<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Concentra Corporation
-----------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE> 2
CONCENTRA CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
JUNE 1, 1998
You are hereby notified that a special meeting of stockholders (the
"Special Meeting") of Concentra Corporation (the "Company") will be held on
June 1, 1998 at 8:00 a.m. at the Renaissance Bedford Hotel, 44 Middlesex
Turnpike,
Bedford, Massachusetts 01730, for the following purposes:
1. To approve the licensing of certain software and business assets
of the Company pursuant to the terms of a Source Licence and
Exclusive Distributorship Agreement and a Transition Agreement
between the Company and Knowledge Technologies International S.A.,
copies of which agreements are attached as Annexes A and B to the
accompanying Proxy Statement.
2. To consider and act upon such other business as may properly come
before the Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 4, 1998
as the record date for the Special Meeting. Only stockholders on the record date
are entitled to notice of and to vote at the Special Meeting and at any
adjournment thereof.
By order of the Board of Directors,
WILLIAM E. KELLY,
SECRETARY
May 12, 1998
IMPORTANT: IN ORDER TO SECURE A QUORUM AND TO AVOID THE EXPENSE OF ADDITIONAL
PROXY SOLICITATIONS, PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING PERSONALLY. YOUR COOPERATION IS
GREATLY APPRECIATED.
<PAGE> 3
CONCENTRA CORPORATION
EXECUTIVE OFFICES
21 North Avenue
Burlington, Massachusetts 01803
PROXY STATEMENT
GENERAL
Solicitation and Voting of Proxies
This proxy statement and the accompanying proxy card are being mailed
by Concentra Corporation (the "Company") to the holders of record of the
Company's outstanding shares of Common Stock, $.00001 par value ("Common
Stock"), commencing on or about May 12, 1998. The accompanying proxy is
solicited by the Board of Directors of the Company for use at the special
meeting of stockholders to be held on June 1, 1998 (the "Special Meeting") and
at any adjournment or adjournments thereof. The cost of solicitation of proxies
will be borne by the Company. Directors, officers and employees of the Company
may assist in the solicitation of proxies by mail, telephone, telegraph,
telefax, telex, in person or otherwise, without additional compensation.
When a proxy is returned, prior to or at the Special Meeting, properly
signed, the shares represented thereby will be voted by the proxies named in
accordance with the stockholder's instructions indicated on the proxy card. You
are urged to specify your choices on the enclosed proxy card. If the proxy is
signed and returned without specifying choices, the shares will be voted FOR
proposal 1 and in the discretion of the proxies as to other matters that may
properly come before the Special Meeting. Sending in a proxy will not affect a
stockholder's right to attend the Special Meeting and vote in person. A proxy
may be revoked by notice in writing delivered to the Secretary of the Company at
any time prior to its use, by a written revocation submitted to the Secretary of
the Company at the Special Meeting, by a duly-executed proxy bearing a later
date, or by voting in person by ballot at the Special Meeting. A stockholder's
attendance at the Special Meeting will not by itself revoke a proxy.
Voting Securities and Record Date
The only outstanding class of stock of the Company is its Common Stock.
Each share of Common Stock is entitled to one vote per share. The Board of
Directors has fixed May 4, 1998 as the record date for the Special Meeting.
Only stockholders of record on the record date are entitled to notice of and to
vote at the Special Meeting and any adjournment or adjournments thereof. On
May 4, 1998, there were issued and outstanding 6,084,665 shares of Common
Stock.
The Company's Restated By-laws provide that a majority of the shares of
Common Stock of the Company issued and outstanding and entitled to vote at the
Special Meeting, present in person or represented by proxy at the Special
Meeting, shall constitute a quorum for the transaction of business at the
Special Meeting. The Company believes that stockholder approval is not required
by statute for the licensing of The ICAD System pursuant to the terms of the
Source Licence and Exclusive Distributorship Agreement (the "License Agreement")
and the Transition Agreement (the "Transition Agreement"), each dated as of
February 26, 1998, and each by and between the Company and Knowledge
Technologies International S.A., a Luxembourg company (the "Distributor").
However, due to the importance to the Company and its stockholders of the
transaction contemplated by the License Agreement and the Transition Agreement
(the "Transaction"), the Board of Directors of the Company has chosen to submit
the License Agreement and the Transition Agreement to the Company's stockholders
for approval. The obligations of the Distributor to consummate the transactions
contemplated by the License Agreement and the Transition Agreement are
conditioned upon approval of a vote of a majority of the outstanding shares of
Common Stock (which is the approval which would be required under Delaware law
if the Transaction had been structured, or were characterized, as a sale of
substantially all of the assets of the Company) and the Company cannot compel
the Distributor to proceed with such transactions in the absence of such
shareholder approval, and the requirement of shareholder approval cannot be
waived by the Company. Although the Distributor, in its sole discretion may
waive the requirement that the Transaction be approved by a majority of the
Company's shareholders, the Company does not believe that it could obtain such a
waiver. Accordingly, the approval, either in person or by proxy, of a majority
of the outstanding shares of the Company's Common Stock is required for the
adoption of the proposal to approve the License Agreement and the Transition
Agreement. Management expects all shares held by the Company's officers and
directors and their affiliates (representing, in the aggregate, approximately
33.8% of the total number of shares outstanding on May 4, 1998) to vote for the
adoption of such proposal.
The approval of any other business which may properly be brought before
the Special Meeting or any adjournment thereof will require the approval of a
majority of the votes properly cast at the Special Meeting, either in person or
by proxy.
Abstentions may be specified on all proposals and will be counted as
present for purposes of the proposal on which the abstention is noted. On
Proposal No. 1, abstentions and broker non-votes (shares held by brokers that
are present, but not voted
<PAGE> 4
because the brokers lack discretionary authority to vote such shares as to a
particular matter) will be counted as present for the purposes of determining a
quorum, but will have the effect of negative votes. On any other matters which
may come before the Special Meeting, abstentions and broker non-votes will be
counted in determining a quorum, but will have no effect on the outcome of the
vote.
Independent Auditors
Representatives of Coopers & Lybrand L.L.P. are expected to be present
at the Special Meeting, with the opportunity to make a statement if they desire
to do so, and are expected to be available to respond to appropriate questions.
OVERVIEW
General
The Company was incorporated under the laws of Delaware in 1984 as
ICAD, Inc. and changed its name to Concentra Corporation in 1995. The Company's
business operations consist of (i) a knowledge-based engineering software
business (the "ICAD Business") which provides software products known as The
ICAD System and which is the subject of the Transaction to which this Proxy
Statement relates, and (ii) a sales force automation business (the "Sales Force
Automation Business") which provides software known as SellingPoint and, through
the Company's subsidiary, Loandata, LLC, a financial services software tool
known as "Spot Finance". (For a description of the Sales Force Automation
Business, see "Description of the Company Following the Transaction -- Sales
Force Automation Business" elsewhere herein.)
Description of the ICAD Business
The ICAD Business provides knowledge-based software to the global
automotive and aerospace industries. The ICAD Business sells two principal
products: (a) ICAD software, which automates many of the standard aspects of
computer-aided design (CAD) systems, reducing development time, and (b)
I.C.E. (Integrated Computing Engines), which builds on ICAD, enabling engineers
and designers to leverage stored rules, expert's knowledge and best-of-breed
practices during the design process. ICAD and I.C.E. have been used in certain
high profile projects, such as Boeing 777, Jaguar XK8, Lotus Elise, Airbus A3XX
and the Stealth Fighter.
The Company has developed an innovative approach to solving the
problems facing the mechanical design industry by automating the engineering
process through the use of generative technology. Generative technology is an
approach in which the details of a fully engineered product design are
automatically generated from a customer's functional requirements. The ICAD
System utilizes generative technology to complement a company's existing CAD
tools. Using the ICAD System, a company develops a generative model which
incorporates the full spectrum of engineering rules, industry standards,
governmental regulation, manufacturing constraints, cost and scheduling
constraints, experience and other factors applicable to that company's design
process. As a result, engineering productivity increases.
Decision to Focus on Long-Term Growth Potential of Sales
Force Automation Business
In its present situation, the Company cannot currently invest in both
the ICAD Business and the Sales Force Automation Business at the same time to
fully exploit the opportunities in both businesses. Accordingly, the Company set
out to develop a strategy to invest sufficient resources properly in one core
business. The Company decided to explore the possibility of licensing its
principal revenue generating business, the ICAD Business, to achieve investment
in ongoing operations in its growing Sales Force Automation Business. In
management's view, the Company has not been able to satisfy the investment
requirements of its faster growing Sales Force Automation Business because of a
decline in revenues from the ICAD Business. Furthermore, in management's view,
the Company has lacked the capital resources to address the causes of the
decline in profitability of the ICAD Business. The decline in the profitability
of the ICAD Business was due, in part, to the recent stasis of the large
commercial aerospace market which caused these companies to hold back decisions
to launch new airplane programs which in turn caused orders for the ICAD
Business to be delayed.
The Company was required to decide between curtailing the activities of
SellingPoint and/or Loandata to significantly reduce or eliminate their cash
requirements, or selling or licensing the key assets of the ICAD Business in
order to be able to fund the Sales Force Automation Business. The Company
decided to pursue licensing the key assets of the ICAD Business because (a) the
Company believes that SellingPoint and Loandata have greater long-term future
potential than the ICAD Business as presently conducted by the Company and (b)
licensing the ICAD System would, in part, provide the needed funding for growing
and expanding the Sales Force Automation Business. The Company believes the
Transaction will enable it to address the capital requirements of the Company
and its Sales Force Automation Business through receipt of payments under the
License Agreement. The Company expects that the Transaction will significantly
improve the Company's projected cash flow, which is expected to benefit the
expansion of the SellingPoint and Loandata businesses and improve the financial
condition of the Company.
On February 26, 1998, the Company entered into the License Agreement
and the Transition Agreement to license the software and intellectual property
rights used in the ICAD Business exclusively to the Distributor, a recently
established company organized under the laws of Luxembourg by Electra Fleming
Private Equity Partners ("Electra Fleming"), a limited partnership of which the
principal partner is Electra Investment Trust, plc, which has guaranteed the
obligations of the Distributor to make certain fixed royalty payments pursuant
to the License Agreement. (In such capacity as guarantor, Electra Investment
Trust, plc is sometimes referred to herein as the "Guarantor.") For a
description of the Transaction, including a summary of the principal terms of
the License Agreement and the Transition Agreement, see "Description of the
Transaction," elsewhere herein. See "Certain Information Regarding the
Distributor and the Guarantor" elsewhere herein for a detailed description of
the Distributor and the Guarantor. Neither the Distributor, the Guarantor nor
Electra Fleming is an affiliate of, or has any prior relationship with, the
Company, except that Garreth Evans, an officer and beneficial owner of the
Distributor, is an executive officer of the Company. Upon consummation of the
transactions contemplated by the License Agreement and the Transition Agreement,
Mr. Evans will resign as an officer and employee of the Company.
DESCRIPTION OF THE TRANSACTION
General
The License Agreement and the Transition Agreement provide that the
Company will, among other things, grant the Distributor an exclusive world-wide
license to use the key software and intellectual property rights of the ICAD
Business, transfer and assign to the Distributor certain assets and contracts
relating to the ICAD Business, and provide to the Distributor certain
administrative and support services on a transitional basis. Under the License
Agreement, the Distributor has agreed to pay the Company fixed and variable
royalties (collectively, the "Consideration") consisting of: (a) eight fixed
quarterly royalty installments, totaling $18.65 million, and (b) a variable
royalty in 1999, 2000 and 2001 equal to 10% of the amount by which gross
revenues of the Distributor related to the licensed software, calculated on a
cumulative basis from the date of closing of the Transaction, exceed $17.5
million for the year ending March 31, 1999, $35.0 million for the two-year
period ending March 31, 2000 and $52.5 million for the three-year period ending
March 31, 2001, in each case less the aggregate variable royalties paid in
respect of prior periods. The payments will be made on or before the 20th day of
June following each respective fiscal year end or within 15 days after the date
on which the relevant gross revenue is agreed or determined pursuant to the
License Agreement, whichever is earlier. Electra Investment Trust, plc has
agreed to guarantee only the payment of the fixed royalty payments under the
License Agreement. See "Description of the Transaction--Terms of the
Transaction."
-2-
<PAGE> 5
Terms of the Transaction
The following summary of the Transaction describes the material terms
of the License Agreement and the Transition Agreement, copies of which are
attached hereto as Annex A and B, respectively. Although this summary contains a
description of the material terms of the License Agreement and the Transition
Agreement, it is not intended to be complete and is qualified in its entirety by
reference to the full text of such agreements, which you are urged to read in
their entirety.
In connection with the following summary of the Transaction, the
following words and expressions shall, unless the context otherwise requires,
have the following meanings:
"Derivative Work" means a work based in whole or in part upon one or
more pre-existing works, such as a revision, modification, translation,
abridgement, condensation, expansion, or any other form in which a pre-existing
work may be recast, transformed, or adapted. A work consisting of editorial
revisions, annotations, elaborations, or other modifications which, as a whole,
represents an original work of authorship is a Derivative Work. Notwithstanding
the foregoing, the Company's SellingPoint product and any Derivative Works based
thereon shall not be deemed to be Derivative Works based on the Licensed
Intellectual Property;
"Documentation" means, collectively, System Documentation and User
Documentation;
"End User" means a third party licensed to use an ICAD Product;
"ICAD Product" means a software product incorporating any or all of the
ICAD Software (in Object Code Form only) and User Documentation, including but
not limited to any Derivative Works of the ICAD Software and User Documentation;
"ICAD Software" means the software described in an exhibit to the
disclosure schedule delivered by the Company in connection with the License
Agreement in Source Code Form and Object Code Form;
"Intellectual Property" means all patent, copyright, trademark, trade
secret and other industrial and intellectual property rights;
"KBCar Distribution Agreement" means the KBCar distribution agreement
dated as of February 29, 1996, between the Company and Tata Technologies Pte
Ltd.;
"Licensed Intellectual Property" means the Intellectual Property in the
Proprietary Software which includes the Retained Intellectual Property, and
Intellectual Property in all Documentation and any Updates and Derivative Works
of such software and Documentation created by or for the Company, all of which
are being licensed to the Distributor on the terms and conditions of the License
Agreement;
"Object Code Form" means a form of software code resulting from the
translation or processing of Source Code by a computer into machine language or
intermediate code, which thus is in a form that would not be convenient to human
understanding of the program logic, but which is appropriate for execution or
interpretation by a computer;
"Platform" means any and all computer operating systems, now or in the
future, on which the ICAD Products operate;
"Proprietary Software" means that part of the ICAD Software, the
Intellectual Property in which is owned by the Company;
-3-
<PAGE> 6
"Reseller" means any original equipment manufacturer, dealer, reseller,
distributor or other entity currently authorized by the Company and/or will be
authorized by the Distributor to sublicense the use of and distribute the ICAD
Products to End Users or other intermediate parties, such as dealers, in the
distribution chain to End Users;
"Retained Intellectual Property" means all Intellectual Property in the
Proprietary Software that is also used in other businesses of the Company;
"Source Code Form" means a form in which a computer program's logic is
easily deduced by a human being with skill in the art, such as a printed listing
of the program or a form from which a printed listing can be easily generated;
"System Documentation" means technical documentation, manuals and other
written or electronic materials useful in the maintenance, modification and
enhancement of the Licensed Intellectual Property;
"Update" means a new version of any ICAD Software or Documentation
pertaining thereto, which new version may include corrections, modifications,
upgrades, enhancements, new features or may otherwise constitute a Derivative
work of such ICAD Software or Documentation; and
"User Documentation" means user manuals, handbooks and other written or
electronic materials relating to an ICAD Product and intended for End Users.
License of the ICAD System and Sublicense of the KBCar Distribution Rights
Subject to the terms and conditions of the License Agreement, the
Company will license to the Distributor: (i) a perpetual, exclusive world-wide
right and license to use the Licensed Intellectual Property other than the
Retained Intellectual Property to copy and distribute the ICAD Products and all
Derivative Works thereof to third parties, including but not limited to End
Users and Resellers; (ii) a perpetual, exclusive world-wide right and license to
use the Licensed Intellectual Property other than the Retained Intellectual
Property to use, copy, modify, enhance, prepare Derivative Works of and
Documentation for, and create ICAD Products based on, the ICAD Software, in
Source Code Form or Object Code Form on any and all Platforms; (iii) a
perpetual, irrevocable, non-exclusive world-wide right and license to use the
Retained Intellectual Property to copy and distribute the ICAD Products and all
Derivative Works thereof to third parties, including but not limited to End
Users and Resellers; (iv) a perpetual, irrevocable, non-exclusive world-wide
right and license to use the Retained Intellectual Property to use, copy,
modify, enhance, prepare Derivative Works of and Documentation for and create
ICAD Products based on, the ICAD Software in Source Code Form or Object Code
Form on any and all Platforms; and (v) a non-exclusive sublicense of the
distribution rights of the Company under the KBCar Distribution Agreement. Upon
completion of the fixed royalty payments described below, the licenses granted
under the License Agreement become irrevocable.
Royalty Payments
The Distributor (or any direct or indirect subsidiary of the
Distributor to which the rights and obligations of the Distributor shall be
assigned) shall pay the Company the fixed royalty payments and the variable
royalty payments as set forth below:
(a) The fixed royalty payments shall be paid by the Distributor to
the Company in cash in the following amounts on the following
dates:
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
Closing US $3,900,000
April 1, 1998 US $3,800,000
July 1, 1998 US $3,700,000
October 1, 1998 US $2,800,000
January 1, 1999 US $2,400,000
April 1, 1999 US $1,750,000
</TABLE>
-4-
<PAGE> 7
<TABLE>
<S> <C>
July 1, 1999 US $ 250,000
October 1, 1999 US $ 54,000
</TABLE>
(b) The variable royalty payments shall be equal to 10% of the
amount by which gross revenues of the Distributor related to the
licensed software, calculated on a cumulative basis from the
date of closing of the Transaction, exceed $17.5 million for the
year ending March 31, 1999, $35.0 million for the two-year
period ending March 31, 2000 and $52.5 million for the
three-year period ending March 31, 2001, in each case less the
aggregate variable royalties paid in respect of prior periods.
(c) The variable royalty payments will be made on or before the 20th
day of June following each respective fiscal year end or within
15 days after the date on which the relevant gross revenue is
agreed or determined pursuant to the License Agreement,
whichever is earlier.
Guarantee
Pursuant to the terms of a guarantee (the "Guarantee"), a copy of which
is attached hereto as Annex C, Electra Investment Trust, plc, a corporation
incorporated in England and Wales (the "Guarantor"), has agreed to guarantee
payment of the fixed royalty payments (as described in the License Agreement)
payable by the Distributor to the Company. This guarantee is unsecured. The
Guarantor is the principal partner of Electra Fleming Private Equity Partners,
an investment partnership which organized the Distributor for the purposes of
effecting the Transaction. See "Certain Information Regarding the Distributor
and the Guarantor". The Guarantor is primarily liable for the fixed royalty
payments and the Company may seek such payments from the Guarantor without first
seeking recourse against the Distributor or any other party. Furthermore, the
fraudulent, improper or illegal acts of the Guarantor, Distributor or any other
person liable to the Company shall not relieve the Guarantor of its obligations
under the Guarantee. The rights of the Company under the Guarantee are not
exclusive and are in addition to any other rights or remedies the Company may
have.
Noncompetition and Confidentiality
The Company has agreed that neither the Company nor any direct or
indirect subsidiary of the Company would, directly or indirectly: (i) during the
period of 5 years from the date of the closing of the Transaction carry on or be
engaged or concerned or interested in or compete with the Restricted Business
anywhere in the world; or (ii) during the period of 5 years from the date of the
closing of the Transaction be engaged in the development, research or marketing
of a product or products similar in commercial application and purpose to the
ICAD Software; or (iii) during the period of 2 years from the date of the
closing of the Transaction hire or solicit for employment by the Company or any
of its subsidiaries any person who during the period of 12 months prior to the
date of such hiring or solicitation was an employee of the Distributor's Group;
or (iv) during the period of 3 years from the date of the closing of the
Transaction hire or solicit for employment by the Company or any of its
subsidiaries, any one or all of Garreth Evans, Peter Jackson, Prasanna
Katragadda, Keith Watson, Stanley Knutson or Elizabeth Crewe.
The Distributor has agreed that neither the Distributor nor any direct
or indirect subsidiary of the Distributor would, directly or indirectly, (i)
during the period of 5 years from the date of the closing of the Transaction to
carry on or be engaged or concerned or interested in any business competing with
the business of the Company as conducted on the closing of the Transaction, or
(ii) during the period of 2 years from the date of the Closing of the
Transaction hire or solicit for employment by the Distributor or any direct or
indirect subsidiary of the Distributor any person who after the date of the
closing of the Transaction and at any time during the period of 12 months prior
to the date of such hiring or solicitation was an employee of the Company.
The Company and the Distributor have agreed to standard
confidentiality provisions with respect to any confidential information provided
to each other in connection with the Transaction. The confidentiality provisions
in the License Agreement are subject to standard exceptions for information
already in the public domain or otherwise disclosed without a breach of the
License Agreement.
Representation and Warranties; Indemnification
-5-
<PAGE> 8
The License Agreement contains customary representations and warranties
by the Company and the Distributor. The Company makes certain representations as
to (i) the organization and good standing of the Company, (ii) proper corporate
authority, no conflicts and requisite approvals, (iii) accuracy of financial
statements and books and records, (iv) the absence of undisclosed liabilities
and material adverse change, (v) contract matters, and (vi) intellectual
property matters. The Company will indemnify the Distributor for certain losses
arising from the breach of the Company's representations and warranties.
The License Agreement contains customary indemnification obligations on
the part of the Company. With the exception of infringement claims, certain
matters relating to Year 2000 and certain potential liabilities relating to a
specified government-funded project (the "Special Indemnity Items"), the
Company's liability to the Distributor with respect to the warranties set out
under the License Agreement shall not exceed the aggregate fixed royalties paid
or to be paid by the Distributor and shall run for a period of four years from
the closing of the Transaction.
With respect to the Special Indemnity Items, the Company's liability
to the Distributor shall not be limited in time and shall be limited to the
aggregate fixed royalties paid by the Distributor, any damages, costs or
expenses payable to End Users, Resellers or other third parties and reasonable
legal costs. There are no pending or threatened claims relating to any of the
Special Indemnity Items and management is not aware of any basis for any such
claim.
Pre and Post-Closing Covenants
The License Agreement contains various covenants from the Company and
the Distributor pending the closing of the Transaction. The Company shall not
take any actions that would result in any of its representations and warranties
set forth in the License Agreement becoming untrue in any material respect.
Unless otherwise agreed in writing by the Distributor, the Company also
undertakes various covenants not to alter the business practices of the ICAD
Business. The Company will also cooperate with the Distributor in transitioning
the ICAD Business. The Distributor will use its best efforts not to do anything
inconsistent with the rights granted to the Distributor under the License
Agreement or anything that would diminish the Company's rights in the Retained
Intellectual Property.
Conditions to Closing
The obligations of the Distributor to consummate the Transaction are
subject to the satisfaction of the following covenants on or before the closing
date of the Transaction (See "Closing" below): (i) the representations and
warranties of the Company in the License Agreement and the Transition Agreement
shall be true and correct (including a warranty that the ICAD Business has not
undergone a material adverse change since March 31, 1997); (ii) there is no
litigation, pending or threatened, that would prevent the Transaction or
adversely affect the rights of the Distributor under the License Agreement or
the rights of the Distributor to operate; (iii) consent of the holders of a
majority of the outstanding shares of the Company's Common Stock shall have been
obtained; (iv) closing certificates and opinion of the Company's counsel,
Peabody & Arnold LLP, shall have been received; (v) the Transition Agreement and
the guarantee of Electra Investment Trust, plc shall have been signed; and (vi)
all the actions taken by the Company in connection with the consummation of the
Transaction shall be satisfactory to the Distributor.
