UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
July 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:
000-23384
INSO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
04-3216243
(I.R.S. Employer Identification No.)
31 St. James Avenue, Boston, MA 02116
(Address of principal executive offices) (Zip Code)
(617) 753 - 6500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 10, 1999
Common Stock (par value $.01 per share) 15,606,020
INSO CORPORATION
FORM 10-Q INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 31, 1999 and December 31, 1998
Condensed Consolidated Statements of Operations
Three Months Ended July 31, 1999 and 1998
Condensed Consolidated Statements of Operations
Six Months Ended July 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows
Six Months Ended July 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
Part II. Other Information
Item 1.
Legal Proceedings
Item 2.
Changes in Securities and Use of Proceeds
Item 4.
Submission of Matters to a Vote of Security Holders
Item 5.
Other Matters
Item 6.
Exhibits and Reports on Form 8-K
Signatures
Part I. Financial Information
Item I. Financial Statements
<TABLE>
<CAPTION>
INSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, 1999 AND DECEMBER 31, 1998
(Unaudited, in thousands except share and per share
amounts)
July 31 December 31
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,723 $ 9,502
Marketable securities 16,379 44,555
Restricted marketable securities 6,526 6,526
Accounts receivable, net 23,120 27,588
Prepaid expenses and other current assets 3,317 5,223
------- -------
Total current assets 57,065 93,394
Property and equipment, net 7,292 9,865
Product development costs, net 19,228 21,322
Excess of costs over net assets acquired, net 14,351 19,891
Other intangible assets, net 9,391 10,783
Long-term accounts receivable, net 1,969 2,901
Licensed technology and advances, net 4,556 2,408
Investment in Information Please LLC 0 2,655
------- -------
TOTAL ASSETS $ 113,852 $ 163,219
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,450 $ 2,207
Accrued liabilities 16,261 9,771
Accrued salaries, commissions and
bonuses 8,463 6,444
Acquisition related liabilities 2,637 16,551
Unearned revenue 15,394 13,542
Royalties payable 685 1,615
Capital leases, current portion 830 987
------- ------
Total current liabilities 46,720 51,117
Unearned revenue, non- current portion 1,266 2,478
Capital leases, non-current portion 26 450
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued
Common stock, $.01 par value; 50,000,000 shares
authorized; 15,611,095, 15,506,640 shares issued
at July 31, 1999 and December 31, 1998, respectively
Common stock 156 155
Capital in excess of par value 142,933 140,130
Accumulated deficit (76,171) (29,632)
-------- --------
66,918 110,653
Unamortized value of restricted shares (11) (116)
Notes Receivable from stock purchase
agreements (1,009) (1,305)
Treasury stock, at cost, 5,075 shares
in 1999 and 1998 (58) (58)
-------- --------
Total stockholders' equity 65,840 109,174
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 113,852 $ 163,219
------- -------
------- -------
See accompanying notes to unaudited condensed consolidated financial
statements
</TABLE>
<TABLE>
<CAPTION>
INSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS THREE MONTHS ENDED JULY 31, 1999 AND 1998
(Unaudited, in thousands except per share amounts)
1999 1998
---- ----
<S> <C> <C>
Revenues:
Product licenses $ 13,218 12,508
Service 6,149 1,200
------ ------
Total revenues 19,367 13,708
Cost of revenues:
Cost of product licenses 2,915 1,320
Cost of service 3,160 635
----- -----
Total cost of revenues 6,075 1,955
----- -----
Gross profit 13,292 11,753
Operating expenses:
Sales and marketing 6,954 5,032
Product development 7,040 4,287
Amortization of intangible assets 1,129 330
General and administrative 5,147 3,893
Restructuring expenses 6,234 0
Special charges 464 0
------ -----
Total operating expenses 26,968 13,542
------ ------
Operating loss (13,676) (1,789)
Non-operating income (expense):
Net investment income 545 1,508
Write-down of investment in
Information Please LLC (2,655) 0
------- ------
Loss before provision for income taxes (15,786) (281)
Provision (benefit) for income taxes 77 (103)
------ -------
Net loss* $ (15,863) $ (178)
------ -------
------ -------
Basic loss per share $ (1.02) $ (0.01)
------ -------
------ -------
Diluted loss per share $ (1.02) $ (0.01)
------ -------
------ -------
Weighted Average Shares Outstanding:
Basic 15,590 14,961
Diluted 15,590 14,961
* Net loss equals comprehensive loss for each period presented.
See accompanying notes to unaudited condensed consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
INSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1999 AND 1998
(Unaudited, in thousands except per share amounts)
1999 1998
---- ----
<S> <C> <C>
Revenues:
Product licenses $ 19,387 $ 27,422
Service 11,474 2,772
------ ------
Total revenues 30,861 30,194
Cost of revenues:
Cost of product licenses 6,025 3,369
Cost of service 6,357 1,127
------ ------
Total cost of revenues 12,382 4,496
------ ------
Gross profit 18,479 25,698
Operating expenses:
Sales and marketing 15,553 10,619
Product development 14,994 9,719
Amortization of intangible assets 2,490 630
General and administrative 11,392 8,282
Restructuring expenses 6,715 0
Special charges 3,437 0
Purchased in-process research
and development 0 600
----- ------
Total operating expenses 54,581 29,850
----- ------
Operating loss (36,102) (4,152)
Non-operating income (expense):
Net investment income 986 2,211
Write-down of investment in
Information Please LLC (2,655) 0
Gain on sale of linguistic software net
assets 0 12,012
------ ------
(Loss) income before provision for
income taxes (37,771) 10,071
Provision (benefit) for income taxes 77 (493)
------ ------
Net (loss) income* $ (37,848) $ 10,564
------- ------
Basic (loss) earnings per share $ (2.43) 0.71
------- ------
------- ------
Diluted (loss) earnings per share $ (2.43) $ 0.69
------- ------
------- ------
Weighted Average Shares Outstanding:
Basic 15,549 14,855
Diluted 15,549 15,242
* Net (loss) income equals comprehensive (loss)
income for each period presented.
See accompanying notes to unaudited condensed consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
INSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1999 AND 1998
(Unaudited, in thousands of dollars)
1999 1998
---- ----
<S> <C> <C>
Cash flows from (used in) operating activities: $ (37,848) $ 10,564
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 8,057 4,585
Purchased in-process research and development 0 600
Non-cash restructuring expenses 3,274 0
Write-down of investment in Information
Please LLC 2,655 0
Deferred income taxes 0 3,084
Gain on sale of linguistic software net assets 0 (12,012)
----- -------
(23,862) 6,821
Changes in operating assets and liabilities:
Accounts receivable 2,283 3,831
Accounts payable and accrued liabilities 6,073 (5,844)
Royalties payable (563) (1,308)
Due to Houghton Mifflin Company 0 (384)
Other assets and liabilities 536 (877)
------ -------
Net cash (used in) provided by operating
activities (15,533) 2,239
Cash flows from (used in) investing activities:
Property and equipment expenditures (589) (2,275)
Capitalized product development costs (1,787) (2,459)
Acquisitions, net of cash acquired 0 (2,426)
Payments related to 1998 acquisitions (4,932) 0
Net purchase of marketable securities 20,194 680
Proceeds from the sale of linguistic software
net assets 0 19,853
------ ------
Net cash provided in investing activities 12,886 13,373
Cash flows from (used in) financing activities:
Net proceeds from issuance of common stock 557 8,896
Proceeds from the payment of notes receivable
underlying Stock Purchase Agreements 296 0
------ ------
Net cash provided by financing activities 853 8,896
------ ------
Net increase (decrease) in cash and
cash equivalents (1,794) 24,508
Cash and cash equivalents at beginning of period 9,517 8,827
------ ------
Cash and cash equivalents at end of period $ 7,723 $ 33,335
------ ------
------ ------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
INSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 31, 1999
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. All normal and recurring
adjustments that are, in the opinion of management,
necessary for a fair presentation of the results for the
interim periods have been included. Operating results
for the three- and six-month periods ended July 31, 1999
are not necessarily indicative of the results that may be
expected for the fiscal year ending January 31, 2000.
For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the fiscal year
ended December 31, 1998.
In November 1998, the Board of Directors approved a change
in the Company's fiscal year to February 1 through January
31, effective for the twelve-month period ending January
31, 2000. Through December 31, 1998, the Company reported
results on a calendar year basis. As such, all quarterly
and year to date comparative information has been recast
to reflect the change in the fiscal year-end.
Additionally, refer to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1999 filed with
the Securities and Exchange Commission for the unaudited
condensed consolidated balance sheet, statement of
operations and cash flows as of and for the one-month
period ended January 31, 1999.
Note 2. Recent Accounting Pronouncements
In 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants
issued Statement of Position 98-9 (SOP 98-9) "Modification
of SOP 97-2, Software Revenue Recognition with respect to
Certain Transactions" effective for fiscal years beginning
after March 15, 1999. SOP 98-9 defines vendor-specific
objective evidence of fair value in connection with
software revenue recognition. The adoption of SOP 98-9 is
not expected to have a material impact on the Company's
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board
issued Statement of Accounting Standards No. 133, as
amended by Statement of Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging
Activities" (collectively SFAS 133) effective for fiscal
years beginning after June 15, 2000. SFAS 133 provides a
comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities.
The Company does not believe that the adoption of this
standard will have a material impact on its financial
position or results of operations.
Note 3. Earnings Per Share
Basic earnings (loss) per share is calculated based on the
weighted average number of common shares outstanding.
Diluted earnings per share includes the effect of dilutive
stock options representing 387,000 shares for the six
months ended July 31, 1998. Options to purchase shares of
common stock, for the three months ended July 31, 1999 and
1998 and for the six months ended July 31, 1999, were not
included in the computation of diluted loss per share
because the effect would be antidilutive.
Note 4. Commitments and Contingencies
During February 1999, certain putative class action
lawsuits were filed against the Company and certain of its
officers and employees by purported representatives of a
class of the Company's current and former stockholders in
the U.S. District Court for the District of Massachusetts,
claiming violations of the Federal securities laws based
on alleged misrepresentations regarding the Company's
anticipated revenues and earnings and interim financial
statements for the first three quarters of fiscal 1998.
The lawsuits were filed following the Company's
announcement on February 1, 1999 that it planned to
restate its previously reported revenues for the first
three quarters of 1998. The lawsuits seek unspecified
damages. The claims are subject to meritorious defenses
that the Company plans to assert during the lawsuit. On
April 5, 1999, the seven class action lawsuits that were
filed against the Company were consolidated into one
lawsuit. The Company cannot predict the ultimate
resolution of this action at this time, and there can be
no assurance that the litigation will not have a material
adverse impact on the Company's financial condition and
results of operations.
The Company entered into a distribution agreement in the
fourth quarter of calendar year 1998 with an international
reseller that provided the reseller with guaranteed levels
of net cash receipts, as defined by the agreement, for
specified geographic areas (primarily Australia, New
Zealand, and certain countries in the Far East), of
$2,000,000 for each calendar year ended December 31, 1999
and 2000. At December 31, 1998, the Company recorded a
charge of $4,000,000 as management did not believe that
the distributor would be able to achieve the defined level
of net receipts from the agreement territory in either
year. The Company has outstanding irrevocable stand-by
letters of credit with terms of one to two years totaling
$4,004,000 at July 31, 1999 supporting this guarantee.
The Company had restricted marketable securities totaling
$6,526,000 at July 31, 1999 supporting the letters of
credit (see Note 10 Subsequent Events).
On June 2, 1999, the Company was informed that the United
States Securities and Exchange Commission issued a Formal
Order of Private Investigation in connection with matters
relating to the Company's previously announced restatement
of its 1998 financial results. The Company is cooperating
with the Securities and Exchange Commission.
On June 9, 1999, the bankruptcy estates of Microlytics,
Inc. and Microlytics Technology Co., Inc. (together
"Microlytics") filed an adversary proceeding against the
Company in the United States Bankruptcy Court for the
Western District of New York. The complaint seeks
turnover of purported property of the estates and damages
for the Company's alleged breaches of a license from
Microlytics relating to certain computer software
databases and other information. The complaint seeks
damages of at least $11,750,000. On August 19, 1999, the
Company filed a motion to withdraw the case from the
Bankruptcy Court to the United States District Court for
the Western District of New York. The motion is pending.
Also, on August 19, 1999, the Company filed its Answer and
Demand for Jury Trial. The Company believes that the
claims are subject to meritorious defenses, which it plans
to assert during the lawsuit. The Company cannot predict
the ultimate resolution of this action at this time.
Note 5. Acquisitions
AIS Software S.A.
On January 12, 1999, the Company acquired AIS Software
S.A. ("AIS Software") from Berger-Levrault S.A., a French
publisher, for approximately $3,000,000 using available
cash. AIS Software, based in Paris, France is the
developer of Balise, an SGML and XML transformation tool
and scripting language, as well as Dual Prism, a Web-based
XML and SGML publishing system. The transaction was
accounted for as a purchase and has been included in the
consolidated financial statements since
the date of acquisition. The purchase price has been
allocated on a basis of the estimated fair market value of
the assets acquired and the liabilities assumed. The
acquisition included the purchase of certain technology
under research and development, which resulted in a charge
to the Company's consolidated results for the one-month
period ended January 31, 1999 of $500,000, or $0.03 per
share. Intangible assets totaling $2,700,000 were
recorded at the time of the acquisition and are being
amortized on a straight-line basis over their estimated
useful lives, ranging from two to five years.
Venture Labs, Inc.
On December 22, 1998, the Company acquired all of the
outstanding stock of privately held Venture Labs Inc. and
its subsidiary Paradigm Development Corporation
(collectively "Paradigm") for a total value of $4,800,000.
Paradigm is the developer of Java file filtering and
viewing technology for both OEM and direct corporate use.
In connection with the acquisition, the Company paid
$4,300,000 in December 1998 using available cash and
assumed certain liabilities. The transaction was
accounted for as a purchase and included the purchase of
certain technology under research and development, which
resulted in a charge to the Company's fiscal 1998
consolidated fourth quarter results of $1,800,000.
Intangible assets totaling $1,594,000 were recorded for
the acquisition as well as noncompetition agreements with
key executives for a total value of $1,500,000.
Sherpa Systems Corporation
In December 1998, the Company acquired all of the
outstanding stock of privately held Sherpa Systems
Corporation ("Sherpa"). Sherpa is a provider of product
data management solutions that manage mission-critical
information through the product lifecycle process of
design, testing, manufacturing, and delivery. The total
consideration paid at the time of the acquisition was
$36,000,000, consisting of $28,700,000 of cash and
warrants ("Original Warrants") to purchase 1,456,458
shares of the Company's common stock. The Original
Warrants, at the time of the acquisition, were valued at
$5.00 per warrant, or $7,282,000. The Original Warrants,
which are fully exercisable, have a 24-month term and the
right to purchase shares of the Company's common stock at
an exercise price of $23.50 per share.
Subsequent to the Company's announcement on February 1,
1999 to restate its financial results (see note 4), the
Company began discussions with the warrant holders to
reprice the Original Warrants or exchange them for cash
with the objective of meeting the intention under the
original agreement. On June 22, 1999, the Company entered
into an agreement with the holders of the Original
Warrants that provided, among other things, a) for the
cancellation of all of the Original Warrants held by such
holders, b) the issuance to such holders of new warrants
to purchase their proportionate share of 1,000,000 shares
of the Company's Common stock with a 36-month term and an
exercise price of $10.00 per share and c) the payment to
such holders of their proportionate share of $3,000,000 in
cash. The new warrants were valued at $2.01 per warrant.
As a result of the agreement, the value of the
consideration paid by the Company for the Sherpa
acquisition was reduced by approximately $2,100,000 with
such amount recorded as a reduction to goodwill.
The acquisition also included estimated costs of
approximately $5,800,000 for direct transaction costs and
costs relating to the elimination of excess and
duplicative activities as a result of the merger. As of
July 31, 1999, approximately $1,200,000 for such costs
remained in the accrual. Since December 31, 1998,
payments against the accrual consisted of the following:
approximately $1,220,000 for employee severance for
elimination of duplicate functions and closure of
duplicate and excess operations; approximately $400,000
for professional fees consisting principally of appraisal,
legal, and accounting fees; and other out-of-pocket
expenses related to the acquisition. Employee
terminations were essentially in the areas of sales,
marketing and administrative functions. Additionally, at
July 31, 1999, the Company reevaluated the estimated
severance and other costs relating to the elimination of
excess and duplicative activities as well as costs
associated with certain contractual obligations which
existed at the time of the acquisition and reduced the
related accrual and goodwill by approximately $2,900,000.
