee), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is terminated because of death or
Disability (or the Participant dies within three months
of such termination), then Participant's Options may be
exercised only to the extent that such Options would
have been exercisable by Participant on the Termination
Date and must be exercised by Participant (or
Participant's legal representative or authorized
assignee) no later than (i) twelve (12) months after
the Termination Date in the case of disability or (ii)
eighteen (18) months after the Termination Date in the
case of death (or such longer time period not exceeding
five years as may be determined by the Committee), but
in any event no later than the expiration date of the
Options.
4
<PAGE> 5
5.7 Limitations on Exercise. The Committee may
specify a reasonable minimum number of Shares that may be purchased on any
exercise of an Option; provided that such minimum number will not prevent
Participant from exercising the Option for the full number of Shares for which
it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair
Market Value (determined as of the date of grant) of Shares with respect to
which ISOs are exercisable for the first time by a Participant during any
calendar year (under the Plan or under any other incentive stock option plan of
the Company or any Affiliate, Parent or Subsidiary of the Company) shall not
exceed $100,000. If the Fair Market Value of Shares on the date of grant with
respect to which ISOs are exercisable for the first time by a Participant during
any calendar year exceeds $100,000, the Options for the first $100,000 worth of
Shares to become exercisable in such calendar year shall be ISOs and the Options
for the amount in excess of $100,000 that become exercisable in that calendar
year shall be NQSOs. In the event that the Code or the regulations promulgated
thereunder are amended after the Effective Date of the Plan to provide for a
different limit on the Fair Market Value of Shares permitted to be subject to
ISOs, such different limit shall be automatically incorporated herein and shall
apply to any Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The
Committee may modify, extend or renew outstanding Options and authorize the
grant of new Options in substitution therefor; provided that any such action may
not, without the written consent of Participant, impair any of Participant's
rights under any Option previously granted. Any outstanding ISO that is
modified, extended, renewed or otherwise altered shall be treated in accordance
with Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
the Plan for Options granted on the date the action is taken to reduce the
Exercise Price; and provided, further, that the Exercise Price shall not be
reduced below the par value of the Shares, if any.
5.10 No Disqualification. Notwithstanding any
other provision in the Plan, no term of the Plan relating to ISOs shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any
ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer
by the Company to sell to an eligible person Shares that are subject to
restrictions. The Committee shall determine to whom an offer will be made, the
number of Shares the person may purchase, the price to be paid (the "Purchase
Price"), the restrictions to which the Shares shall be subject, and all other
terms and conditions of the Restricted Stock Award, subject to the following:
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6.1 Restricted Stock Awards. All purchases under
a Restricted Stock Award made pursuant to the Plan shall be evidenced by an
Award Agreement ("Restricted Stock Purchase Agreement") that shall be in such
form (which need not be the same for each Participant) as the Committee shall
from time to time approve, and shall comply with and be subject to the terms and
conditions of the Plan. The offer of Restricted Stock shall be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer shall terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares
sold pursuant to a Restricted Stock Award shall be determined by the Committee
and may be at less than Fair Market Value (but not less than the par value of
the Shares) on the date the Restricted Stock Award is granted. Payment of the
Purchase Price may be made in accordance with Section 9 of the Plan.
6.3 Terms of Restricted Stock Awards. Restricted
Stock Awards shall be subject to such restrictions as the Committee may impose.
These restrictions may be based upon completion of a specified number of years
of service with the Company or upon completion of the performance goals as set
out in advance in the Participant's individual Award Agreement (the "Restricted
Stock Award Agreement") that shall be in such form (which need not be the same
for each Participant) as the Committee shall from time to time approve, and
shall comply with and be subject to the terms and conditions of the Plan.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance Periods
may overlap and Participants may participate simultaneously with respect to
Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria; provided, however that
the maximum Restricted Stock Award for each Participant with respect to any
Performance Period shall be thirty percent (30%) of the Shares reserved for
issuance under this Plan.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an
award of Shares for services rendered to the Company or any Parent, Subsidiary
or Affiliate of the Company. No payment for the Shares shall be required. A
Stock Bonus may be awarded for past services already rendered to the Company, or
any Parent, Subsidiary or Affiliate of the Company pursuant to an Award
Agreement (the "Stock Bonus Agreement") that shall be in such form (which need
not be the same for each Participant) as the Committee shall from time to time
approve, and shall
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comply with and be subject to the terms and conditions of the Plan. No payment
for the Shares shall be required.