The obligations of the Company to consummate the Transaction are
subject to the satisfaction of the following covenants on or before the closing
date of the Transaction: (i) the representations and warranties of the
Distributor in the License Agreement and the Transition Agreement shall be true
and correct; (ii) there is no litigation, pending or threatened, that would
prevent the Transaction or adversely affect the rights of the Company under the
License Agreement or the rights of the Company to operate; (iii) consent of the
holders of a majority of the outstanding shares of the Company's Common Stock
shall have been obtained; (iv) closing certificates and opinion of the
Distributor's counsel, Zeyen Beghin Feider Loeff Claeys Verbeke, shall have been
received and opinion of counsel to Electra Investment Trust, plc, Ashurst Morris
Crisp, shall have been received; (v) the Transition Agreement and the guarantee
of Electra Investment Trust, plc shall have been signed; (vi) all the actions
taken by the Distributor in connection with the consummation of the Transaction
shall be satisfactory to the Company; and (vii) the Distributor shall have
tendered the fixed royalty payment payable upon the closing of the Transaction.
Termination
1. Termination upon failure to obtain approval by the Company's
Stockholders
-6-
<PAGE> 9
If the Transaction has not been approved by the stockholders of the
Company within seventy-five (75) days after the signing of the License
Agreement (which period shall be extended by one day for each day
beyond ten (10) days during which the US Securities and Exchange
Commission reviews the Company's preliminary proxy statements in
connection with the Company's solicitation of stockholder approval of
the Transaction contemplated hereto) the License Agreement shall
terminate automatically and the licenses granted thereunder shall be
null and void. IN THE EVENT THE LICENSE AGREEMENT IS TERMINATED BECAUSE
THE TRANSACTION IS NOT APPROVED BY THE COMPANY'S STOCKHOLDERS, THE
COMPANY WILL BE OBLIGATED TO REIMBURSE THE DISTRIBUTOR FOR THE
REASONABLE EXPENSES (INCLUDING SOLICITOR-CLIENT FEES AND FEES FOR
FINANCIAL ADVISORS AND OTHER EXPERTS) INCURRED BY THE DISTRIBUTOR
RELATING TO THE TRANSACTIONS CONTEMPLATED BY THE LICENSE AGREEMENT,
TRANSITION AGREEMENT, THE GUARANTEE BY ELECTRA INVESTMENT TRUST PLC AND
ALL OTHER ANCILLARY DOCUMENTS THERETO.
2. Termination by the Distributor
The License Agreement may be terminated by the Distributor following a
material beach by the Company of the representations, warranties or
covenants made by the Company hereunder, if the Company has not
undertaken commercially reasonable efforts to cure such breach within
thirty (30) days of notice thereof.
3. Termination by the Company
The License Agreement and the licenses granted pursuant hereto may be
terminated by the Company if the Distributor fails to make a new
release of the Licensed Intellectual Property on or prior to the Fixed
Royalty Completion Date.
Closing
The closing of the Transaction shall take place at the offices of
Ashurst Morris Crisp, Broadwalk House, 5 Appold Street, London EC2A 2HA United
Kingdom, on the fifth business day after the last of the conditions set forth in
the License Agreement (see "Conditions to Closing" above) have been satisfied or
waived or at such other place or time as the Company and the Distributor shall
agree in writing. At the closing of the Transaction: (i) the licenses under the
License Agreement shall come into force; (ii) the Company and the Distributor
shall consummate the transactions contemplated by the Transition Agreement;
(iii) opinions, certificates and other closing documents required by the License
Agreement shall be delivered; (iv) the Company shall provide the Distributor
with required copies of the Licensed Intellectual Property; (v) the Company and
the Distributor shall enter into the Trade Mark Assignment, (vi) the third party
transfer agreements contemplated under the License Agreement shall come into
force; (vii) the Guarantee shall come into force and (viii) the Distributor or a
direct or indirect subsidiary of the Distributor shall pay to the Company the
fixed royalty payment due at the closing of the Transaction, as adjusted in
accordance with the Transition Agreement.
The parties have agreed that irrespective of the date on which the
closing of the Transaction occurs, the Distributor shall, for economic purposes
only, be deemed to have become the exclusive distributor of the ICAD Software as
of January 1, 1998, as provided in the Transition Agreement. For the avoidance
of doubt, adjustments made under the Transition Agreement shall not alter the
effective date of the Licenses, the Trade Mark Assignment or the assignment of
incidental intellectual property under the License Agreement, all of which shall
be effective as at the date of the closing of the Transaction.
Transition Agreement
Contemporaneously with the execution and delivery of the License
Agreement, the Company and the Distributor shall enter into the Transition
Agreement. The Transition Agreement is designed to enable the ICAD Business to
be operated with a minimum of disruption during the transition period and
provides for the transfer of certain assets of the Company, including equipment,
machinery, furniture and other agreed-upon items in connection with the
operation of the ICAD Business. The Transition Agreement also provides for the
continuing provision of services by the Company to the Distributor on a
short-term basis, including shared use of the Company's office facilities,
networking and computing resources currently utilized by the ICAD Business and
corporate services, all in return for payment of the appropriate allocated costs
incurred. The Company will account for all payments received from the
Distributor for shared occupancy of facilities and use of computing resources
and corporate services as a reduction in the Company's expenses associated
therewith. You are urged to read the Transition Agreement in its entirety. The
Distributor will also make a transition adjustment payment to the Company, to
give the Distributor and the Company the economic effect of the closing
occurring on January 1, 1998.
Effect of Transaction on Stockholders' Rights
The Transaction will not alter a stockholder's percentage ownership
interest in the Company, and the Common Stock will not be affected by the
proposed Transaction. The stockholders of the Company will continue as such with
the same voting, dividend, and liquidation rights and ownership interests as
before.
-7-
<PAGE> 10
REASONS FOR ENGAGING IN THE TRANSACTION
In reaching its decision to approve and recommend the License
Agreement, the Transition Agreement and the Transaction to the stockholders of
the Company, the Board of Directors consulted with its advisors and considered
the material factors described below. Based upon its review of such factors, the
Board of Directors approved the License Agreement, the Transition Agreement and
the Transaction.
Capital Needs. The Company believes the Transaction will enable it to
address the capital requirements of the Company and its Sales Force Automation
Business through receipt of payments under the License Agreement. In
management's view, the Company has not been able to satisfy the investment
requirements of its faster growing Sales Force Automation Business because of a
decline in revenues from the ICAD Business. Furthermore, in management's view,
the Company has lacked the capital resources to address the causes of the
decline in profitability of the ICAD Business. The decline in the profitability
of the ICAD Business was due, in part, to the recent stasis of the large
commercial aerospace market which caused these companies to hold back decisions
to launch new airplane programs which in turn caused orders for the ICAD
Business to be delayed. The Company was required to decide between curtailing
the activities of SellingPoint and/or Loandata to significantly reduce or
eliminate their cash requirements, or selling or licensing the key assets of the
ICAD Business in order to be able to fund the Sales Force Automation Business.
The Company decided to pursue licensing the key assets of the ICAD Business
because (a) the Company believes that SellingPoint and Loandata have greater
long-term future potential than the ICAD Business as presently conducted by the
Company and (b) licensing the ICAD System would, in part, provide the needed
funding for growing and expanding the Sales Force Automation Business.
Furthermore, the licensing payments to be made by the Distributor will be paid
entirely in cash, thereby providing immediately available funds for the
operations of the Sales Force Automation Business. Additionally, the
Transaction would significantly improve the Company's projected cash flow, which
would be beneficial for the expansion of the SellingPoint and Loandata
businesses, and would also improve the financial condition of the Company. In
view of the cash flow condition of the Company, the failure to proceed with the
Transaction or to find another source of cash could have material adverse
financial consequences for the Company. While the aggregate amount of revenue
derived from the Transaction may be less than that which could potentially be
earned from continued pursuit of the ICAD Business (assuming the Company were
in a position to adequately fund continued pursuit of the ICAD Business), the
Company believes that the prudent course is to address its current cash needs
through the revenue resulting from the Transaction.
Creating Predictable Revenue Stream. The ICAD Business has historically
relied on a small number of relatively large sales. Delays in consummating such
large sales have resulted in highly unpredictable revenues making internal
budgeting and planning difficult. The Company believes that the Transaction will
provide the Company with a fixed source of revenue for the next two years, along
with potential variable revenues, which can be directed toward the Sales Force
Automation Business. In recommending approval of the Transaction, the Board
acknowledges that the revenue to be derived from the Transaction may, in fact,
be less than the aggregate revenue the Company could potentially earn over time
were the Company to continue to pursue the ICAD Business. Management, however,
believes that the benefits of a predictable revenue stream, especially the
ability to make commitments to the growth of the Selling Point and Loandata
businesses, outweigh the uncertain value of the potential revenue that could be
derived were the Company to continue pursuing the ICAD Business, especially in
light of the significant commitment of additional resources which management
believes would be necessary in order to pursue the ICAD Business effectively.
Potential for Growth and Profitability in the Sales Force Automation
Business. The Board of Directors determined, in its business judgment, that the
Sales Force Automation Business offered greater long-term potential for growth
and profitability relative to the Company's ICAD Business.
Focusing Management Resources. The Transaction is expected to permit
the Company to focus its management resources on the Sales Force Automation
Business. The reduction of the ICAD Business' cost structure required reduction
in management personnel, which left the Company with insufficient senior
management resources to effectively grow all its businesses. The Company
believes that the licensing of The ICAD System and the reduced post-Transaction
requirements for support by the Company of the ICAD Business as operated by the
Distributor will permit senior management of the Company to focus on the
SellingPoint and Loandata businesses.
Guarantee of Fixed Royalty Payments under the License Agreement.
Electra Investment Trust, plc has agreed to guarantee payment by the Distributor
of the fixed royalty payments payable to the Company pursuant to the terms of
the License Agreement. See "Description of the Transaction -- Terms of the
Transaction -- Guarantee."
Reducing Risk of the Impact of Regional Economic Difficulties. The
Transaction is expected to reduce the overall risk to the Company of the Asian
downturn as the Sales Force Automation Business is less exposed to the Asian
recessionary environment than the ICAD Business, which has derived significant
revenues from that region. While the ICAD Business and the SellingPoint and
Loandata businesses can all be adversely impacted by a recession, the Company's
management is particularly concerned that the Far Eastern financial crisis might
directly impact potential large ICAD sales. By contrast, the Sales Force
Automation Business contracts are smaller in size and more focused on the United
States and Europe and, therefore, more insulated from the Asian recession. The
Company believes the comparative economic stability of North America and Europe
should contribute to lower risk growth of the Sales Force Automation Business.
-8-
<PAGE> 11
Opinion of Financial Advisor. VBW&Co., the Company's financial advisor,
has opined that the consideration to be received by the Company in the
Transaction is fair from a financial point of view to the Company.
In analyzing the Transaction and in its deliberations regarding the
recommendation of the License Agreement and the Transition Agreement, the Board
of Directors also considered a number of other factors, including (i) its
knowledge of the business, operations, properties, assets, financial condition,
prospects and operating results of the business related to the ICAD Business,
(ii) judgments as to the Company's future prospects with and without the ICAD
Business, (iii) the terms of the License Agreement and the Transition Agreement,
which were the product of extensive arm's-length negotiations, and (iv) the
potential for enhanced stockholder value due to the resulting cash infusion. The
Board of Directors did not find it practical and did not quantify or attempt to
attach relative weights to any of the specific factors that it considered. The
Board of Directors concluded that the opportunities for the Company to
streamline its operations by narrowing the focus of its business were
compelling.
Notwithstanding the expectations of the Company's Board of Directors
and senior management regarding the benefits to be realized from the
Transaction, no assurance can be given that the Company will be able to realize
such benefits or compete effectively against certain other competitors that
possess significantly greater resources and marketing capabilities than the
Company. See "RISK FACTORS."
BACKGROUND OF THE TRANSACTION
The Company believes its losses over the seven fiscal quarters ended
December 31, 1997 were attributable to a number of factors, including, without
limitation, the continuing decline in ICAD Business revenues, which have
historically been the principal source of cash generated by the Company's
business, and the operational inefficiencies involved in the Company's efforts
to operate two distinct business lines with an inadequate revenue base and
insufficient cash to support and expand operations, particularly sales and
marketing efforts.
As a result of the Company's recent and increasing losses and
uncertainties concerning the availability of financing to support the Company's
operations as currently conducted, in July 1997, the Company's Board of
Directors, after consideration of various strategic alternatives, decided to
explore the possibility of selling or licensing its principal revenue generating
asset, the ICAD Business, to achieve liquidity to invest in its growing Sales
Force Automation Business. The Company decided to pursue selling or licensing
the key assets of its ICAD Business because it believes that its Sales Force
Automation Business has greater long-term future potential than the ICAD
Business as presently conducted. In July 1997, the Company approached six
potential candidates to solicit interest in a transaction relative to the ICAD
Business.
On August 19, 1997, Volpe Brown Whelan & Company LLC ("VBW&Co.") was
retained to provide the Company with strategic advisory services regarding the
licensing or divestiture of the ICAD Business to potentially interested parties.
The terms of VBW&Co.'s engagement also provided for VBW&Co. to advise the Board
with respect to the fairness to the Company, from a financial point of view, of
the consideration to be received in any eventual transaction. See "Opinion of
the Financial Advisor," elsewhere herein. The marketing process was designed by
VBW&Co. to (a) simultaneously approach numerous potentially interested parties,
(b) target multiple related industries and (c) maximize value. The targeted
industries were CAD providers, enterprise software providers, service providers
and financial investors.
The Company's advisers initiated approaches to approved CAD, enterprise
software and enterprise service companies, as well as financial investors. In
August 1997, the Company held its first meetings with interested parties. In
September 1997, Capita Corporate Finance Limited, a member of the Capita Group,
plc, was also retained by the Company to approach United Kingdom-based financial
investors.
In November 1997, Electra Fleming indicated its interest and provided
a term sheet for the Transaction. Electra Fleming also began its pre-due
diligence review of the Company and the ICAD Business.
In December 1997, Electra Fleming representatives met with
representatives of the Company in Boston to negotiate the major business terms
of the Transaction and began financial and legal due diligence review. On
December 29, 1997, the Company and Electra Fleming agreed in principle to pursue
the Transaction.
-9-
<PAGE> 12
In January 1998, Electra Fleming continued its confirmatory due
diligence, while negotiating certain substantive terms of the License Agreement
and the Transition Agreement.
On February 5, 1998, the Company's Board of Directors met to review
documentation relative to the Transaction and to consider VBW&Co.'s report on
its review of the Transaction. At this meeting VBW&Co. rendered its opinion
concerning the fairness of the consideration to be paid in the Transaction from
a financial point of view. See "Opinion of the Financial Advisor." Following the
resolution of a number of remaining substantive issues, and after hearing
VBW&Co's. fairness opinion and underlying analysis, the Board of Directors
approved the terms of the Transaction, subject to stockholder approval. For more
details concerning the terms of the License Agreement, see "Terms of the
Transaction."
On February 26, 1998, the Company's Board of Directors met to review
and consider the final documentation relative to the Transaction. After having
received the written opinion of VBW&Co. concerning the fairness of the
consideration to be paid in the Transaction from a financial point of view, the
Company's Board of Directors approved the terms of the Transaction and
recommended that the Transaction be submitted to the Company's stockholders for
their approval.
On February 26, 1998, the Company and the Distributor signed the
License Agreement and the Transition Agreement.
RISK FACTORS
Currently, the Company's business involves a number of risks. Certain of
these risks are expected to be reduced or eliminated if the Transaction is
consummated (see "Reasons for Engaging in the Transaction"). However, certain
risks may continue to affect the operation of the Company's ongoing Sales Force
Automation Business and operation of that business as the Company's primary
business may be subject to additional risks.
Risk Factors Affecting the Operation of the
Sales Force Automation Business of the Company
(if the Transaction is approved by the shareholders)
History of Losses; Cumulative Deficit. The Company had net income of $3.1
million in fiscal 1995 (all fiscal year references herein refer to the Company's
fiscal year which ends on March 31), operated at a break-even in fiscal 1996 and
sustained a $3.9 million net loss in fiscal 1997. In the nine months ended
December 31, 1997, the Company sustained a further net loss from operations of
$11.6 million, as revenues declined over the same period during the previous
fiscal year by approximately 40%. As of December 31, 1997, the Company had an
accumulated deficit of approximately $21.7 million. Although the guaranteed
royalty payments to the Company under the License Agreement if the Transaction
were consummated will partially offset the loss of revenue from direct sales of
the ICAD product, there can be no assurances that the Company will be able to
generate revenue from the Sales Force Automation Business and other sources in
amounts sufficient to replace the ICAD revenues as they taper off during the
period of the guaranteed fixed royalties. Furthermore, there can be no
assurances that, even if the future loss of ICAD revenue is fully offset by
increases in Sales Force Automation revenue, the Company will achieve or sustain
profitability in future periods.
Need for Additional Liquidity. The Company expects to devote substantially
the entire proceeds from the Transaction to finance its continuing operations.
The Company's strategy for growth of the Sales Force Automation Business may
require significant additional resources and, in light of the Company's recent
losses and the current unavailability of institutional lines of credit, there
can be no certainty that adequate funding will be available from other sources
to sustain operation or growth of the Company's business after termination of
the guaranteed royalty payments. The revenue derived from royalties under the
License Agreement may prove to be less than the aggregate revenues the Company
would be able to earn from continued operation of the ICAD Business.
Dependence on Principal Products. If the Transaction were approved by the
shareholders, thereby eliminating the ICAD products from the Company's group of
products, the risks associated with the Company's current reliance on a core
group of products will be exacerbated. As a result, any factor adversely
affecting sales of the Company's Sales Force Automation products would have a
material adverse effect on the Company. The Company's future financial
performance will depend in significant part upon the successful development,
introduction and customer acceptance of new or enhanced versions of the Sales
Force Automation products and other products. There can be no assurance that, if
the Transaction is consummated, the Company will be successful in marketing
SellingPoint and related products or any new or enhanced products the Company
may develop in the future, including Loandata. In addition, competitive
pressures or other factors may result in price erosion that could have a
material adverse effect on the Company's results of operation.
Competition. The market in which the Company offers Selling Point and other
Sales Force Automation products is highly competitive. Many of the Company's
competitors and potential competitors have significantly greater financial,
technological and marketing resources than the Company. Competitive pressures
faced by the Company could force the Company to reduce its prices, resulting in
slower revenue growth and reduced profitability. Furthermore, the products
offered by other companies may prove to be superior to the Company's products or
may achieve greater market acceptance. There can be no assurance that the
Company will be able to compete successfully against current and future sources
of competition in the sale force automation sector or that competition will not
have a material adverse effect on the Company's business, operating results or
financial condition.
Technological Demands of the Marketplace. The sales force automation market
in which the Company competes is characterized by rapid technological changes
and advances. The Company's future success will depend upon its ability to
enhance its existing products and introduce new products which keep pace with
technological developments in the marketplace and address the increasingly
sophisticated needs of its end-users. There can be no assurance that the Company
will be successful in introducing and marketing product enhancements or new
products on a timely basis, or that enhancements or new products will achieve
market acceptance.
Loss of ICAD Business Customers. Historically, the Company has derived a
significant portion of its revenues from a limited number of customers. (See
"Risk Factors Affecting the Combined Operation of the ICAD Business and the
Sales Force Automation Business of the Company - Concentration of Customers".)
All of the customers who individually accounted for 10% or more of the Company's
revenues in the fiscal years 1997, 1996 and 1995 were primarily or exclusively
customers of the ICAD Business, and it is likely that such customers will not
continue to be significant customers of the Company following the Transaction.
Although the royalty payments from the Distributor under the License Agreement
will offset a portion of the revenues lost from the significant customers of the
ICAD Business, there can be no assurance that the amount of the lost revenues
will be fully matched by the royalties under the License Agreement or that,
following full payment of the guaranteed fixed royalties, the Company will be
able to generate sufficient substitute revenue from Sales Force Automation
Business customers or other sources.
-10-
<PAGE> 13
Concentration of Customers. During the fiscal year ended March 31, 1997,
two customers each accounted for greater than ten percent of the Company's Sales
Force Automation revenues, and revenues from these customers during such period
represented, in the aggregate, approximately 42.0% of the Company's revenues
from the Sales Force Automation Business during such period. In fiscal 1996,
three customers each accounted for greater than ten percent of the Company's
Sales Force Automation revenues, and revenues from these customers represented
approximately 81.3% of the Company's Sales Force Automation revenues for such
year. No customer of the Sales Force Automation Business, however, has ever
accounted for more than 10% of the Company's total revenue during any fiscal
year. Concentration of customers can cause the Company's revenues and earnings
to fluctuate from quarter to quarter, based on major customers' requirements and
the timing of their orders. Although the Company believes that, with expansion
of the Sales Force Automation Business, its reliance on a small number of
significant customers will be reduced, there can be no assurances that the
Company will be able to expand its customer base. Furthermore, during the period
of fixed royalties under the License Agreement, the Company expects to receive a
substantial part of its revenue from the Distributor. There can be no assurance
that any of the Company's major Sales Force Automation customers will continue
to purchase products and services in amounts similar to previous years. The loss
of business from one or more of these customers may have a material adverse
impact on the Company.
Potential for Losses in Remaining Business. After the closing of the
Transaction, the Company will have two principal operating components,
SellingPoint and Loandata, which are smaller, less mature businesses and which
are currently in a development stage and operating at a loss. Depending on the
growth and performance of SellingPoint and Loandata, the Company could continue
to be faced with losses after the closing of the Transaction.
Uncertainty of Variable Royalty Payments. If the Distributor does not
perform to certain minimum revenue targets over the period in which the Company
would be due incremental payments for the strong performance of the Distributor,
the variable portion of the royalty payments will not be paid. The License
Agreement includes certain variable royalty payments based upon the operation of
the ICAD Business by the Distributor. (See "Description of the Transaction.")
There can be no assurance that the Distributor will successfully operate the
ICAD Business or that any variable royalty payments will become due as a result.
In addition, the variable royalty payments under the License Agreement are not
guaranteed by the Guarantor or any other party.
Absence of Security for Future Payments. Although Electra Investment Trust,
plc is guaranteeing the fixed royalty payments under the License Agreement, the
guarantee is unsecured. If the Distributor and Electra Investment Trust, plc
encounter financial difficulties, there can be no assurance that all royalty
payments will be paid.
Accounts Receivable Risks. The Distributor is responsible for aiding the
collection of the outstanding accounts owed to the Company with respect to the
ICAD Business. Should the Distributor not successfully collect the outstanding
accounts receivable, the Company will need to take independent measures to
collect for products sold and services already rendered. Such efforts may be
hindered by the fact that certain of the account debtors who were customers of
the ICAD Business but not of SellingPoint will not have a continuing business
relationship with the Company following the Transaction.
ICAD Business Personnel. Garreth Evans, the executive officer of the
Company who has been primarily responsible for ICAD System strategic planning
and sales, will join the Distributor along with approximately 40 other employees
of the ICAD Business. The Company believes that the Distributor will need to
quickly add senior management personnel for the ICAD Business and other general
overhead functions to improve the likelihood of the Distributor's overall
success with the ICAD Business. In the interim, an incomplete Distributor
management team represents a risk that the Distributor will not meet its
budgeted revenue targets, therefore potentially negatively impacting the
possibility of variable royalty payments being made to the Company. Should the
Distributor experience significant difficulty in filling positions in the ICAD
Business management team, this could create significant financial difficulties
for the Distributor and could jeopardize the ability of the Distributor to make
future variable royalty payments.