A majority of the payments relating to the remaining
accrual are expected to be made prior to January 31, 2000.
The acquisition of Sherpa was accounted for as a purchase
and the results of operations of Sherpa have been included
in the consolidated financial statements since December 4,
1998. The purchase price has been allocated on a
preliminary basis (until the final closing adjustments
under the original agreement are resolved with the
sellers) based upon the estimated fair value of the assets
acquired and the liabilities assumed at December 4, 1998.
The acquisition included the purchase of certain
technology under research and development, which resulted
in a charge to the Company's fiscal 1998 consolidated
fourth quarter results of $12,000,000. At the time of the
acquisition, the Company also caused Sherpa to enter into
employment and noncompetition agreements with key
executives. The Company expects to make aggregate
payments of approximately $1,200,000 over the next three
years under those agreements. Additionally, other
intangible assets and capitalized software totaling
$25,300,000 were recorded in connection with the
acquisition after consideration of adjustments noted above.
MediaBank
On August 28, 1998, the Company acquired the intellectual
property and certain other assets of Bitstream Inc.'s
MediaBank media asset management system and related
technologies for $11,900,000 using available cash. The
transaction was accounted for as a purchase and included
the purchase of certain technology under research and
development, which resulted in a charge the Company's
fiscal 1998 consolidated third quarter results of
$7,500,000. Intangible assets totaling $4,460,000 were
recorded at the time of the acquisition and are being
amortized on a straight-line basis over five years.
ViewPort Development AB
On March 12, 1998, the Company acquired all of the
outstanding capital stock of privately held ViewPort
Development AB for $2,500,000 using available cash. The
transaction was accounted for as a purchase and included
the purchase of certain technology under research and
development, which resulted in a charge to the Company's
fiscal 1998 consolidated first quarter results of
$600,000. Intangible assets totaling $1,830,000 were
recorded at the time of the acquisition and are being
amortized on a straight-line basis over five years.
Unaudited pro forma net revenues, net loss and net loss
per share shown below for the six months ended July 31,
1998 assumes the acquisition of AIS Software S.A., Venture
Labs, Inc., Sherpa Systems Corporation and ViewPort
Development AB occurred on February 1, 1998. Therefore,
the six months ended July 31, 1998, presented below,
includes the write-off of certain purchased technology
under research and development of $500,000 relating to the
acquisition of AIS Software S.A., $1,800,000 relating to
the acquisition of Venture Labs, Inc., $12,000,000
relating to the acquisition of Sherpa Systems Corporation,
and $7,500,000 relating to the acquisition of MediaBank.
<TABLE>
<CAPTION>
Six months ended
July 31, 1998
----------------
<S> <C>
Net revenues $ 53,243,000
Net loss $ (18,977,000)
Diluted loss per share $ (1.25)
</TABLE>
Note 6. Restructuring Expenses
In July 1999, the Company adopted a plan of restructuring
aimed at reducing current operating costs, as well as
supporting the Company's new divisional structure. The
Company's restructuring plan includes a reduction of more
than 20% from staff levels at the end of fiscal year 1998,
the closure and/or combination of domestic and
international sales and administrative facilities and the
abandonment of leasehold improvements and support assets
associated with these locations. The plan also calls
for a change in focus away from certain products.
Therefore, the charge includes a write-down of capitalized product
development costs and intangibles for certain discontinued
products to their estimated future cash flows. As a result
of the restructuring plan, the Company recorded a charge of
$6,234,000 to the second fiscal quarter's results. The charge included
approximately $2,000,000 of severance for employees in
administrative, sales and development positions; $960,000
for the closure and/or combination of domestic and
international sales and administrative facilities; and
$3,274,000 for write-down of capitalized product
development costs and intangibles for certain discontinued
products and the write-off of leasehold improvements and
support assets associated with closed locations. As of
July 31, 1999, approximately $1,800,000 remained in
accrued liabilities relating to this restructuring charge.
In addition to the above, the Company incurred
approximately $500,000 in the first fiscal quarter
relating to the closure of the Company's Kansas City
location, primarily for severance.
Note 7. Special Charges
For the six months ended July 31, 1999, the Company has
incurred $3,437,000 of special charges. Of the total
amount incurred, approximately $1,120,000 related to
professional fees incurred in connection with the
Company's investigation and restatement of its 1998
financial results, lawsuits and the Securities and
Exchange Commission investigation and approximately
$2,320,000 related to severance and other costs incurred
for certain executive, management, and other staff
terminations.
Also, the Company determined that the value of its
investment in Information Please LLC is impaired.
This assessment was based on the Company's review of
Information Please LLC's operating results and
business plan and the Company's anticipated future cash flows
from its investment. Accordingly, the investment was written
down to its net realizable value resulting in a charge of $2,655,000 in
the Company's second fiscal quarter.
Note 8. Operations by Industry Segment
The Company has three operating segments: Product Data
Management ("PDM"), eBusiness Technologies ("EBT"), and
Information Exchange Division ("IED"). A fourth operating
segment, Lexical and Linguistic was sold to Lernout &
Hauspie Speech Products N.V. in April 1998 (see Note 9
below). On April 29, 1999, the Company announced
implementation of a new division structure, which was
implemented in the second fiscal quarter. As such, all
prior period segment data has been recast to reflect the
new division structure.
Each segment's profit and loss for the three and six
months ended July 31, 1999, reflects all income and losses
except for the items shown in the reconciliation
information below. The accounting policies of the
reportable segments are the same as those described in the
summary of significant accounting policies in the
Company's Annual Report on Form 10-K.
<TABLE>
Three months ended July 31, 1999
Lexical
and
(In thousands of dollars) PDM EBT IED Lingustic Totals
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $8,811 $2,812 $7,744 $0 $19,367
Segment profit (loss) (1,623) (4,627) 2,925 0 (3,325)
- ----------------------------------------------------------------------------
Three months ended July 31, 1998
Lexical
and
(In thousands of dollars) PDM EBT IED Lingustic Totals
- ---------------------------------------------------------------------------
Revenues from external customers $3,892 $2,548 $7,208 $60 $13,708
Segment profit (loss) (5) 345 2,221 60 2,621
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Reconciliation Information
Profit or loss
Three months ended
(In thousands of dollars) 1999 1998
<S> <C> <C>
Total external profit (loss)
for reportable segments $(3,325) $ 2,621
Special charges (464) -
Restructuring expenses (6,234) -
Net investment income 467 1,508
Write down of investment in Information Please LLC (2,655) -
Unallocated corporate and other expenses (3,575) (4,410)
------- -------
Consolidated loss before provision for
income taxes $(15,786) $(281)
------- -------
------- -------
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six months ended July 31, 1999
Lexical
and
(In thousands of dollars) PDM EBT IED Linguistic Totals
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Revenues from external customers $14,226 $ 3,525 $13,110 $ 0 $ 30,861
Segment profit (loss) (8,565) (11,342) 3,304 0 (16,603)
Segment assets 45,753 13,749 48,230 0 107,732
- ------------------------------------------------------------------------------
Six months ended July 31, 1998
Lexical
and
(In thousands of dollars) PDM EBT IED Lingustic Totals
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Revenues from external customers $6,306 $3,139 $14,498 $6,251 $30,194
Segment profit (loss) (2,303) (1,715) 4,777 3,701 4,460
Segment assets 11,470 6,590 46,410 0 64,470
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Reconciliation Information
Profit or loss
(In thousands of dollars) Six months ended
1999 1998
<S> <C> <C>
Total external profit (loss) for reportable segments $ (16,603) $ 4,460
Purchased in-process research and development - (600)
Special charges (3,437) -
Restructuring expenses (6,715) -
Gain on sale of linguistic software net assets - 12,012
Net investment income 906 2,211
Write down of investment in Information Please LLC (2,655)
Unallocated corporate and other expenses (9,267) (8,012)
------- ------
Consolidated (loss) income before provision
for income taxes $ (37,771) $ 10,071
------- ------
------- ------
- ----------------------------------------------------------------------------
</TABLE>
Note 9. Sale of linguistic software net assets
On April 23, 1998, the Company sold its linguistic
software assets to Lernout & Hauspie Speech Products N.V.
("Lernout & Hauspie") for $19,500,000, plus an additional
amount for certain receivables net of certain liabilities.
Lernout & Hauspie paid the purchase price 50% in cash and
50% in the form of a note that was converted into shares
of Lernout & Hauspie common stock in June 1998. The
Company sold the Lernout & Hauspie common stock in June
1998. Lernout & Hauspie paid for the other net assets in
cash. Included in the assets transferred to Lernout &
Hauspie were all of the Company's linguistic software
products, including its proofing tools, reference works,
and information management tools, the Quest database
search technology, and all customer and supplier
agreements related to those products. In connection with
the sale, the Company recorded direct transaction costs;
costs to write-off capitalized software and other assets;
estimated lease and facility costs; and other accruals for
costs directly associated with the sale. As a result, the
Company reported in the fiscal quarter ended April 30,
1998, a gain of $12,012,000. In addition, the Company's
valuation allowance on its deferred tax assets was reduced
by approximately $4,000,000 in the three months ended
April 30, 1998 as management deemed that it is more likely
than not that these assets would be realized.
Note 10. Subsequent Events
On September 14, 1999, the Company negotiated a release of the
outstanding commitments with an international reseller relating
to a distribution agreement entered into in the fourth quarter
of calendar year 1998 (see Note 4 above). The distribution
agreement provided the reseller with guaranteed levels of net
receipts, as defined by the agreement, for specified geographical
areas of $2,000,000 for each calendar year ended December 31, 1999 and
2000. At December 31, 1998, the Company recorded a charge to sales
and marketing expenses of $4,000,000, as management did not believe
that the distributor would be able achieve the defined level of
net receipts from the agreement territory in either year. As of
July 31, 1999, the Company had outstanding, irrevocable stand-by
letters of credit with terms of one to two years totaling $4,004,000
supporting this guarantee and restricted marketable securities
totaling $6,526,000 supporting the letters of credit.
In connection with the release executed on September 14, 1999, the
Company paid the international reseller $606,000 from available
cash and cancelled the distribution agreement. Additionally, the
stand-by letters of credit were terminated thus allowing the restriction on
the marketable securities to be lifted. Furthermore, as a result
of the release, the Company expects to take a credit to sales and
marketing expenses in the third fiscal quarter of the current year of
approximately $3,100,000 for expenses that were recorded
in the prior fiscal year.
Also, a separate cash payment of approximately $3,000,000 paid to the
Company under a cancelled purchase order was repaid to the
international reseller at the time of execution of the release. The
$3,000,000 was included in accrued liabilities at July 31, 1999, and
no gain or loss will be recorded.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1999 Compared to Three Months Ended
July 31, 1998
Revenues for the three months ended July 31, 1999 increased
$5,659,000, or 41%, to $19,367,000 compared to $13,708,000 for
the three months ended July 31, 1998. Substantially all of the
revenue increase was attributable to acquisitions made by the
Company in last year's third and fourth fiscal quarters. Service
revenues for the three months ended July 31, 1999 increased
$4,949,000, or 412%, to $6,149,000 for the three months ended
July 31, 1999 from $1,200,000 for the three months ended July 31,
1998 primarily due to the Company's fiscal year 1998
acquisitions.
Revenues from the Product Data Management ("PDM") segment
increased by approximately 126% from $3,892,000 in the three
months ended July 31, 1998 to $8,811,000 in the three months
ended July 31, 1999. The increase was primarily related to the
addition of the PDM products acquired with the Sherpa acquisition
in December 1998. Revenues from the eBusines Technologies
("EBT") segment increased 10% from $2,548,000 in the three months
ended July 31, 1998 to $2,812,000 in the three months ended July
31, 1999. The increase was primarily related to the addition of
EBT products acquired through the MediaBank acquisition in August
1998. Revenues from the Information Exchange Division ("IED")
segment increased by approximately 7% from $7,208,000 in the
three months ended July 31, 1998 to $7,744,000 in the three
months ended July 31, 1999.
Gross profit increased $1,539,000, or 13%, from $11,753,000 for
the three months ended July 31, 1998 to $13,292,000 for the three
months ended July 31, 1999. Gross profit as a percentage of
revenues was 69% for the three months ended July 31, 1999
compared to 86% for the three months ended July 31, 1998. The
decrease in gross margin in 1999 was primarily due to an increase
in amortization expense for capitalized software and acquired
license technology. Additionally, decrease in gross profit
percentage was primarily attributable to higher revenues from
products which carry royalty burdens.
Total operating expenses increased $13,426,000 to $26,968,000 for
the three months ended July 31, 1999 from $13,542,000 for the
three months ended July 31, 1998. Included in total operating
expenses for the three months ended July 31, 1999 were special
charges of $464,000 for costs primarily relating to the Company's
1998 restatement of financial results, and restructuring expenses
of $6,234,000 for costs relating to the Company's new divisional
structure and associated office closures. Excluding the
aforementioned charges, operating expenses increased $6,728,000,
or 50%, to $20,270,000 for the three months ended July 31, 1999
as compared to $13,542,000 for the three months ended July 31,
1998. The increase was primarily related to costs to support
1998 acquisitions.
Sales and marketing expenses increased $1,922,000 to $6,954,000
for the three months ended July 31, 1999 from $5,032,000 for the
three months ended July 31, 1998. Sales and marketing expenses
were 36% of revenues for the three months ended July 31, 1999
compared to 37% for the three months ended July 31, 1998. The
increase in absolute dollars from July 31, 1998 was primarily the
result of higher expenses associated with the Company's 1998
acquisitions.
Product development expenses increased $2,753,000 from $4,287,000
for the three months ended July 31, 1998 to $7,040,000 for the
three months ended July 31, 1999. The increase was due primarily
to the Company's 1998 acquisitions, particularly in the area of
the Sherpa products. The Company's product development expenses
were 36% of revenues for the three months ended July 31, 1999
compared to 31% of revenues for the three months ended July 31,
1998. The increase in product development expenses as a
percentage of revenues were due to the aforementioned
acquisitions.
General and administrative expenses increased $1,254,000 to
$5,147,000 for the three months ended July 31, 1999 compared to
$3,893,000 for the three months ended July 31, 1998. The
increase in general and administrative expenses was primarily due
to additional costs for facilities, insurance, and personnel due
to the Company's 1998 acquisitions. General and administrative
expenses were 27% of revenues for the three months ended July 31,
1999 and 28% of revenues for the three months ended July 31,
1998.
In July, 1999, the Company adopted a plan of restructuring aimed
at reducing current operating costs, as well as supporting the
Company's new divisional structure. The Company's restructuring
plan includes a reduction of more than 20% from staff levels at the
end of fiscal year 1998, the closure and/or combination of
domestic and international sales and administrative facilities and
the abandonment of leasehold improvements and support assets
associated with these locations. The plan also calls for a change
in focus away from certain products. Therefore, the charge includes
a write-down of capitalized product development costs and intangibles
for discontinued products to their estimated future cash flows. As
a result of the restructuring plan, the Company recorded a charge
of $6,234,000 for the three months ended July 31, 1999. The
charge included approximately $2,000,000 of severance for
employees in administrative, sales and development positions:
$960,000 for the closure and/or combination of domestic and
international sales and administrative facilities; and $3,274,000
for write-down of domestic and international sales and
administrative facilities; and $3,274,000 for write-down of
capitalized product development costs and intangibles for
certain discontinued products and the write-down of leasehold
improvements and support assets associated with closed locations.
The Company has not recorded a benefit for net operating losses
incurred during the three months ended July 31, 1999 due to
certain provisions in the Internal Revenue Code concerning
changes in ownership and after evaluating the Company's
anticipated performance over its normal planning horizon. The
Company's effective tax rate for the three months ended July 31,
1998 was 37%.
Net loss and net loss per share were $6,510,000 and $0.42 per
share, respectively, for the three months ended July 31, 1999,
excluding the restructuring expenses of $6,234,000, or $0.40 per
share, the special charges of $464,000, or $0.03 per share, and
the write-down of the Company's investment in Information Please
LLC of $2,655,000, or $0.17 per share, as compared to $178,000,
and $0.01 per share, for the three months ended July 31, 1998.
Six Months Ended July 31, 1999 Compared to Six Months Ended July
31, 1998
Revenues for the six months ended July 31, 1999 increased
$667,000, or 2%, to $30,861,000 compared to $30,194,000 for the
six months ended July 31, 1998. Total revenues for the six
months ended July 31, 1998 included revenues of $6,251,000 from
the Company's former lexical and linguistic operating segment,
which was sold to Lernout & Hauspie Speech Products in April
1998. Excluding the revenues associated with the assets sold to
Lernout & Hauspie, net revenues increased by approximately 29%
for the six months ended July 31, 1999 compared to the six months
ended July 31, 1998. Service revenues for the six months ended
July 31, 1999 increased $8,702,000, or 314%, to $11,474,000 from
$2,772,000 for the six months ended July 31, 1998, primarily due
to the acquisition of Sherpa Systems Corporation in December
1998. Additionally, of the total revenues in the six months
ended July 31, 1999, approximately 35% were revenues from the
acquisitions made since July 1998.