7.2 Terms of Stock Bonuses. Stock Bonus Awards
shall be subject to such restrictions as the Committee shall impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Award Agreement (the "Stock Bonus
Agreement") that shall be in such form (which need not be the same for each
Participant) as the Committee shall from time to time approve, and shall comply
with and be subject to the terms and conditions of the Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants. Prior
to the grant of a Stock Bonus, the Committee shall: (a) determine the nature,
length and starting date of any Performance Period for the Stock Bonus; (b)
select from among the Performance Factors to be used to measure performance
goals; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonus has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and having
different performance goals and other criteria; provided, however that the
maximum Stock Bonus for each Participant with respect to any Performance Period
shall be be thirty percent (30%) of the Shares reserved for issuance under this
Plan.
7.3 Form of Payment. A Stock Bonus may be paid in
the form of cash, whole Shares, or a combination thereof, based on the Fair
Market Value on the date of payment, either in a lump sum payment or in
installments, all as the Committee shall determine, and to the extent
applicable, shall be subject to such conditions or restrictions as may be
required to qualify for the maximum exemption from Section 16 of the Exchange
Act.
7.4 Termination During Performance Period. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant shall be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Stock Bonuses only to the extent earned as of the date of
Termination in accordance with the Stock Bonus Award Agreement, unless the
Committee shall determine otherwise.
8. PERFORMANCE AWARDS
8.1 Performance Awards. A Performance Award shall
consist of the grant to the Participant of a specified number of Performance
Units (the "Performance Unit"). The grant of a Performance Unit to a Participant
will entitle the Participant to receive a specified dollar value, variable under
conditions specified in the Performance Award, if the performance goals
specified in the Performance Award are achieved and the other terms and
conditions of the Performance Award are satisfied.
8.2 Terms of Performance Awards. Performance
Awards shall be evidenced by an Award Agreement (the "Performance Award
Agreement") that shall be in such form
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(which need not be the same for each Participant) as the Committee shall from
time to time approve, and shall comply with and be subject to the terms and
conditions of the Plan. Performance Awards shall be subject to such conditions
as the Committee may impose. Prior to the grant of a Performance Award, the
Committee shall: (a) specify the number of Performance Units granted to the
Participant; (b) specify the threshold and maximum dollar values of Performance
Units and the corresponding performance goals; (c) determine the nature, length
and starting date of any Performance Period for the Performance Award; and (d)
select from among the Performance Factors to be used to measure performance
goals. Prior to the payment of any Performance Award, the Committee shall
determine the extent to which such Performance Units have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Performance Awards that are subject to different Performance
Periods and having different performance goals and other criteria; provided,
however, that the maximum amount of any Performance Award for each Participant
with respect to any Performance Period shall be the lesser of two hundred and
fifty percent (250%) of the Participant's base salary at the time of the
Performance Award or one million dollars.
8.3 Form of Payment. Performance Awards may be
paid currently or on a deferred basis with such reasonable interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in the
form of cash, whole Shares, or a combination thereof, based on the Fair Market
Value on the date of payment, either in a lump sum payment or in installments,
all as the Committee shall determine.
8.4 Termination During Performance Period. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant shall be entitled to payment with respect to the Performance Awards
only to the extent earned as of the date of Termination in accordance with the
Performance Award Agreement, unless the Committee shall determine otherwise.
9. PAYMENT FOR SHARE PURCHASES.
9.1 Payment. Payment for Shares purchased
pursuant to the Plan may be made in cash (by check) or, where expressly approved
for the Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of Shares that either: (1) have been owned
by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and,
if such shares were purchased from the Company by use
of a promissory note, such note has been fully paid
with respect to such Shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the
Code; provided,
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however, that Participants who are not employees of the
Company shall not be entitled to purchase Shares with a
promissory note unless the note is adequately secured
by collateral other than the Shares; provided, further,
that the portion of the Purchase Price equal to the par
value of the Shares, if any, must be paid in cash.