Reduction in ICAD Business Research and Development. The Company has
reduced research and development efforts relating to the ICAD Business in recent
months, as the Company has re-focused its resources on SellingPoint. Should the
Distributor not be able to revitalize such development effort in the short term,
the future competitiveness of the ICAD Business as operated by the Distributor
could be jeopardized. Failure to revitalize such development efforts, among
other factors, could result in the Distributor's inability to achieve its
projections for operation of the ICAD Business. In such case, the Company might
receive either reduced or no variable royalty payments.
Dependence on Proprietary Technology. The Company's success is heavily
dependent upon its proprietary technology. The Company does not have patents on
any of its technology and relies on contracts and the laws of copyright and
trade secrets to protect such technology. The Company maintains a trade secrets
program, enters into confidentiality or license agreements with its employees,
resellers and end-users, and limits access to and distribution of its software,
documentation and other proprietary information. Effective copyright and trade
secret protection may not be available in every foreign country in which the
Company's products are distributed. There can be no assurance that the steps
taken by the Company to protect its proprietary technology will be adequate to
prevent misappropriation of its technology by third parties, or that third
parties will not be able to develop similar technology independently. Although
the Company is not aware that any of its technology infringes the rights of
third parties, there can be no assurance that other parties will not assert
technology infringement claims against the Company, or that, if asserted, such
claims will not prevail.
Dependence on Personnel. The Company's success depends, in large part upon
a number of key management and technical employees. The loss of the services of
one or more key employees, including Lawrence W. Rosenfeld, the Company's
Chairman and Chief Executive Officer, could have a material adverse effect on
the Company. In addition, the Company's success will depend in significant part
upon its ability to attract and retain highly-skilled management, technical, and
sales and marketing personnel. Competition for such personnel is intense and
there can be no assurance that the Company will be successful in attracting and
retaining such personnel.
Risk Factors Affecting the Combined Operation of the
ICAD Business and the Sales Force Automation
Business of the Company (if the Transaction is not
approved by the shareholders)
History of Losses; Cumulative Deficit. The Company believes its losses over
the seven quarters ended December 31, 1997 are attributable in significant part
to the continuing decline in ICAD Business revenues, which have historically
been the principal source of cash generated by the Company's business, and the
operational inefficiencies involved in the Company's efforts to operate two
distinct business lines with an inadequate revenue base and insufficient cash to
support and expand operations, particularly sales and marketing efforts. There
can be no assurances that the Company will be able to continue to operate both
the ICAD Business and the Sales Force Automation Business or to achieve or
sustain profitability in future periods.
Need for Additional Liquidity. At December 31, 1997, the Company had cash
of $2.5 million
-11-
<PAGE> 14
and working capital of $1.3 million. In recent years the Company has funded
losses from operations primarily through the sale of equity securities
(including the Company's February 1995 $17.7 million initial public offering)
and, to a lesser extent, through institutional borrowings. The Company's bank
line of credit expired on June 30, 1997 with no outstanding borrowings and has
not been renewed. At the time the Company's bank line of credit expired, the
Company was not in compliance with certain financial covenants under the credit
facility. The Company also had a $1.75 million equipment line of credit which
expired on March 31, 1997 and has not been renewed. Although the Company was
able to effect a $2.0 million private placement of its Common Stock on December
3, 1997 to an existing institutional holder of the Company's shares, there can
be no assurance that the Company would be able to finance any further losses
from operations through the sale of equity securities.
Dependence on Principal Products. The Company derives substantially all of
its revenues from licenses of The ICAD System, SellingPoint and related products
and services. As a result, any factor adversely affecting sales of the Company's
core group of products would have a material adverse effect on the Company. The
Company's future financial performance will depend in significant part upon the
successful development, introduction and customer acceptance of new or enhanced
versions of its existing products and other products. There can be no assurance
that the Company will be successful in marketing SellingPoint and related
products or any new or enhanced products the Company may develop in the future,
including Loandata. In addition, competitive pressures or other factors may
result in price erosion that could have a material adverse effect on the
Company's results of operation.
Broader Market Acceptance. Broader market acceptance of the Company's
products is critical to the Company's future success. The Company believes that
broader market acceptance of its products will depend on a number of factors
including: product functionality, product reliability, price/performance
characteristics, ease of use and the displacement of existing approaches.
Failure or material delay of the Company's products to achieve broader market
acceptance would have a material adverse effect on the Company's business and
financial results. Although the Company has established a user base of large
companies, there can be no assurance that the Company will be able to broaden
that base and attain critical market penetration. In addition, any factor
adversely affecting the overall sales force automation market could have a
material adverse effect on the Company's business and financial results.
Concentration of Customers. Historically, a significant portion of the
Company's revenues in any particular period has been attributable to sales by
the ICAD Business to a limited number of customers. During the fiscal year ended
March 31, 1997, three customers of the ICAD Business each accounted for greater
than ten percent of the Company's revenues, and revenues from the Company's five
largest customers during such period represented, in the aggregate,
approximately 62.6% of the Company's revenues during such period. In fiscal
1996, two customers of the ICAD Business each accounted for greater than ten
percent of the Company's revenues, and revenues from the Company's five largest
customers represented approximately 44.1% of the Company's revenues for such
year. In fiscal 1995, three customers of the ICAD Business each accounted for
greater than ten percent of the Company's revenues, and revenues from the
Company's five largest customers (including two affiliated entities related to
the Company which, considered together as a single customer, accounted for 10.7%
of the Company's revenues), represented approximately 50.1% of the Company's
revenues for such year. The concentration of customers can cause the Company's
revenues and earnings to fluctuate from quarter to quarter, based on major
customers' requirements and the timing of their orders. Although the Company
believes it has good relationships with its largest customers and has in the
past received a substantial portion of its revenues from repeat business with
established customers, none of its major customers has any obligation to
purchase additional products or services and, thus, there can be no assurance
that any of the Company's major customers will continue to purchase products and
services in amounts similar to previous years. The loss of business from one or
more of these customers may have a material adverse impact on the Company.
Competition. The market in which the Company offers its products is highly
competitive. While several major CAD companies are involved in cooperative
marketing relationships with the Company and currently offer products that
complement those of the Company, there can be no assurance that these or other
companies will not develop products or provide services that compete with those
offered by the Company and that are superior to the Company's products or
services or that achieve greater market acceptance. In addition, many of the
Company's competitors and potential competitors have significantly greater
financial, technological and marketing resources than the Company. Competitive
pressures faced by the Company could force the Company to reduce its prices,
resulting in slower revenue growth and reduced profitability. There can be no
assurance that the Company will be able to compete successfully against current
and future sources of competition or that competition will not have a material
adverse effect on the Company's business, operating results or financial
condition.
Variability of Quarterly Operating Results. The Company has experienced and
may experience in the future significant quarter-to-quarter fluctuations in its
operating results. Factors such as the timing of significant orders, the timing
of new product introductions and upgrades, the length of customer product
evaluation periods, the mix of products sold and the mix of domestic versus
international revenues could contribute to this quarterly variability. A
substantial portion of the Company's revenues in a quarter are derived from
purchase orders received that quarter, which makes the Company's financial
performance more susceptible to an unexpected downturn in business and more
unpredictable. In addition, the Company's expense levels are based in part on
expectations of future revenue levels and a shortfall in expected revenues could
therefore result in a disproportionate decrease in the Company's net income.
Dependence on Third Party Licensed Technology. Certain technology used in
the Company's products is licensed from third parties, primarily in its ICAD
products. The Company licenses Allegro CL, a compiler embedded in The ICAD
System, from Franz, Inc. Should this compiler become unavailable to the ICAD
Business, the Company believes that it would be able to develop or obtain an
alternative compiler; however, the costs of such an effort and the time required
could be significant and, until an alternative compiler is developed or
obtained, the Company's ability to market the ICAD System would be substantially
impaired. The Company licenses from an affiliate of Electronic Data Systems
("EDS"), a principal customer and marketing partner of the Company, a solid
modeling software module called Parasolid, which is one of the most widely used
of The ICAD System modules. The loss of the right to use such software could
reduce the attractiveness of the Company's ICAD Business products to certain
-12-
<PAGE> 15
customers. The Company believes that alternative solid modeling software is
available. However, there can be no assurances that such alternatives would
achieve market acceptance or be available on a timely basis or on similar terms.
The Company believes that the cost associated with technology licensed from
third parties is not material to its results of operations and does not
constitute a significant portion of the total cost of the Company's products
into which such third party technology is incorporated. Although certain of the
Company's Sales Force Automation products incorporate technology licensed from
third parties, the Company does not believe that the loss of the rights to use
such third party technology would materially adversely impact its Sales Force
Automation business.
Technological Demands of the Marketplace. The market in which the Company
competes is characterized by rapid technological changes and advances. The
Company's future success will depend upon its ability to enhance its existing
products and introduce new products which keep pace with technological
developments in the marketplace and address the increasingly sophisticated needs
of its end-users. There can be no assurance that the Company will be successful
in introducing and marketing product enhancements or new products on a timely
basis, or that enhancements or new products will achieve market acceptance.
Dependence on Proprietary Technology. The risks associated with the
Company's dependence on proprietary technology, described above, relate not only
to the Sales Force Automation Business but equally to the ICAD Business.
Dependence on Personnel. The risks associated with the Company's dependence
on key management and technical employees, described above, may be aggravated
should the Transaction not be consummated. The Company's ability to recruit and
retain highly-skilled management, technical, and sales and marketing personnel
may be adversely impacted by the uncertainties about the Company's ability to
successfully operate two distinct lines of business.
International Operations. The Company's international revenues were $12.0
million, $7.7 million and $6.7 million in the fiscal years ended 1997, 1996 and
1995 respectively, representing 50.0%, 37.3% and 33.2%, respectively, of the
Company's revenues in such years. Although the Company expects that
international revenues will fluctuate from period to period, it expects such
revenues to account for a significant percentage of its revenues in the future.
The international portion of the Company's business is subject to a number of
inherent risks, including difficulties in building and managing international
operations, difficulties in managing distributors, difficulties in translating
products into foreign languages, fluctuations in the value of foreign
currencies, import/export duties and quotas and unexpected regulatory, economic
or political changes in international markets. There can be no assurance that
these factors will not adversely affect the Company's international revenues or
its overall financial performance.
DESCRIPTION OF THE COMPANY FOLLOWING THE TRANSACTION
Sales Force Automation Business
The Sales Force Automation Business, which will be the principal
business of the Company following the Transaction, currently focuses on two
software products, SellingPoint and Loandata.
SellingPoint is a Windows-based sales configuration tool used by
manufacturers and their distributors and to support the needs of remote or
mobile sales people who are selling customized products. SellingPoint allows
global sales forces to quickly zero in on a customer's functional requirements,
customer configure the ideal solution and generate a highly specific, tailored
proposal at the point of sale. SellingPoint takes critical information about
products, pricing, manufacturability and delivery and makes it available to the
sales force in real time, on a laptop or via the Internet, to increase sales and
order accuracy. With SellingPoint, the sales representative can interactively
assess a customer's needs and immediately generate product configurations,
next-best alternatives, realistic 3D visualizations of the customized product,
feature/benefit summaries, complete product proposals and order fulfillment
information all at the time of sale.
Loandata is a loan and lease sales automation system for automotive
dealerships. On December 24, 1997, the Company entered into an agreement and
acquired a 53.4% majority interest in a newly-created limited liability company
that is in partnership with Loandata.inc. Loandata.inc., an e-commerce company
developing the electronic underwriting of car leases and loans, has contributed
all of its assets, including proprietary technology, to the newly-created
subsidiary of the Company, in exchange for a minority interest in the
subsidiary. Loandata's "Spot Finance" software tool allows a lender to enter
underwriting criteria via their desktop PC. The criteria are forwarded via a
central data center to an automobile dealership's showroom kiosk where consumers
enter personal data and automobile loans and leases are underwritten and
documented at that time. Spot Finance is currently in the beta test stage.
If the Transaction is consummated, the Company intends to pursue
expansion as a Sales Force Automation company that provides SellingPoint and
Loandata products supported by the two year, guaranteed fixed revenue stream and
a potential variable revenue stream, resulting from licensing The ICAD System
pursuant to the License Agreement. The Company believes that the Sales Force
Automation Business offers opportunities for long-term growth because the Sales
Force Automation Business currently has technological advantages over the
products offered by the Company's principal competitors. The Company believes
that success in the Sales Force Automation Business requires both superior
technology and adequate financial, marketing and human resources to provide the
technology and related services globally.
For the year ended March 31, 1997 the ICAD Business comprised $19.0
million of the $24.1 million of revenues generated by the Company. For the nine
months ended December 31, 1997 the ICAD Business comprised $6.8 million of the
$11.5 million of revenue generated by the Company. Pro forma revenues for the
Sales Force Automation Business for the year ended March 31, 1997 were $5.1
million, and for the nine months ended December 31, 1997 were $4.7 million. The
above unaudited pro forma revenue information should be read in conjunction with
the accompanying historical financial statements incorporated by reference in
this Proxy Statement.
Planned Use of Royalty Payments and Amortization of Expenses
The Company intends to use the royalty payments to be rendered pursuant
to the terms of the License Agreement of approximately $18.65 million (less
expenses of approximately $1 million which will be amortized over the period
during which the Company will receive guaranteed fixed royalties under the
License Agreement) and any variable royalty payments received to support
expansion of its Sales Force Automation Business.
-13-
<PAGE> 16
Due to a number of factors, including the extended nature of negotiations for
the licensing of the ICAD system and attendant increased costs, the actual
expenses of the Transaction may differ materially from current estimates.
The Company anticipates that over time, it will use the royalty
payments for working capital and general corporate purposes. The amounts
actually expended for each purpose may vary significantly depending upon
numerous factors, including the costs and timing of expansion of marketing and
sales activities; hence, the Company's management will retain broad discretion
in the allocation of a substantial portion of the net proceeds. The Company also
may use a portion of the royalty payments to acquire businesses, technologies or
products complimentary to the Company's business, although the Company currently
has no specific plans or commitments in this regard.
RECOMMENDATIONS OF THE COMPANY'S BOARD OF DIRECTORS
At the meeting of the Company's Board of Directors held on February 5,
1998 to consider the License Agreement and the Transition Agreement, the Board
of Directors unanimously approved the License Agreement, the Transition
Agreement and the Transaction as being in the best interests of the Company and
its stockholders. On February 26, 1998, the Company's Board of Directors met to
review and consider the final documentation relative to the Transaction. After
having received the written opinion of VBW&Co. concerning the fairness of the
consideration to be paid in the Transaction from a financial point of view, the
Company's Board of Directors approved the terms of the Transaction and
recommended that the Transaction be submitted to the Company's stockholders for
their approval. FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF DIRECTORS OF THE
COMPANY UNANIMOUSLY APPROVED THE LICENSE AGREEMENT, THE TRANSITION AGREEMENT AND
THE TRANSACTION AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE LICENSE AGREEMENT, THE TRANSITION AGREEMENT AND THE TRANSACTION.
-14-
<PAGE> 17
OPINION OF FINANCIAL ADVISOR
On August 19, 1997 the Company retained VBW&Co. to act as its financial
advisor. The Company requested VBW&Co., as part of its advisory services, to
provide an opinion (the "Opinion") to the Board of Directors of the Company as
to the fairness, from a financial point of view, to the Company of the
consideration to be paid under the License Agreement and Transition Agreement.
On February 5, 1998, VBW&Co. rendered its opinion to the Board of
Directors of the Company to the effect that, as of such date and based upon the
assumptions made, matters considered and limits of review as set forth in such
opinion, the consideration to be paid under the Agreements is fair from a
financial point of view to the Company.
THE FULL TEXT OF VBW&CO.'S WRITTEN OPINION DATED FEBRUARY 5, 1998 WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX D AND IS INCORPORATED HEREIN BY
REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THIS OPINION
CAREFULLY IN ITS ENTIRETY. THE ENGAGEMENT OF VBW&CO. AND ITS OPINION ARE FOR THE
BENEFIT OF THE COMPANY'S BOARD OF DIRECTORS AND ITS OPINION WAS DELIVERED TO THE
COMPANY'S BOARD OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF THE
TRANSACTION. VBW&CO.'S OPINION ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION
FROM A FINANCIAL POINT OF VIEW TO THE COMPANY, AND IT DOES NOT ADDRESS ANY OTHER
ASPECT OF THE TRANSACTION NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW TO VOTE WITH RESPECT TO THE TRANSACTION.
In arriving at its opinion, VBW&Co.: (i) reviewed the January 30, 1998 draft of
the License Agreement, the January 30, 1998 draft of the Transition Agreement
and the January 27, 1998 draft Guarantee from Electra Investment Trust, p.l.c.
(the "Guarantee"); (ii) discussed the proposed terms of the License Agreement,
Transition Agreement and Guarantee with the Company's management; (iii)
interviewed management of the Company concerning the business prospects,
financial outlook and operating plans of the Company and the ICAD Business,
individually and combined; (iv) reviewed certain historical and certain
projected financial statements and other relevant financial and operating data
of the Company and the ICAD Business prepared by the management of the Company
and the ICAD Business; (v) assessed, in consultation with various associates in
the Corporate Finance department of VBW&Co., the positioning of the Company
without the ICAD Business in an effort to evaluate the Company's alternatives
and strategic options and the potential market reaction and the potential market
perception of the remaining businesses under different transaction scenarios;
(vi) reviewed the valuation of selected publicly-traded companies VBW&Co. deemed
relevant for the analysis; (vii) reviewed, to the extent publicly-available, the
financial terms of selected merger and acquisition transactions that VBW&Co.
deemed relevant for the analysis; (viii) performed a Discounted Cash Flow
analysis of the ICAD
-15-
<PAGE> 18
Division as a stand-alone entity, based upon financial projections of the
Company and the ICAD Business management; (ix) performed a pro forma financial
impact analysis of the separated entities, based upon financial projections
provided by the Company and the ICAD Business management; and (x) performed
other such studies, analyses and inquiries and considered other such information
as VBW&Co. deemed relevant.
On February 26, 1998, VBW&Co. reviewed the execution copies of the
Agreements and Guarantee, and determined and advised the Company that none of
the changes made since VBW&Co.'s review of the January 30, 1998 drafts of the
Agreements and the January 27, 1998 draft of the Guarantee would cause VBW&Co.
to change its opinion as to the fairness of the consideration to be paid in the
Transaction.
VBW&Co. relied without independent verification upon the accuracy and
completeness of all of the financial, accounting, legal, tax, operating and
other information provided to VBW&Co. by the Company and relied upon the
assurances of the Company that all such information is complete and accurate in
all material respects and that there is no additional material information known
to it that would make any of the information made available to VBW&Co. either
incomplete or misleading.
The Company has retained outside legal, accounting and tax advisors to
advise on matters relating to the Transaction. Accordingly, VBW&Co. has assumed
the accuracy of such advice for purposes of its opinion and has not
independently verified or confirmed such advice and expresses no opinion on such
matters.
Although the Company had discussions with third parties concerning
possible business combinations, VBW&Co. was not requested to consider, and
VBW&Co. expresses no opinion as to, the relative merits of the Transaction as
compared to any alternative business strategies that might exist for the Company
or the effect of any other transaction in which the Company might engage.
With respect to the projected financial data of the Company and the
ICAD Business, all of which has been provided by the management of the Company,
VBW&Co. relied upon assurances of the Company that such data has been prepared
in good faith on a reasonable basis reflecting the best currently available
estimates and judgments of the Company and the ICAD Business management as to
the future financial performance of the Company and the ICAD Business. The
Opinion is based, in large part, on these projected financial data and
estimates.
VBW&Co. relied upon the information provided to it by the Company for
the purposes of rendering the Opinion. VBW&Co. expresses no opinion and has made
no investigation with respect to the validity, accuracy or completeness of the
information provided to it and does not warrant any projections included in such
information. Actual results that the Company or the ICAD Business might achieve
in the future as stand-alone entities may vary materially from those used in
VBW&Co.'s analysis.
VBW&Co. assumed that the Transaction will be consummated in
accordance with the terms of the Agreements and Guarantee it reviewed and
that no material changes or amendments will be made prior to closing. VBW&Co.
has, furthermore, not made any independent appraisals or valuations of any
assets of the Company, the ICAD Business or Electra Investment Trust, p.l.c.,
nor has VBW&Co. been furnished with any such appraisals or valuations. VBW&Co.
has performed no investigations relating to the representations and warranties
made by the Company or the Distributor, including representations with respect
to intellectual property rights and status of any litigation pending or
threatened against either company. While VBW&Co. believes that its review, as
described herein, is an adequate basis for the Opinion it has expressed, the
Opinion is necessarily based upon market, economic and other conditions that
exist and can be evaluated as of the date of the Opinion, and any change in such
conditions would require a re-evaluation of the Opinion.
The following is a brief summary of the material analyses performed by
VBW&Co. and reviewed with the Company's Board of Directors on February 5, 1998
in connection with VBW&Co.'s presentation and opinion to the Board of Directors
of the Company on such date.
-16-
<PAGE> 19
COMPARABLE PUBLICLY-TRADED COMPANY ANALYSIS. VBW&Co. compared certain
financial information of the ICAD Business with that of a group of
publicly-traded companies selected by VBW&Co. based on a number of factors
including similarity of business lines, similarity of customer base, relative
operating performance and business model characteristics. The comparable
publicly-traded companies included: Ansoft Corporation, Ansys, Incorporated,
Concentra Corporation, Dassault Systemes SA, Diehl Graphsoft, Incorporated,
Gerber Scientific Incorporated, MacNeal-Schwendler Corporation, Mechanical
Dynamics Incorporated, Parametric Technology Corporation, Structural Dynamics
Research Corporation, and Tecnomatix Technologies Limited (collectively the
"Public Comparables"). The financial information reviewed included stock price
in relation to (i) earnings per share ("EPS") for the latest available twelve
month period ended December 31, 1997 ("L12M"), (ii) forecasted 1997 EPS and
(iii) forecasted 1998 EPS as well as enterprise value (defined as market
capitalization plus funded debt less cash) in relation to L12M revenue, L12M
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
earnings before interest and taxes ("EBIT"). Forecasted 1997 and 1998 EPS for
the Public Comparables were based on published estimates by research
organizations, including those of VBW&Co. The enterprise value of the Public
Comparables implied from the stock prices was 0.7 to 9.6 times L12M revenues
(with a median of 2.2 times) and 4.1 to 36.4 times L12M EBITDA (with a median of
10.9 times). Due to negative 1997 earnings, negative projected 1998 earnings and
negative L12M EBIT for the ICAD Business, multiples of 1997 earnings, projected
1998 earnings and L12M EBIT were not meaningful. The implied range of values for
the ICAD Business based on the Public Comparables stock prices in relation to
L12M EBITDA was $0.4 million to $3.3 million (with a median of $1.0 million).
VBW&Co. believes that the most important ratio of this analysis is the
enterprise value to revenue. The implied range of values for the ICAD Business
based on this ratio was $6.4 million to $92.7 million (with a median of $21.3
million). Other potential valuations resulting from other Public Comparable
ratios were not considered by VBW&Co. to be meaningful indicators of the
potential value of the business or were not meaningful due to lack of
profitability. Because of the inherent differences between the business,
operations and prospects of the ICAD Business and the businesses, operations and
prospects of the Public Comparables, VBW&Co. believed that it was inappropriate
to, and therefore did not, rely solely on the quantitative results of the
analysis, and accordingly, also made qualitative judgments concerning
differences between the ICAD Business and the Public Comparables that would
affect the valuation.
MERGER AND ACQUISITION TRANSACTION ANALYSIS. The structure of the
Transaction is not a sale of the ICAD Business, but rather a license of software
and intellectual property rights with a transfer of certain assets. Despite the
difference in structure, VBW&Co. believes that an analysis of the financial
terms of certain merger and acquisition transactions is relevant in assessing
the fairness of the consideration to be paid under the Agreements. Accordingly,
VBW&Co. reviewed the financial terms, to the extent publicly available, of
twelve selected merger and acquisition transactions that VBW&Co. deemed relevant
for the valuation analysis. The aggregate value (defined as the value of the
consideration paid plus cash less funded debt) of these transactions ranged from
0.5 to 12.4 times trailing twelve month revenues (with a median of 1.6 times).