Revenues from the PDM segment increased by approximately 126%
from $6,306,000 in the six months ended July 31, 1998 to
$14,226,000 in the six months ended July 31, 1999. The increase
was primarily related to the addition of the PDM products
acquired with the Sherpa acquisition in December 1998. Revenues
from the EBT segment increased 12% from $3,139,000 in the six
months ended July 31, 1998 to $3,525,000 in the six months ended
July 31, 1999. The increase was primarily related to the addition
of EBT products acquired through the MediaBank acquisition in
August 1998. Revenues from the IED segment decreased by
approximately 11% from $14,498,000 in the six months ended July
31, 1998 to $13,110,000 in the six months ended July 31, 1999.
Revenues from the Lexical and Linguistic segment declined from
$6,251,000 for the six months ended July 31, 1998 to $0 for the
six months ended July 31, 1999 as a result of the sale of the
linguistic software net assets to Lernout & Hauspie as mentioned
above.
Gross profit decreased $7,219,000, or 28%, from $25,698,000 for
the six months ended July 31, 1998 to $18,479,000 for the six
months ended July 31, 1999. Excluding the gross profit
associated with the assets sold to Lernout & Hauspie, gross
profit decreased $1,548,000, or 8%, from $20,027,000 for the six
months ended July 31, 1998 to $18,479,000 for the six months
ended July 31, 1999. Gross profit as a percentage of revenues,
excluding the gross profit associated with the assets sold to
Lernout & Hauspie, was 60% for the six months ended July 31, 1999
compared to 84% for the six months ended July 31, 1998. The
decrease in gross margin in 1999 was primarily due to an increase
in amortization expense for capitalized software and acquired
license technology. Additionally, the cost to provide service
revenues increased at a faster rate than the associated revenues,
thereby contributing to the decline in gross margin.
Total operating expenses increased $24,731,000 to $54,581,000 for
the six months ended July 31, 1999 from $29,850,000 for the six
months ended July 31, 1998. Included in total operating expenses
for the six months ended July 31, 1999 were special charges of
$3,437,000 for costs relating to the Company's 1998 restatement
of financial results, and restructuring expenses of $6,715,000
for costs relating to the Company's new divisional structure and
associated office closures. Included in total operating expenses
for the six months ended July 31, 1998 was an acquisition charge
of $600,000 for certain purchased technology under research and
development by Viewpoint Development AB at the time of the
acquisition. Excluding the aforementioned charges as well as
the operating expenses associated with the assets sold to Lernout
& Hauspie, operating expenses increased $17,149,000, or 63%, to
$44,429,000 for the six months ended July 31, 1999 as compared to
$27,280,000 for the six months ended July 31, 1998, due to the
Company's acquisitions.
Sales and marketing expenses increased $4,934,000 to $15,553,000
for the six months ended July 31, 1999 from $10,619,000 for the
six months ended July 31, 1998. Excluding the sales and
marketing expenses associated with the assets sold to Lernout &
Hauspie, sales and marketing expenses increased $5,329,000 for
the six months ended July 31, 1999 as compared to the six months
ended July 31, 1998. Sales and marketing expenses were 50% of
revenues for the six months ended July 31, 1999 compared to 43%
for the six months ended July 31, 1998, excluding the sales and
marketing expenses associated with the assets sold to Lernout &
Hauspie. The increase in absolute dollars from July 31, 1998 was
primarily the result of higher expenses associated with the
Company's acquisitions and increased expenses associated with
customer communication such as user group conferences. The
increase in sales and marketing expenses as a percentage of
revenues was due principally to the increase in revenue at a
lower rate than the increase in sales and marketing expenses.
Product development expenses increased $5,275,000 from $9,719,000
for the six months ended July 31, 1998 to $14,994,000 for the six
months ended July 31, 1999. Excluding the product development
expenses associated with the assets sold to Lernout & Hauspie,
product development expenses increased by $6,472,000, or 76%, for
the six months ended July 31, 1999 compared to the six months
ended July 31, 1998. The increase was due primarily to the
Company's 1998 acquisitions, particularly in the area of PDM
products. The Company's product development expenses, excluding
the product development expenses associated with the assets sold
to Lernout & Hauspie, were 49% of revenues for the six months
ended July 31, 1999 compared to 36% of revenues for the six
months ended July 31, 1998. The increase in product development
expenses as a percentage of revenues was due to the
aforementioned acquisition.
General and administrative expenses increased $3,110,000 to
$11,392,000 for the six months ended July 31, 1999 compared to
$8,282,000 for the six months ended July 31, 1998. Excluding the
administrative expenses associated with the assets sold to
Lernout & Hauspie, general and administrative expenses increased
$3,487,000, or 44%, for the six months ended July 31, 1999
compared to the six months ended July 31, 1998. The increase in
general and administrative expenses was primarily due to
additional costs for facilities, insurance, and personnel due to
the Company's 1998 acquisitions. General and administrative
expenses, excluding the expenses associated with the assets sold
to Lernout & Hauspie, were 37% of revenues for the six months
ended July 31, 1999 and 33% of revenues for the six months ended
July 31, 1998.
The Company has not recorded a benefit for net operating losses
incurred during the six months ended July 31, 1999 due to certain
provisions in the Internal Revenue Code concerning changes in
ownership and after evaluating the Company's anticipated
performance over its normal planning horizon. For the six months
ended July 31, 1998, the Company's effective tax rate was
influenced by the $12,012,000 gain on sale of the assets sold to
Lernout & Hauspie, the reduction of valuation allowance of
approximately $4,000,000 related to the Company deeming that it
is more likely than not that certain assets associated with the
sale of assets to Lernout & Hauspie would be recoverable and the
in-process research and development charge of $600,000 discussed
above. Excluding these special items, the Company's effective
tax rate for the six months ended July 31, 1998 was 37%.
Net loss and net loss per share was $25,041,000 and $1.61 per
share, excluding the restructuring expenses of $6,715,000, or
$0.43 per share, the $3,437,000 or $0.22 per share relating to
the special charges and the $2,655,000, or $0.17 per share, for
the write-down of the Company's investment in Information Please
LLC as compared to $848,000, and $0.06 per share, for the six
months ended July 31, 1998, excluding the gain on the sale of the
linguistic software net assets of $12,012,000 or $0.79 per share,
and the $600,000, or $0.04 per share for purchased in-process
research and development charge noted above.
Liquidity and Capital Resources
The Company's operating activities used cash of $15,533,000 for
the six months ended July 31, 1999 compared to providing cash of
$2,239,000 for the six months ended July 31, 1998. The decreased
contribution from operating activities of $17,772,000 was due
principally to the overall lower level of earnings in the six
months ended July 31, 1999 and the timing of payments relating to
accounts payable and accrued liabilities.
The Company's investing activities provided cash of $12,886,000
for the six months ended July 31, 1999 compared to $13,373,000
for the six months ended July 31, 1998. The decrease of $487,000
was due to the 1998 proceeds of $19,853,000 received from Lernout
& Hauspie for the sale of the Company's linguistic software
assets offset by an increase in the use of marketable securities
and a decline in property and equipment expenditures.
The Company's financing activities provided cash of $853,000 for
the six months ended July 31, 1999 compared to $8,896,000 for the
six months ended July 31, 1998. The decrease of $8,043,000
primarily relates to a lower level of stock option exercises.
As of July 31, 1999, the Company had working capital of
$10,345,000. Total cash, cash equivalents, and marketable
securities at July 31, 1999 were $30,628,000, which includes
restricted marketable securities of $6,526,000 supporting
outstanding letters of credit. The Company believes that funds
available, together with funds expected to be generated from
operations, will be sufficient to finance the Company's
operations through the foreseeable future.
On February 1, 1999, the Company announced that it would restate
its financial results for the quarters ended March 31, June 30,
and September 30, 1998. Subsequent to the announcement of the
Company's intention to restate its financial results, certain
putative class action lawsuits were filed against the Company and
certain of its officers and employees by purported
representatives of a class of the Company's current and former
stockholders in the U.S. District Court for the District of
Massachusetts, claiming violations of the Federal securities laws
based on alleged misrepresentations regarding the Company's
anticipated revenue and earnings and interim financial statements
for the first three quarters of fiscal 1998. The lawsuits seek
unspecified damages. The claims are subject to meritorious
defenses that the Company plans to assert during the lawsuit. On
April 5, 1999, the seven class action lawsuits that were filed
against the Company were consolidated into one lawsuit. The
Company cannot predict the ultimate resolution of this action at
this time, and there can be no assurance that the litigation will
not have a material adverse impact on the Company's financial
condition and results of operations.
On June 2, 1999, the Company was informed that the United States
Securities and Exchange Commission has issued a Formal Order of
Private Investigation in connection with matters relating to the
Company's previously announced restatement of its 1998 financial
results. The Company is cooperating with the Securities and
Exchange Commission.
Additionally, while it is not feasible to predict the total
costs, the Company expects to incur further professional fees
with respect to the shareholder litigation and the Formal Order
of Private Investigation subsequent to announcement of the
restatement.
On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and
Microlytics Technology Co., Inc. (together "Microlytics") filed
an adversary proceeding against the Company in the United States
Bankruptcy Court for the Western District of New York. The
complaint seeks turnover of purported property of the estates and
damages for the Company's alleged breaches of a license from
Microlytics relating to certain computer software databases and
other information. The complaint seeks damages of at least
$11,750,000. On August 19, 1999, the Company filed a motion to
withdraw the case from the Bankruptcy Court to the United States
District Court for the Western District of New York. The motion
is pending. Also, on August 19, 1999, the Company filed its
Answer and Demand for Jury Trial. The Company believes that the
claims are subject to meritorious defenses, which it plans to
assert during the lawsuit. The Company cannot predict the
ultimate resolution of this action at this time.
In December 1998, the Company acquired all of the outstanding
stock of privately held Sherpa Systems Corporation for total
consideration paid of $36,000,000. The total consideration paid
at the time of the acquisition was $36,000,000, consisting of
$28,700,000 of cash and warrants ("Original Warrants") to
purchase 1,456,458 shares of the Company's common stock. The
Original Warrants, at the time of the acquisition, were valued at
$5.00 per warrant, or $7,282,000. The Original Warrants, which
are fully exercisable, have a 24-month term and the right to
purchase shares of the Company's common stock at an exercise
price of $23.50 per share. Subsequent to the Company's
announcement on February 1, 1999 to restate its financial
results, the Company began discussions with the warrant holders
to reprice the Original Warrants or exchange them for cash with
the objective of meeting the intention under the original
agreement. On June 22, 1999, the Company entered into an
agreement with the holders of the Original Warrants that
provided, among other things, a) for the cancellation of all of
the Original Warrants held by such holders, b) the issuance to
such holders of new warrants to purchase their proportionate
share of 1,000,000 shares of the Company's Common stock with a
36-month term and an exercise price of $10.00 per share and c)
the payment to such holders of their proportionate share of
$3,000,000 in cash. The new warrants were valued at $2.01 per
warrant. As a result of the agreement, the value of the
consideration paid by the Company for the Sherpa acquisition was
reduced by approximately $2,100,000.
Also, at the time of the acquisition, the Company caused Sherpa
to enter into employment and noncompetition agreements with key
executives. The Company expects to make aggregate payments of
approximately $1,200,000 over the next three years under those
agreements.
The Sherpa acquisition also included estimated costs of
approximately $5,800,000 for direct transaction costs and costs
relating to the elimination of excess and duplicative activities
as a result of the merger. As of July 31, 1999, approximately
$1,200,000 for such costs remained in the accrual. Since
December 31, 1998, payments against the accrual consisted of the
following: approximately $1,220,000 for employee severance for
elimination of duplicate functions and closure of duplicate and
excess operations; approximately $400,000 for professional fees
consisting principally of appraisal, legal, and accounting fees;
and other out-of-pocket expenses related to the acquisition.
Employee terminations were essentially in the areas of sales,
marketing and administrative functions. Additionally, at July
31, 1999, the Company reevaluated the estimated severance costs
relating to the elimination of excess and duplicative activities
as well as costs associated with certain contractual obligations
which existed at the time of the acquisition and reduced the
related accrual and goodwill by approximately $2,900,000. A
majority of the payments relating to the remaining accrual are
expected to be made prior to January 31, 2000.
On September 14, 1999, the Company negotiated a release of the
outstanding commitments with an international reseller relating
to a distribution agreement entered into in the fourth quarter
of calendar year 1998 (see Note 4 above). The distribution
agreement provided the reseller with guaranteed levels of net
receipts, as defined by the agreement, for specified geographic
area of $2,000,000 for each calendar year ended December 31, 1999
and 2000. At December 31, 1998, the Company recorded a charge to
sales and marketing expenses of $4,000,000, as management did
not believe that the distributor would be able to achieve the
defined level of net receipts for the agreement territory in
either year. As of July 31, 1999, the Company had outstanding,
irrevocable stand-by letters of credit with terms of one to two
years totaling $4,004,000 supporting this guarantee and
restricted marketable securities totaling $6,526,000 supporting the
letters of credit.
In connection with the release executed on September 14, 1999, the
Company paid the international reseller $606,000 from available cash
and cancelled the distribution agreement. Additionally, the stand-by
letters of credit were terminated thus allowing the restriction on
marketable securities to be lifted. Furthermore, as a result of
the release, the Company expects to take a credit to sales and
marketing expenses in the third fiscal quarter of the current year
of approximately $3,100,000 for expenses that were recorded
in the prior fiscal year.
Also, a separate cash payment of approximately $3,000,000 paid to the
Company under a cancelled purchase order was repaid to the
international reseller at the time of execution of the release. The
$3,000,000 was included in accrued liabilities at July 31, 1999, and
no gain or loss will be recorded.
In June 1999, the Company adopted a plan of restructuring aimed
at reducing current operating costs, as well as supporting the
Company's new divisional structure. The Company's restructuring
plan includes a reduction of more than 20% from staff levels at
the end of fiscal year 1998, the closure and/or combination of
domestic and international sales and administrative facilities
and the abandonment of leasehold improvements and support assets
associated with these locations. The plan also calls for a change
in focus away from certain products. Therefore, the charge includes
a write-down of capitalized product development costs and
intangibles for certain discontinued products to their estimated
future cash flows. As a result of restructuring plan, the Company
recorded a charge of $6,234,000 to the second fiscal
quarter's results. The charge included approximately $2,000,000
of severance for employees in administrative, sales and
development positions; $960,000 for the closure and/or
combination of domestic and international sales and
administrative facilities; and $3,274,000 for write-off of
capitalized product development costs and intangibles for certain
discontinued products and the write-off of leasehold improvements
and support assets associated with closed locations. As of July
31, 1999, accrued liabilities of approximately $1,800,000
remained relating to this restructuring charge. A majority of
the payments relating to the remaining accrual are expected to be
made prior to January 31, 2000.
In June 1998, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 133, as amended by
Statement of Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities" (collectively SFAS
133) effective for fiscal years beginning after June 15, 2000.
SFAS 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging
activities. The Company does not believe that the adoption of
this standard will have a material impact on its financial
position or results of operations.
In 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued
Statement of Position 98-9 (SOP 98-9) "Modification of SOP 97-2,
Software Revenue Recognition with respect to Certain
Transactions" effective for fiscal years beginning after March
15, 1999. SOP 98-9 defines vendor specific objective evidence of
fair value in connection with software revenue recognition. The
adoption of SOP 98-9 is not expected to have a material impact on
the Company's financial position or results of operations.
Acquired In-Process Research and Development
In January 1999, the Company acquired AIS Software S.A. ("AIS")
for approximately $3,000,000 using available cash. The AIS
acquisition included the purchase of certain technology under
research and development, which resulted in a charge of $500,000
to the Company's consolidated results for the one-month period
ended January 31, 1999. Additionally, the fiscal year 1998
acquisitions included certain material purchased in-process
research and development charges for Venture Labs Inc, Sherpa
Systems Corporation, and MediaBank totaling $21,300,000. These
amounts were expensed as non-recurring charges on the respective
acquisition dates as the acquired technology had not yet reached
technological feasibility and therefore had no alternative future
uses. At the time of the acquisitions, the Company engaged an
independent appraiser to estimate the fair market value of the
assets acquired, to serve as a basis for the allocation of the
purchase price.