(d) by waiver of compensation due or accrued to Participant
for services rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's stock exists:
(1) through a "same day sale" commitment from
Participant and a broker-dealer that is a
member of the National Association of
Securities Dealers (an "NASD Dealer") whereby
the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares
so purchased in order to pay for the Exercise
Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or
(2) through a "margin" commitment from Participant
and an NASD Dealer whereby Participant
irrevocably elects to exercise the Option and
to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such
Shares to forward the exercise price directly
to the Company;
or
(g) by any combination of the foregoing.
9.2 Loan Guarantees. The Committee may help the
Participant pay for Shares purchased under the Plan by authorizing a guarantee
by the Company of a third-party loan to the Participant.
10. WITHHOLDING TAXES.
10.1 Withholding Generally. Whenever Shares are to
be issued in satisfaction of Awards granted under the Plan, the Company may
require the Participant to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such Shares. Whenever,
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under the Plan, payments in satisfaction of Awards are to be made in cash, such
payment shall be net of an amount sufficient to satisfy federal, state, and
local withholding tax requirements.
10.2 Stock Withholding. When, under applicable tax
laws, a Participant incurs tax liability in connection with the exercise or
vesting of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the Committee
may allow the Participant to satisfy the minimum withholding tax obligation by
electing to have the Company withhold from the Shares to be issued that number
of Shares having a Fair Market Value equal to the minimum amount required to be
withheld, determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date"). All elections by a Participant to have Shares
withheld for this purpose shall be made in writing in a form acceptable to the
Committee and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, then except as provided below, the election
shall be irrevocable as to the particular Shares as to
which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the
election may not be made within six (6) months of the
date of grant of the Award, except as otherwise
permitted by SEC Rule 16b-3(e) under the Exchange Act,
and (2) either (A) the election to use stock
withholding must be irrevocably made at least six (6)
months prior to the Tax Date (although such election
may be revoked at any time at least six (6) months
prior to the Tax Date) or (B) the exercise of the
Option or election to use stock withholding must be
made in the ten (10) day period beginning on the third
day following the release of the Company's quarterly or
annual summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six
(6) months after the delivery of Shares under Section
83(b) of the Code, the Participant shall receive the
full number of Shares with respect to which the
exercise occurs, but such Participant shall be
unconditionally obligated to tender back to the Company
the proper number of Shares on the Tax Date.
11. PRIVILEGES OF STOCK OWNERSHIP.
11.1 Voting and Dividends. No Participant shall
have any of the rights of a shareholder with respect to any Shares until the
Shares are issued to the Participant. After Shares are issued to the
Participant, the Participant shall be a shareholder and have all the rights of a
shareholder with respect to such Shares, including the right to vote and receive
all dividends or other distributions made or paid with respect to such Shares;
provided, that if such Shares are
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Restricted Stock, then any new, additional or different securities the
Participant may become entitled to receive with respect to such Shares by virtue
of a stock dividend, stock split or any other change in the corporate or capital
structure of the Company shall be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant shall have no right to
retain such dividends or distributions with respect to Shares that are
repurchased at the Participant's original Purchase Price pursuant to Section 13.
11.2 Financial Statements. The Company shall
provide financial statements to each Participant prior to such Participant's
purchase of Shares under the Plan, and to each Participant annually during the
period such Participant has Awards outstanding; provided, however, the Company
shall not be required to provide such financial statements to Participants whose
services in connection with the Company assure them access to equivalent
information.
12. TRANSFERABILITY. Awards granted under the Plan, and any
interest therein, shall not be transferable or assignable by Participant, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or as consistent with
the specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award shall be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by the
Participant.
13. RESTRICTIONS ON SHARES. At the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the Award
Agreement a right to repurchase a portion of or all Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under the Plan, for cash or cancellation of purchase money
indebtedness with respect to Shares that are not "Vested" (as defined in the
Award Agreement), at the Participant's original Purchase Price; provided, that
the right to repurchase at the original Purchase Price lapses at the rate of at
least 20% per year over 5 years from the date the Shares were purchased, and if
the right to repurchase is assignable, the assignee must pay the Company, upon
assignment of the right to repurchase, cash equal to the excess of the Fair
Market Value of the Shares over the original Purchase Price.