The implied range of values for the ICAD Business based on these transactions
and the trailing twelve month revenue of the ICAD Business was determined to be
$4.6 million to $119.6 million (with a median of $15.4 million). The reasons for
and circumstances surrounding each of the selected transactions were specific to
that transaction and as a result the range of values yielded by this analysis
was wide. Because none of the merger and acquisition transactions were directly
comparable to the Transaction, VBW&Co. did not rely solely on the quantitative
results of this analysis and, accordingly, also made qualitative judgments
concerning differences between the selected transactions and the Transaction
that would affect the valuation.
In addition, VBW&Co. compared certain financial and business
information of the ICAD Business with that of Computervision, which announced
that the company was to be acquired by Parametric Technology on November 11,
1997. Of the group of merger and acquisition transactions reviewed, VBW&Co.
deemed the acquisition of Computervision by Parametric Computer to be "more
relevant" than the other merger and acquisition transactions reviewed because of
Computervision's declining 1997 year-on-year revenues as compared to the prior
year, as well as Computervision's lack of profitability. VBW&Co. noted that
Computervision was acquired for $460.2 million, which is 1.36 times trailing
twelve month Computervision revenue. Based on this transaction and the trailing
twelve month revenue of the ICAD Business, the implied value of the ICAD
Business was determined to be $13.1 million.
DISCOUNTED CASH FLOW ("DCF") ANALYSIS. VBW&Co. performed a DCF analysis
of the ICAD Business based on certain financial projections provided by the
management teams of Concentra and the ICAD Business for the periods 1998 through
2002. Unlevered free cash flows were calculated as net income available to
common shareholders plus the sum of depreciation, amortization and other
non-cash charges minus capital expenditures and plus or minus changes in working
capital and minus tax adjusted interest expense. VBW&Co. calculated terminal
values by applying an exit multiple range based on the median 1997 earnings
multiple of the Public Comparables to forecast 2002 net income and the cash flow
streams, and terminal values were then
-17-
<PAGE> 20
discounted to the present using a range of discount rates representing an
estimated range of the weighted average cost of capital ("WACC") for the ICAD
Business. The estimated range of discount rates, which ranged from 20% to 30%,
were based on approximate venture investor returns, which VBW&Co. judged, based
on the size, risk profile and general level of uncertainty of the ICAD Business,
to be comparable to that of an early-to-mid-stage venture investment. Based on
this analysis, VBW&Co. calculated values of the ICAD Business ranging from $13.8
million to $21.7 million.
MARKET CAPITALIZATION BREAKDOWN ANALYSIS. VBW&Co. prepared a valuation
of the ICAD Business based on the current and recent market capitalization of
the Company. This analysis reviews the value attributable to the ICAD Business
given the Company's current and recent market capitalization and the value
attributed to the Company's remaining business, the Sales Force Automation
Business (also referred to as the "SFAB"). VBW&Co. used the historical and
projected operating results for the SFAB prepared by the Company's management in
deriving a value for the SFAB. VBW&Co. compared certain financial information of
SellingPoint with that of publicly-traded companies selected by VBW&Co. based on
a number of factors including similarity of business lines, similarity of
customer base, relative operating performance and business model
characteristics. The comparable publicly-traded companies included: Clarify
Incorporated, Davox Corporation, Melita International Corporation, Mosaix
Incorporated, Pegasystems Incorporated, Remedy Corporation, Siebel Systems
Incorporated, Vantive Corporation, and Versatility Incorporated (collectively
the "Sales Force Automation Public Comparables" or "SFA Public Comparables").
The enterprise value of the SFA Public Comparables implied from the stock prices
provided a range of 0.6 times to 13.8 times L12M revenues (with a median of 2.6
times). Due to a L12M loss for the SFAB, multiples of L12M net income, L12M EBIT
and L12M EBITDA were not meaningful. The implied range of values for
SellingPoint based on the median enterprise value of the SFA Public Comparables
implied from the stock prices was $14 million to $16 million. The value of
Loandata was based on the recent acquisition price paid by the Company of $0.9
million. The deduction of the sum of these values from the range of the current
Company enterprise value, based on the Company's stock price on January 28, 1998
and the average Company stock price since the beginning of 1997, yields an
implied remaining value allocated to the ICAD Business of $3.3 million and $17.0
million. Because of the inherent differences between the business, operations
and prospects of SellingPoint and the businesses, operations and prospects of
the SFA Public Comparables, VBW&Co. believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, and
accordingly, also made qualitative judgments concerning differences between
SellingPoint and the SFA Public Comparables that would affect the valuation.
FEEDBACK FROM THE MARKETING PROCESS. VBW&Co used indications of value
(i.e., indications of potential offer prices) received from prospective bidders
in a broad-reaching marketing process as a very general valuation indicator for
the ICAD business. The Company, VBW&Co and The Capita Group collectively
approached 36 companies in the marketing process. This group yielded three
companies that expressed an interest in the ICAD Business. In doing so each of
these companies indicated a specific value, a range of values or a valuation
metric for the Division. While this information is useful in helping determine
the value of the ICAD Business, several factors should be noted with respect to
this valuation methodology. Namely, if a robust marketing process is engaged,
than the "feedback" from the market as to the potential value of an entity can
be used as information to help determine the value of that entity. The
usefulness of this information, however, is affected by a number of factors such
as: the amount of information and extent of due diligence undertaken before the
indication of value is provided; whether the indication of value is merely part
of a negotiating strategy and does not reflect the party's true assessment of
the value of the Division; and whether the indication of value is a serious
proposal from the party. Feedback from the marketing process yielded a range of
values for the ICAD Business from $13.7 million to $20.0 million. The
indications of interest and potential valuations upon which this range of value
is based where only preliminary in nature and were provided prior to any
substantive due diligence. Accordingly, VBW&Co. did not ascribe much weight to
these indications of potential value in its valuation process.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or a summary description. In
arriving at its opinion, VBW&Co. considered the results of all of its analyses
as a whole and did not
-18-
<PAGE> 21
attribute any particular weight to any analysis or factor considered by it.
Furthermore, selecting any portion of the analysis, without considering all of
the analyses, would create an incomplete view of the process underlying its
opinion. In addition, VBW&Co. may have given various analyses and factors more
or less weight than other analyses and factors, and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be VBW&Co.'s view of the actual value of the ICAD Business.
The analyses performed by VBW&Co. are not necessarily indicative of
actual value, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of VBW&Co.'s
analysis of the fairness of the Consideration from a financial point of view to
the Company. The analyses do not purport to be appraisals or to reflect the
prices at which the ICAD Business might actually be sold. In addition, as
described above, VBW&Co.'s opinion and presentation to the Company's Board of
Directors was one of many factors taken into consideration by the Company's
Board of Directors in making its determination to approve the Transaction.
Consequently, the VBW&Co. analyses described herein should not be viewed as
determinative of the opinion of the Company's Board of Directors with respect to
the value of the ICAD Business or of whether the Company's Board of Directors or
the Distributor would have been willing to agree to a different level of
consideration.
VBW&Co. is a nationally recognized investment banking firm and was
selected by the Company based on VBW&Co.'s experience and expertise. VBW&Co., as
a customary part of its investment banking business, engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate and other purposes. In the ordinary
course of business, VBW&Co. and its affiliates may actively trade the equity
securities of the Company for its and their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
VBW&Co. will receive a fee of $200,000 for rendering its opinion, no
portion of which is conditioned upon the opinion being favorable. The $200,000
fee and a separate $50,000 retainer fee will be credited against an additional
fee of $500,000 to be paid to VBW&Co. upon the closing of the Transaction. In
addition, the Company has agreed to reimburse VBW&Co. for its out-of-pocket
costs and expenses and to indemnify VBW&Co. and its affiliates against certain
liabilities and expenses.
-19-
<PAGE> 22
ACCOUNTING TREATMENT OF THE TRANSACTION
The Company plans to account for the Transaction as software license
revenue over the term of the License Agreement. Pursuant to the License
Agreement, the Company will receive fixed royalty payments over the initial two
year license period in exchange for the grant of rights to the Distributor to
license the ICAD Business software and specific services which will be provided
by Company personnel during this period. The Company will record revenue in the
period in which the payments have been made and the related services have been
performed. In addition, the Company expects to receive annual variable royalty
payments equal to 10% of the amount by which gross revenues of the Distributor
related to the licensed software, calculated on a cumulative basis from the date
of closing of the Transaction, exceed $17.5 million for the year ending March
31, 1999, $35.0 million for the two-year period ending March 31, 2000 and $52.5
million for the three-year period ending March 31, 2001, in each case less the
aggregate variable royalties paid in respect of prior periods. The variable
royalty payments will be recorded as license revenue in the fiscal year in which
the Distributor generates revenues with respect to the ICAD Business.
FEDERAL INCOME TAX MATTERS
GENERAL DISCUSSION
-20-
<PAGE> 23
The following discussion is based on current law and on certain facts
and circumstances relating to the Company as of the date hereof. Assurance
cannot be given that future legislative enactments, administrative
pronouncements, or court decisions will not modify or rescind, possibly on a
retroactive basis, the legal basis for statements or conclusions contained
herein. Neither can assurance be given that facts or circumstances will not
exist that would, if known to the Company or its advisors, cause the Company to
materially alter the statements or conclusions contained herein. The Company
does not anticipate seeking or receiving a ruling from the Internal Revenue
Service or any other taxing authority as to the tax effects of the Transaction.
The discussion addresses, in summary form, certain anticipated
significant federal tax consequences of the Transaction for the Company. The
discussion does not address the taxation of any operations or transactions other
than the Transaction. The discussion does not purport to deal with all federal
tax considerations relating to or resulting from the Transaction, nor does it
address any state, local, or foreign tax issues relating to the Transaction. In
addition, the discussion does not address any taxes other than taxes on net
income.
As a result of the Transaction, alone or in combination with other
factors, the tax liabilities of the Company may differ materially and adversely
from the tax liabilities which would be incurred by the Company and its
subsidiaries in the absence of the Transaction. The Company believes that the
following discussion accurately reflects the significant U.S. income tax
consequences of the Transaction. However, the law and its applicability to the
facts of the Transaction is subject to varying interpretations, and it is
possible that the Internal Revenue Service would challenge one or more aspects
of the manner in which the Company reports the Transaction. The Company can give
no assurances relating to either the extent of or the manner of determining its
federal, state, local or foreign tax liabilities following the Transaction. Such
liabilities will result from a combination of facts and legal developments that
cannot now be determined, and the Company reserves sole discretion to take any
actions which may affect such liabilities, as well as sole discretion to report
all operations and transactions, including the Transaction, in the manner which
the Company determines to be appropriate.
FEDERAL INCOME TAX TREATMENT OF THE TRANSACTION
The Transaction provides for an exclusive, worldwide license of most of
the assets of the ICAD Business of Concentra (the "Exclusive License") and the
license of certain Retained Intellectual Property and the KBCar Intellectual
Property (the "Non-exclusive Licenses"). Fixed Payments in the amount of
$18,654,000 will be received in 8 payments during the period beginning at
Closing and ending on October 1, 1999. Additional Variable Royalties may be paid
on certain revenues resulting from the Exclusive License and the Non-exclusive
Licenses for the years ending March 31, 1999, 2000, and 2001.
For U.S. federal income tax purposes, the Company expects to treat the
Exclusive License as a sale of the licensed assets. In the absence of an
election to realize the full amount to be realized on the Exclusive License at
Closing, the Company would generally treat the Exclusive License as an
installment sale and recognize income from the Exclusive License in the year in
which payments were received. However, the Company intends to elect not to treat
the Exclusive License as an installment sale and so will recognize income at
Closing equal to the difference between the total amount to be received on the
Exclusive License and the amount of the Company's investment in the assets to be
licensed as part of the Exclusive License. However, because the Company has
significant net operating loss carryovers, the Company does not currently
anticipate that electing out of the installment method with respect to payment
due on the Exclusive License will result in any significant current U.S. federal
income tax liability to the Company. As a result of the income recognized by the
Company from the Exclusive License, however, the Company's net operating loss
carryforwards will be significantly reduced.
-21-
<PAGE> 24
The Company expects to treat all amounts received from the
Non-Exclusive Licenses as royalties taxable for U.S. federal income tax purposes
as ordinary income. The parties have agreed to allocate the total amount to be
paid in the Transaction between the Exclusive License and the Non-Exclusive
Licenses, and the Company believes that these allocations accurately reflect the
value of each of the Exclusive and Non-Exclusive Licenses.
REQUIRED APPROVALS
The Company is not required to obtain any federal or state approvals of
the Transaction. The Company believes that, other than stockholder approval and
the other consents specified in the License Agreement, no further approvals are
necessary for the Transaction.
INTERESTS OF CERTAIN PERSONS
Garreth Evans, who is a Senior Vice President of the Company and who is
expected to become Chief Executive Officer of the Distributor will receive a
$105,000 bonus upon the closing of the Transaction. (Capita Corporate Finance
Limited, a member of the Capita Group, plc, will receive a fee of $280,000 upon
the closing of the Transaction. Capita Corporate Finance Limited was entitled to
a fee of $360,000 but agreed to take an $80,000 reduction in order to facilitate
the payment of $105,000 to Mr. Evans.) No other officers and directors of the
Company have any interest in the Transaction other than such interests they may
have as stockholders of the Company.
APPRAISAL RIGHTS INAPPLICABLE
Under Delaware law, the holders of Common Stock of the Company do not
possess any appraisal rights in relation to the Transaction.
CERTAIN INFORMATION REGARDING THE DISTRIBUTOR AND THE GUARANTOR
The Distributor is a recently established company organized under the
laws of Luxembourg by funds managed by Electra Fleming (of which the principal
source of funds is Electra Investment Trust plc, the guarantor of certain of
the obligations of the Distributor pursuant to the License Agreement) for the
purposes of entering into the Transaction and acting as distributor under the
License Agreement. The Distributor is currently wholly owned by funds managed
by Electra Fleming and at the closing of the Transaction it is envisaged that
funds managed by Electra Fleming will subscribe for ordinary shares, preference
shares and loan stock in the Distributor. In addition certain members of the
Distributor's management will subscribe for shares representing 22.5% of the
ordinary share capital of the Distributor. Funds managed by Electra Fleming
Limited will retain 72.5% of the ordinary share capital of the Distributor.
During the period between the signing of the License Agreement and the
Transition Agreement and the closing of the Transaction, the Distributor will
incorporate two additional Luxembourg companies and a US and a UK corporation
for the purposes of managing its portfolio of intellectual property licenses and
the operation of its business in Luxembourg, the United Kingdom and the United
States of America.
Electra Fleming advises Electra Investment Trust, plc, on its
investments in privately-owned companies such as the Distributor and serves as
investment manager of its investment portfolio.
Electra Investment Trust plc (the "Guarantor"), the guarantor of
certain of the Distributor's obligations under the License Agreement, is a
publicly-traded closed-end trust organized under the laws of England and Wales,
with its principal offices in London, England. The Guarantor's primary activity
is investment in unlisted companies and unlisted equity-related instruments on
an international basis. As of September 31, 1997, the end of the Guarantor's
most recently-ended fiscal year, the Guarantor had net assets valued at [pound
sign]1,082,802,000. The Guarantor's revenue after taxes for the fiscal year
ended September 30, 1997 was [pound sign]215,309,000.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING TO THE
DISTRIBUTOR AND THE GUARANTOR HAS BEEN PROVIDED BY THE DISTRIBUTOR AND THE
GUARANTOR. THE COMPANY DOES NOT WARRANT THE ACCURACY OR COMPLETENESS OF
INFORMATION RELATING TO THE DISTRIBUTOR OR THE GUARANTOR.
INFORMATION CONCERNING THE COMPANY'S COMMON STOCK
-22-
<PAGE> 25
The Company effected its initial public offering on February 7, 1995.
Since that date, the Company's Common Stock has traded on the Nasdaq Stock
Market under the symbol "CTRA."
On December 30, 1997, the Company publicly announced the Transaction.
The high and low sale prices for the Common Stock, as reported by Nasdaq, with
respect to trading on December 29, 1997 were $4.375 and $3.75, respectively.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth certain information as of May 4, 1998
with respect to the voting securities of the Company owned by (1) any person
(including any "group" as that term is defined in section 13(d)(3) of the
Securities Exchange Act of 1934) who is known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of a class of voting
securities of the Company, (2) each director of the Company, (3) each of the
Company's executive officers (as defined in Item 402(a)(3) of Regulation S-K),
and (4) all directors and executive officers of the Company as a group. In
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a person
is deemed to be the beneficial owner, for purposes of this table, of any voting
securities of the Company if he or she has or shares voting power or investment
power with respect to such securities or has the right to acquire beneficial
ownership thereof at any time within 60 days of May 4, 1998. As used herein
"voting power" is the power to vote or direct the voting of shares, and
"investment power" is the power to dispose of or direct the disposition of
shares. Except as indicated in the notes following the table below, each person
named has sole voting and investment power with respect to the shares listed as
being beneficially owned by such person.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF PERCENTAGE OF COMMON STOCK
OWNER BENEFICIAL OWNERSHIP OUTSTANDING (1)
<S> <C> <C>
Special Situations Fund III, L.P 959,939 (2) 15.8%
and affiliated entities
153 53rd Street
New York, NY 10022
San Giorgio S.A. 957,972 15.7%
100 Rue de Paris
91300 Massy, France
Lawrence W. Rosenfeld 656,256 (3) 10.5%
c/o Concentra Corporation
21 North Avenue
Burlington, MA 01803
Stephen J. Cucchiaro 73,249 (4) 1.2%
Peter T. Lanell 85,203 (5) 1.4%
David I. Lemont 55,259 (6) *
A. William Berkman Jr. 253,172 (7) 4.1%
Vincenzo Cannatelli 974,563 (8) 16.0%
Alberto de Benedictis 970,018 (9) 15.9%
William E. Kelly 12,040(10) *
Garreth P. Evans 40,801(10) *
Robert E. Phillips 38,143(11) *
</TABLE>
-23-
<PAGE> 26
<TABLE>
<S> <C> <C>
All directors and executive 2,225,467(12) 33.8%
officers as a group (12 persons)
</TABLE>
--------------------------------
* Less than one percent (1%)
(1) Shares of Common Stock issuable pursuant to options currently
exercisable or exercisable on, before or within 60 days of May 4, 1998
("Currently Exercisable Options") are deemed outstanding for the
purpose of computing the percentage of the class owned by the person
holding such options, but are not deemed outstanding for purposes of
computing the percentage owned by any other person.
(2) Derived from a Schedule 13D mailed to the Company under cover dated
January 13, 1998. The Schedule 13d reported the following aggregate
amounts beneficially owned by the following entities: 470,450 shares by
Special Situations Fund, L.P.; 235,000 shares by Special Situations
Private Equity Fund, L.P.; 143,900 shares by Special Situations Cayman
Fund, L.P.; and 110,589 shares by Special Situations Technology Fund,
L.P. The Schedule 13D reports that Austin W. Marxe and David M.
Greenhouse have sole voting power and sole dispositive power of the
959,939 shares.
(3) Includes (i) 181,251 shares issuable pursuant to Currently Exercisable
Options, and (ii) 14,546 shares held by trusts for the benefit of
Mr. Rosenfeld's children. Mr. Rosenfeld disclaims beneficial
ownership of the shares held by such trusts.
(4) Includes 25,682 shares issuable pursuant to Currently Exercisable
Options.
(5) Includes 81,683 shares issuable pursuant to Currently Exercisable
Options.
(6) Includes 53,973 shares issuable pursuant to Currently Exercisable
Options.
(7) Includes shares held by Toyo Corporation, as to which shares Mr.
Berkman disclaims beneficial ownership. Includes 21,137 shares issuable
pursuant to Currently Exercisable Options.
(8) Includes shares held by San Giorgio S.A., as to which shares
Mr. Cannatelli disclaims beneficial ownership. Includes 16,591 shares
issuable pursuant to Currently Exercisable Options.
(9) Includes shares held by San Giorgio S.A., as to which shares Mr. de
Benedictis disclaims beneficial ownership. Includes 12,046 shares
issuable pursuant to Currently Exercisable Options.
(10) All such shares are issuable pursuant to Currently Exercisable Options.
(11) Includes 36,160 shares issuable pursuant to Currently Exercisable
Options.
(12) Includes (i) 232,035 shares held by Toyo Corporation (of which Mr.
Berkman is an affiliate), and (ii) 957,972 shares held by San Giorgio
S.A. (of which Mr. Cannatelli and Mr. de Benedictis are affiliates).
Shares owned include 504,423 shares issuable pursuant to Currently
Exercisable Options. Mr. Berkman disclaims beneficial ownership of
shares held by Toyo Corporation. Messrs. Cannatelli and de Benedictis
disclaim beneficial ownership of shares held by San Giorgio S.A.
-24-
<PAGE> 27
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL
MEETING
Any stockholder of the Company who wishes to present a proposal at the
1998 Annual Meeting of Stockholders of the Company and who wishes to have such
proposal included in the Company's proxy statement for that meeting, must have
delivered a copy of such proposal to the Company at 21 North Avenue, Burlington,
Massachusetts 01803, Attention: Chief Financial Officer, no later than March 31,
1998; provided, however, that if the 1998 Annual Meeting of Stockholders is held
on a date more than 30 days before or after the corresponding date of the 1997
Annual Meeting of Stockholders, any stockholder who wishes to have a proposal
included in the Company's proxy statement for that meeting must deliver a copy
of the proposal to the Company a reasonable time before the proxy solicitation
is made. The Company reserves the right to decline to include in the Company's
proxy statement any stockholder's proposal which does not comply with the rules
of the Securities and Exchange Commission for inclusion therein.
FORMS 10-K AND 10-Q
The Company's Form 10-K for the fiscal year ended March 31, 1997 and
the Company's Form 10-Q for the quarterly period ended December 31, 1997 are
being furnished to Stockholders of record on May 4, 1998.
OTHER MATTERS
As of the date of this proxy statement, management of the Company knows
of no matter not specifically referred to above as to which any action is
expected to be taken at the Special Meeting. The persons named in the enclosed
form of proxy, or their substitutes, will vote the proxies, insofar as the same
are not limited to the contrary, in regard to such other matters and the
Transaction of such other business as may properly be brought before the Special
Meeting, in their best judgement.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997.
(b) The Company's Quarterly Report on Form 10-Q for the period ended
December 31, 1997.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 are
incorporated herein by reference and constitute a part hereof from their
respective dates of filing. The Company will provide without charge to each
person to whom this Proxy Statement is delivered, on the written or oral request
of such person, a copy of any and all of the information that has been
incorporated by reference herein (other than exhibits to such documents which
are not specifically incorporated by reference into the information that this
Proxy Statement). Such requests should be addressed to Concentra Corporation, 21
North Avenue, Burlington, Massachusetts 01803, Attention: Alex N. Braverman,
Chief Financial Officer, telephone number: (781) 229-4600.
IN DETERMINING WHETHER TO APPROVE THE PROPOSED TRANSACTION, THE
STOCKHOLDERS SHOULD CONSIDER ALL OF THE INFORMATION INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company furnishes its stockholders with annual reports containing financial
statements audited
-25-
<PAGE> 28
by its independent public accountants, and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the Securities and
Exchange Commission (the "Commission") at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates. In addition, certain filings made
with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system, including this Proxy Statement, are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain
safe harbors regarding forward-looking statements. From time to time,
information provided by the Company or statements made by its directors,
officers or employees may contain "forward-looking" information subject to
numerous risks and uncertainties. Any statements made herein that are not
statements of historical fact are forward-looking statements including, but not
limited to, statements concerning the characteristics and growth of the
Company's markets and customers, the Company's objectives and plans for future
operations and products, the Company's expected liquidity and capital resources,
the expectations for operation of the Company's business after the Transaction,
the expected growth of SellingPoint and Loandata and the expected timing and
receipt of royalty payments under the License Agreement. Such forward-looking
statements are based on a number of assumptions and involve a number of risks
and uncertainties, and, accordingly, actual results could differ materially.