The nature of the efforts required to develop the purchased in-
process technology into commercially viable products principally
relates to the completion of all planning, designing,
prototyping, verification, and testing activities necessary to
establish that each product can be produced to meet its design
specifications, including functions, features, and technical
performance requirements.
The values of the purchased in-process research and development
were based upon future revenues to be earned upon
commercialization of the products. These cash flows were
discounted back to their net present value. The resulting
projected net cash flows from such projects were based on
management's estimates of revenues and operating profits related
to such projects. The revenue estimates used to value the in-
process research and development were based on estimates of
relevant market sizes and growth factors, expected trends in the
related technology, and the nature and expected timing of new
product introductions by the Company and its competitors.
The projected net cash flows were discounted to their present
value using the weighted average cost of capital ("WACC"). The
WACC calculation produces the average required rate of return of
an investment in an operating enterprise, based on required rates
of return from investments in various areas of the enterprise.
The estimates used in valuing the in-process research and
development were based upon assumptions the Company believed to
be reasonable but which are inherently uncertain and
unpredictable. The assumptions may be incomplete or inaccurate,
and no assurance can be given that unanticipated events and
circumstances will not occur. Accordingly, actual results may
vary from the projected results. Any such variances may
adversely affect the sales and profitability of future periods.
Additionally, the value of other intangible assets recorded at
the time of the respective acquisitions may become impaired.
AIS Software S.A.
The primary purchased in-process technology acquired in the AIS
acquisition was the DualPrism Web distribution technology. This
is a flexible server-based publishing technology that allows data
stored in a number of possible repositories, file systems,
relational databases and object databases, to be served
dynamically to a standard World Wide Web browser. The Company
estimates that this project was 80% completed at the time of the
acquisition. As of July 31, 1999, the nature of the efforts
required to develop the purchased in-process technology into
commercially viable products was substantially completed.
Venture Labs, Inc.
The primary purchased in-process technologies acquired in the
Venture Labs, Inc. acquisition consisted of the Java filtering
and viewing projects. The Company estimates that the projects
were between 75% and 85% complete at the date of the Venture
Labs, Inc. acquisition. As of July 31, 1999, the nature of the
efforts required to develop the purchased in-process technology
into commercially viable products was substantially completed.
Sherpa Systems Corporation
The primary purchased in-process technology acquired in the
Sherpa Systems Corporation acquisition was the SherpaWorks
Version 3 product. This technology is designed to implement a
three-tier architecture which will provide out-of-the-box,
configurable Product Data Management systems that are easy to use
and that support open standards-based interfaces. SherpaWorks 3
is expected to provide an open user interface framework that
allows application developers to implement an application or user
role specific interface. The Company estimates that this project
was approximately 85% complete at the date of the Sherpa
acquisition. As of July 31, 1999, the Company estimates that
approximately $1,000,000 will be required to be expended to
complete the remaining development of this product.
MediaBank
The primary purchased in-process technologies acquired in the
MediaBank acquisition consisted of the new digital asset
management products, which were divided into two projects. The
first project was a media asset management technology that
provides support for standard query language (SQL) databases,
such as Oracle 7 and Microsoft's SQL Server. In addition, this
project also provides server capabilities that allow users to
manage and retrieve assets stored in the asset management systems
through a standard Web browser. The Company estimates that this
project was 85% complete at the time of the MediaBank
acquisition. As of July 31, 1999, the nature of the efforts
required to develop the purchased in-process technology into
commercially viable products was substantially completed.
The second project provides content management capabilities based
on the contents of text embedded in popular text formats that are
stored in the database. In addition, the second project provides
support for DB2, a popular relational database developed by IBM,
and IBM's Digital Library product. The Company estimates that
this project was 30% complete at the time of the MediaBank
acquisition. As of July 31, 1999, the Company estimates that
approximately $400,000 will be required to be expended to
complete the remaining development of this product.
Year 2000
Many components of computers and the programs that run on them
were designed with attention to only the last two digits of the
calendar year. Any equipment or program recognizing only two
digits may recognize a date using 00 as the year 1900 rather than
the year 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to
fail. The Year 2000 issue creates risk for the Company from
unforeseen problems in its products or its own computer systems
and from third parties with whom the Company transacts business
worldwide. Failure of Year 2000 defects in the Company's and/or
third parties' computer systems or Year 2000 defects in the
Company's products could have a material impact on its ability to
conduct business.
In late 1997, the Company commenced a phased Year 2000 Compliance
Plan (the "Plan") to assess, remediate, test, and implement plans
for all applications and products potentially affected by the
Year 2000 issue. To accelerate overall completion, Plan
activities are often concurrent rather than serial, but all
phases are expected to be completed by the end of 1999.
Specifically, the plan addresses the software the Company sells
and all software on which it depends, the hardware, operating systems
and software on which the Company runs its business and the third-party
services on which the Company also depends. The Company's costs
to date have not been material to the Company's operations and
total costs of implementing the Plan are not expected to be
material to the Company's fiscal year 2000 results. However,
there can be no assurances that the Company will not incur
material costs related to the Year 2000 issue, or that the
Company's Year 2000 Compliance Plan will detect all potential
Year 2000 issues. Internal staff are the primary resources
working on the Plan, although the Company does not anticipate
having to defer any other information technology ("IT") projects
in its effort to become Year 2000 compliant. The Company expects
to fund the costs of completing the Plan through its operating
cash flows.
Inso Products
The Year 2000 issue could affect the products that the Company
licenses. All Inso products that it will continue to sell have
been tested for Year 2000 compliance. Additionally, the Company
has completed its assessment of the products that it licenses as
components of products that it sells. The product compliance
statements are listed on the Company's Website, and where
necessary, the Company is in the process of informing customers
of the proper migration path to Year 2000 compliant versions.
The Company's products are not considered date dependent and any
work to bring the current versions of these products to Year 2000
compliance has been incorporated into the normal update cycle.
The cost of this effort has not been material and the projected
completion costs are not expected to be material. However, there
can be no assurances that the Company will not incur material
costs related to the Year 2000 issue.
Inso Internal Systems, Facilities and External Vendors
The Company has inventoried certain of the hardware and software
on which it develops the products and runs its internal systems.
All inventoried items have been categorized as compliant, compliant
with patches, or not compliant. The Company has substantially
completed addressing the items in the compliant with patches category.
The Company expects to complete the upgrade of these items
in advance of December 31, 1999. In some cases, the Company is
dependent upon vendors completing their patches to meet the
calendar year 1999 targeted completion date for correcting these
items. The Company has scheduled retirement and/or replacement
of non-compliant items. The cost of this effort and the projected
completion costs have not been material. However, the Company
may experience material unanticipated problems and costs by
undetected errors of technology used in its internal IT and non-
IT systems.
The Company has contacted substantially all utility and facilities
vendors on which it depends. These vendors have provided compliance
statements certifying that they will be year 2000 compliant by the end of
calendar year 1999. The Company acknowledges that it is
vulnerable, as are most organizations, to the inability of these
external organizations to achieve Year 2000 readiness.
Contingency Plan
The Company's technical support group and its professional
services group will be made available to resolve any product
issues that may arise. The Company's information systems group
is developing a comprehensive checklist to verify internal and
external systems. There can be no assurance that the Company's
contingency plans will adequately address all Year 2000 issues
that may arise. The most reasonable worst case scenario has not
been clearly identified.
The Company believes that an effective program to resolve the
Year 2000 issue in a timely manner is in place. As noted above,
the Company has not completed all phases of the Year 2000
Compliance Plan but expects to complete in advance of December 31, 1999.
Based upon current information, the Company believes that the correction
of the Year 2000 issues should not have a material adverse effect on its
financial position or results of operations. However, there can be no
assurances that the Company will not incur material costs related to the
Year 2000 issue.
Future Operating Results
This report, and other reports, proxy statements and other
communications to stockholders, as well as oral statements by the
Company's officers or its agents, may contain forward-looking
statements with respect to, among other things, the Company's
future revenues, operating income, earnings per share or cash
flows. Please refer to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 for a description of
certain factors which may cause the Company's actual results to
vary materially from those forecasted or projected in any such
forward-looking statements. Among the factors which may cause
the Company's actual results to differ materially from historical
results are the following: competitive pressures including price
pressures; increased reliance on direct and distribution channels
which results in lower operating margins; increased personnel
costs and competition for experienced personnel; market
acceptance of products based on eXtensible Markup Language and
Standard Generalized Markup Language; inability to continue to
expand through acquisition; unexpected restructuring costs;
inability to expand a service organization for enterprise-level
solution selling; consolidation in the OEM business and potential
competition from OEM customers; adverse economic changes in the
markets in which the Company does business; difficulties
integrating operations and personnel of acquired businesses; and
increasing reliance on international markets.
Item 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in its 1998
Annual Report filed on Form 10-K has not changed significantly.
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
During February 1999, certain shareholders of Inso
filed seven putative class action lawsuits against the
Company and certain of the Company's officers and
employees in the United States District Court for the
District of Massachusetts. The lawsuits are captioned
as follows: Michael Abramsky v. Inso Corporation, et
al., Civ. Action No. 99-10193; Richard B. Dannenberg v.
Inso Corporation, et al., Civ. Action No. 99-10195;
Jack Smith v. Inso Corporation et al., Civ. Action No.
99-10208; Chavy Weisz v. Inso Corporation, et al., Civ.
Action No. 99-10200; Robert C. Krauser v. Inso
Corporation, et al., Civ. Action No. 99-10366; Jean-
Marie Larcheveque v. Inso Corporation, et al., Civ.
Action No. 99-10299; and Thomas C. McGrath v. Inso
Corporation, et al., Civ. Action No. 99-10389. These
lawsuits were filed following the Company's
announcement on February 1, 1999 that the Company
planned to restate the revenues for the first three
quarters of 1998. Each of the complaints assert claims
for violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 of the Securities
and Exchange Commission as well as a claim for the
violation of Section 20(a) of the Exchange Act. On
April 5, 1999, the seven class action lawsuits that
were filed against the Company were consolidated into
one lawsuit entitled In Re Inso Corporation, Civil
Action No. 99-10193-WGY.
The plaintiffs allege that the defendants prepared and
issued deceptive and materially false and misleading
statements to the investing public. They seek
unspecified damages. The Company believes that the
claims are subject to meritorious defenses, they which
plan to assert during the lawsuit. The Company cannot
predict the ultimate resolution of this action at this
time, and there can be no assurance that the litigation
will not have a material adverse impact on the
Company's financial condition and results of
operations.
On June 9, 1999, the bankruptcy estates of Microlytics,
Inc. and Microlytics Technology Co., Inc. (together
"Microlytics") filed an adversary proceeding against
the Company in the United States Bankruptcy Court for
the Western District of New York, Microlytics, Inc. and
Microlytics Technology Co., Inc. v Inso Corporation,
Adversary Proceeding No. 99-2177. The complaint seeks
turnover of purported property of the estates and
damages for the Company's alleged breaches of a license
from Microlytics relating to certain computer software
databases and other information. The complaint seeks
damages of at least $11,750,000. On August 19, 1999,
the Company filed a motion to withdraw the case from
the Bankruptcy Court to the United States District
Court for the Western District of New York. The motion
is pending. Also, on August 19, 1999, the Company
filed its Answer and Demand for Jury Trial. The
Company believes that the claims are subject to
meritorious defenses, which it plans to assert during
the lawsuit. The Company cannot predict the ultimate
resolution of this action at this time.
On June 2, 1999, the Company was informed that the
United States Securities and Exchange Commission issued
a Formal Order of Private Investigation in connection
with matters relating to the Company's previously
announced restatement of its 1998 financial results.
The Company is also subject to various legal
proceedings and claims that arise in the ordinary
course of business. The Company currently believes that
resolving these matters will not have a material
adverse impact on the financial condition or results of
operations.
Item 2 Changes in Securities and Use of Proceeds
In December 1998, the Company issued warrants (the
"Original Warrants") to purchase an aggregate of
1,456,458 shares of the Company's common stock in
connection with the Company's acquisition of Sherpa
Systems Corporation. On June 22, 1999, the Company
entered into an agreement (the "Warrant Agreement")
whereby holders of the Original Warrants could exchange
their warrants for new warrants (the "New Warrants")
which entitle them to purchase an aggregate of
1,000,000 shares of common stock at an exercise price
of $10.00 per share, as adjusted from time to time for
stock splits and other similar events and payment to
such holders of their proportionate share of $3,000,000 in cash.
The New Warrants will expire on Aril 15, 2002. The Company
issued the New Warrants under an exemption from
registration pursuant to Section 4(2) of the Securities
Act of 1933 as a transition not involving a public
offering. No underwriters were involved in the
transaction. A copy of the Warrant Agreement is filed
herewith and incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security
Holders
At the Annual Meeting of Stockholders of the Company on
May 6, 1999, at which a quorum was present, the
stockholders approved the following proposals by the
number of shares of common stock voted as noted:
Proposal #1 - Election of two Class III directors to
serve until the Company's 2002 Annual Meeting of
Stockholders and until their successors are elected and
qualified.
Number of Shares
Voted For Withheld
Joseph A. Baute 12,750,258 933,551
Joanna T. Lau 12,752,562 931,247
The following directors' terms of office continued
after the Annual Stockholders' Meeting of
Stockholders:
Ray Stata
William J. Wisneski
Samuel H. Fuller
Ray Shepard
John Guttag
Stephen O. Jaeger
Proposal #2 - Ratification of the selection of Ernst &
Young LLP as independent auditors of the Company for the
fiscal year ending January 31, 2000.
Number of Shares
For 13,207,238
Against 443,462
Abstain 33,109
Item 5. Other Information
Item 2 "Changes in Securities and Use of Proceeds" is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following are filed as exhibits to this Form 10-Q
Exhibit 10-1 Agreement and Release between Graham
Marshall and the Company dated May 6, 1999.
Exhibit 10-2 Amended and Restated Separation
Agreement and Release between Paul A.
Savage and the Company dated June 10,
1999.
Exhibit 10-3 Amended and Restated Separation
Agreement and Release between Betty J.
Savage and the Company dated June 11, 1999.
Exhibit 10-4 Agreement Relating to Warrants of Inso
Corporation dated June 22, 1999.
Exhibit 27-1 Financial Data Schedule for the
quarter ended July 31, 1999.
Exhibit 27-2 Financial Data Schedule for the
quarter ended July 31, 1998.
(b) Reports on Form 8-K
Registrant filed one (1) report on Form 8-K during the
quarter ended July 31, 1999.
(i) Current Report on Form 8-K dated July 22, 1999
reporting under Item 5 (Other Events) the appointment
of Robert F. Dudley as Vice President, Chief Financial
Officer and Treasurer, which was filed with the
Securities and Exchange Commission on July 27, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Inso Corporation
Registrant
Date: September 14, 1999 /s/ Robert F. Dudley
Robert F. Dudley
Vice President and Chief
Financial Officer
Date: September 14, 1999 /s/ Patricia A. Michaels
Patricia A. Michaels
Vice President and
Corporate Controller
(Chief Accounting
Officer)
AGREEMENT AND RELEASE
This Agreement and Release ("Agreement") is being entered into
between Graham Marshall (the "Employee") and Inso Corporation
(the "Company"), (collectively, the "Parties").
The complete terms of the Agreement are noted below:
1. For the purposes of this Agreement, the term the
"Company" shall refer to Inso Corporation and includes any
affiliate or otherwise related companies, and their
current, former and future shareholders, officers,
representatives, agents, directors, employees, successors
and assigns.
2. For the purposes of the Agreement, "Employee" includes the
heirs, spouse, successors, legal representatives, agents and
assigns of the Employee.
3. The intent of this Agreement is to mutually, amicably and
finally resolve and compromise all issues and claims
relating to the Employee's employment by the Company and the
termination thereof on May 12, 1999 (the "Termination
Date"). The execution of this Agreement shall not in any
way be considered an admission of any liability on the part
of the Company.
4. The Employee hereby resigns as an officer and employee of
the Company as of the Termination Date. The Employee shall
execute and return to the Company the resignation letter
attached hereto as Exhibit A.The Company agrees to provide
the following severance benefits, to which the Employee
agrees he or she is not otherwise entitled, in return for
the execution of this Agreement:
A. The Company will pay total Severance Pay to the
Employee in the gross amount of $50,000, less
applicable taxes, deductions, and any amount owed to
the Company by the Employee (other than amounts due
under the Loan Agreement described below). This
Severance Pay will be payable in a lump sum payment.