14. CERTIFICATES. All certificates for Shares or other
securities delivered under the Plan shall be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed.
15. ESCROW; PLEDGE OF SHARES. To enforce any restrictions
on a Participant's Shares, the Committee may require the Participant to deposit
all certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any
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Participant who is permitted to execute a promissory note as partial or full
consideration for the purchase of Shares under the Plan shall be required to
pledge and deposit with the Company all or part of the Shares so purchased as
collateral to secure the payment of Participant's obligation to the Company
under the promissory note; provided, however, that the Committee may require or
accept other or additional forms of collateral to secure the payment of such
obligation and, in any event, the Company shall have full recourse against the
Participant under the promissory note notwithstanding any pledge of the
Participant's Shares or other collateral. In connection with any pledge of the
Shares, Participant shall be required to execute and deliver a written pledge
agreement in such form as the Committee shall from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
prorata basis as the promissory note is paid.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An
Award shall not be effective unless such Award is in compliance with all
applicable federal and state securities laws, rules and regulations of any
governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed, as they are in effect
on the date of grant of the Award and also on the date of exercise or other
issuance. Notwithstanding any other provision in the Plan, the Company shall
have no obligation to issue or deliver certificates for Shares under the Plan
prior to (a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (b) completion of any registration
or other qualification of such shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company shall be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company shall have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any
Award granted under the Plan shall confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Parent, Subsidiary or Affiliate of the
Company or limit in any way the right of the Company or any Parent, Subsidiary
or Affiliate of the Company to terminate Participant's employment or other
relationship at any time, with or without cause.
18. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at
any time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time buy
from a Participant an Option previously granted with payment in cash, Shares or
other consideration, based on such terms and conditions as the Committee and the
Participant shall agree.
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19. CORPORATE TRANSACTIONS.
19.1 Assumption or Replacement of Awards by
Successor. In the event of (a) a merger or consolidation in which the Company is
not the surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the shareholders of the Company and the Awards granted under the Plan are
assumed or replaced by the successor corporation, which assumption shall be
binding on all Participants), (b) a dissolution or liquidation of the Company,
(c) the sale of substantially all of the assets of the Company, or (d) any other
transaction which qualifies as a "corporate transaction" under Section 424(a) of
the Code wherein the shareholders of the Company give up all of their equity
interest in the Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company), any or all
outstanding Awards may be assumed or replaced by the successor corporation,
which assumption or replacement shall be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
shareholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation, if any, refuses to assume or substitute the
Options, as provided above, pursuant to a transaction described in this
Subsection 19.1, such Options shall expire on such transaction at such time and
on such conditions as the Board shall determine.
19.2 Other Treatment of Awards. Subject to any
greater rights granted to Participants under the foregoing provisions of this
Section 19, in the event of the occurrence of any transaction described in
Section 19.1, any outstanding Awards shall be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction."
19.3 Assumption of Awards by the Company. The
Company, from time to time, also may substitute or assume outstanding awards
granted by another company, whether in connection with an acquisition of such
other company or otherwise, by either (a) granting an Award under the Plan in
substitution of such other company's award, or (b) assuming such award as if it
had been granted under the Plan if the terms of such assumed award could be
applied to an Award granted under the Plan. Such substitution or assumption
shall be permissible if the holder of the substituted or assumed award would
have been eligible to be granted an Award under the Plan if the other company
had applied the rules of the Plan to such grant. In the event the Company
assumes an award granted by another company, the terms and conditions of such
award shall remain unchanged (except that the exercise price and the number and
nature of Shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.
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20. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall
become effective on the date that it is adopted by the Board (the "Effective
Date"). The Plan shall be approved by the shareholders of the Company (excluding
Shares issued pursuant to this Plan), consistent with applicable laws, within
twelve months before or after the Effective Date. Upon the Effective Date, the
Board may grant Awards pursuant to the Plan; provided, however, that: (a) no
Option may be exercised prior to initial shareholder approval of the Plan; (b)
no Option granted pursuant to an increase in the number of Shares approved by
the Board shall be exercised prior to the time such increase has been approved
by the shareholders of the Company; and (c) in the event that shareholder
approval is not obtained within the time period provided herein, all Awards
granted hereunder shall be canceled, any Shares issued pursuant to any Award
shall be canceled and any purchase of Shares hereunder shall be rescinded. After
the Company becomes subject to Section 16(b) of the Exchange Act, the Company
will comply with the requirements of Rule 16b-3 (or its successor), as amended,
with respect to shareholder approval.