Factors that may cause such differences include, but are not limited to: the
continued and future acceptance of the Company's products; the rate of growth in
the industries of the Company's products; the presence of competitors with
greater technical, marketing and financial resources; the Company's ability to
promptly and effectively respond to technological change to meet evolving
customer needs; risks associated with sales in foreign countries; the Company's
ability to successfully expand its operations; and those factors in "Risk
Factors," elsewhere herein. The words "believe," "expect," "anticipate,"
"intend," and "plan" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date the statement was
made. See "Risk Factors."
-26-
<PAGE> 29
ANNEX A
Dated February 26, 1998
CONCENTRA CORPORATION
- and -
KNOWLEDGE TECHNOLOGIES INTERNATIONAL S.A.
------------------------------
SOURCE LICENCE AND EXCLUSIVE
DISTRIBUTORSHIP AGREEMENT
------------------------------
ASHURST MORRIS CRISP
Broadwalk House
5 Appold Street
London EC2A 2HA
Tel: 0171 638 1111
Fax: 0171 972 7990
REF: BJH/NCC/FJC/E45000457/0435143
<PAGE> 30
CONTENT
CLAUSE PAGE
1. DEFINITIONS.............................................................1
2. CLOSING.................................................................6
3. LICENCES................................................................6
4. TRADE MARKS AND INCIDENTAL INTELLECTUAL PROPERTY........................8
5. ROYALTY PAYMENTS........................................................8
6. PRE AND POST-CLOSING COVENANTS.........................................11
7. SUBSIDIARY AND SUPPORT.................................................12
8. CONDITIONS TO CLOSING..................................................12
9. TERM AND TERMINATION...................................................14
10. CONFIDENTIALITY........................................................16
11. REPRESENTATIONS AND WARRANTIES.........................................18
12. OWNERSHIP..............................................................21
13. INDEMNIFICATION........................................................22
14. LIMITATIONS ON LIABILITY...............................................24
15. COMPLIANCE WITH LAWS...................................................24
16. NOTICES................................................................25
17. NONCOMPETITION.........................................................25
18. GENERAL PROVISIONS.....................................................26
<PAGE> 31
THIS AGREEMENT is made on February 26, 1998
BETWEEN:
(1) CONCENTRA CORPORATION a corporation organised under the laws of the state
of Delaware, USA whose principal office is at 21 North Avenue, Burlington,
Massachusetts 01803-3301, USA (the "LICENSOR"); and
(2) KNOWLEDGE TECHNOLOGIES INTERNATIONAL S.A. a company incorporated in the
Grand Duchy of Luxembourg whose registered office is at 58, rue Charles
Martel, BP5017, L-1050 Luxembourg (the "DISTRIBUTOR").
RECITALS:
(A) The Licensor owns the Licensed Intellectual Property and has the right to
use the Third Party Software (in each case as defined below), which
together comprise the ICAD Software.
(B) The Distributor desires to become the exclusive distributor of the ICAD
Software and to have exclusive rights to develop, distribute and
sublicense additional software products based on the ICAD Software and the
Licensor is willing to grant to the Distributor the exclusive right to
develop and distribute the ICAD Software on the terms and conditions set
forth herein.
(C) The Licensor and the Distributor are parties to a Transition Agreement,
dated as of February 26, 1998 (the "TRANSITION AGREEMENT").
(D) Electra Investment Trust, plc ("EIT") will, pursuant to a Guarantee in
agreed form to be entered into prior to Closing (the "GUARANTEE") agree
to guarantee payment by the Distributor of all Fixed Royalties payable by
the Distributor to the Licensor in accordance with the provisions of
Clause 5.2(a) herein.
NOW, THEREFORE, in consideration of these premises and the mutual covenants
herein contained, the parties hereby agree as follows:
1. DEFINITIONS
1.1 All expressions in the Transition Agreement shall bear the same meaning
herein unless otherwise indicated.
1.2 In addition, the following words and expressions shall, unless the context
other wise requires, have the following meanings:
"ACCOUNTS" means the ICAD Business Expenditure Revenue Model comprising a
balance sheet, profit and loss account, statement or source and
application of funds, notes and directors' report in respect of the ICAD
Business for the relevant financial period;
"1999 ACCOUNTS" means the Accounts as at and for the 12 month financial
period ending March 31, 1999 prepared in accordance with Clause 5.2(e);
"2000 ACCOUNTS" means the Accounts as at and for the 12 month financial
period ending March 31, 2000 prepared in accordance with Clause 5.2(e);
"2001 ACCOUNTS" means the Accounts as at and for the 12 month financial
period ending March 31, 2001 prepared in accordance with Clause 5.2(e);
- 1 -
<PAGE> 32
"AGREED FORM" means, in relation to a document, in the form agreed between
the parties on or prior to the date hereof and for the purposes of
identification signed on their behalf;
"AUDITORS" means Ernst & Young;
"BUSINESS INTELLECTUAL PROPERTY" means all Intellectual Property
pertaining to the ICAD Business and including the Licensed Intellectual
Property, the Trade Marks, the Incidental Intellectual Property and the
Retained Intellectual Property but excluding the Third Party Software;
"CLOSING" means the closing of the transactions contemplated by this
Agreement and the Transition Agreement;
"CLOSING DATE" means the date on which Closing takes place;
"D-CUBED LIMITED" means D-Cubed Limited of 68 Castle Street, Cambridge,
CB3 0AJ;
"DERIVATIVE WORK" means a work based in whole or in part upon one or more
pre-existing works, such as a revision, modification, translation,
abridgement, condensation, expansion, or any other form in which a
pre-existing work may be recast, transformed, or adapted. A work
consisting of editorial revisions, annotations, elaborations, or other
modifications which, as a whole, represents an original work of authorship
is a Derivative Work. Notwithstanding the foregoing, the Licensor's
Selling Point product and any Derivative Works based thereon shall not be
deemed to be Derivative Works based on the Licensed Intellectual Property;
"DISCLOSURE SCHEDULE" means the disclosure schedule delivered by the
Licensor in connection herewith, and all references herein to Exhibits
shall refer to the Exhibits included in such Disclosure Schedule;
"DISTRIBUTOR'S GROUP" means the Distributor and any direct or indirect
subsidiary of the Distributor;
"DOCUMENTATION" means, collectively, System Documentation and User
Documentation;
"DTE" means any products or services developed or marketed by the
Distributor which utilise the concepts of ICAD and KBO in a PC
environment;
"DTE REVENUES" means the surplus of revenues derived from DTE in excess of
the sum of (i) 50% of incremental direct costs (excluding research and
development costs) incurred in connection with DTE (and (ii) the research
and development costs incurred in connection with DTE which shall be
calculated as if all research and development expenses had been
capitalised as incurred and amortised over a period of four (4) years)
both of which shall be calculated on a cumulative basis and which shall
exclude any revenue derived from any business units or companies acquired
by the Distributor from the date of Closing onwards;
"ENCUMBRANCE" means any mortgage, charge, pledge, lien, security or other
third party right or interest (legal or equitable) or restriction over or
in respect of the use of the relevant asset, security or right;
"END USER" means a third party licensed to use an ICAD Product;
"FIXED ROYALTIES" means together the sums payable pursuant to Clause
5.2(a) and "FIXED ROYALTY" shall mean any one of them;
- 2 -
<PAGE> 33
"FIXED ROYALTY COMPLETION DATE" means the date on which the Distributor
shall have satisfied all obligations with respect to the Fixed Royalties
set forth in Clause 5.2(a);
"GROSS REVENUES" means the aggregate of:
(i) the ICAD Business Revenues; and
(ii) the DTE Revenues;
"ICAD BUSINESS" means the business associated with or derived from the
ICAD Software, any and all Derivative Works thereof and any and all
associated revenue activities, including, without limitation, consulting,
support, maintenance, training, and all other business services, products
or activities carried on by the Licensor with respect to the ICAD Products
on the date of Closing;
"ICAD BUSINESS REVENUES" means the consolidated gross revenues on ordinary
activities of the ICAD Business excluding any value added taxes or sales
taxes or revenues derived from DTE or revenue derived from any business
units or companies acquired or established or products developed (other
than Derivative Works of the ICAD Software) from the date of Closing
onwards, for the financial period in question as drawn from the relevant
Royalty Accounts.
"ICAD PRODUCT" means a software product incorporating any or all of the
ICAD Software (in Object Code Form only) and User Documentation, including
but not limited to any Derivative Works of the ICAD Software and User
Documentation;
"ICAD SOFTWARE" means the software described in Exhibit 1.2 (a) of the
Disclosure Schedule in Source Code Form and Object Code Form;
"INCIDENTAL INTELLECTUAL PROPERTY" means all Intellectual Property
pertaining to the ICAD Business other than the Licensed Intellectual
Property and the Trade Marks;
"INTELLECTUAL PROPERTY" means all patent, copyright, trademark, trade
secret and other industrial and intellectual property rights;
"INTERFERE" means a wilful attempt to induce customers away from the
Licensor by engaging in the development, research or marketing of a
product or products similar in commercial application and purpose to any
product or service offered or under development by the Licensor on the
Closing Date (other than the Restricted Business);
"KBCar" shall have the meaning ascribed to such term in the KBCar
Distribution Agreement dated as of February 29, 1996 between the Licensor
and Tata Technologies Pte Ltd;
"KBCar INTELLECTUAL PROPERTY" means all of the Licensor's interest in the
Intellectual Property pertaining to KBCar;
"LICENSED INTELLECTUAL PROPERTY" means the Intellectual Property in the
Proprietary Software which includes the Retained Intellectual Property,
and Intellectual Property in all Documentation and any Updates and
Derivative Works of such software and Documentation created by or for the
Licensor, all of which are being licensed to the Distributor on the terms
and conditions of this Agreement;
- 3 -
<PAGE> 34
"LICENCES" means the licences granted by the Licensor to the Distributor
pursuant to Clause 3.1;
"LICENSOR'S ACCOUNT" means the account in the name of the Licensor as the
Licensor shall from time to time designate in writing to the Distributor
(on behalf of the Distributor's Group) as the depository account for the
payment of Fixed Royalties, Variable Royalties and other amounts due to
the Licensor hereunder;
"LICENSOR'S GROUP" means the Licensor and any direct or indirect
subsidiary of the Licensor;
"OBJECT CODE FORM" means a form of software code resulting from the
translation or processing of Source Code by a computer into machine
language or intermediate code, which thus is in a form that would not be
convenient to human understanding of the program logic, but which is
appropriate for execution or interpretation by a computer;
"PLATFORM" means any and all computer operating systems, now or in the
future, on which the ICAD Products operate;
"PROPRIETARY SOFTWARE" means that part of the ICAD Software, the
Intellectual Property in which is owned by the Licensor;
"RESELLER" means any original equipment manufacturer, dealer, reseller,
distributor or other entity currently authorised by the Licensor and/or
will be authorised by the Distributor to sublicense the use of and
distribute the ICAD Products to End Users or other intermediate parties,
such as dealers, in the distribution chain to End Users;
"RESTRICTED BUSINESS" means the ICAD Business as conducted by the Licensor
on the Closing Date;
"RETAINED INTELLECTUAL PROPERTY" means all Intellectual Property in the
Proprietary Software that is also used in other businesses of the
Licensor;
"ROYALTY ACCOUNTS" means one or more than one or all of the 1999, 2000 and
2001 Accounts (as the context may require);
"ROYALTY COMPLETION DATE" means the date on which the Distributor shall
have satisfied all of its obligations with respect to the payment of all
Fixed Royalties and Variable Royalties hereunder;
"SELLING POINT" means the software products marketed under the names
'Selling Point' and 'Spot Finance', together with any Derivative Works of
such software;
"SKETCHER" means the Core Windows-based Software common to both Selling
Point and the ICAD Software which is part of the graphical user interface
software, licensed by D-Cubed Limited under the product name "Dimensional
Constraint Manager 2D";
"SOURCE CODE FORM" means a form in which a computer program's logic is
easily deduced by a human being with skill in the art, such as a printed
listing of the program or a form from which a printed listing can be
easily generated;
"SYSTEM DOCUMENTATION" means technical documentation, manuals and other
written or electronic materials useful in the maintenance, modification
and enhancement of the Licensed Intellectual Property;
- 4 -
<PAGE> 35
"THIRD PARTY SOFTWARE" means that part of the ICAD Software the
Intellectual Property in which is owned by third parties which has been
licensed-in from third parties pursuant to the agreements details of which
are set out in Exhibit 1.2(b);
"THIRD PARTY TRANSFER AGREEMENTS" means the agreements which transfer or
grant in whole or in part to the Distributor the same or similar rights
which the Licensor has in or to the Third Party Software in the Agreed
Form;
"TRADE MARK ASSIGNMENT" means the assignment of the Trade Marks in the
Agreed Form;
"TRADE MARKS" means the registered and unregistered trade marks (and
applications therefor) details of which are set out in Exhibit 1.2(c);
"UPDATE" means a new version of any ICAD Software or Documentation
pertaining thereto, which new version may include corrections,
modifications, upgrades, enhancements, new features or may otherwise
constitute a Derivative Work of such ICAD Software or Documentation;
"USER DOCUMENTATION" means user manuals, handbooks and other written or
electronic materials relating to an ICAD Product and intended for End
Users;
"VARIABLE ROYALTIES" means together the sums payable pursuant to Clause
5.2(b) and "VARIABLE ROYALTY" shall mean any one of them; and
"WARRANTIES" means those representations, warranties, covenants and
undertakings of the Licensor set out in Clause 11 hereto.
1.3 References to the parties hereto include their respective permitted
assignees and in the case of individuals their respective successors in
title, personal representatives, heirs and estates and references to the
masculine gender shall include the feminine and vice versa.
1.4 References to statutes or statutory provisions include references to any
orders or regulations made thereunder and references to any statute,
provisions, order or regulation include references to that statute,
provision, order or regulation as amended, modified, re-enacted or
replaced from time to time whether before or after the date hereof
(subject as otherwise expressly provided herein) and to any previous
statute, statutory provision, order or regulation amended, modified,
re-enacted or replaced by such statute, provision, order or regulation.
1.5 References to persons shall include any person, individual, company, firm,
corporation, association, joint stock company, trust, joint venture,
incorporated organisation, governmental entity (or any department, agency
or political subdivision thereof, or any other entity (whether or not
having separate legal personality and irrespective of the jurisdiction) in
or under the law of which it was incorporated or exists).
1.6 Headings to clauses and paragraphs are for information only and shall not
form part of the operative provisions of this agreement and shall be
ignored in construing the same.
1.7 References to recitals, clauses or schedules are to recitals to, clauses
of and schedules to this Agreement and references to Exhibits are to
Exhibits set out in the Disclosure Schedule.
1.8 The recitals, the schedules and documents in the Agreed Form part of the
operative provisions of this agreement and references to this agreement
shall, unless otherwise expressly stated, include references to the
recitals, the schedules and documents in the Agreed Form.
- 5 -
<PAGE> 36
1.9 References to times of the day are to United States Eastern Standard Time.
1.10 References in this Agreement to the "Distributor" shall, unless otherwise
provided, be deemed to refer to such member or members of the
Distributor's Group as the Distributor shall have assigned or novated, in
whole or in part, the benefit and burden of the rights and obligations
arising under this agreement.
2. CLOSING
2.1 Date and Place
Subject to the provisions of Clause 8 hereof, Closing shall take place at
the offices of Ashurst Morris Crisp, Broadwalk House, 5 Appold Street,
London EC2A 2HA on the fifth (5th) business day after the last of the
conditions set forth in Clause 8 has been satisfied or waived or at such
other place or time as the Licensor and the Distributor (on behalf of the
Distributor's Group) shall agree in writing.
2.2 Closing Transactions and Deliveries.
At the Closing:
(a) the Licences set forth in Clause 3 hereof shall come into force;
(b) the Licensor and the Distributor shall consummate the transactions
(including the transfer of the Assets and the Contracts)
contemplated by the Transition Agreement;
(c) the Licensor and the Distributor shall deliver the opinions,
certificates and other documents required by this Agreement to be
delivered by the Licensor and/or the Distributor.
(d) the Licensor shall provide the Distributor with such complete copies
of the Licensed Intellectual Property as the Distributor shall
require.
(e) the Licensor and the Distributor shall enter into the Trade Mark
Assignment;
(f) the Third Party Transfer Agreements shall come into force;
(g) the Guarantee shall come into force; and
(h) the Distributor, or such relevant member of the Distributor's Group,
shall pay to the Licensor the Fixed Royalty payment due at Closing
pursuant to Clause 5.2(a) as adjusted in accordance with the
provisions of Clause 16 of the Transition Agreement.
2.3 The parties hereby agree that irrespective of the date on which Closing
takes place the Distributor shall, for economic purposes only, be deemed
to have become the exclusive distributor of the ICAD Software as of 1
January 1998, as provided in the Transition Agreement. For the avoidance
of doubt, adjustments made under the Transition Agreement shall not alter
the effective date of the Licences, the Trade Mark Assignment or the
assignment of Incidental Intellectual Property hereunder, all of which
shall be effective as at the Closing Date.
3. LICENCES
3.1 Licences Granted
- 6 -
<PAGE> 37
Effective as of the Closing and subject to Clause 9.1 hereof, the Licensor
hereby grants the following Licences to the Distributor, or such relevant
member of the Distributor's Group:
(a) a perpetual exclusive world-wide right and licence to use the
Licensed Intellectual Property other than the Retained Intellectual
Property and the KBCar Intellectual Property to copy and distribute
the ICAD Products and all Derivative Works thereof to third parties,
including but not limited to End Users and Resellers;
(b) a perpetual, exclusive world-wide right and licence to use the
Licensed Intellectual Property other than the Retained Intellectual
Property and the KBCar Intellectual Property to use, copy, modify,
enhance, prepare Derivative Works of and Documentation for, and
create ICAD Products based on, the ICAD Software, in Source Code
Form or Object Code Form on any and all Platforms;
(c) a perpetual irrevocable, non-exclusive world-wide right and licence
to use the Retained Intellectual Property to copy and distribute the
ICAD Products and all Derivative Works thereof to third parties,
including but not limited to End Users and Resellers;
(d) a perpetual irrevocable, non-exclusive world-wide right and licence
to use the Retained Intellectual Property to use, copy, modify,
enhance, prepare Derivative Works of and Documentation for and
create ICAD Products based on, the ICAD Software in Source Code Form
or Object Code Form on any and all Platforms; and
(e) a perpetual irrevocable, non-exclusive world-wide right and license
to use the KBCar Intellectual Property to copy and distribute the
ICAD Products and all Derivative Works thereof to third parties,
including but not limited to End Users and Resellers; provided that,
upon termination of the restrictions on the grant of an exclusive
licence in relation to the exploitation or use of KBCar contained
(i) in Clause 8 of that certain Agreement dated as of February 29,
1996 by and between the Licensor and Dana Commercial Credit Limited
("DCC") and identified as an Appendix to that certain Consent and
Agreement to Pay Agreement dated as of February 29, 1996 between the
Licensor and DCC and (ii) in Clause 3.7 of that certain Consulting
Services Agreement dated as of February 29, 1996 between the
Licensor and Tata Technologies Pte Ltd ("TATA"), whether by way of
expiration, waiver or otherwise, the licence granted in this Clause
3.1(e) shall automatically become exclusive; and provided, further,
that the Licensor shall use its best efforts to procure the
assignment to the Distributor or such relevant member of the
Distributor's Group, of the rights of the Licensor in the KBCar
Distribution Agreement as soon as practicable after the termination
of the aforementioned restrictions.
3.2 In accepting the Licences, the Distributor, acknowledges, and shall
procure that such relevant member of the Distributor's Group acknowledges,
that the ICAD Software incorporates, and requires for effective operation,
the Third Party Software and further acknowledges that the Licences do not
confer on the Distributor, or such relevant member of the Distributor's
Group, any licences with respect to such Third Party Software. The
Distributor, or such relevant member of the Distributor Group, shall rely
solely on the Third Party Transfer Agreements with respect to such Third
Party Software.
3.3 Right to Sub-license
The Distributor shall have the right to sub-license or assign to third
parties or any member or members of the Distributor's Group in whole or in
part all or any of the rights granted to it in Clauses 3.1(a), 3.1(b),
3.1(c) and 3.1(d).
- 7 -
<PAGE> 38
4. TRADE MARKS AND INCIDENTAL INTELLECTUAL PROPERTY
4.1 The Licensor shall enter into the Trade Mark Assignment at Closing.
4.2 The Licensor hereby assigns to the Distributor, in consideration of
US$1.00 (receipt of which is hereby acknowledged) effective as of the
Closing, all of its rights in and to the Incidental Intellectual Property.
5. ROYALTY PAYMENTS
5.1 Royalties
The Distributor, or such relevant member of the Distributor's Group, shall
pay the Licensor the Fixed Royalties and the Variable Royalties as set
forth in this Clause 5 without reduction or set off except to the extent
that (i) there shall be outstanding and unpaid an amount, determined
pursuant to Clause 18.10, owed by the Licensor to the Distributor, or such
relevant member of the Distributor's Group, (or as the Licensor and the
Distributor or such relevant member of the Distributor's Group may
otherwise agree in writing) or (ii) the Distributor, or such relevant
member of the Distributor's Group, is permitted under Clause 18.12 to
withhold any amounts for Tax.
5.2 Fixed Royalties and Variable Royalties.
(a) The Fixed Royalties shall be paid by the Distributor to the Licensor
in cash in the following amounts on the following dates:
<TABLE>
<CAPTION>
Date Amount Deliverable
---- ------ -----------
<S> <C> <C> <C>
Closing US $3,900,000 -
April 1, 1998 US $3,800,000 Product Vision Paper (i)
July 1, 1998 US $3,700,000 Release of Sketcher (ii)
October 1, 1998 US $2,800,000 Product Review Report (iii)
January 1, 1999 US $2,400,000 Next Release of Sketcher (ii)
April 1, 1999 US $1,750,000 Product Review Report (iii)
July 1, 1999 US $ 250,000 -
October 1, 1999 US $ 54,000 -
</TABLE>
To assist the Distributor in exploiting the Licensed Intellectual
Property the Licensor will produce the deliverables set out in the
column above headed "Deliverable" (the "DELIVERABLES") by the end of
the calendar quarter set out against each Deliverable.
The Deliverables will consist of:-
(i) The Product Vision Paper - This paper will define the market
opportunity, product vision and implementation issues relating
to the ICAD Software;
(ii) Release of Sketcher - The Licensor shall, by the end of the
relevant calendar quarter specified above, deliver a new
release of the Sketcher, which shall include but not be
limited to providing any bug fixes generated by use of the
Sketcher in Selling Point. The Licensor shall not be required
to provide any additional functionality beyond what it is
developed by the Licensor for Selling Point;
- 8 -
<PAGE> 39
(iii) Product Review Report - At the Distributor's written request,
the Licensor's personnel will, in relation to the next
releases of the ICAD Product or Derivative Works, review the
product plans and implementations and reception of those plans
by customers and deliver a report which identifies any
strategic or implementation issues.
(b) Of the Fixed Royalties payable pursuant to Clause 5.2(a) above,
US$3,000,000 shall be allocated specifically as royalties for the licences
of the Retained Intellectual Property granted pursuant to Clauses 3.1(c)
and (d).
(c) The Variable Royalties shall be equivalent to 10 per cent. of the amount
by which Gross Revenues, calculated on a cumulative basis from March 31,
1998 exceed US$17,500,000 for the year ending March 31, 1999,
US$35,000,000 for the 2 year period ending March 31, 2000 and
US$52,500,000 for the 3 year period ending March 31, 2001, in each case
less the aggregate of Variable Royalties paid in respect of prior periods.