5. The Employee agrees that the terms and conditions of this
Agreement are strictly confidential and shall not be
disclosed to any other persons except the employee's legal
counsel, immediate family, financial advisor, or as required
by applicable law, and then on the condition that they be
instructed that they may not disclose the same to others.
6. The Employee will be paid the full amount of any
salary, commission, accrued unused vacation and other
payments and benefits due to the Employee by virtue of
his/her continued employment through the Termination Date.
Except for the foregoing, the Employee understands he or
she will not receive any additional payments or benefits
from the company other than those specified in paragraph 4
above.
7. The Employee agrees that upon execution of this
agreement, the Employee will return to the Company any and
all property or documents which the Employee created,
helped to create, received or acquired in the course of
Employee's employment, or which otherwise belong to the
Company.
8. The Employee acknowledges that the Non-Disclosure Agreement,
which the Employee signed upon joining Inso, remains in full
force and effect. Employee further acknowledges and agrees
that he remains liable to the Company for all amounts due to
the Company pursuant to that certain Pledge Agreement and
Secured Promissory Note each dated December 16, 1997
(collectively, the "Loan Agreement"), and that the Loan
Agreement shall remain in full force and effect
notwithstanding the termination of his employment with the
Company. Employee agrees that he will promptly inform the
Company upon the sale of any Company securities to allow the
Company to comply with SEC requirements.
9. In consideration for the payment and undertakings described
above, Employee does hereby completely remise, release and
forever discharge the Company from all claims, rights,
demands, actions, obligations, and causes of action of any
and every kind, nature and character, known or unknown,
which Employee may now have, or has ever had, against the
Company arising from or in any way connected with or
incidental to the dealings between the parties hereto prior
to the effective date hereof. Without limiting the
generality of the foregoing, the Employee also specifically
releases the Company from any and all claims, demands and
causes of action which have been or could have been asserted
as a result of Employee's employment with the Company,
separation from employment or other status with the Company,
including but not limited to all "wrongful discharge"
claims; and all claims relating to any contracts of
employment, express or implied; any covenant of good faith
and fair dealing, express or implied; any tort of any
nature; any claims arising out of any federal, state, or
municipal statute or ordinance; any claims or rights under
the Title VII of the Civil Rights Act of 1964, as amended by
the Civil Rights Act of 1991, 42 U.S.C. s. 2000 et seq., the
Age Discrimination and Employment Act of 1967, 29 U.S.C. s.
621 et seq., the Employee Retirement Income security Act of
1974, 29 U.S. C. s. 1001, et seq., the Americans with
Disabilities Act, 42 U. S. C. s. 12101 et seq., the Family
and Medical Leave Act, The Massachusetts Fair Employment
Practices Law, M.G. L. C. 151B, 1 et seq., the California
Fair Employment and Housing Act, Cal. Govt. Code 12900 et
seq., the Missouri Human Rights Act, V.A.M.S. s. 213.010 et
seq., or any other State, and other laws and regulations
relating to employment, discrimination or civil rights and
any and all claims for attorney's fees and costs. Nothing
contained in this section 10 shall be interpreted to relieve
the Employee of his responsibility to comply with the Non-
Disclosure Agreement, signed by the Employee.
10. Notwithstanding the Employee's resignation as an officer of
the Company, the Employee shall continue to be entitled to
all rights to indemnification for officers of the Company as
set forth in the bylaws of the Company.
11. The Employee acknowledges that he or she has been given
twenty-one (21) days to consider this Agreement and has
been advised to consult with an attorney before signing.
12. This Agreement shall become effective on the eighth (8th)
day following the date on which it is signed by the
Employee. The Employee may revoke this Agreement in the
seven-day period following the date on which the Employee
signs the Agreement by submitting a written revocation to
the Company. Any payments due under Paragraph 4 of this
Agreement shall not be paid until the Effective Date of this
Agreement, except as otherwise agreed.
13. This Agreement shall be deemed to have been executed and
delivered within the Commonwealth of Massachusetts and the
rights and obligations of the parties hereto shall be
construed and enforced in accordance with and governed by the
laws of the Commonwealth of Massachusetts.
14. This Agreement constitutes the entire understanding and
agreement between and among the Parties with respect to the
severance and supersedes all prior and contemporaneous oral
and written negotiations, agreements, commitments or
writings except as expressly stated herein.
15. This Agreement shall be binding upon the Parties and
may not be abandoned, supplemented, changed or modified in
any manner, orally or otherwise, except by an instrument
in writing of concurrent or subsequent date signed by a
duly authorized representative of the Parties. This
Agreement is binding upon and shall inure to the benefit
of the Parties and their respective agents, assigns,
heirs, executors, successors and administrators.
16. Should any provision of this Agreement be declared or be
determined by any court of competent jurisdiction to be
illegal or invalid, the validity of the remaining parts,
terms, or provisions shall not be affected thereby and said
illegal and invalid part, term or provision shall be deemed
not to be a part of this Agreement.
17. For a period two (2) years after the Termination Date,
Employee will not attempt to hire or hire, or attempt to
solicit or solicit, any employee of the Company, or assist
in such hiring by anyone else, to work as an employee or
independent contractor, with any business directly or
indirectly competitive with the Company's business.
EMPLOYEE EXPRESSLY WARRANTS THAT EMPLOYEE HAS READ AND FULLY
UNDERSTANDS THIS AGREEMENT; THAT EMPLOYEE HAS HAD THE OPPORTUNITY
TO FULLY DISCUSS AND REVIEW THE TERMS OF THIS AGREEMENT WITH
LEGAL COUNSEL; THAT EMPLOYEE IS NOT EXECUTING THIS AGREEMENT IN
RELIANCE ON ANY PROMISES, REPRESENTATIONS OR INDUCEMENTS OTHER
THAN THOSE CONTAINED HEREIN; AND THAT EMPLOYEE IS EXECUTING THIS
AGREEMENT VOLUNTARILY, FREE OF ANY DURESS OR COERCION.
/s/ Graham Marshall /s/ Elaine Ouellette
- ------------------------ --------------------
Graham Marshall Elaine Ouellette
for Inso Corporation
DATED: 5/6/99 DATED: 5/6/99
Exhibit A
[letterhead]
May 12, 1999
Inso Corporation
31 St. James Avenue
Boston, MA 02116-4101
Attention: Stephen O. Jaeger
Chairman of the Board of Directors of Inso
Corporation
Dear Steve:
Effective May 12, 1999, I hereby resign any and all
positions which I hold within Inso Corporation, its
subsidiaries and affiliates, including:
Vice President, Inso Corporation
Sincerely,
/s/ Graham Marshall
- -------------------------
Graham Marshall
Amended and Restated
Separation Agreement and Release
This Amended and Restated Separation Agreement and Release
entered into this 10th day of June, 1999, is made by and
between Inso Corporation ("the Company") and Paul A. Savage
("the Executive"), and hereby amends, supersedes and replaces
that certain Separation Agreement and Release, dated 30th day
of April, 1999, by and between the Company and the Executive,
and constitutes the parties' agreement with respect to the
termination of the Executive's employment.
1. The Executive voluntarily resigns as an officer of the
Company effective April 30,1999 ("the Resignation Date")
and as an employee with the Company (apart from holding an
office as aforesaid) twelve months thereafter or up to
eighteen months thereafter as described in paragraph 2,
whichever is greater ("the Termination Date"). Executive
shall execute and return to the Company the resignation
letter attached hereto as Exhibit A.
2. During the period between the Resignation Date and the
Termination Date ("the Interim Period"), Executive or
his estate shall continue to be paid his base salary
as in effect on the Resignation Date (reduced by any
amounts received under any disability insurance
program, or other income replacement program available
through the Company) in accordance with the Company's
normal and customary pay practices for executive
employees, subject to all applicable federal and state
income, payroll, and other applicable tax withholding.
During the Interim Period, the Executive shall perform
any special assignments reasonably requested by the
Chief Executive Officer or the President of the
Company at reasonable times and places mutually
agreeable to the parties. If Executive is not employed
by an employer other than the Company twelve months
from the Resignation Date, his base salary and
benefits, as described in the following paragraphs,
shall continue as aforesaid until the earlier of: a)
the expiration of eighteen months from the Resignation
Date, or b) the date of his employment by an employer
other than the Company, but in no case shall the
salary and aforementioned benefits continue for less
than twelve months from the Resignation Date. For
purposes of this Agreement self-employment shall not
be considered "employed by an employer other than the
Company".
3. During the Interim Period and any extended period if it
comes into being, and subject to the exceptions noted
below, Executive and his family shall be entitled to
continue his or their participation in the Company's
medical, dental, and vision care benefit plans to the
same extent, and under the same conditions, that he may
be a participant in such plans on the Resignation Date
regardless of the intervening death of Executive;
provided however, such participation shall cease on the
earlier of: (a) the Termination Date, and (b) the last
day of the month in which he may be covered by any plan,
program or arrangement, sponsored by another employer
offering similar coverage.
4. On the Termination Date, Executive shall be eligible to
continue medical, dental, and vision care benefits under
the provisions of COBRA, and he will be notified of his
COBRA rights at that time.
5. Executive's participation in Company benefit plans,
programs, and arrangements not enumerated in paragraph 3
above shall be as described in Attachment A: "Executive
Separation Agreement, Summary of Benefits Continuation".
Executive's entitlement to further vacation, sick leave
and other paid time off shall cease on the Resignation
Date. The Executive shall be entitled to one full week
of earned but unused vacation, which shall be paid to
him within 90 days of the Resignation Date.
6. Previously granted, but unexercised stock options held by
Executive for the purchase of stock of the Company shall
be exercisable pursuant to the terms of the Company's
stock option plan, for a period of 90 days after the
Termination Date or 180 days following the death of
Executive, as the case may be. All previously granted, but
unexercised stock options held by the Executive will
continue to vest over the Interim Period and will become
fully vested upon a change in control of the Company as
outlined in the Company's stock option plan.
7. Executive shall be entitled to an incentive compensation
payment of $32,000. This will be paid within 15 days of the
execution of this Agreement. Should Executive's base salary
continue beyond twelve months as described in the last
sentence of paragraph 2 above as a result of Executive not
being employed by an employer other than the Company twelve
months from the Termination Date, during such period an
additional $1,231 bonus adjustment will be added to each
bi-weekly salary payment until the earlier of: a) the
expiration of eighteen months from the Termination Date, or
b) the date of his employment by an employer other than the
Company.
8. Anything contained in paragraphs 14 and 15
notwithstanding, the Company and Executive shall
continue to be bound by the Non-Disclosure Agreement
executed by Executive on October 4, 1996, which
Agreement is incorporated herein by reference.
9. Upon request of Executive, the Company shall pay
for and retain a firm to provide Executive
Outplacement assistance, including but not limited
to resume preparation, administrative support, and
general continuing counseling up to 6 months.
10. From and after the date of this Agreement, the Executive
shall continue to be entitled to indemnification as an
"Officer" of the Company in accordance with Article V of
the Company's By-laws as in effect as of the date of this
Agreement notwithstanding any subsequent amendment to such
By-laws. The term "Officer" shall have the meaning set
forth in Article V of the Company's By-laws. With respect
to the action now pending in the United States District
Court for the District of Massachusetts under the caption
Robert C. Krauser v. Inso Corp., et al., 99 CV 10366 RCL,
and any action now pending or hereafter commenced relating
to the subject matter of that action, and with respect to
an informal investigation of the United States Securities
and Exchange Commission under the caption In the Matter of
Inso Corp. (B-1392), and any investigation or proceeding
now pending or hereafter commended relating to the subject
matter of that investigation, indemnification extended to
the Executive pursuant to this paragraph 10 shall also
include payment by the Company of all expenses (including
reasonable attorney fees) incurred by the Executive in
connection with any such action, investigation or
proceeding in advance of the final disposition of such
action, investigation or proceeding upon receipt of an
undertaking by the Executive to repay such advance payment
if the Executive shall be adjudicated or determined not to
be entitled to indemnification in accordance with Article
V of the Company's By-Laws.
11. Executive agrees to return to the Company prior to the Resignation Date,
all Companyproperty including, but not limited to, vendor, supplier,
and any other business or mailing lists, reports, files,
memoranda, records and software, credit cards, desk or
file keys, computer access codes or disks, and Company
manuals. Executive further agrees that he will not retain
any copies, duplicates, reproductions or excerpts of such
property. Notwithstanding the preceding, Executive shall
not be required to return to the Company the personal
computer and peripherals purchased by the Company and
currently set up for his home use. The Executive is
required to return to the Company the leased company car
no later than May 31, 1999.
12. Executive acknowledges that the Company will include a
copy of this Agreement as an exhibit to its Form 10-Q
for the fiscal quarter ending July 31, 1999. Until such
time as the Company includes a copy of this Agreement as
an exhibit to its Form 10-Q, the Executive and Company
represent and agree that they and their agents and
representatives shall keep completely and strictly
confidential the terms of this Agreement and any
settlement negotiations that occurred in connection with
this Agreement, except as required by law.
13. Executive for himself and on behalf of his heirs,
executors, administrators and assigns, hereby remises,
releases and fully discharges the Company and, to the
extent applicable, its present, former, and future parent
companies, subsidiaries and affiliates, and the officers,
directors, employees, agents, successors and assigns of
each of them ("the Released Parties") of and from any and
all claims, rights and causes of action of all nature
known, unknown, past, present, now foreseeable or
unforeseeable, which he has or may hereafter have, in any
way arising out of, connected with or related to
Executive's employment with any of the Released Parties,
the termination thereof or based upon information made
known to Executive during employment with any of the
Released Parties. This Release shall include, but not be
limited to, any claims, damages, rights and causes of
action for wrongful discharge, breach of contract,
discrimination or retaliation under any federal, state or
local laws, rules, orders or regulations including Title
VII the Civil Rights Act of 1964, 42 U.S.C.Sec. 200 et. seq.,
the Massachusetts Civil Rights Act, M.G.L.c. 12 Sec.11H and
11I, the Massachusetts Fair Employment Practices Act,
M.G.L.c. 151b, Sec. 1 et. seq., the Americans with Disabilities
Act, 29 U.S.C. Sec. 12101 et. seq., and the Massachusetts Equal
Rights Act, c.93, Sec. 102. This Release shall also include,
but not be limited to, all claims, rights and causes of
action for costs, attorney's fees, bounties, or percentage
of awards or settlements which Executive may assert against
or which may be asserted against the Company by others on
Executive's behalf, or against any of the Released Parties.
Executive and the Company intend and agree that this
Release is to be a broad Release to apply to any relief or
cause of action, no matter what it is called, and shall
include, but not be limited to, claims, rights or causes of
action for wages, benefits, bonuses, fines, back pay, share
of awards, compensatory damages, and punitive damages;
however, nothing in this Release shall be construed to bar
claims for alleged breaches of this Agreement.
14. The Company, on its behalf, and to the extent applicable,
on behalf of its present, former and future parent
companies, subsidiaries and affiliates, and officers,
directors, agents, successors and assigns of each of them
hereby remises, releases, and fully discharges Executive
of and from all claims, demands, causes of action, damages
and expenses, of any and every nature whatsoever, known or
unknown by the Company, past or present as a result of
actions, omissions or events occurring through the date of
this Agreement in connection with his employment with the
Company; however, nothing in this Release shall be
construed to bar claims for alleged breaches of this
Agreement.
15. Executive will not disparage or discuss the Company or
its agents, officers, servants or employees in a
derogatory manner. Executive will at all times state,
if asked, that the Company was and is a reputable
company during his employment with the Company and
that he was proud to have been associated with it. The
Company will not disparage or discuss the Executive in
a derogatory manner and will at all times state if
asked, that the Executive conducted himself honorably
and with distinction and is a reputable person.
16. The Executive herein represents that he has not filed
any complaints, charges or claims for release against
the Released Parties with any local, state, or federal
court or administrative agency which currently are
outstanding.
17. The payment by the Company of the consideration referred
to herein is not, and shall not be deemed, an admission
of responsibility or liability by any of the Released
Parties.
18. The Employee acknowledges that he has been given twenty-
one (21) days to consider this Agreement and has been
advised to consult with an attorney before signing.
19. This Agreement shall become effective on the eighth (8th)
day following the date on which it is signed by the
Employee. The Employee may revoke this Agreement in the
seven-day period following the date on which the Employee
signs the Agreement by submitting a written revocation to
the Company. Any payments due under this Agreement shall
not be paid until the Effective Date of this Agreement,
except as otherwise agreed.
20. Employee acknowledges that:
- -He was advised to consult with an attorney to review
this Agreement prior to signing it, and was given a
chance to refuse to sign this Agreement.