21. TERM OF PLAN. The Plan will terminate ten (10) years
from the Effective Date or, if earlier, the date of shareholder approval.
22. AMENDMENT OR TERMINATION OF PLAN. The Board may at any
time terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to the Plan; provided, however, that the Board shall not, without the approval
of the shareholders of the Company, amend the Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act
or Rule 16b-3 (or its successor), as amended, thereunder; provided, further,
that no amendment may be made to outstanding Awards without the consent of the
Participant.
23. NONEXCLUSIVITY OF THE PLAN; UNFUNDED PLAN. Neither the
adoption of the Plan by the Board, the submission of the Plan to the
shareholders of the Company for approval, nor any provision of the Plan shall be
construed as creating any limitations on the power of the Board to adopt such
additional compensation arrangements as it may deem desirable, including,
without limitation, the granting of stock options and bonuses otherwise than
under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases. The Plan shall be unfunded. Neither the
Company nor the Board shall be required to segregate any assets that may at any
time be represented by Awards made pursuant to the Plan. Neither the Company,
the Committee, nor the Board shall be deemed to be a trustee of any amounts to
be paid under the Plan.
24. DEFINITIONS. As used in the Plan, the following terms
shall have the following meanings:
"Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the
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management and policies of the corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Award" means any award under the Plan, including any
Option, Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award,
the signed written agreement between the Company and the Participant setting
forth the terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Committee" means the committee appointed by the Board
to administer the Plan, or if no committee is appointed, the Board.
"Company" means Intuit, a corporation organized under
the laws of the State of Delaware, or any successor corporation.
"Disability" means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the Code,
as determined by the Committee.
"Disinterested Person" means a director who has not,
during the period that person is a member of the Committee and for one year
prior to service as a member of the Committee, been granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or any Parent,
Subsidiary or Affiliate of the Company, except in accordance with the
requirements set forth in Rules as promulgated by the SEC under Section 16(b) of
the Exchange Act, as such Rules are amended from time to time and as interpreted
by the SEC.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Exercise Price" means the price at which a holder of
an Option may purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of
a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the NASDAQ
National Market System, its last reported sale price on
the NASDAQ National Market System or, if no such
reported sale takes place on such date, the average of
the closing bid and asked prices;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, the last
reported sale price or, if no such reported sale
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takes place on such date, the average of the closing
bid and asked prices on the principal national
securities exchange on which the Common Stock is listed
or admitted to trading;
(c) if such Common Stock is publicly traded but is not
quoted on the NASDAQ National Market System nor listed
or admitted to trading on a national securities
exchange, the average of the closing bid and asked
prices on such date, as reported by The Wall Street
Journal, for the over-the-counter market; or
(d) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
"Insider" means an officer or director of the Company
or any other person whose transactions in the Company's Common Stock are subject
to Section 15 of the Exchange Act.
"Option" means an award of an option to purchase Shares
pursuant to Section 5.
"Outside Director" means any outside director as
defined in Section 162(m) of the Code and the regulations issued thereunder.
"Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if at the time of
the granting of an Award under the Plan, each of such corporations other than
the Company owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
"Participant" means a person who receives an Award
under the Plan.
"Performance Award" means an award of Shares, or cash
in lieu of Shares, pursuant to Section 8.
"Performance Factors" means the factors selected by the
Committee from among the following measures to determine whether the performance
goals established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
16
<PAGE> 17
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder
return growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"Performance Period" means the period of service
determined by the Committee, not to exceed five years, during which years of
service or performance is to be measured for Restricted Stock Awards, Stock
Bonuses or Performance Awards.
"Plan" means this Intuit 1993 Equity Incentive Plan, as
amended from time-to-time.
"Restricted Stock Award" means an award of Shares
pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shares" means shares of the Company's Common Stock
$0.01 par value, reserved for issuance under the Plan, as adjusted pursuant to
Sections 2 and 17, and any successor security.