(d) The Variable Royalties payable pursuant to Clause 5.2(c) above shall be
paid in cash on or before June 20, 1999, June 20, 2000 or June 20, 2001
(as appropriate) or within fifteen (15) days after the date on which the
relevant Gross Revenues shall be agreed or determined pursuant to Clause
5.2(f) (whichever is the earlier).
(e) Any payment of cash pursuant to Clauses 5.2(a) and (d) shall be made by
means of wire transfer (or such other means as the Licensor and the
Distributor shall agree in writing) on the date so specified and to the
Licensor's Account and receipt of such sum shall be good discharge to the
Distributor.
(f) For the purpose of provisionally determining the Gross Revenues and the
Variable Royalty Payments as set forth in Clause 5.2(c) above, the
Distributor shall prepare and deliver to the Licensor and the Auditors, as
soon as practicable following the end of the period to which the relevant
Accounts relate, but in any event within twenty (20) days after such date,
draft Royalty Accounts. The draft Royalty Accounts shall be prepared in
accordance with generally accepted accounting principles and practices
which are in effect in the United States ("U.S. GAAP") at the time of
preparation. The Distributor's determination of the relevant annual Gross
Revenues shall constitute the basis on which to provisionally determine
the relevant variable Royalty Payment.
(g) Immediately following preparation of the relevant draft Royalty Accounts
by the ICAD Business the Distributor shall instruct the Auditors to audit
the same and following the Auditors' audit of the relevant draft Royalty
Accounts there shall be supplied to the Distributor and the Licensor a
copy of the audited Royalty Accounts.
(h) The Auditors' determination of the relevant annual Gross Revenues shall be
deemed to constitute the basis on which to finally determine the Variable
Royalty Payment to which they relate and the Licensor may, within a period
of twelve (12) months of the delivery of the Auditor's audit of the
relevant draft Royalty Accounts with evidence of an error or impropriety
in the Distributor's record keeping or preparation of the relevant draft
Royalty Accounts serve on the Distributor a notice (a "ROYALTY NOTICE")
disputing the relevant Variable Royalty Payment.
(i) Following the service of a Royalty Notice by the Licensor and failing
agreement between the Licensor and the Distributor as to the content of
the Royalty Notice within thirty (30) days of its date of service, the
determination of the relevant Variable
- 9 -
<PAGE> 40
Royalty Payment shall be referred to an independent firm of
accountants (the "EXPERTS") appointed by agreement by the Licensor
and the Distributor. In making such determination the Expert shall
act as an expert and not as an arbitrator and his decision shall (in
the absence of manifest error (and the Expert shall give reasons for
his determination)) be final and binding on the parties. Each party
shall bear the costs and expenses of all counsel and other advisers,
witnesses and employees retained by it and the costs and expenses of
the Expert shall be borne by the parties in the proportions he may
direct or, in the absence of direction, equally. Subject to any rule
of law or of any regulatory body or any provision of any contract or
arrangement entered into prior to the date of this Agreement to the
contrary, the Distributor and the Licensor shall afford as soon as
reasonably practicable upon request to the other and their
respective agents and to the Expert all facilities and access to
their premises, personal papers, books, accounts, records, returns
and other documents as may be in their possession or control as may
be required by the Expert to make his determination.
(j) The Licensor and the Distributor shall promptly provide each other,
their respective advisers and the Auditors with all information (in
their respective possession or control) relating to the operations
of the ICAD Business including access at all reasonable times to all
books and records and all co-operation and assistance as may be
reasonably required to:
(i) enable the production of the Royalty Accounts; and
(ii) enable the Auditors (or any independent firm of chartered
accountants appointed pursuant to this Clause) to determine
the relevant annual Gross Revenues.
(k) The Distributor agrees to keep records for all periods for which
Variable Royalties are due hereunder in sufficient detail to enable
the Variable Royalties payable hereunder by the Distributor to be
determined. The Distributor further agrees, at the sole cost to the
Licensor, to permit its books and records to be examined by
employees of the Licensor (or its accountants) the identity of whom
shall be approved by the Distributor (such approval not to be
unreasonably withheld or delayed) during normal business hours upon
reasonable notice from time to time, but not more often than four
(4) times per year, to verify reports provided for in this Clause
5.2. The results of such examination shall be kept confidential by
the Licensor and its accountants, except that in the case of any
dispute such results may be used in order to substantiate the
grounds for any dispute.
(l) Any underpayment of Fixed Royalties or Variable Royalties hereunder
remaining unpaid ten (10) days after the due date thereof shall bear
interest from the due date until paid in full at the rate of 1.5 per
cent. per month or part thereof. Any overpayment of Variable
Royalties hereunder shall bear interest from the date of such
overpayment until such overpayment is repaid (or credited against
new Variable Royalties as they come due) at the rate equal to the
rate being earned during such period by the Licensor on its cash
investments.
5.3 For the avoidance of doubt nothing contained in this Clause 5 shall
prejudice the right of the Distributor to recover against the Licensor
otherwise than pursuant to this Clause 5 or to make any claim against the
Licensor in respect of the representations and warranties contained in
Clause 11 hereof whether before or after the date provided herein for the
payment of any Fixed Royalty or any Variable Royalty.
- 10 -
<PAGE> 41
5.4 The Licensor acknowledges and accepts that the Distributor is entitled to
freely assign or novate the benefit and burden of the rights and
obligations arising under this Agreement to any member of the
Distributor's Group and that subject to the Distributor notifying the
Licensor of the identity of such member of the Distributor' s Group, the
Licensor shall be required to enter into and execute any such assignment
or novation as the Distributor may require (to the intent that the rights
of the relevant member of the Distributor's Group under this Agreement
shall be referable and so limited to such part of the Business
Intellectual Property which is acquired by such relevant member of the
Distributor's Group by virtue of such an assignment or novation).
Notwithstanding any such assignment or novation, the Distributor shall
guarantee to the Licensor the obligations of such member or members of the
Distributor's Group to which the benefit and burden of the rights and
obligations arising under this Agreement have been novated or assigned.
5.5 For the avoidance of doubt the obligations of the Distributor's Group
under this Clause 5 shall be limited to the aggregate of the Fixed
Royalties and the Variable Royalties only plus interest as provided in
Clause 5.2(c).
6. PRE AND POST-CLOSING COVENANTS
6.1 The Licensor undertakes that from the date hereof and until Closing it
shall, except unless otherwise agreed in writing by the Distributor:
(a) not do or omit to do and use all reasonable endeavours not to permit
any act, matter or thing which will cause any of the representations
and warranties of the Licensor to be untrue, inaccurate or
misleading as of the Closing;
(b) not enter into any contract relating to the Business Intellectual
Property or the Third Party Software on terms inconsistent with its
prior business practice;
(c) not enter into or vary in any material respect any transaction in
respect of the Business Intellectual Property otherwise than in the
ordinary course of trading and on arm's length terms;
(d) immediately notify the Distributor in writing of any fact or
circumstance which might cause any of the representations and
warranties contained in this Agreement to be untrue or misleading,
or of any material adverse change which may occur in relation to the
ICAD Business;
(e) use its best endeavours to: (a) enter into assignments to the
Distributor of all licences to or from third parties including all
licences to Resellers, and all related or similar agreements,
pertaining to the Intellectual Property used in the ICAD Business;
(b) obtain, at the Licensor's sole expense, any required consents of
third parties to such assignments; and (c) to co-operate with
Distributor in securing the Third Party Transfer Agreements. To the
extent the Licensor is unable, for any reason, to assign any such
agreement, then the Licensor shall take all steps necessary to
ensure that the Distributor is put into as near as possible the same
economic position as it would have been had such agreement been
assigned to the Distributor.
6.2 With regard to:-
(a) the Licensed Intellectual Property (other than the Retained
Intellectual Property) from the Closing Date until the Royalty
Completion Date; and
- 11 -
<PAGE> 42
(b) the Retained Intellectual Property for as long as the Distributor
retains the licence rights granted under Clauses 3(c) and 3(d);
the Licensor undertakes that it shall not enter into any contract or do or
procure the doing of any act which is inconsistent with, or would, in the
reasonable opinion of the Distributor, diminish the Distributor's rights
which have been granted under this Agreement pursuant to the Licences.
6.3 The Distributor will use its best endeavours not to enter into any
contract or do or procure the doing of any act which is inconsistent with
the rights granted to the Distributor hereunder and would, in the
reasonable opinion of the Licensor, diminish the Licensor's rights in the
Retained Intellectual Property.
7. SUBSIDIARY AND SUPPORT
7.1 Performance by Subsidiary
The Licensor shall, if requested by the Distributor, transfer all of the
assets comprising the Licensed Intellectual Property, the Trade Marks and
the Incidental Intellectual Property to a wholly-owned subsidiary formed
for the purpose of performing the obligations of the Licensor pursuant to
this Agreement (the "SUBSIDIARY"). The corporate charter or certificate or
articles of incorporation of the Subsidiary shall limit the corporate
purposes of the Subsidiary to the activities required or incidental to
perform or enforce this Agreement. In the event that this Agreement is
assigned by the Licensor to the Subsidiary at the request of the
Distributor, the Licensor shall guarantee the payment and performance of
the obligations of the Subsidiary pursuant to this Agreement.
7.2 Support
From the Closing Date until the Royalty Completion Date, the Licensor
shall, at the Licensor's sole expense continue to maintain the Sketcher
which shall include but not be limited to providing any bug fixes
generated by use of the Sketcher in Selling Point. The Licensor shall not
be required to provide any additional functionality beyond what is
developed by the Licensor for Selling Point.
8. CONDITIONS TO CLOSING
8.1 The obligation of the Distributor to consummate the transactions
contemplated by Clause 2 of this Agreement and by the Transition Agreement
are subject to the satisfaction of the following conditions on or before
the Closing Date:
(a) Warranties
The Warranties set forth in Clauses 11.1 to 11.11 of this Agreement
and the representations and warranties set forth in Clause 4 of the
Transition Agreement shall be true and correct in all material
respects at and as of Closing as though then made and as though the
Closing Date were substituted for the date of this Agreement
throughout such Warranties.
(b) Suits
No action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavourable injunction, judgement, order, decree,
- 12 -
<PAGE> 43
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this agreement, (B) cause any of the
transactions contemplated by this agreement to be rescinded
following consummation, (C) affect adversely the rights of the
Distributor under this Agreement or (D) affect adversely the right
of the Distributor to own its assets and to operate its businesses
(and no such injunction, judgement, order, decree, ruling, or charge
shall be in effect).
(c) Shareholder Approval
The Licensor shall have received the authorisation and consent of
the holders of a majority of the outstanding shares of the common
stock of the Licensor to enter this Agreement and to consummate the
transactions contemplated herein (which for the purposes of Clause
2.1 shall be deemed to be satisfied at such time as the Licensor has
received proxy votes sufficient to meet this condition and has
communicated the same to the Distributor).
(d) Closing Certificate
The Licensor shall have delivered to the Distributor a certificate
to the effect that each of the conditions specified above in Clauses
8.1(a) through 8.1(d) inclusive is satisfied in all respects.
(e) Opinion
The Distributor shall have received (addressed to the Distributor
and in form and substance reasonably satisfactory to the Distributor
and its counsel) an opinion dated as of the Closing Date, of Peabody
& Arnold LLC, counsel to the Licensor with respect to Licensor's
power and capacity to enter into the obligations contemplated by
this Agreement.
(f) Transition Agreement
The Licensor and the Distributor shall have entered into the
Transition Agreement.
(g) Satisfaction to the Distributor.
All actions to be taken by the Licensor in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in
form and substance to the Distributor.
8.2 The obligation of the Licensor to consummate the transactions contemplated
by Clause 2 of this Agreement and the Transition Agreement are subject to
the satisfaction of the following conditions on or before the Closing
Date:
(a) Representations and Warranties
The representations and warranties of the Distributor set forth in
Clause 11.12 of this Agreement shall be true and correct in all
material respects at and as of Closing as though then made and as
though the Closing Date were substituted for the date of this
Agreement throughout such representations and warranties.
(b) Suits
- 13 -
<PAGE> 44
No action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency or any federal,
state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavourable injunction, judgement, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the rights of the
Licensor to own its assets and to operate its businesses (and no
such injunction, judgement, order, decree, ruling, or charge shall
be in effect).
(c) Closing Certificate
The Distributor shall have delivered to the Licensor a certificate
to the effect that each of the conditions specified above in Clauses
8.2(a) and 8.2(b) inclusive is satisfied in all respects.
(d) Opinions
The Licensor shall have received (addressed to the Licensor) an
opinion in form and substance reasonably satisfactory to the
Licensor and its Counsel dated as of the Closing Date, of Zeyen
Beghin Feider Loeff Claeys Verbeke, Luxembourg counsel to the
Distributor with respect to the Distributor's power and capacity to
enter into the obligations contemplated by this Agreement and an
opinion in the form and substance reasonably satisfactory to the
Licensor and its Counsel dated as of the Closing Date of Ashurst
Morris Crisp, counsel to the EIT with respect to the EIT's power and
capacity to enter into the obligations contemplated by the
Guarantee.
(e) Transition Agreement and Guarantee
The Licensor and the Distributor shall have entered into the
Transition Agreement and the Guarantee.
(f) Satisfaction to the Licensor
All actions to be taken by the Distributor in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in
form and substance to the Licensor.
(g) Closing Date Payment Obligation
The Distributor shall have tendered payment of the Fixed Royalty
which is payable on the Closing Date.
9. TERM AND TERMINATION
9.1 Termination Upon Failure To Obtain Approval by the Licensor's Shareholders
The Licences shall become effective on the Closing Date and shall continue
indefinitely subject to the provisions of Clause 12; provided, however,
that if this Agreement and the grant of the Licences hereunder have not
been approved by the holders of a majority of the outstanding shares of
common stock of the Licensor within seventy-five (75) days after the
signing of this Agreement (which period shall be extended by one day for
each day beyond ten (10) days during which the US Securities and Exchange
Commission reviews the Licensor's preliminary proxy statement in
connection with the Licensor's solicitation of shareholder approval of the
- 14 -
<PAGE> 45
transactions contemplated hereby) this Agreement shall terminate
automatically and the Licences granted hereunder shall be, ab initio, null
and void.
9.2 Termination by the Distributor
This Agreement may be terminated by the Distributor following a material
breach by the Licensor of the representations, warranties or covenants
made by the Licensor hereunder, if the Licensor has not undertaken
commercially reasonable efforts to cure such breach within thirty (30)
days of notice thereof.
9.3 Termination by the Licensor
This Agreement and the Licences granted pursuant hereto may be terminated
by the Licensor if the Distributor fails to make a new release of the
Licensed Intellectual Property on or prior to the Fixed Royalty Completion
Date and such failure continues for ninety (90) days after notice thereof
from the Licensor.
9.4 Effects of Termination.
(a) A termination pursuant to Clause 9.1 shall have the effect specified
therein. Following termination of this Agreement pursuant to Clause
9.1 the Licensor shall promptly reimburse the Distributor for the
reasonable expenses (including solicitor-client fees and fees for
financial advisors and other experts) incurred by the Distributor
relating to the transactions contemplated by this Agreement the
Transition Agreement, the Guarantee and all other ancillary
documents hereto.
(b) In the event of a termination pursuant to Clause 9.2, the
Distributor's liability for any charges, fees, payments or expenses
due or previously payable to the Licensor which accrued prior to the
termination date shall not be extinguished by termination, but the
Distributor shall retain all rights to seek monetary damages for any
breach by the Licensor of this Agreement and shall be permitted to
offset against any damages for which the Licensor is finally
determined to be liable any and all amounts owing to the Licensor
hereunder.
(c) In the event of termination pursuant to Clause 9.3, all Licences
granted hereunder shall terminate immediately and the Distributor
shall transfer and convey back to the Licensor all Trade Marks and
Incidental Intellectual Property. In the event of termination
pursuant to Clause 9.3, the Distributor's liability for any charges,
fees, payments or expenses due or previously payable to the Licensor
which accrued prior to the termination date shall not be
extinguished by termination. The Licensor shall retain all rights to
seek monetary damages for any breach by the Distributor of this
Agreement.
(d) The termination of this Agreement shall not affect any sub-licences
granted under this Agreement by the Distributor to End Users or
Resellers (solely with respect to existing inventory of the
Reseller) prior to termination, so long as such End Users or
Resellers are not in breach of their sub-license agreements with the
Distributor and agree to owe all further obligations thereunder
directly to the Licensor.
(e) The provisions of Clauses 10 (Confidentiality), 11 (Representations
and Warranties), 13 (Indemnification), 14 (Limitations on
Liability), 15 (Compliance with Laws), 16 (Notices), 18 (General
Provisions) and this Clause 9 (Term and Termination) shall survive
any termination or expiration of this Agreement according to their
respective terms.
- 15 -
<PAGE> 46
10. CONFIDENTIALITY
10.1 Confidential Information
The Licensor and the Distributor agree and acknowledge that in order to
further the performance of this Agreement, they will be required to
disclose to each other certain confidential information which will be
identified as such orally or in writing ("CONFIDENTIAL INFORMATION").
Confidential Information shall include but not be limited to information
provided to the Auditors and/or the Expert under Clause 5 and information
contained in any Exhibits to the Disclosure Schedule.
10.2 Protection of Confidential Information
(a) The receiving party agrees to protect the confidentiality of the
disclosing party's Confidential Information with at least the same
degree of care that it utilises with respect of its own similar
proprietary information, including without limitation agreeing:
(i) not to disclose or otherwise permit any other person or entity
access to, in any manner, the Confidential Information, or any
part thereof in any form whatsoever, except that such
disclosure or access shall be permitted to an employee or
contractor of the receiving party, or in the case of the
Distributor, to a Reseller, requiring access to the
Confidential Information in the course of his or her
employment or use as a Reseller, as the case may be, in
connection with this Agreement or a sublicense or similar
agreement with a Reseller, and provided he or she has signed
an agreement obligating the employee, contractor or Reseller
to maintain the confidentiality of the confidential
information of third parties in the receiving party's
possession. The Distributor further acknowledges that certain
of its employees who are former employees of the Licensor are
bound by continuing obligations as to the confidentiality of
the Licensor's confidential and proprietary information which
does not relate to the ICAD Business;
(ii) to notify the disclosing party promptly and in writing of the
circumstances surrounding any suspected possession, use or
knowledge of the Confidential Information or any part thereof
at any location or by any person or entity other than those
authorised by this Agreement;
(iii) not to use the Confidential Information for any purpose other
than as explicitly set forth herein.
(b) The Distributor acknowledges that Selling Point and other products
being marketed or developed by the Licensor contain Intellectual
Property (and that the Licensor's marketing strategies with respect
thereto constitute Confidential Information) that is inherently
related to the ICAD Intellectual Property and further acknowledges
that use by the Distributor of the Confidential Information,
including without limitation the Licensed Intellectual Property, to
compete against the other business of the Licensor would create an
unfair competitive advantage against the Licensor. Accordingly, the
Distributor agrees that neither the Distributor nor any member of
the Distributor's Group shall whether directly or indirectly and
whether alone or in conjunction with or on behalf of any other
person whether as principal, shareholder, director, employee, agent,
consultant or otherwise:-
- 16 -
<PAGE> 47
(i) during the period of five (5) years from the Closing Date be
engaged in the development, research or marketing of a product
or service similar in commercial application and purpose to
any product or service offered or under development by the
Licensor on that Date of this Agreement (other than the
Restricted Business); or
(ii) during the period of two (2) years from the Closing Date hire
or solicit for employment by the Distributor or the
Distributor's Group any person who after the Closing Date and
at any time during the period of twelve (12) months prior to
the date of such hiring or solicitation was an employee of the
Licensor.
The Distributor further agrees that the restrictions contained in
this Clause 10.2(b) are reasonably necessary for the protection of
the business interests of the Licensor. In the event any restriction
in this Clause 10.2(b) shall be found to be unenforceable but would
be enforceable if some part thereof were deleted or the area of
operation or the period of application were reduced, such
restriction shall apply with such modification as may be necessary
to make it legal and enforceable.
The Distributor hereby acknowledges that the covenants contained in
this Clause 10.2(b) are not being made in reciprocity for the
Licensor's covenants in Clause 17, the parties agreeing that such
Clauses are intended to be independent agreements.
(c) Following the Fixed Royalty Completion Date the Distributor shall
have no obligation to continue to maintain the confidentiality of
the Licensed Intellectual Property (other than the Retained
Intellectual Property) for the benefit of the Licensor. The Licensor
shall treat, and shall use its best efforts to cause its employees,
contractors and agents to treat, all of the Licensed Intellectual
Property (other than the Retained Intellectual Property) as the
exclusive property and Confidential Information of the Distributor
and, following the Fixed Royalty Completion Date, at the
Distributor's request, shall return to the Distributor or destroy
all copies thereof.
10.3 Exceptions
Nothing in this Clause 10 shall restrict the receiving party with respect
to information or data, whether or not identical or similar to that
contained in the Confidential Information, if such information or data:
(a) was rightly possessed by the receiving party before it was received
from the disclosing party; (b) is independently developed by the receiving
party without reference to the disclosing party's information or data; (c)
is subsequently furnished to the receiving party by a third party not
under any obligation of confidentiality with respect to such information
or data, and without restrictions on use or disclosure; (d) is or becomes
public or available to the general public otherwise than through any act
or default of the receiving party; or (e) is disclosed publicly or to any
government agency as may be required by law or applicable regulations.
10.4 Injunctive Relief
Because the unauthorised use, transfer or dissemination of any
Confidential Information provided by either party may diminish
substantially the value of such materials and may irreparably harm a party
hereto, if either party hereto breaches the provisions of this Clause 10,
the other party shall, without limiting its other rights or remedies, be
entitled to equitable relief, including but not limited to injunctive
relief.
- 17 -
<PAGE> 48
11. REPRESENTATIONS AND WARRANTIES
The Licensor hereby represents, warrants, covenants and undertakes with
the Distributor (so as to bind the Licensor, its successors and assignees)
as follows:-
11.1 Intellectual Property
(a) Exhibit 11.1(a) sets forth a complete and correct list of: (i) all
registered Business Intellectual Property and all applications for
registration of Business Intellectual Property; (ii) all material
unregistered Business Intellectual Property. Exhibit 11.1(a)
specifies, for each item of Business Intellectual Property
identified thereon: (w) the jurisdictions in which such item has
been issued or registered or in which an application for issuance or
registration has been filed; (x) such item's registration or
application number; (y) all registered or otherwise identified legal
and beneficial owners of such item; and (z) whether such Business
Intellectual Property is Retained Intellectual Property, Licensed
Intellectual Property, Trade Marks or Incidental Intellectual
Property.
(b) Exhibit 11.1(b) sets forth a complete and correct list of: (i) all
licences, sub-licences and other agreements to which the Licensor is
a party and under which any third party is authorised to use any of
the Business Intellectual Property (including but not limited to
copies of or references to the Licensor's standard forms of
agreement but excluding all End Users of the ICAD Product not
covered at any time from January 1, 1997 to the date of this
Agreement by a current maintenance or support agreement with the
Licensor); and (ii) all Licences, sub-licences and other agreements
to which the Licensor is a party and under which any third party has
granted to the Licensor any license of Intellectual Property
including all agreements which comprise Third Party Software
(collectively, the "INTELLECTUAL PROPERTY LICENCES"). Exhibit
11.1(b) specifies, for each Intellectual Property Licence: (x) the
identities of all parties thereto; and (y) a description of the
nature and subject matter thereof.