- - He has read and understands this Agreement and
understands fully its final and binding effect.
- - None of the Released Parties had made any
statements, promises or representations not set
forth in this Agreement, and
Executive has not relied on any such
statements, promises or representations.
- - He has voluntarily signed this Agreement with
the knowledge and understanding and full intention
of releasing the Released Parties as set forth
above.
21. This Agreement is binding upon and shall inure to the
benefits of the parties hereto and their respective
assigns, successors, heirs and personal representatives;
provided however that the Executive may not assign any
rights or duties it may have hereunder without prior
written consent of the Company.
22. If any provision of this Agreement is judicially
determined to be invalid or unenforceable as written, then
such provision shall, if possible, be modified and
reformed to the degree necessary to render it valid and
enforceable. Any such invalidity or unenforceability of
any provision shall have no effect on the remainder of
this Agreement which shall remain in full force and
effect.
23. This Agreement is to be governed and will be construed as a
sealed instrument under and in accordance with the laws of
the Commonwealth of Massachusetts.
24. This Agreement, together with the document incorporated
herein by reference, constitutes the entire agreement between
the parties hereto and supersedes all prior and contemporaneous
negotiations, representations, understandings and agreements,
whether written or oral.
IN WITNESS WHEREOF, the Company and Executive have entered into
this Agreement on the date first above written.
The Company The Executive
By: /s/ Elaine Ouellette /s/ Paul A. Savage
- --------------------------- ---------------------
Elaine Ouellette Paul A. Savage
Attest:
/s/ Jonathan Levitt
- ---------------------
Jonathan Levitt
Entered into as of the 30th day of April, 1999
Inso Corporation
31 St. James Avenue
Boston, MA 02116-4101
Attention: Stephen O. Jaeger
Chairman of the Board of Directors of Inso
Corporation
Dear Steve:
Effective April 30, 1999, I hereby resign my position as an
Officer of Inso Corporation, its subsidiaries and
affiliates, pursuant to the Separation Agreement and Release
entered into as of the 30th day of April, 1999.
Vice President, Inso Corporation
Sincerely,
/s/ Paul A. Savage
- ---------------------
Paul A. Savage
ATTACHMENT A
Period of Interim Termination of Employement
Employment
Begins upon resignation Begins at end of period
as officer of Company. of interim employment.
Ends at termination of
employment.
Medical, Dental and Coverage in effect upon Coverage continues for
Vision Care resignation may be 31 days following
continued at employee termination of
discretion for employment.
executive and covered
family members.
Employee shares cost on Employee may continue
same basis as active health coverage under
employees through provisions of COBRA by
payroll deduction. paying the applicable
premium.
Basic Life Basic life insurance Coverage continues for
coverage continues at 31 days following
level in effect upon termination of employment.
resignation.
Company pays entire Employee may convert all
cost of coverage. or part of insurance to
non-group coverage by
applying to the
insurance company
and paying the
applicable premium.
Optional Life Coverage in effect Coverage continues for
Employee/spouse/child upon resignation may 31 days following
be continued at termination of employment.
discretion of employee.
Employee pays entire Employee may convert all
cost of coverage or part of insurance to
through payroll non-group coverage by
deduction. applying to the
insurance company
and paying the
applicable premium.
Personal Accident Coverage in effect Coverage continues for
upon resignation may 31 days following
be continued at termination of employ-
discretion of employee ment.
Employee pays entire Employee may convert all
cost of coverage or part of insurance
through payroll to a non-group
deduction. coverage by applying to
the insurance company
and paying the
applicable premium.
Long Term Disability Coverage in effect upon Coverage continues for
resignation may be 31 days following
continued at discretion termination of employ-
of employee. ment.
Employee pays any
applicable share of the
cost on the same basis
as active employees
through payroll
deduction.
Health Care Account Participation in effect Participation ends at
upon resignation may be termination of employ-
continued at discretion ment.
of employee.
Employee may continue Employee may continue
to request reimbursement to request reimbursement
for eligible expenses for eligible expenses
incurred during period incurred prior to the
of participation. termination date.
Employee continues to Employee may continue
make contributions on participation under
same basis as active provisions of COBRA by
employees through making after-tax
payroll deduction. contributions to the
plan.
Dependent Care Account Participation ends at N/A
resignation.
No further
contributions will be
deducted from pay.
Employee may continue
to be reimbursed for
eligible expenses
incurred prior to
resignation date.
401(k) Participation in effect Participation ends at
upon resignation may be termination of
continued at discretion employment.
of employee.
Employee continues to Employee's distribution
make contributions on options depend on the
same basis as active amount of funds on
employees through account at termination.
payroll deduction, and
Company match continues
per plan provisions.
Employee Stock Purchase No further NA
Plan contributions will be
deducted from pay.
Accumulated funds held
in the program will be
refunded in the next
available pay period.
Employee Assistance You may continue to You may continue access
Program access the services of for 60 days following
Sobel & Raciti your termination, the
Associates, Inc. during services of Sobel &
your period of interim Raciti Associates, Inc.
employment.
Amended and Restated
Separation Agreement and Release
This Amended and Restated Separation Agreement and Release
("Agreement") entered into this 11th day of June, 1999, is made
by and between Inso Corporation ("the Company") and Betty J.
Savage ("the Executive"), and hereby amends, supersedes and
replaces that certain Separation Agreement and Release, dated
the 29th day of April, 1999, by and between the Company and
the Executive, and constitutes the parties' agreement with
respect to the termination of the Executive's employment with
the Company and all of its subsidiaries and affiliates.
1. The Executive voluntarily resigns as an officer of the
Company and all of its subsidiaries and affiliates
effective April 29, 1999 ("the Resignation Date") and as
an employee with the Company and all of its subsidiaries
and affiliates on January 13, 2002 ("the Termination
Date") except as described in paragraph 2. Executive shall
execute and return to the Company the resignation letter
attached hereto as Exhibit A contemporaneously with the
execution and delivery of this Agreement.
2. During the period between the Resignation Date and the
Termination Date ("the Interim Period"), the Executive
shall perform any special assignments reasonably
requested by the Chief Executive Officer or President
of the Company at reasonable times and places mutually
agreeable to the parties. It is the intention of the
parties that such special assignments would not
unreasonably interfere with any future employment the
Executive may undertake with an employer other than
the Company. During the Interim Period, the Executive
or his or her estate shall be paid as follows: for the
period between the Resignation Date and July 13, 2000,
the Executive shall be paid at an annualized rate of
$160,000 - his or her base salary as in effect on the
Resignation Date - (reduced by any amounts received
under any disability insurance program, or other
income replacement program available through the
Company) in accordance with the Company's normal and
customary pay practices for executive employees,
subject to all applicable federal and state income,
payroll, and other applicable tax withholding ("Base
Salary"). For the period from July 13, 2000 through
January 13, 2002, the Executive shall be paid a total
of $80,000, payable pro rata during such period.
Additionally, if the Executive did not begin
employment in a comparable position with an employer
other than the Company by October 29, 2000 (the
"Extension Date"), then on April 29, 2001 the
Executive shall be paid a single lump-sum payment
equal to the product of (a) the number of months (if
any) between October 29, 2000 and April 29, 2001
during which the Executive did not begin employment in
a comparable position with an employer other than the
Company, and (b) one twelfth (1/12) of Base Salary.
For example, if the Executive began employment in a
comparable position with an employer other than the
Company twenty-one (21) months following the
Resignation Date, then the Executive would be entitled
to a lump-sum payment equal to three (3) months of
Base Salary.
3. From April 29, 1999 to January 13, 2002, and subject to
the exceptions noted below, Executive and his or her
family shall be entitled to continue his, her or their
participation in the Company's medical, dental, vision
care and life insurance and disability benefit plans to
the same extent, and under the same conditions, that he
or she may be a participant in such plans on April 29,
1999 regardless of the intervening death of Executive;
provided. however, such participation shall cease on the
earlier of: (a) January 13, 2002, and (b) the last day
of the month in which he or she may be covered by any
plan, program or arrangement, sponsored by another
employer offering substantially equivalent coverage.
Additionally, from April 29, 1999 to January 13, 2002,
the Executive shall be entitled to continue his or her
participation in the Company's 401K plan (including
employer match).
4. On January 13, 2002, Executive shall be eligible to
continue medical, dental, and vision care benefits under
the provisions of COBRA, and he or she will be notified
of his or her COBRA rights at that time.
5. Executive's participation in Company benefit plans,
programs, and arrangements not enumerated in paragraph 3
above shall be governed by their terms. Executive's
entitlement to further vacation, sick leave and other
paid time off shall cease on the Resignation Date and
any payments to which he or she may be entitled for
earned but unused vacation shall be made to him or her
within 15 days of the Resignation Date.
6. During the period from April 29, 1999 through January 13,
2002, any unexercised stock options issued to the
Executive prior to April 29, 1999 shall continue to vest,
and shall be subject to rules regarding exercise, as if
the Executive were still an active employee of the
Company, and all rights of an option holder which may
arise on a change of control of the Company shall continue
to accrue to the Executive during such time period.
7. Executive shall be entitled to an incentive compensation
payment of $50,000 which will be paid in the first pay
period following June 11, 1999.
8. Anything contained in paragraphs 14 and 15
notwithstanding, the Company and Executive shall
continue to be bound by the Non-Disclosure Agreement
executed by Executive on March 2, 1994, which Agreement
is incorporated herein by reference.
9. The Company shall seek Executive's agreement on any
public announcement regarding his or her cessation of
active employment, which agreement shall not be
unreasonably withheld. The Executive confirms that he or
she received and consented to the Company's press
release attached as Exhibit B, hereto.
10. Upon request of Executive, the Company shall pay
for and retain a firm to provide Executive
Outplacement assistance of a kind and nature
generally provided to other executives who have
separated from the Company, including but not
limited to resume preparation, administrative
support, and general continuing counseling, for a
maximum of 12 months. The Company shall also
reimburse the Executive for reasonable legal fees
incurred by the Executive in connection with this
Agreement.
11. From and after the date of this Agreement, the Executive
shall continue to be entitled to indemnification as an
"Officer" of the Company in accordance with Article V of
the Company's By-laws as in effect as of the date of this
Agreement notwithstanding any subsequent amendment to such
By-laws. The term "Officer" shall have the meaning set
forth in Article V of the Company's By-laws.
12. Executive agrees to return to the Company prior to
the Resignation Date, all Company property including,
but not limited to, vendor, supplier, and any other
business or mailing lists, reports, files, memoranda,
records and software, credit cards, desk or file
keys, computer access codes or disks, and Company
manuals. Executive further agrees that he or she will
not retain any copies, duplicates, reproductions or
excerpts of such property. Notwithstanding the
foregoing, the Executive may retain her current
computer equipment (including a computer printer to
be provided to Executive by the Company), and may
retain copies of the financial models she developed
during her employment with the Company, provided that
all Company confidential information be removed from
the computer and from such models. Further, but
subject in all cases to the Non-Disclosure Agreement
executed by Executive on March 2, 1994, the Executive
may retain copies of any Company documents which she
deems reasonably necessary for the defense of any
allegations that may be brought against her in
connection with her employment with the Company.
13. Executive acknowledges that the Company will include a
copy of this Agreement as an exhibit to its Form 10-Q
for the fiscal quarter ending July 31, 1999. Until such
time as the Company includes a copy of this Agreement as
an exhibit to its Form 10-Q, the Executive and Company
represent and agree that they and their agents and
representatives shall keep completely and strictly
confidential the terms of this Agreement and any
settlement negotiations that occurred in connection with
this Agreement, except that (1) the Executive may
disclose said information to his or her legal advisors,
financial advisors and spouse providing that the
Executive informs these persons of the confidentiality
restriction and they agree to be bound by it; (2) the
parties may disclose said information if agreed in
writing by authorized agents of both parties; (3) as
required by law; (4) in order to rebut any material
misstatement by the other party. In the event that
either party seeks to disclose the confidential
information pursuant to (3) or (4) above, that party
will give the other party at least ten (10) days advance
written notice to provide an opportunity to contest
disclosure.
14. Executive for himself or herself and on behalf of his or her
heirs, executors, administrators and assigns, hereby
remises, releases and fully discharges the Company and, to
the extent applicable, its present, former, and future
parent companies, subsidiaries and affiliates, and the
officers, directors, employees, agents, successors and
assigns of each of them ("the Released Parties") of and from
any and all claims, rights and causes of action of all
nature known, unknown, past, present, now foreseeable or
unforeseeable, which he or she has or may hereafter have, in
any way arising out of, connected with or related to
Executive's employment with any of the Released Parties, the
termination thereof or based upon information made known to
Executive during employment with any of the Released
Parties. This Release shall include, but not be limited to,
any claims, damages, rights and causes of action for
wrongful discharge, breach of contract, discrimination or
retaliation under any federal, state or local laws, rules,
orders or regulations including Title VII the Civil Rights
Act of 1964, 42 U.S.C. Sec. 200 et. seq., the Massachusetts
Civil Rights Act, M.G.L.c. 12 Sec. 11H and 11I, the
Massachusetts Fair Employment Practices Act, M.G.L.c. 151b,
Sec. 12101 et. seq., and the Massachusetts Equal Rights Act,
c.93, Sec. 102. This Release shall also include, but not be
limited to, all claims, rights and causes of action for
costs, attorney's fees, bounties, or percentage of awards or
settlements which Executive may assert against or which may
be asserted against the Company by others on Executive's
behalf, or against any of the Released Parties. Executive
and the Company intend and agree that this Release is to be
a broad Release to apply to any relief or cause of action,
no matter what it is called, and shall include, but not be
limited to, claims, rights or causes of action for wages,
benefits, bonuses, fines, back pay, share of awards,
compensatory damages, and punitive damages; however, nothing
in this Release shall be construed to bar claims for alleged
breaches of this Agreement.
15. The Company, on its behalf, and to the extent applicable,
on behalf of its present, former and future parent
companies, subsidiaries and affiliates, and officers,
directors, agents, successors and assigns of each of them
hereby remises, releases, and fully discharges Executive
of and from all claims, demands, causes of action, damages
and expenses, of any and every nature whatsoever, known,
unknown, past, present, now foreseeable or unforeseeable
as a result of actions, omissions or events occurring
through the date of this Agreement in connection with his
or her employment with the Company; however, nothing in
this Release shall be construed to bar claims for alleged
breaches of this Agreement.
16. Executive will not disparage or discuss the Company or
its agents, officers, servants or employees in a
derogatory manner. Executive will at all times state,
if asked, that the Company was and is a reputable
company during his or her employment with the Company
and that he or she was proud to have been associated
with it. The Company will not disparage or discuss the
Executive in a derogatory manner and will at all times
state if asked, that the Executive conducted himself
or herself honorably and is a reputable person.
17. The Executive herein represents that he or she has not
filed any complaints, charges or claims for release
against the Released Parties with any local, state, or
federal court or administrative agency which currently
are outstanding.
l8. The payment by the Company of the consideration referred
to herein is not, and shall not be deemed, an admission
of responsibility or liability by any of the Released
Parties.
19. The Employee acknowledges that he or she has been given
twenty-one (21) days to consider this Agreement and has
been advised to consult with an attorney before signing.
20. This Agreement shall become effective on the eighth (8th)
day following the date on which it is signed by the
Employee. The Employee may revoke this Agreement in the
seven-day period following the date on which the Employee
signs the Agreement by submitting a written revocation to
the Company. Any payments due under this Agreement shall
not be paid until the Effective Date of this Agreement,
except as otherwise agreed.
21. Employee acknowledges that:
- - He or she has read and understands this Agreement
and understands fully its final and binding effect.
- - None of the Released Parties had made any
statements, promises or representations not set forth
in this Agreement, and
Executive has not relied on any such statements,
promises or representations.
- - He or she has voluntarily signed this Agreement
with the knowledge and understanding and full
intention of releasing the Released Parties as set
forth above.
22. This Agreement is binding upon and shall inure to the
benefits of the parties hereto and their respective
assigns, successors, heirs and personal representatives;
provided however that the Executive may not assign any
rights or duties it may have hereunder without prior
written consent of the Company.
23. If any provision of this Agreement is judicially
determined to be invalid or unenforceable as written, then
such provision shall, if possible, be modified and
reformed to the degree necessary to render it valid and
enforceable. Any such invalidity or unenforceability of
any provision shall have no effect on the remainder of
this Agreement which shall remain in full force and
effect.