"Stock Bonus" means an award of Shares, or cash in lieu
of Shares, pursuant to Section 7.
"Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
"Termination" or "Terminated" means, for purposes of
the Plan with respect to a Participant, that the Participant has ceased to
provide services as an employee, director, consultant, independent contractor or
adviser, to the Company or a Parent, Subsidiary or Affiliate
17
<PAGE> 18
of the Company, except in the case of sick leave, military leave, or any other
leave of absence approved by the Committee; provided, that such leave is for a
period of not more than ninety (90) days, or reinstatement upon the expiration
of such leave is guaranteed by contract or statute. The Committee shall have
sole discretion to determine whether a Participant has ceased to provide
services and the effective date on which the Participant ceased to provide
services (the "Termination Date").
18
<PAGE> 1
EXHIBIT 11.01
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Ten Months Twelve Months
Ended July 31, Ended July 31,
1994 1995 1996
--------- -------- ---------
(in thousands, except per share data)
Primary and Fully Diluted
<S> <C> <C> <C>
Computation of common and common
equivalent shares outstanding:
Weighted average common shares outstanding .................. 34,454 41,411 45,149
Equivalent shares issuable upon exercise of
options (1) ............................................. -- -- --
--------- -------- --------
Total weighted average common and common
equivalent shares outstanding ............................... 34,454 41,411 45,149
========= ======== ========
Net loss from continuing operations ........................... $(183,974) $(44,296) $(14,355)
Net loss from discontinued operations ......................... -- -- (6,344)
--------- -------- --------
Net loss ...................................................... $(183,974) $(44,296) $(20,699)
========= ======== ========
Net loss per share from continuing operations ................. $ (5.34) $ (1.07) $ (0.32)
Net loss per share from discontinued operations ............... -- -- $ (0.14)
--------- -------- --------
Net loss per share ............................................ $ (5.34) $ (1.07) $ (0.46)
========= ======== ========
</TABLE>
Fully diluted earnings per share are not presented on the face of the
Consolidated Statement of Operations since they are identical to primary
earnings per share.
(1) Dilutive shares are not included in periods with a net loss
<PAGE> 1
EXHIBIT 21.01
LIST OF THE COMPANY'S SUBSIDIARIES
Entity State/Country of Incorporation
GALT Technologies, Inc. Pennsylvania
Interactive Insurance Services Corp. Virginia
Intuit (Aus) Pty Ltd. Australia
Intuit Canada Limited Canada
Intuit Deutschland GmbH Germany
Intuit France S.A. France
Intuit Ltd. United Kingdom
Intuit Netherlands B.V. Netherlands
Intuit S.A. France
Intuit Services Corporation Delaware
Milkyway K.K. Japan
Parsons Technology, Inc. California
Quicken Investment Services, Inc. Delaware
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-05948, No. 073222, No. 095040 and No. 33-06889) pertaining to
the Intuit Inc. 1993 Equity Incentive Plan of our report dated September 6, 1996
(except for Note 12, as to which the date is September 18, 1996), with respect
to the consolidated financial statements and schedule of Intuit Inc. included in
this Annual Report (Form 10-K) for the year ended July 31, 1996.
/s/ ERNST & YOUNG LLP
Palo Alto, California
October 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 44,584
<SECURITIES> 153,434
<RECEIVABLES> 54,424
<ALLOWANCES> (4,951)
<INVENTORY> 4,448
<CURRENT-ASSETS> 280,413
<PP&E> 145,695
<DEPRECIATION> (50,084)
<TOTAL-ASSETS> 418,020
<CURRENT-LIABILITIES> 110,689
<BONDS> 5,583
0
0
<COMMON> 458
<OTHER-SE> 298,777
<TOTAL-LIABILITY-AND-EQUITY> 418,020
<SALES> 538,608
<TOTAL-REVENUES> 538,608
<CGS> 136,470
<TOTAL-COSTS> 137,869
<OTHER-EXPENSES> 406,515
<LOSS-PROVISION> 4,728
<INTEREST-EXPENSE> 305
<INCOME-PRETAX> 1,870
<INCOME-TAX> 16,225
<INCOME-CONTINUING> (14,355)
<DISCONTINUED> (6,344)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,699)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