(c) Except as disclosed in Exhibit 11.1(c) to (e), the Licensor owns all
of the Business Intellectual Property free and clear of any
Encumbrances, and has the right to convey and transfer the
Incidental Intellectual Property and the Trade Marks to the
Distributor and the right to grant the Licences pertaining to the
Licensed Intellectual Property. The Licensor will, as of the Fixed
Royalty Completion Date have the right to convey and transfer the
Licensed Intellectual Property (other than the Retained Intellectual
Property) to the Distributor. The Licensor's execution, delivery and
performance under, and the Licensor's consummation of the
transactions contemplated in, this Agreement and the Transition
Agreement shall not: (i) impair the Licensor's rights, or to the
Licensor's knowledge any third party's rights, in any of the
Business Intellectual Property and, consequently, the Distributor's
rights pursuant to this Agreement; or (ii) constitute a breach or
default by the Licensor or the Distributor under, or permit any
third party to terminate, any Intellectual Property Licence.
(d) The Licensor's use of the Business Intellectual Property does not
and has not infringed, misappropriated or otherwise conflicted with
any Intellectual Property rights or other rights of any third party.
Except as disclosed in Exhibit 11.1(c) to (e), no claims, lawsuits
or other actions have been asserted or threatened by any third party
with respect to the Business Intellectual Property and, to the
Licensor's knowledge, there are no grounds for any such claim,
lawsuit or other action. Except as disclosed in Exhibit 11.1(c) to
(e), the Licensor's knowledge, no third party has infringed,
misappropriated or otherwise conflicted with any of the Business
Intellectual
- 18 -
<PAGE> 49
Property and no facts or events exist or have occurred
which would cause such an infringement, misappropriation or
conflict.
(e) The Licensor is not in breach or default, and no act or omission of
the Licensor has occurred that would constitute a breach or default,
of any Intellectual Property Licence and, to the Licensor's
knowledge, except as disclosed in Exhibit 11.1(c) to (e), no other
party to any Intellectual Property License is in breach or default,
and no act or omission of any such other party has occurred that
would constitute a breach or default, under any such Intellectual
Property License.
(f) To the best of the Licensor's knowledge after investigation, no
Business Intellectual Property is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any manner
the Licensor's ability to use, convey or grant licences of the
Business Intellectual Property as set forth in this Agreement.
(g) The Third Party Software incorporated in the ICAD Software has not
been modified by the Licensor and is incorporated in the ICAD
Software in the form in which such Third Party Software is currently
maintained and supported by the licensors thereof and uses the
standard interfaces of such licensors.
11.2 Year 2000
(a) So far as the Licensor is aware, none of the ICAD Software or other
software which is used in the ICAD Business will malfunction, will
cease to function, will generate incorrect data or will produce
incorrect results when processing, providing, and/or receiving (i)
date related data from, into and between the twentieth and twenty
first centuries or (ii) except as disclosed in Exhibit 11.2, date
related data in connection with any valid date in the twentieth and
twenty first centuries.
(b) Except as disclosed in Exhibit 11.2, the Licensor has not made any
other representations or warranties to third parties regarding the
ability of the ICAD Software to operate without ceasing to function,
to generate correct data or to produce correct results when
processing, providing, and/or receiving (i) date related data from,
into and between the twentieth and twenty first centuries and (ii)
date related data in connection with any valid date in the twentieth
and twenty first centuries.
11.3 Adequacy of Systems
The Licensor's computer hardware, software and related information
technology systems are adequate to enable the Licensor to provide all
support and other services to the Distributor that the Licensor is
obligated to provide under this Agreement, the Transition Agreement or any
other agreement between the Licensor and the Distributor, and such systems
shall remain adequate to provide such support and other services for so
long as the Licensor remains obligated to provide any such support or
other services.
11.4 Authorisation of the Licensor
The Licensor represents and warrants as follows:
(a) The Licensor has been duly organised and is validly existing in good
standing under the laws of its jurisdiction of incorporation.
(b) This Agreement has been duly authorised, executed and delivered by
the Licensor and, assuming due authorisation, execution and delivery
by the Distributor and (subject to
- 19 -
<PAGE> 50
the approval of the Licensor's shareholders) is a valid and binding
agreement enforceable against the Licensor in accordance with its
terms; and the Licensor has (subject to the approval of the
Licensor's shareholders) full corporate power and authority
necessary to enter into this Agreement and to perform its
obligations hereunder.
(c) Except as set forth in Exhibit 11.4, no consent, approval (other
than approval of the Licensor's shareholders to the extent
required), authorisation, or order of any court, governmental agency
or body, or arbitrator having jurisdiction over the Licensor is
required for execution of this Agreement or the performance of the
Licensor's obligations hereunder.
11.5 Business
Since March 31, 1997:
(a) except as disclosed in Exhibit 11.5 there has been no material
adverse change in the prospects of the ICAD Business and the ICAD
Business has been carried on a normal basis; and
(b) no substantial customer of the ICAD Business has notified the
Licensor that it is no longer willing to trade with the ICAD
Business.
11.6 Contracts
Except as disclosed in Exhibit 11.6, the Licensor is not a party to any
contract or arrangement which restricts the ICAD Business in any part of
the world.
11.7 Other Interests of Licensor
Neither the Licensor, any subsidiary of the Licensor nor, to the knowledge
of the Licensor, any director or executive officer of the Licensor has any
interest, direct or indirect, in any business which competes or is likely
to compete with the ICAD Business or intends to acquire any such interest.
11.8 Grants and Allowances
Except as disclosed in Exhibit 11.8, in relation to the Business
Intellectual Property, the Licensor has not applied for or received any
grant, allowance, aid or subsidy from any supranational, national or local
authority or government agency during the last six years.
11.9 Possession of books, records etc.
The Licensor has in its possession all books, records, accounts and other
documents relating to the Business Intellectual Property which it may be
obliged to produce under any contract or under any statutory provision now
in force to any party. To the extent not delivered to the Distributor
pursuant to the Transition Agreement, all such books, records, accounts
and other documents will be made available to the Purchaser for inspection
upon reasonable request.
11.10 Information
All information given to the Distributor, its advisers, including its
attorneys, accountants, agents or other representatives by or on behalf of
the Licensor concerning or which might concern the ICAD Business,
including the information set forth in this Agreement was when
- 20 -
<PAGE> 51
given and is now true and correct in all material respects and no matter
or fact has not been disclosed the omission of which renders any such
information untrue or misleading in any material way.
11.11 Enquiries
The Licensor has made all reasonable enquiries of its directors,
employees, agents and relevant third parties to establish the truth and
accuracy of the representations and warranties contained in this Clause 11
and elsewhere expressed to be given "to the best of the Licensor's
knowledge and belief" or "so far as the Licensor is aware" or otherwise
qualified by reference to the knowledge of the Licensor.
11.12 Authorisation of Distributor
The Distributor represents and warrants follows:
(a) The Distributor has been duly organised and is validly existing in
good standing under the laws of its jurisdiction of incorporation.
(b) This Agreement has been duly authorised, executed and delivered by
the Distributor and, assuming due authorisation, execution and
delivery by the Licensor, is a valid and binding agreement
enforceable against the Distributor in accordance with its terms;
and the Distributor has full corporate power and authority necessary
to enter into this Agreement and to perform its obligations
hereunder.
(c) No consent, approval, authorisation, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over
the Distributor is required for execution of this Agreement or the
performance of the Distributor's obligations hereunder.
(d) The Distributor is not a holding company entitled to any special tax
benefits arising under the Luxembourg law of 31 July 1929.
12. OWNERSHIP
12.1 Licensed Intellectual Property
Prior to the Fixed Royalty Completion Date, the Licensed Intellectual
Property shall be the sole and exclusive property of the Licensor. On the
Fixed Royalty Completion Date, the Licences granted in Clause 3.1(a) and
3.1(b) shall become fully-paid and irrevocable, and all rights of the
Licensor in the Licensed Intellectual Property (other than the Retained
Intellectual Property) shall be deemed to be transferred to, and shall
vest in, the Distributor, without requirement of further action by either
the Licensor or the Distributor. From and after the Fixed Royalty
Completion Date, the Licensor shall, at the Distributor's request and
without charge to the Distributor other than reasonable administrative
expenses, execute and deliver all documents and instruments and take all
other actions that the Distributor may reasonably request to effectuate or
evidence the foregoing transfer to and vesting in the Distributor of the
rights in the Licensed Intellectual Property (other than the Retained
Intellectual Property).
12.2 Retained Intellectual Property
The Retained Intellectual Property shall be the sole and exclusive
property of the Licensor, subject to the Distributor's perpetual,
irrevocable license thereof as set forth in Clauses 3.1(c) and 3.1(d).
- 21 -
<PAGE> 52
12.3 Incidental Intellectual Property/Trade Marks
Title to Incidental Intellectual Property and the Trade Marks shall vest
in the Distributor from the date of Closing. From and after the date of
Closing, the Licensor shall, at the Distributor's request and without
charge to the Distributor other than reasonable administrative expenses,
execute and deliver all documents and instruments and take all other
actions that the Distributor may reasonably request to effectuate or
evidence the transfer to and vesting in the Distributor of all rights in
the Incidental Intellectual Property and the Trade Marks.
13. INDEMNIFICATION
13.1 The Licensor's Indemnification Obligations
(a) Except as provided in Clause 13.1(b) below, the Licensor shall
defend and indemnify the Distributor from and against any
liabilities, costs and expenses (including reasonable attorneys'
fees) arising out of:
(i) any claim that the use of the Business Intellectual Property
infringes, misappropriates or otherwise conflicts with any
Intellectual Property right or other right of any third party;
or
(ii) any breach or inaccuracy of a representation, warranty or
covenant of the Licensor set forth in this Agreement; or
(iii) any claim brought
(A) under the terms of the contract and Software Licence
Agreement dated March 31, 1997 into between the Licensor
and British Aerospace set out at Exhibit 11.2(b) which
relates to a breach of the "Year 2000" warranty given by
the Licensor under the terms of that contract; or
(B) brought by Sikorsky Aircraft or EDS/NAO Engineering &
Design Center relating to "Year 2000" representations
made to each of them by the Licensor prior to the
Closing Date; or
(C) brought by any third party relation to breach of a "Year
2000" warranty or representation given to that third
party by the Licensor prior to the Closing Date;
in each case, to the extent that such breach or claim
arises from or is caused by a defect in the ICAD
Software existing on the Closing Date; or
(iv) any claim brought in relation to the funding provided by the
National Center for Manufacturing Sciences to the Licensor in
connection with the "Rapid Response Manufacturing Project";
provided that, the Distributor shall have provided the Licensor with
prompt notice of any such claim and reasonable co-operation,
information and assistance in connection with such claim.
(b) In order to satisfy or mitigate its indemnification obligations with
regard to Intellectual Property under Clause 13(a)(i), the Licensor
may, at its option in its reasonable discretion:
- 22 -
<PAGE> 53
(i) procure for the Distributor the right to continue using such
Intellectual Property under terms no less favourable to the
Distributor than those set forth herein; or
(ii) replace or modify such Intellectual Property so that it
becomes non-infringing while maintaining the same
functionality (and in connection therewith the Licensor shall
have access to, and may modify, such Intellectual Property).
13.2 Certain Exclusions/Distributor's Indemnification Obligations
With regard to Intellectual Property, the Licensor shall have no liability
or obligation to the Distributor and the Distributor shall defend and
indemnify the Licensor from and against any liabilities, costs and
expenses, (including reasonable attorney's fees), but excluding
consequential losses, arising out of a third party claim arising from: (i)
the use of Licensed Intellectual Property by the Distributor or the
Distributor's Resellers or End Users in combination with devices or
products not licensed under this Agreement or approved in connection with
the Licensed Intellectual Property, if use of the Licensed Intellectual
Property other than in such combinations would be non-infringing; (ii)
modifications, enhancements or Derivative Works of the Licensed
Intellectual Property not created by, for or with the assistance of the
Licensor; or (iii) any claim of infringement or misappropriation of
Intellectual Property in which the Distributor or any affiliate of the
Distributor has an interest as an infringed party; or (iv) other than
claims based on facts or circumstances giving rise to an indemnity covered
by Clause 13.1, any claim based on contracts or agreements relating to the
ICAD Products made by the Distributor or any member of the Distributor's
Group with third parties (including, without limitation, End Users and
Resellers) after or in anticipation of the Closing; or, (v) any claim
relating to the conduct of the Restricted Business by the Distributor or
any member of the Distributor's Group after the Closing, provided that the
Licensor shall have provided the Distributor with prompt notice of any
such claim and reasonable co-operation, information and assistance in
connection with such claim.
13.3 Litigation Control
(a) In the event that the Licensor learns of any infringement or
threatened infringement of the Business Intellectual Property by a
third party, or any claim or allegation that the ICAD Business
infringes, misappropriates or otherwise conflicts with any
Intellectual Property right or other right of any third party, then
the Licensor: (i) shall promptly notify the Distributor of the
particulars of such infringement, threatened infringement, claim or
allegation, and (ii) shall, at the Distributor's expense (except as
otherwise provided in this Agreement), provide to the Distributor
all necessary information and reasonable assistance (including being
named as a party to any litigation or action) in connection
therewith.
(b) The Distributor shall have the sole control and authority with
respect to:
(i) any actions or proceedings regarding the prosecution,
maintenance, protection, enforcement or defence of any
Business Intellectual Property; and
(ii) any actions or proceedings for which the Licensor indemnifies
the Distributor under Clause 13.1(a)(i); provided that with
regard to actions or proceedings subject to the Licensor's
indemnification obligation under Clause 13.1(a)(i), the
Distributor may require the Licensor to take control of such
action or proceeding at the Licensor's expense, subject to the
Distributor's right to participate in such action or
proceeding through its own counsel at its own expense. Neither
party shall settle or compromise any such action or
- 23 -
<PAGE> 54
proceeding in any manner that would affect the other party
without such other party's prior written consent, which
consent shall not be unreasonably withheld.
(c) The provisions of this Clause 13.3 shall apply mutatis mutandis in
the case of any matter subject to indemnification by the Distributor
under Clause 13.2.
14. LIMITATIONS ON LIABILITY
14.1 General Limitation
Subject to Clause 14.2, the Licensor's liability to the Distributor with
respect to the Warranties set out under this Agreement and in the
Transition Agreement for any cause whatsoever, regardless of the form of
any claim or action, shall not exceed the aggregate Fixed Royalties (not
including support fees) paid or to be paid by the Distributor. In no event
shall either party be liable for any loss of data, profits or use of the
products, or for any special incidental, indirect or consequential damages
arising out of or in connection with this Agreement or the Transition
Agreement. The Licensor's liability under this Clause 14.1 shall run for a
period of four years from the date of Closing.
14.2 Notwithstanding Clause 14.1, the Licensor's liability to the Distributor
in respect of any claims or actions which arise pursuant to Clause
13.1(a)(i),(iii) and (iv) shall not be limited in time, and shall be
limited to:-
(a) the aggregate Fixed Royalties paid by the Distributor; and
(b) any damages, costs or expenses which are payable to End Users,
Resellers or other third parties; and
(c) reasonable legal costs.
14.3 No Consequential Damages
Subject to Clause 14.2 the Licensor will not be liable to End Users,
Resellers or other third parties for any consequential damages whatsoever.
14.4 Notice of Claims
The Distributor will promptly inform the Licensor as soon as the
Distributor becomes aware of any threatened or actual liability claim by a
third party relating to the ICAD Software.
15. COMPLIANCE WITH LAWS
15.1 Export
The Distributor shall not export, directly or indirectly, products
relating to the Licensed Intellectual Property or other information or
material provided by the Licensor hereunder, to any country for which the
United States or any other relevant jurisdiction requires any export
license or other governmental approval at the time of export without first
obtaining such license or approval. It shall be the Distributor's
responsibility to comply with the latest United States export regulations,
and the Distributor shall defend and indemnify the Licensor from and
against any damages, fines, penalties, assessments, liabilities, costs and
expenses (including reasonable attorneys' fees and court costs) arising
out of any claim that such or
- 24 -
<PAGE> 55
other information or materials provided by the Licensor hereunder were
exported or otherwise shipped or transported in violation of applicable
laws and regulations.
15.2 Compliance with Laws of Other Jurisdictions
The Distributor shall comply with all laws, legislation, rules,
regulations, governmental requirements and industry standards with respect
to the Licensed Intellectual Property, and the performance by the
Distributor of its obligations hereunder, existing in any jurisdiction in
which the Distributor, directly or indirectly, distributes the Licensed
Intellectual Property. In the event that this Agreement is required to be
registered with any governmental authority, the Distributor shall cause
such registration to be made and shall bear any expense or tax payable in
respect thereof.
16. NOTICES
16.1 Save as specifically otherwise provided in this agreement any notice,
demand or other communication to be served under this agreement may be
served upon any party hereto only by posting by first class post or
delivering the same or sending the same by facsimile transmission to the
party to be served at its address above, or facsimile number given below
or at such other address or number as he or it may from time to time
notify in writing to the other parties hereto:-
The Licensor:-
Concentra Corporation
21 North Avenue
Burlington MA
01803-3301
USA
Fax no: (+) 1 781 229 4700
Marked for the attention of: Lawrence W. Rosenfeld
The Distributor:-
c/o Zeyen Beghin Feider Loeff Claeys Verbeke
58 rue Charles Martel
BP 5017
L-1050
Luxembourg
Fax no: (+) 352 44 44 55 444
Marked for the attention of: Garreth Evans/Henri Wagner
16.2 A notice or demand served by first class post shall be deemed duly
served 48 hours after posting and a notice or demand sent by facsimile
transmission shall be deemed to have been served at the time of
transmission and in proving service of the same it will be sufficient to
prove, in the case of a letter, that such letter was properly stamped or
franked first call, addressed and placed in the post and, in the case of a
facsimile transmission, that such facsimile was duly transmitted to a
current facsimile number of the addressee at the address referred to
above.
17. NONCOMPETITION
17.1 Restrictions on the Licensor's Activities
- 25 -
<PAGE> 56
In consideration of the royalty payments to be made by Distributor under
this Agreement, the Licensor agrees that neither the Licensor nor any
member of the Licensor's Group shall whether directly or indirectly and
whether alone or in conjunction with or on behalf of any other person
whether as principal, shareholder, director, employee, agent, consultant
or otherwise:
(a) during the period of 5 years from the date of Closing carry on or be
engaged or concerned or interested in or compete with the Restricted
Business anywhere in the world; or
(b) during the period of 5 years from the date of Closing be engaged in
the development, research or marketing of a product or products
similar in commercial application and purpose to the ICAD Software;
or
(c) during the period of 2 years from the date of Closing hire or
solicit for employment by the Licensor or any of its subsidiaries
any person who during the period of 12 months prior to the date of
such hiring or solicitation was an employee of the Distributor's
Group; or
(d) during the period of 3 years from the date of Closing hire or
solicit for employment by the Licensor or any of its subsidiaries
any one or all of Garreth Evans, Peter Jackson, Prasanna Katragadda,
Keith Watson, Stanley Knutson or Elizabeth Crewe.
17.2 Reasonable Scope
The restrictions contained in this Clause 17 are considered reasonable by
the parties hereto and the parties acknowledge that the provisions of this
Clause 17 are reasonably necessary for the protection of the business
interests of the Distributor.
17.3 Severability and Enforceability
In the event that any restriction in this Clause 17 shall be found to be
unenforceable but would be enforceable if some part thereof were deleted
or the area of operation or the period of application reduced, such
restriction shall apply with such modification as may be necessary to make
it legal and enforceable. This Clause 17 shall be deemed to be an
independent agreement made in consideration of the specific consideration
stated herein. In amplification and not in limitation of the foregoing,
the Licensor hereby acknowledges that the covenants made in this Clause 17
are not being made in reciprocity for the Distributor's covenants in
Clause 10.2(b).
18. GENERAL PROVISIONS
18.1 Force Majeure
In the event that either party is prevented from performing, or is unable
to perform, any of its obligations under this Agreement due to any cause
beyond the reasonable control of the party invoking this provision, the
affected party's performance shall be excused and the time form
performance shall be extended for the period of delay or inability to
perform due to such occurrence.
18.2 Publicity
Neither party shall originate any publicity, news release or other public
announcement relating to this Agreement or the existence of an arrangement
between the parties without the prior
- 26 -
<PAGE> 57
written approval of the other party, except in connection with the
solicitation by the Licensor of shareholder consent to the transactions
contemplated by the Agreement or as otherwise required by law.
18.3 Waiver
The waiver by either party of a breach or a default of any provision of
this Agreement by the other party shall be construed as a waiver or any
succeeding breach of the same or any other provision, nor shall any delay
or omission on the part of either party to exercise or avail itself of any
right, power or privilege that it has, or may have hereunder, operate as a
waiver of any right, power or privilege by such party.
18.4 No Agency; Independent Contractors
Nothing contained in this Agreement shall be deemed to imply or constitute
either party as the agent or representative of the other party, or both
parties as joint ventures or partners of any purpose.
18.5 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, without regard to its choice of
law provisions.
18.6 Entire Agreement; Amendment
This Agreement and the Transition Agreement and the exhibits attached
hereto and thereto constitute the entire agreement between the parties
with regard to the subject matter hereof and thereof and supersedes all
other agreements and understandings concerning such subject matter. No
waiver, consent, modification or change of terms of this Agreement shall
bind either party unless in writing signed by both parties, and then such
waiver, consent, modification or change shall be effective only in the
specific instance and for the specific instance and for the specific
purpose given.
18.7 Headings
Captions and headings contained in this Agreement have been included for
ease of reference and convenience and shall not be considered in
interpreting or construing this Agreement.
18.8 Costs, Expenses and Attorneys' Fees
If either party commences any action or proceeding against the other party
to enforce or interpret this Agreement, the prevailing party in such
action or proceeding shall be entitled to recover from the other party the
actual costs, expenses and reasonable attorneys' fees (including all
related costs and expenses), incurred by such prevailing party in
connection with such action or proceeding and in connection with obtaining
and enforcing any judgment or order thereby obtained.
18.9 Assignment
This Agreement, and the rights and obligations hereunder, may not be
assigned or novated, in whole or in part by either party, except (i) to an
affiliate of such party (which assignment or novation hereunder shall be
with recourse to the assigning party), or (ii) to a successor or purchaser
of all or substantially all of the business of such party, without prior
written consent of the non-assigning party, whose consent shall not be
unreasonably withheld. In the case of
- 27 -
<PAGE> 58
any permitted assignment or transfer of or under this Agreement, this
Agreement or the relevant provisions shall be binding upon, and inure to
the benefit of, the successor, executors, heirs, representatives,
administrators and assigns of the parties hereto.
18.10 Dispute Resolution
In the event of a dispute relating to or arising out of this Agreement,
the party claiming breach of this Agreement shall give notice to the other
party setting forth the nature of such dispute. Within ten (10) business
days of the giving of such notice, the parties shall arrange to have their
chosen representatives meet (in person or telephonically) in an effort to
resolve such dispute. In the event that the parties' representatives are
unable to resolve their dispute within thirty (30) business days of the
first meeting of such representatives, each party shall then designate, by
further notice to the other party, a senior officer to meet (in person or
telephonically) with senior officer of the other party in an effort to
resolve such dispute. In the event that the parities' senior officers are
unable to resolve their dispute within thirty (30) business days of the
first meeting of such senior officer, either party may submit such dispute
to binding arbitration under the International Rules of the American
Arbitration Association (the "AAA"). Arbitration shall be conducted by a
single arbitrator, who shall be knowledgeable concerning legal issues
involved in the licensing of intellectual property rights, to be selected
by the parties by agreement or, in the absence of such agreement, by the
AAA. The arbitration shall take place in New York City. The arbitrator
shall have the authority to award all forms of relief that are determined
to be just and equitable; provided however that notwithstanding anything
to the contrary in this Agreement or under the governing law, the
arbitrator shall have no authority to award punitive or exemplary damages
or any other monetary damages not measured by the prevailing party's
actual damages. Any award granted by the arbitrator may be enforced in any
court of competent jurisdiction. Before an arbitration pursuant to this
provision is convened, either party may seek from any court of competent
jurisdiction interim or provisional equitable relief. Such interim or
provisional equitable relief may subsequently be vacated, continued or
modified by the arbitrator on the application of either party. Either
party may request accelerated proceedings to the extent that any monies
are, at the time of a dispute arising, owed between the parties under the
terms of this Agreement.