24. This Agreement is to be governed and will be construed as a
sealed instrument under and in accordance with the laws of
the Commonwealth of Massachusetts. If any dispute or
disagreement arises between the parties relating to the
terms of this Agreement, the parties shall attempt to
mediate their differences through the offices of
J.A.M.S./Endispute. If mediation does not resolve the
dispute, the parties agree to binding arbitration with
J.A.M.S./Endispute. The parties shall abide by and perform
any arbitration award and such award shall be entered as a
judgement by any court having jurisdiction thereof.
25. This Agreement, together with the document incorporated
herein by reference, constitutes theentire agreement between
the parties hereto and supersedes all prior and contemporaneous
negotiations, representations, understandings and
agreements, whether written or oral.
IN WITNESS WHEREOF, the Company and Executive have entered into
this Agreement on the date first above written.
Inso Corporation Betty J. Savage
By /s/ Jonathan Levitt /s/ Betty J. Savage
- ---------------------------- ----------------------
Jonathan Levitt Betty J. Savage
Attest: /s/ Elaine Ouellette
- ------------------------------
Elaine Ouellette
Exhibit A
[print on letterhead]
DATE
Inso Corporation
31 St. James Avenue
Boston, MA 02116-4101
Attention: Stephen Jaeger
Chairman of the Board of Directors of Inso
Corporation
Dear Steve:
Effective April 29, 1999, I hereby resign any and all
offices which I hold within Inso Corporation, its
subsidiaries and affiliates, including without limitation:
Chief Financial Officer, Inso Corporation
Vice President, Inso Corporation
Treasurer, Inso Corporation
Sincerely,
/s/ Betty J. Savage
Betty J. Savage
Exhibit B
Press Release
PRESS CONTACT:
Donna M. Murno
Inso Corporation
617/753-6788 (Telephone)
617/753-6665 (Fax)
[email protected]
FOR IMMEDIATE RELEASE
Inso Corporation Announces Resignation of CFO Betty J. Savage
BOSTON, April 29, 1999 - Inso Corporation (NASDAQ: INSO) today
announced that Betty J. Savage has resigned from her position as
Vice President, Chief Financial Officer and Treasurer. Ms. Savage
will remain with Inso to assist the Company during a transitional
period of hiring a new Chief Financial Officer.
Ms. Savage, who has been with Inso since its inception in 1994,
is leaving Inso to consider opportunities presented by other
companies. Prior to joining Inso, Ms. Savage was employed with
Ernst & Young LLP for more than fourteen years.
"I've known Betty and worked closely with her for many years,"
said Stephen O. Jaeger, Inso Chairman and Chief Executive
Officer. "Betty has made a tremendous contribution to Inso during
her tenure. She played an important role in Inso's initial public
offering and two subsequent stock offerings. She oversaw the
financial activities of more than 25 subsidiaries, both foreign
and domestic. Betty also played a key role in the Company's 13
acquisitions, as well as the selling of our linguistic software
business in early 1998. We are grateful to Betty for devoting
long hours and hard work to completing the recent year-end audit
before deciding to leave Inso and appreciate her dedication and
loyalty to the Company throughout the years. We will miss her and
wish her luck in her future endeavors."
Inso Corporation is a leading provider of tools for the
management, exchange and dynamic delivery of critical business
information. Inso's award-winning technology enables large
corporations to manage, exchange and publish all types of
information, from the simplest memo to the most complex
multimedia document. For more information, visit the Inso Web
site at http://www.inso.com.
###
Inso and the Inso logo are trademarks or registered trademarks of
Inso Corporation in the United States and/or other countries.
All other company, product or service names are trademarks or
registered trademarks of their respective holders.
AGREEMENT RELATING TO WARRANTS OF INSO CORPORATION
This Agreement dated as of June 22, 1999 is by and among
Inso Corporation (the "Company"), those persons listed on Exhibit
A hereto who have signed this Agreement (the "Holders"), who
constitute holders of the Company's Common Stock Purchase
Warrants issued December 3, 1998 pursuant to the Share Exchange
Agreement and Agreement and Plan of Merger among the Company,
Tabasco Corp., Sherpa Systems Corporation and the selling
stockholders named in that agreement (the "Acquisition
Agreement"), and Jerry Sullivan and Richard Kramlich
(collectively, the "Indemnification Representatives"). For
purposes of this Agreement, all warrants issued under the
Acquisition Agreement, whether or not held by the Holders, are
hereinafter referred to as the "Original Warrants".
Recitals
A. The Company issued the Original Warrants to the Holders
and others pursuant to the Acquisition Agreement, pursuant to
which such Holders and others had the right to purchase shares of
the Company's Common Stock at a price of $23.50 per share.
B. Certain of the Holders purchased Original Warrants from
others.
C. Pursuant to the Acquisition Agreement, the Company and
Tabasco Corp. deposited funds into escrow to be held in
accordance with an Escrow Agreement dated as of December 3, 1998
among the Company, the Indemnification Representatives and State
Street Bank and Trust Company, as escrow agent (the "Escrow
Agent") to secure certain adjustments to the purchase price and
certain indemnification obligations of the Company Stockholders
(as defined in the Acquisition Agreement). The parties hereto
wish to set forth their agreement as to the distribution of
certain proceeds held in escrow.
D. Subsequent to the issuance of the Original Warrants,
the Company issued certain press releases dated February 1, 1999,
February 8, 1999 and March 31, 1999, relating, among other
things, to a restatement of the Company's financial statements
for 1998 (the "Press Releases"), and the market price of the
Company's Common Stock declined. The Holders have asserted that
they are damaged by such decline. This Agreement is not an
admission of wrongdoing or liability by any party hereto.
E. The Holders and the Company wish to set forth their
agreement settling the Holders' claims against the Company to the
extent set forth in this Agreement.
F. The intent of this Agreement is to complete the
transactions contemplated by the Acquisition Agreement.
G. Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Acquisition Agreement.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Warrant and Cash Exchange. On each Closing Date, each of
the Holders delivering his, her or its Original Warrants as
of such date shall exchange his, her or its Original
Warrants for the cash and warrants (the "New Warrants") set
forth opposite such Holder's name on Exhibit A hereto. The
New Warrants shall be identical in form and substance to the
Original Warrants, except that the Purchase Price shall be
$10.00 per share, and the expiration date shall be April 15,
2002, rather than December 3, 2000. Following such Closing
Date, the Original Warrants delivered to the Company as of
such Closing Date shall be deemed terminated and of no
further force and effect. The Holders and the
Indemnification Representatives shall use commercially
reasonable efforts to cause all holders of the Original
Warrants to become parties to this Agreement, and the
Company shall offer all such holders the opportunity to
become parties to this Agreement until July 31, 1999.
2. Release of Funds held in Escrow. On the Initial Closing
Date, the Company and the Indemnification Representatives
shall instruct the Escrow Agent to release, within five
business days after the Escrow Agent receives such
instruction, (i) Nine Hundred Fifty-Nine Thousand Forty-four
dollars ($959,044) to the persons and in the amounts
indicated on Exhibit B hereto (including amounts paid to
counsel for the Indemnification Representatives in
connection with the negotiation of this Agreement pursuant
to Section 8 of the Escrow Agreement); and (ii) the balance
of the Specific Escrow Fund to the Company, in each case
plus accrued interest thereon. The amounts released shall
constitute the entirety of the Specific Escrow Fund, as
defined in the Escrow Agreement, and all amounts thereafter
constituting the Escrow Fund shall consist solely of the
General Escrow Fund. The parties hereto agree that the
Company is not waiving any rights it may have to make claims
against the General Escrow Fund, which shall be distributed
in accordance with the terms of the Escrow Agreement. The
parties hereto agree to use commercially reasonable efforts
to resolve any disputes which may arise from time to time
with respect to the General Escrow Fund as expeditiously as
possible.
3. The Closing. The Initial Closing Date shall be five
business days following the later to occur of (i) the date
by which the Company, the Indemnification Representatives
and persons holding Original Warrants which are exercisable
for at least 85% of the shares of common stock of the
Company issuable upon the exercise of all of the Original
Warrants (the "Requisite Percentage of Holders") shall have
signed this Agreement and (ii) the Company shall have
received all of the Original Warrants held by the Requisite
Percentage of Holders. The Company shall hold all of the
Original Warrants in escrow pending the Closing Date, and,
in the event that the Initial Closing Date does not occur
within 45 days after the date hereof, the Company shall,
upon the request of any Holder, return such Original
Warrants to the Holders thereof. Subsequent Closing Dates
shall take place promptly following such time that a person
holding an Original Warrant signs this Agreement and
delivers such Original Warrant to the Company pursuant to
this Agreement. On such date as any such holder becomes a
party to this Agreement, Exhibit A shall be amended to
include the name of such holder and the number of New
Warrants and cash to which such person shall be entitled.
The aggregate number of shares for which New Warrants issued
to each such person shall be exercisable shall equal
1,000,000 shares times the aggregate number of shares for
which such person's Original Warrants are then exercisable,
divided by the aggregate number of shares for which all
Original Warrants issued pursuant to the Acquisition
Agreement were initially exercisable (such person's "Pro
Rata Percentage"). The aggregate cash to which such person
shall be entitled shall equal $3,000,000 times such person's
Pro Rata Percentage. On each Closing Date, the Company
shall deliver to each person who has delivered an Original
Warrant to the Company hereunder as of such date, such
person's applicable New Warrant and cash.
4. The Holders' and the Indemnification Representatives'
release of the Company. The Holders and the Indemnification
Representatives, collectively and individually, for
themselves and, with respect to the Purchase Price
Adjustment Claim, all Company Stockholders (as defined in
the Acquisition Agreement), and on behalf of their
respective officers, directors, employees, trustees,
attorneys, agents, assigns, predecessors and
successors-in-interests, parents, subsidiaries and
affiliates, hereby irrevocably and unconditionally release,
remise, acquit and discharge the Company and its present and
former officers, directors, employees, agents, assigns,
predecessors and successors-in-interest, parents,
subsidiaries and affiliates (collectively "the Inso
parties") of and from any and all debts, demands, causes of
action, suits, accounts, covenants, contracts, agreements,
damages, and any and all claims, demands, and liabilities
whatsoever of every name and nature, both in law and in
equity, which the Holders and the Indemnification
Representatives, or any of them, now have or ever have had
against any of the Inso parties whether known or unknown,
suspected or unsuspected, from the beginning of the world to
this date (collectively the "Holder Claims"), insofar as
such Holder Claims relate (i) to the Original Warrants,
whether as a result of the Press Releases or their effect on
the value of the Original Warrants or otherwise, or (ii) to
the purchase price adjustment set forth in Section 1.5(c) of
the Acquisition Agreement (the matter in this clause (ii)
being referred to as the "Purchase Price Adjustment Claim").
5. The Company's release of the Company Stockholders and the
Indemnification Representatives. The Company, for itself
and its officers, directors, employees, trustees, attorneys,
agents, assigns, predecessors and successors-in-interest,
parents, subsidiaries and affiliates, hereby irrevocably and
unconditionally releases, remises, acquits and discharges
the Company Stockholders, the Indemnification
Representatives and their respective officers, directors,
employees, agents, assigns, predecessors and
successors-in-interest, parents, subsidiaries and affiliates
(collectively, the "Holder parties") of and from any and all
debts, demands, causes of action, suits, accounts,
covenants, contracts, agreements, damages, and any and all
claims, demands, and liabilities whatsoever of any name and
nature, both in law and in equity, which the Company now has
or ever has had against any of the Holder parties, whether
known or unknown, suspected or unsuspected, from the
beginning of the world to this date (collectively the
"Company Claims"), insofar as such Company Claims relate to
the purchase price adjustment set forth in Section 1.5(c) of
the Acquisition Agreement.
6. Accord and Satisfaction. It is expressly understood and
agreed that the acceptance of the above-described
consideration is in full accord and satisfaction of the
above described matters and that payment of the
consideration is not an admission of liability, wrong-doing
or fault of any kind by the Company.
7. PricewaterhouseCoopers LLP Consent. The Holders and the
Indemnification Representatives agree to use commercially
reasonable efforts to cause PricewaterhouseCoopers LLP to
promptly deliver to the Company all necessary consents of
that firm to enable the Company to file all required
historical financial statements of Sherpa Systems
Corporation with the Securities and Exchange Commission.
8. Civil Code Section 1542. The parties represent that they
are not aware of any claim by either of them other than the
claims that are released by this Agreement. Each party
acknowledges that it is familiar with the provisions of
California Civil Code Section 1542, which provides as
follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR
AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR.
Each party, being aware of such code section, agrees to
waive any rights it may have thereunder, as well as under
any other statute or common law principles of similar
effect. In connection with such waiver and relinquishment,
the parties hereby acknowledge that they are aware that
they, or their attorneys, may hereafter discover claims or
facts in addition to or different from those which they now
know of or believe to exist with respect to the subject
matter of this Agreement, but that their intention is to
hereby fully, finally and forever settle and release all of
the disputes and differences, known or unknown, suspected or
unsuspected, which do now exist, which may exist in the
future, or which heretofore have existed between the parties
with respect to the matters described in the foregoing
releases. In furtherance of such intention, the releases
herein given shall be and remain in effect as a full and
complete general release to the extent set forth therein
notwithstanding the discovery or existence of any such
additional or different claims or facts. The parties
acknowledge that they separately bargained for the foregoing
waiver of the provisions of Section 1542 of the California
Civil Code.
9. Severability. In the event that any provision hereof
becomes or is declared by a court of competent jurisdiction
to be illegal, unenforceable or void, this Agreement shall
continue in full force and effect without said provision.
10. Entire Agreement. This Agreement represents the entire
agreement and understanding among the parties concerning the
subject matter hereof and supersedes and replaces any and
all prior agreements and understandings concerning such
subject matter.
11. No Oral Modification. This Agreement may only be amended in
writing signed by the parties hereto.
12. Governing Law. This Agreement shall be governed by the laws
of the State of California.
13. Counterparts. This Agreement may be executed in
counterparts, and each counterpart shall have the same force
and effect as an original and shall constitute an effective
binding agreement on the part of each of the undersigned.
EXECUTED as of the date set forth above.
INSO CORPORATION
By: /s/ Bruce G. Hill
Bruce Hill
Vice President
INDEMNIFICATION REPRESENTATIVES:
/s/ Jerry Sulllivan
_________________________________________
Jerry Sullivan
/s/ Richard Kramlich
__________________________________________
Richard Kramlich
THE HOLDERS:
NEW ENTERPRISE ASSOCIATES II
By: /s/ Charles W. Newhill
Charles W. Newhall
Title: General Partner
Address: 1119 St. Paul St.
Baltimore MD 21202
NEW ENTERPRISE ASSOCIATES V
By: /s/ Nancy Dorran
Nancy Dorran
Title: General Partner
Address: 1119 St. Paul St.
Balitmore MD 21202
CENTURY IV PARTNERS
By: /s/ Charles A. Burton
Charles A. Burton
Title: General Partner
Address: 200 S. Broad Street
Philadelphia, PA 19102
COMMONWEALTH VENTURE PARTNERS
By: /s/ Charles A. Burton
Charles A. Burton
Title: General Partner
Address: 200 S. Broad Street
Philadelphia, PA 19102
PENNSYLVANIA VENTURE PARTNERS
By: /s/ Charles A. Burton
Charles A. Burton
Title: General Partner
Address: 200 S. Broad Street
Philadelphia, PA 19102
PAUL CAPITAL PARTNERS V
By: /s/ David E. Park
David E. Park
Title: Managing Member of Paul Capital Mgmt. LLC (PCM)
General Partner of PCP V
Address: 10600 N. de Anza Blvd. #250
Cupertino, CA 95014
PAUL CAPITAL PARTNERS V DOMESTIC
ANNEX FUND
By: /s/ David E. Park
David E. Park
Title: Managing Member of PCM, the general partner of PCP V
Address: 10600 N. de Anza Blvd. #250
Cupertino, CA 95014
PAUL CAPITAL PARTNERS V INTERNATIONAL
(PCP II)
By: /s/ David E. Park
David E. Park
Title: Managing Member of PCM, the general partner of PCP II
Address: 10600 N. de Anza Blvd. #250
Cupertino, CA 95014
FOSTIN CAPITAL ASSOCIATES II
By:/s/ Jill P. Adams
Jill P. Adams
Title: General Parnter
Address: 518 Broad St.
Sewickle, NH 15143
TRANSITIONS THREE LTD.
By:
TTI Partners Its General Partner
Title: Partner
Address:
SPECTRA ENTERPRISE ASSOC.
By: /s/ Charles W. Newhill, III
Charles W. Newhill
Title:General Partner
Address: 1119 St. Paul St.
Baltimore, MD 21202
ELLISON SPECIAL ASSETS LP
By: /s/ Sarah Ellison Porter
Sarah Ellison Porter
Title: General Partner
Address: 5205 East Fresno Drive
Phoenix AZ 85018
NEW ENTERPRISE ASSOCIATES VIII,
LIMITED PARTNERSHIP
By: NEA Partners VIII, Limited Partnership
By: /s/ Nancy Dorran
Name: Nancy Dorran
Title: General Partner
Address: 1119 St. Paul St.
Baltimore, MD 21202
/s/ Mark Medearis
Mark Medearis
/s/ William Siddon
William Siddon
/s/ Iioan Sockol
Ilona Sockol
/s/ Vivian Wong
Vivian Wong
/s/ Mary Collins
Mary Collins
/s/ Sheldon Breiner
Sheldon Breiner
/s/ Stepen C. Baunach
Stephen C. Baunach
/s/ A. LeRoy Ellison
LeRoy Ellison
/s/ John Chamberlain
John Chamberlain
Exhibit A
<TABLE>
<CAPTION>
Holder New Warrants Cash
<S> <C> <C>
New Enterprise Associates II 132,344 $ 397,032
New Enterprise Associates V 118,307 $ 354,921
New Enterprise Associates VIII 343,610 $ 1,030,830
Century IV Partners 67,112 $ 201,336
Commonwealth Venture Partners 45,453 $ 136,359
Pennsylvania Venture Partners 1,068 $ 3,204
Paul Capital Partners V 98,128 $ 294,384
Paul Capital Partners V
Domestic Annex Fund 8,258 $ 24,774
Paul Capital Partners
International 3,573 $ 10,719
Fostin Capital Associates II 34,644 $ 103,932
Transitions Three Ltd 83,145 $ 249,435
Spectra Enterprise Assoc. 34,644 $ 103,932
Ellison Special Assets LP 9,921 $ 29,763
LeRoy Ellison 16 $ 48
Mark MeDearis 69 $ 207
William Siddon 5 $ 15
Iiona Sockol 58 $ 174
Vivian Wong 25 $ 75
Mary Collins 519 $ 1,557
Sheldon Breiner* 4,025 $ 12,075
Stephen C. Baunach 14,653 $ 43,959
John Chamberlain 423 $ 1,269
----------- ---------
Total 1,000,000 $ 300,000
</TABLE>
Exhibit B
<TABLE>
<CAPTION>
Special
Escrow Fund
Accredited Investors Distribution
<S> <C>
New Enterprise Associates II $ 112,717.77
New Enterprise Associates V 100,762.15
Century IV Partners 57,159.43
Commonwealth Venture Partners 38,712.76
Pennsylvania Venture Partners 909.97
Paul Capital Partners V 83,576.17
Paul Capital Partners V
Domestic Annex Fund 7,033.37
Paul Capital Partners V International 3,043.73
Fostin Capital Associates 44,859.70
Fostin Capital Associates II 29,506.42
Transitions Three Ltd 70,815.35
Tetraven Fund 61,255.20
FINOVELEC 19,916.97
Institute de Development Industriel 23,236.17
Jean-Marc Patouillaud 36.91
CP Ventures 42,489.16
Stephen C. Schopbach 38,519.96
Jane Schopbach 16.82
TVM Techno Venture Enterprises No. II 21,067.54
TVM Intertech 14,045.06
TVM Techno Ventures No. 1 295.12
Spectra Enterprise Assoc. 29,506.42
Shires Investment plc 10,686.02
Ellison Special Assets LP 8,449.94
C. William McDaniel 1,770.38
Sequoia Capital III 505.98
Sequoia Technology Partners 25.32
Sequoia XI 24.43
WS Investment Co. '81 7.97
WS Investment Company 90B 531.11
Mark MeDearis 59.04
Technology Partners 28.68
John Nesheim 19.83
James Gibbons 88.52
William Siddon 4.16
Ilona Sockol 49.31
Vivian Wong 22.13
Mary Collins 442.59
Benedict Lau 1,062.23
David Fullerton 26.73
Ronald Jackson 442.59
Sheldon Breiner * 2,043.55
Stephen C. Baunach 8,387.63
Christopher Dress 798.80
Kenneth J. Tisovec 9,620.08
Steve Wong 2,817.21
--------
Total Accredited Investors $ 847,396.38
Other Shareholders
Aiken, Daniel R $ 25.14
Auricchio, Richard 2.30
Bhaskar, Phani SC 30.54
Bianchini, Eileen J 132.78
Bishop, Susan 11.07
Bosler, Richard J 46.91
Bouchard, Cosette A 43.37
Bradley, Scott D 29.48
Cagney, Sheila 60.99
Calhoun, William L 83.74
Carter, Gaines P 64.53
Castleman, Alfred B. 2,432.06
Cate III, Henry 1.59
Cate, Henry P 9.91
Cate, Henry P., Jr. and
E. Louise Cate, JTWROS 3.45
Char, William K 3,302.65
Chen, Conrad 74.18
Chen, Ling-May 30.18
Cheong, Leonard S 1,367.71
Chien, Ted F 25.58
Colin s. Schopbach 336.37
Das, Sanjay 8.85
Davis, Paula 177.04
Dawkins, Karen 32.49
Deboser, Achim 736.83
DeSena, Mary H. 442.59
Do, Daniel 66.39
Do, Vu T. 26.55
Doreswamy, Rangan 93.12
Duffy, Brendan K 70.37
Eastman, Patricia A. 0.89
Evins, Dennis W. 239.71
Feghhi, Jalal 60.99
Fluter, Arthur L 44.26
Fullerton, Kim 7.70
Goettsche, Kailon 11.07
Graver, Jay R 1,309.46
Gray, Robin 45.68
Handa, Vivek 509.08
Harrison, D. Stuart 33.99
Harshman, Cyril A. 20.36
Hart, Jerry 7.79
Hast, Frances Kathryne 44.26
Hatcher, Carol S.W. 6.90
Heard, Katherine V. 442.59
Heard, Phillip H. &
Margaret N. Heard, JTWROS 8.85
Higham, September 28.15
Hoffman, Brent 13.72
Holland, Vard Burton &
Garna Lynne Holland, JTWROS 0.89
Hollyfield, Craig Hamilton 106.22
Hollyfield, Mark S. &
Ann S. Hollyfield as
Community Property 1,502.17
Holmes, Sharman 41.43
Im, Connie K 53.91
Johnson, Brian L. 2,295.12
Johnson, David E. 30.72
Johnson, Joan T. 18.59
Johnson, W. Curtis &
Susan S. Johnson, JTWROS 17.00
Johnson, Walter C. 123.75
Johnson, Walter C. &
Caroline S. Johnson, JTWROS 58.60
Johnson, William S. 18.50
Johnston, Judith A 128.26
Jones, Steven C 647.43
Kalekos, Athanasios M 4.52
Keene, Catherine M 708.15
Kelly, Suzanne (formerly Bindeman) 1,504.82
Keswani, Sanjay G 66.39
Kleinmann, Ralph A 671.33
Krinke, Gary L 1.59
Lee, James S 543.86
Lee, Vivian 140.48
Lehmann, Selene T. & Stephen M.
Lehmann, JTWROS 2.21
Levashova, Elena 39.92
Luhrs, Charles J 37.53
Luo, Ying-Ying 177.04
Macdonald, Douglas 2,256.18
Mangold, Alvina Molly 0.18
Mann, Rodney W 8.85
Marshall, P. Anthony 445.87
Mazur (formerly Mianecke), Sandra K 5.22
McDuffie, Dale 718.51
Meyers, Len 131.36
Milberg, Barry A 8.85
Moran, Matthias F. 265.56
Muir, Walter E. 1,864.21
Nardo, Gilbert L 1.33
Nguyen, John V 56.30
Nguyen, Kevin H 22.13
Nimmo, Joe E 369.22
Norgaard, James R 221.30
Nourain, Janice E 791.00
Noyes, Ann Marie 132.78
Oliver, Margaret J 44.97
Olson, John D 354.07
Ostrom, Donald J. 1.06
Parsin, David M 206.43
Pettit, Randy A. 1,648.58
Rado, Annette R., Erwin Kelen, Ronald
Moskovitz & Andrew Baker 15.93
TTEE of Trust A, a Generation-
Skipping QTIP Trust U/D/T -
Reid, Frank L 897.05
Richards, David 1.33
Richards, Waldo J. 177.04
Richards, Waldo J. & Marian H. Richards,
JTWROS 3.01
Rimmington, Dave 245.37
Roberts III, John A. 44.26
Robinson, Thomas C 60.10
Robinson, Wylie 239.00
Rogers, H. Lynn 1,241.75
Russ, Jerald B. &
Margaret A. Russ, Trustees 88.52
of the Russ Family Trust
Dated 2/26/91 -
Ryker, Mary-Ann 7.70
Sayles, Robert A. & Judith A.
Sayles, asCommunity Property 9.56
Schafer, Jr., Edward 118.88
Schildt, Barbara E 4.16
Schildt, Russell Clyde Jr. 3.27
Seaman, Cheryl 13.28
Sexson, James Edwin 8.85
Siegel, Linda D. 239.98
Sienknecht, Tracy F 3.72
Silveira, Erendida 25.76
Slaughter, Kenneth B. 51.61
Smith, Stephen R 221.30
Stafford, Roy 246.26
Stephen C. Schopbach, Custodian for
Colin S. Schopbach 442.59
Under the Uniform Transfer to Minors Act -
Stephen C. Schopbach, Custodian for
Parker H. Schopbach 778.97
Under the Uniform Transfer to Minors Act -
Stephen C. Schopbach, Custodian for
Sarah J. Schopbach 778.97
Under the Uniform Transfer to Minors Act -
Stolle, Bryan 35.41
Stringer, Geigy 10.98
Susko, John 13.28
Tatro, Gregory P 188.46
Tektronix, Inc. 3,058.69
Thomas, Terry L 0.98
Titolo, Thomas S. 35.23
Tompsett, Ralph 17.71
Tompsett, Ralph R. &
Jean M. Tompsett, JTWROS 9.20
Tompsett, William 4.43
Tompsett, William C. &
Christine H. Tompsett, JTWROS 2.30
Torode, John Q. & Patty M.
Torode, as Community Property 80.37
Tran, Phil 97.81
Traut, John E 44.26
Tung, William S. C. 884.40
Twitchell, Clay M 75.95
Viet, Roger 1.86
Vo, Howard 17.71
Walsh, Polly T. & Michael J.
Walsh, Jr., JTWROS 2.21
Wasserman, Martin J. 4.96
Werner, Penelope Jane 8.85
Wilcox, Jerry 1.59
Wilson, Winifred for John Wilson 695.32
Wong, Shirley 14.70
Yang, Ree 811.28
Yi, Julio 2.48
Yoshimura, Kunio 3,554.04
Young, John D. & Sarah J.
Young, JTWROS 12.39
Young, Ronald F. 203.59
Young, Ronald F. & Carol A.
Young, JTWROS 12.39
Young, Vivie 177.04
Zhao, Kequn 73.74
Patrick Barnas 282.82
Jean Jacquin 282.82
Jacques Chatain 282.64
Ronan Loison 184.39
Alain Lacoste 36.91
------
Total Other Shareholders $ 48,290.01
Optionholders
Boudin-Lestienne, Francine Total $ 3.45
Fournier-Morel, Xavier Total 135.70
Garcet, Claire Total 99.99
Gautier, Charles Total 45.89
Hontand, Jean Michel Total 5.91
Moignot, Mariam Total 38.24
Moisant, Bruno Total 45.89
Monnet, Francois Total 36.07
Navez, Philippe Total 5.91
Ulff, Francois Total 365.17
Dienst , Peter Total 196.97
Freidlmeier, Alfons Total 5.91
Hoffmann, Klaus Peter Total 29.55
Rieger, Uwe Total 4.06
Dall'Olio, Maurizio Total 45.89
Di Marco, Secondina Total 5.91
Gallelli, Sergio Total 81.96
Manieri, Stefano Total 45.89
Marzoni, Dario Total 595.19
Ormezzano, Ezio Total 5.91
Riva , Pietro Total 21.64
Breiner, Sheldon Total 1,385.17
Ellison, A. LeRoy Total 13.53
Sullivan, Jerry Total 1,024.45
Anderson, Stephen Total 81.96
Banham, Ian David Total 5.91
Bond, David Total 172.67
Burns, Elizabeth Total 5.91
Chamberlain, John Total 360.72
Corke, Susan Total 153.74
Davis, Linda Total 9.85
Erikksson, Christer Total 45.89
Jessop, Tony Total 624.60
Long, Janet Total 36.07
Page, Graham Total 492.44
Topliss, Colin Total 35.35
Whittaker, Carole E Total 12.62
Anderson, Hans Total 4.92
Baker, Michael D. Total 21.64
Bambrick, William L Total 81.96
Baunach, Stephen C Total 4,092.43
Bertrand, Richard M. Total 1,803.61
Bhandarkar, Mangesh Total 19.70
Boone, Douglas C. Total 9.85
Borg, Karen M. Total 5.91
Boyack, Steven M Total 136.06
Bunker, John W Total 136.06
Burgess, Cindy Total 5.91
Byrne, Deborah A. Total 9.85
Chiang, Hsuan Total 21.64
Collier, Donna Total 91.77
Comelio, Philip G Total 94.19
Comito, Robert G Total 21.64
Cowan, Lee W Total 722.32
Dress, Christopher R Total 2,388.55
Ecklon, Dennis Total 21.64
Ficker, Steven G Total 411.68
Ford, Daniel T T. Total 1,566.84
Fricke, Stephen Total 9.85
Gardiner, Simon M Total 99.99
Giardina, Mary Deborah Total 5.91
Gross, Patricia A. Total 9.85
Guyton, Randall M. Total 3.45
Habeeb, Mike Total 9.85
Heckman, Scott E. Total 9.85
Hein, Ann Total 21.64
Hyde, David R. Total 14.77
Johnson, Richard L Total 81.96
Jones, Dr. Jim I. Total 98.49
Jones, Richard B Total 2,164.33
Lang, David W Total 45.89
Larsen, Sheri M. Total 12.62
Lauigan, Previc S. Total 19.70
Legge, Charmaine J Total 45.89
Leggett, Judith Total 9.85
Lipp, John Total 360.72
Longstaff, Kevin Total 2,365.93
Matheny , Suzanne E. Total 19.70
McCall, Mike A. Total 14.77
McLean, Gregory Total 45.89
Mendoza, Virginia Total 21.64
Mody, Salil Total 81.96
Moore, John C Total 15,115.64
Murray, Linda Total 14.43
Nirenberg, Walter Total 11.82
Nishio, Shigeru C Total 216.43
Nourain, Janice E Total 332.44
Olia, Craig R Total 81.96
Peng, Jason Total 70.50
Phan, Tri T Total 45.89
Poss, Melissa Total 12.62
Poudevigne, Jerome Total 126.69
Rajagopal, Sunita Total 3.94
Ratajczak, Robin Total 288.85
Roth, Nancy Total 3.94
Schaff, Jonna Total 45.89
Seitz, Steven D. Total 4.92
Sudin, Nail Total 275.77
Testerman, Laura J. Total 3.45
Tham, C. Haam Total 1,395.52
Tisovec, Kenneth J Total 3,124.09
Tung, William Total 1,182.97
Weatherall, Alan D. Total 552.18
Wiita-Dworkin, Christine Total 21.64
Wilkman, Ellen Foster Total 99.27
Wong, Stephen Total 1,767.85
Wright, Tina M. Total 12.62
Young, Steven H. Total 21.64
----------
Total Optionholders $ 48,357.61
Grand Total Shareholders &
Optionholders $ 944,044.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME
FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-2000 JAN-31-1999
<PERIOD-END> JUL-31-1999 JUL-31-1998
<CASH> 7,723 33,335
<SECURITIES> 16,379 67,560
<RECEIVABLES> 23,120 20,208
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 57,065 126,861
<PP&E> 7,292 6,858
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 113,852 151,890
<CURRENT-LIABILITIES> 46,720 17,877
<BONDS> 0 0
0 0
0 0
<COMMON> 156 152
<OTHER-SE> 65,684 133,861
<TOTAL-LIABILITY-AND-EQUITY> 113,852 151,890
<SALES> 30,861 30,194
<TOTAL-REVENUES> 30,861 30,194
<CGS> 0 0
<TOTAL-COSTS> 12,382 4,496
<OTHER-EXPENSES> 54,581 29,850
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (37,771) 10,071
<INCOME-TAX> 77 (493)
<INCOME-CONTINUING> (37,848) 10,564
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (37,848) 10,564
<EPS-BASIC> (2.43) 0.71
<EPS-DILUTED> (2.43) 0.69
</TABLE>