18.11 Election to Retain
The Licence shall be deemed licences of "intellectual property" for
purposes of the United States Code, Title 11, Clause 365(n). In the event
of the Licensor's bankruptcy and a subsequent rejection or disclaimer of
this Agreement by a bankruptcy trustee or by the Licensor as a
debtor-in-possession, whether under the laws of the United States or the
United Kingdom, or in the event of a similar action under applicable law,
the Distributor may elect to retain its license rights, subject to and in
accordance with the provisions of the United States Code, Title 11,
Section 365(n) or other applicable law.
18.12 VAT and Withholding Tax
(a) Except as specifically provided in Clauses 18.12(b) and (c) below,
all amounts expressed in this Agreement as being payable by the
Distributor to the Licensor are expressed to be exclusive of any
value added tax, and any transfer, documentary, sales, use stamp,
registration, withholding and other such Taxes and fees (including
penalties and interest) which may be chargeable thereon. Upon
payment to the Licensor of any amount due under this Agreement, the
Distributor shall add to the amount of such payment the amount of
all Taxes referred to in this Clause 18.12(a) that are payable by
the Licensor (except for certain withholding taxes as provided in
Clause 18.12(c), which taxes may be deducted by the Distributor).
- 28 -
<PAGE> 59
(b) To the extent that any value added tax referred to in Clause
18.12(a) is not recoverable (by way of refund, rebates, credit or
otherwise) by the Distributor, the parties agree that any such value
added tax shall be borne equally by the Licensor and the
Distributor. The Distributor will, at its own expense, file all
necessary Tax Returns and other Documentation with respect to all
claims for value added tax recovery and, if required by applicable
law, the Licensor will join in the execution of any such Tax Returns
and other documentation. In the event the Distributor is unable to
recover any value added tax from the applicable taxing authority (by
way of refund, rebate, credit or otherwise), the Licensor shall on
demand reimburse the Distributor for fifty percent (50%) of the
unrecoverable amount.
(c) To the extent that the Distributor is required under the applicable
tax treaties between of the Grand Duchy of Luxembourg and the United
States, or between the United Kingdom and the United States to
deduct any withholding taxes from amounts payable to the Licensor
under this Agreement, such deductions may be made from the
applicable amounts expressed in this Agreement and the Distributor
shall be liable to pay to the Licensor only the net amount after
such deduction. In the event the Distributor is required to deduct
withholding taxes under the laws of any other jurisdiction the
Distributor shall be entitled to make any such deduction or
withholding but in such event the Distributor shall be obliged to
pay such an additional amount to the Licensor to ensure that
Licensor will receive an amount equal to that which it would have
received had no such deduction or withholding been made. Nothing
herein shall be deemed to transfer to the Distributor responsibility
for income taxes under the laws of the Grand Duchy of Luxembourg,
the United States or the United Kingdom chargeable on the Licensor's
receipt of the Fixed Royalties or the Variable Royalties under this
Agreement.
18.13 Further Assurances
(a) At any time after Closing the Licensor shall at its own expense
execute all such documents and do such acts and things as the
Distributor may reasonably require for the purpose of giving to the
Distributor the full benefit of this Agreement and vesting in the
Distributor the title of the Licensor in the Business Intellectual
Property in accordance with the terms of this Agreement.
(b) The terms of this Agreement shall insofar as they are not performed
at Closing and subject as specifically otherwise provided in this
Agreement continue in force after and notwithstanding Closing.
(c) The Licensor and the Distributor hereby mutually undertake that in
the period from the date of this Agreement until Closing (the
"INTERIM PERIOD") they will use their reasonable endeavours to
co-operate with one another with a view to reaching agreement on any
matters which arise during the Interim Period and to execute any
documents as may be required.
IN WITNESS WHEREOF, the parties, as of the date first above shown, have caused
this Agreement to be executed by their duly authorised representatives.
- 29 -
<PAGE> 60
CONCENTRA CORPORATION
By: /s/ Lawrence W. Rosenfeld
---------------------------------
Lawrence W. Rosenfeld,
President
KNOWLEDGE TECHNOLOGIES INTERNATIONAL S.A.
By: /s/ Peter D. Wilson
---------------------------------
As Attorney
Without prejudice to the foregoing, the Distributor expressly and specifically
confirms its agreement to Clause 18.10 for the purposes of article 1 of the
Protocol annexed to the Convention on Jurisdiction and Enforcement of Judgments
in Civil and Commercial Matters signed at Brussels on 27 September 1968, as
amended.
KNOWLEDGE TECHNOLOGIES INTERNATIONAL S.A.
By: /s/ Peter D. Wilson
---------------------------------
As Attorney
- 30 -
<PAGE> 61
ANNEX B
Dated February 26, 1998
CONCENTRA CORPORATION
- and -
KNOWLEDGE TECHNOLOGIES INTERNATIONAL S.A.
---------------------------------------
TRANSITION AGREEMENT
entered into pursuant to a Source
Licence and Exclusive Distributorship
Agreement
---------------------------------------
ASHURST MORRIS CRISP
Broadwalk House
5 Appold Street
London EC2A 2HA
Tel: 0171-638 1111
Fax: 0171-972 7990
BJH/NCC/FJC/E45000457/435145
<PAGE> 62
CONTENTS
CLAUSE PAGE
1. INTERPRETATION........................................................1
2. CONDITIONS............................................................4
3. ASSETS................................................................4
4. WARRANTIES............................................................4
5. LIABILITIES...........................................................7
6. DEBTORS...............................................................9
7. CONTRACTS............................................................10
8. PREPAYMENTS BY VENDOR AND CUSTOMERS..................................11
9. FUTURE TRADING AND TRADE ENQUIRIES...................................12
10. TAX..................................................................12
11. BOOKS AND RECORDS....................................................13
12. PROVISION OF SERVICES................................................14
13. CHARGES..............................................................15
14. LIAISON..............................................................14
15. LIABILITY AND INDEMNITY..............................................14
16. CONFIDENTIAL.........................................................15
17. 1998 TRANSITION ADJUSTMENT...........................................15
18. TERMINATION..........................................................16
19. FORCE MAJEURE........................................................16
20. COSTS................................................................17
21. ASSIGNMENT...........................................................17
22. ENTIRE AGREEMENT.....................................................17
23. WAIVER, AMENDMENT....................................................17
24. FURTHER ASSURANCES...................................................18
25. NOTICES..............................................................18
26. COUNTERPARTS.........................................................19
27. GOVERNING LAW AND SUBMISSION TO JURISDICTION.........................19
28. LIMITATION ON LIABILITY..............................................19
29. INVALIDITY...........................................................20
SCHEDULE 1................................................................22
Nature, Duration and Description of Services..............................22
SCHEDULE 2................................................................23
Specification of Services.................................................23
SCHEDULE 3................................................................24
Payments and 1998 Transition Adjustment...................................24
<PAGE> 63
THIS AGREEMENT is made on February 26, 1998
BETWEEN:-
(1) CONCENTRA CORPORATION a corporation organised under the laws of the state
of Delaware, USA whose principal office is at 21 North Avenue,
Burlington, Massachusetts 01803-3301, USA (the "Licensor"); and
(2) KNOWLEDGE TECHNOLOGIES INTERNATIONAL S.A. a company incorporated in the
Grand Duchy of Luxembourg whose registered office is at 58, rue Charles
Martel, BP5017, L-1050 Luxembourg (the "DISTRIBUTOR").
RECITALS
(A) The Licensor has, pursuant to a Source Licence and Exclusive
Distributorship Agreement entered into between the parties hereto on even
date agreed to Licence to the Distributor certain Intellectual Property
as more particularly set out in the Source Code and Exclusive
Distributorship Agreement.
(B) The Source Licence and Distributorship Agreement provides for the
Licensor and the Distributor to enter into this Agreement in relation to
the transfer of certain Assets and the continuing provision of certain
Services (in each case as defined below) by the Licensor to the
Distributor.
THE PARTIES AGREE AS FOLLOWS:-
1. INTERPRETATION
1.1 All expressions in the Source Licence and Exclusive Distributorship
Agreement shall bear the same meaning herein unless otherwise indicated.
1.2 In addition, the following words and expressions shall, unless the
context otherwise requires, have the following meanings:-
"1998 TRANSITION ADJUSTMENT" means the adjustment to the Fixed Royalty
payable at Closing in accordance with Clause 5.2(a) of the Source Licence
and Exclusive Distributorship Agreement to be made by the Licensor and to
be agreed upon or disputed by the Distributor in accordance with Clause
17;
"ACQUIRED RIGHTS DIRECTIVE" means the Council for European Communities
Directive No. 77/187/EEC and any national enactment thereof;
"AFFILIATED GROUP" means any affiliated group within the meaning of IRC
section 1504(a) or any similar group defined under a similar provision of
state, local or non-US law;
"AGREED FORM" means, in relation to any item, the appropriate schedule
included in the Disclosure Schedule delivered in connection with the
Source Licence and Exclusive Distributorship Agreement;
"ASSETS" means the equipment, machinery, furniture and other assets, all
only as set out in the list in the Agreed Form headed Assets;
"BOOKS AND RECORDS" means the lists of customers and suppliers of the
ICAD Business and all other records relating to such customers and
suppliers on whatsoever medium they are
-1-
<PAGE> 64
stored excluding all records of the type referred to in section 49(1)(b)
of the Value Added Taxes Act 1994;
"CLOSING" means the closing of the transactions contemplated by this
Agreement and the Source Licence and Exclusive Distributorship Agreement;
"CONTRACTS" means all contracts and arrangements relating to the ICAD
Business which are wholly or partly unperformed at the Closing Date
identified in the list in the Agreed Form headed Contracts;
"CO-OCCUPIED PROPERTIES" means the leased real properties at Unit C1, The
Viscount Centre, Milburn Hill Road, The University of Warwick Science
Park, Coventry, West Midlands, CV4 7HS, UK, at 21 North Avenue,
Burlington, Mass. 01803 USA and at les Laurentides Batiment Labrador, 3,
Avenue de Quebec, ZA de Courtaboeuf, ULIS (91951) France;
"DEBTORS" means all amounts owed to the Licensor in connection with the
ICAD Business as at December 31 1997 including (without limitation) those
identified in the list in the Agreed Form headed Debtors and "DEBTOR"
shall mean any one of them provided that, in respect of Debtors
identified as "Maintenance" Debtors any deferred income shall have been
properly accounted for;
"ENCUMBRANCE" means any mortgage, charge, pledge, lien, security or other
third party right or interest (legal or equitable) or restriction over or
in respect of the use of the relevant asset, security or right;
"EUROPEAN EMPLOYEES" means all those employees only as set out in the
list in the Agreed Form headed European Employees;
"EQUIPMENT LEASES" means the capital leases and similar financing
arrangements relating too the Assets all only as set out in the list in
the Agreed Form headed Equipment Leases;
"IRC" means the United States Internal Revenue Code of 1986, as amended;
"LIABILITIES" means all liabilities of the Licensor and others in respect
of the ICAD Business, the Assets and the Contracts as at the Closing
Date; and including for the avoidance of doubt and without limitation:-
(a) creditors;
(b) liabilities to Taxation, including (i) all liabilities to all
taxable periods ending on or prior to the Closing Date and (ii)
including in the case of the taxable periods which include the
Closing Date, the portion of such period up to and including the
Closing Date; and
(c) amounts owed to any third party by way of overdraft or other
borrowings;
"PAYMENTS" means all those items of adjustment as set out in Schedule 3;
"SERVICES" means the services to be provided by the Licensor to the
Distributor as set out in Schedule 2 and as described in further detail
in Schedule 3;
"SOURCE LICENCE AND EXCLUSIVE DISTRIBUTORSHIP AGREEMENT" means an
agreement entered into on today's date between the Licensor and the
Distributor;
-2-
<PAGE> 65
"TAX" and "TAXATION" means any tax and any duty, impost, levy or
governmental charge in the nature of tax whether domestic or foreign and
any fine, penalty or interest connected therewith (a) including (without
prejudice to the generality of the foregoing) corporation tax, advance
corporation tax, income tax, national insurance and social security
contributions, capital gains tax, real property tax, personal property
tax, sales tax, use tax, franchise tax, inheritance tax, capital transfer
tax, development land tax, value added tax, customs, excise and import
duties, stamp duty and stamp duty reserve tax any deferred taxation and
any other payment whatsoever which the Licensor is or may be or become
bound to make to any person as a result of any enactment relating to any
of the foregoing (b) but excluding any stamp duty or stamp duty reserve
tax payable on this agreement or any instrument executed pursuant to this
agreement;
"TAX RETURNS" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxation, including any
schedule or attachment thereto, and including any amendment thereof;
"TRANSFER REGULATIONS" means the Transfer of Undertakings (Protection of
Employment) Regulations 1981 as enacted and amended in England and Wales,
Scotland and Northern Ireland;
"US EMPLOYEES" means all those employees only as set out in the list in
the Agreed Form headed US Employees;
"US PROPERTIES" means the leased real properties located at: 26999
Central Park Boulevard, North Building, Suite 295, Southfield, MI and at
Suite 213, 50 Airport Parkway, San Jose, California 95110; and
"WARRANTIES" means those representations, warranties, covenants and
undertakings set out in Clause 4 hereto.
1.3 References to the parties hereto include their respective permitted
assignees and in the case of individuals their respective successors in
title, personal representatives, heirs and estates and references to the
masculine gender shall include the feminine and vice versa.
1.4 References to statutes or statutory provisions include references to any
orders or regulations made thereunder and references to any statute,
provision, order or regulation include references to that statute,
provision, order or regulation as amended, modified, re-enacted or
replaced from time to time whether before or after the date hereof
(subject as otherwise expressly provided herein) and to any previous
statute, statutory provision, order or regulation amended, modified,
re-enacted or replaced by such statute, provision, order or regulation.
1.5 References to persons shall include any person, individual, company,
firm, corporation, association, joint stock company, trust, joint
venture, incorporated organisation, governmental entity (or any
department, agency or political subdivision thereof, or any other entity
(whether or not having separate legal personality and irrespective of the
jurisdiction) in or under the law of which it was incorporated or
exists).
1.6 Headings to clauses and paragraphs are for information only and shall not
form part of the operative provisions of this agreement and shall be
ignored in construing the same.
1.7 References to recitals, clauses or schedules are to recitals to, clauses
of and schedules to this agreement.
-3-
<PAGE> 66
1.8 The recitals, the schedules and documents in the Agreed Form part of the
operative provisions of this agreement and references to this agreement
shall, unless otherwise expressly stated, include references to the
recitals, the schedules and documents in the Agreed Form.
1.9 References to times of the day are to United States Eastern Standard
Time.
1.10 References in this Agreement to the "Distributor" shall, subject to
Clause 21.1 and unless otherwise provided, be deemed to refer to such
member or members of the Distributor's Group as the Distributor shall
have assigned or novated, in whole or in part, the benefit and burden of
the rights and obligations arising under this Agreement.
2. CONDITIONS
Closing of the transactions contemplated by this Agreement is conditional
upon and will take place concurrently to Closing of the Source Licence
and Exclusive Distributorship Agreement.
3. ASSETS
3.1 Subject to the terms and conditions of this Agreement, the Licensor shall
transfer to the Distributor the Assets, as of the commencement of
business on the Closing Date free from all Encumbrances and together with
all accrued benefits and rights attaching thereto.
4. WARRANTIES
The Licensor hereby represents, warrants, covenants and undertakes with
the Distributor (so as to bind the Licensor, its successors and assigns)
as follows:-
4.1 That it has the right to dispose of the Assets which it purports to
transfer.
4.2 That it is disposing of the Assets free from any Encumbrance together
with all such rights now or hereafter attaching thereto, except as may
exist or arise under the Equipment Leases.
4.3 All documents which are required to be stamped and which relate to any of
the Assets or which are in the possession of the Licensor in respect of
the Assets have been duly stamped.
4.4 The Licensor has been duly organised and is validly existing in good
standing under the laws of its jurisdiction of organisation.
4.5 This Agreement has been duly authorised, executed and delivered by the
Licensor (subject to approval by the Licensor's shareholders) and,
assuming due authorisation, execution and delivery by the Distributor and
approval by the Licensor's shareholders, is a valid and binding agreement
enforceable against the Licensor in accordance with its terms; and the
Licensor has full corporate power and authority (subject to approval by
the Licensor's shareholders) necessary to enter into this Agreement and
to perform its obligations hereunder.
4.6 No consent, approval (other than approval of the Licensor's shareholders
to the extent required), authorisation, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Licensor is required for execution of this Agreement or the performance
of the Licensor's obligations hereunder.
4.7 The Licensor has not created or agreed to create or suffered to arise any
Encumbrance over any part of the Assets and the Licensor has and will at
Closing have a good and marketable title to all the Assets except as may
arise or exist under the Equipment Leases.
-4-
<PAGE> 67
4.8 Prior to the Closing all consents and agreements of third parties
including statutory or other regulatory authorities which are required
for the transfer of the Assets and the Contracts to the Distributor shall
have been obtained in writing, and will be attached to the Disclosure
Schedule; provided however that the provisions of Clause 7.2 shall apply
to any Contracts where consent is refused or otherwise not obtained and
the Licensor's failure to obtain such consents shall not be deemed to be
a breach of the Warranty made in this Clause 4.8.
4.9 The Licensor is not under any obligation of any kind whatsoever whether
actual or contingent to sell, charge or otherwise dispose of any of the
Assets or any interest therein to any other person.
4.10 There is no litigation, arbitration, prosecution or other legal
proceedings relating to the ICAD Business pending, threatened or
outstanding and there are no claims, facts or events which are likely to
give rise to any such proceedings and the Licensor is not engaged in or
aware of and has not in the last six years been engaged in and no facts
or events exist or have occurred which are likely to cause the Licensor
to be involved in proceedings or enquiries before any governmental or
municipal board of inquiry or commission or any other administrative body
(whether judicial, quasi-judicial or otherwise) relating to the ICAD
Business.
4.11 Neither the Licensor, nor any of its officers, agents or employees
(during the course of their duties in relation to the ICAD Business) has
committed, or omitted to do, any act or thing the commission or omission
of which is, or could be, in contravention of any act, order, regulation
or the like in the United States of America or elsewhere which is
punishable by fine or other penalty.
4.12 The Licensor has in its possession all books, records, accounts and other
documents relating to the ICAD Business which it may be obliged to
produce under any contract or under any statutory provision now in force
to any party.
4.13 All information contained in this agreement and all other information
given to the Distributor, its advisers, including its attorneys,
accountants, financiers, shareholders, agents or other representatives by
or on behalf of the Licensor concerning or which might concern the ICAD
Business, the Assets and the Contracts was when given and is now true and
correct in all material respects and no matter or fact has not been
disclosed the omission of which renders any such information untrue or
misleading in any material respect.
4.14 The leasing agreements pursuant to which the Licensor occupies the US
Properties (the "LEASES") are in full force and effect and the Licensor
holds a valid and existing leasehold or subleasehold interest under the
Leases. The Licensor has delivered to Distributor a true, correct,
complete and accurate copy of the Leases. Furthermore:-
(a) the Leases are legal, valid, binding, enforceable and in full
force and effect;
(b) the Leases will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the
Closing;
(c) neither the Licensor nor, to the knowledge of the Licensor, any
other parties to the Leases are in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute
such a breach or default, in either case to the extent that such
breach or default would permit termination, modification or
acceleration under the Leases;
(d) no party to the Leases has repudiated any provision thereof;
-5-
<PAGE> 68
(e) there are no disputes, oral agreements, or forbearance programs in
effect as to the Leases;
(f) the Leases have not been modified in any respect, except to the
extent that such modifications are disclosed by the documents
delivered to Distributor;
(g) the Licensor has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the Leases; and
(h) the Leases are fully assignable to Distributor without the
necessity of any consent or the Licensor shall obtain all
necessary consents prior to the Closing.
4.15 The Licensor shall obtain an estoppel letter with respect to each parcel
of real property constituting the US Properties from the landlord for
such property in form and content reasonably satisfactory to the
Distributor.
4.16 All Taxes owed by any of Licensor and the ICAD Business have been paid.
No claim has ever been made by an authority in a jurisdiction where the
ICAD Business does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no liens or Encumbrances on any
of the assets of the ICAD Business that arose in connection with any
failure (or alleged failure) to pay any Tax.
4.17 The Licensor has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third
party.
4.18 The Licensor has made all reasonable enquiries of its directors,
employees, agents and relevant third parties to establish the truth and
accuracy of those Warranties in this schedule expressed to be given "to
the best of the Licensor's knowledge and belief" or "so far as the
Licensor is aware" or otherwise qualified by reference to the knowledge
of the Licensor.
5. LIABILITIES
5.1 The Licensor shall promptly pay satisfy and discharge the Liabilities and
with effect from the Closing Date indemnify the Distributor in respect
thereof and against any and all obligations, debts, costs, claims,
demands and expenses arising therefrom.
5.2 Without prejudice and limitation to the generality of the indemnity
contained in Clause 5.1 above, the Licensor shall indemnify and hold
harmless the Distributor against each and every claim, liability, cost,
expense or demand (without limitation and, for the avoidance of doubt,
including legal and other professional fees) which relates to any claim
in respect of:
(a) any European Employee arising from any act or omission or
obligation or liability of the Licensor or any other event
occurring prior to the Closing Date whatsoever;
(b) any European Employee in the event that any such employee proves
in a court of the relevant competent jurisdiction that he or she
was entitled to more favourable terms and conditions of employment
at the Closing Date than those disclosed in writing by the
Licensor to the Distributor prior to the Closing Date and that the
Distributor is bound by such terms and conditions by reason of the
operation of the Transfer Regulations and/or the Acquired Rights
Directive;
(c) any employee of the Licensor who is not a European Employee
arising from any act or omission or obligation or liability of the
Licensor or any other event occurring prior to,
-6-
<PAGE> 69
on or after the Closing Date (including, without limitation, the
dismissal of such person or a change in his terms of employment)
for which the Distributor is liable by reason of the operation of
the Transfer Regulations and/or the Acquired Rights Directive;
(d) any person, who is not a European Employee whose contract of
employment has effect by reason of the operation of the Transfer
Regulations and/or the Acquired Rights Directive as if originally
made with the Distributor and whose contract of employment is
terminated or varied by the Distributor within two months of the
Distributor's discovery of such contract, provided that if such
contract is not so terminated within two months of the
Distributor's discovery of its existence, the provisions of Clause
5.2(a) apply to the Licensor in respect of such person as if he
was a European Employee in the Agreed Form.
5.3 The parties hereto agree and undertake to each other to indemnify and
hold harmless the other in respect of half of any cost, claim, liability,
expense, fee or demand that may be incurred by the other which arises due
to any claim being brought by or in respect of any European Employee as a
result of the termination of the employment of such employee by the
Licensor as at the Closing Date or the acceptance by such employee of new
employment with the Distributor on the same terms and conditions of
employment as such employees had before their employment was terminated
by the Licensor. For the avoidance of doubt the indemnity contained in
this Clause 5.3 shall extend to cover claims being brought within six
months of the Closing Date by any European Employee arising from the
change in the identity of their employer from the Licensor to the
Distributor, including such employer's name, size, corporate structure
and management structure or arising from a change in the location of
their place of work (provided that such new workplace is no more than 20
miles from their work place while they have been employed by the
Licensor) ("the TRANSITION").
5.4 The Licensor shall indemnify and hold harmless the Distributor against
each and every claim, liability, cost, expense or demand (without
limitation and, for the avoidance of doubt, including legal and other
professional fees) which relates to any claim in respect of:-
(a) any US Employee arising from any act or omission or obligation or
liability of the Licensor or any other event occurring on or prior
to the Closing Date; and
(b) any employee benefit plan or arrangement maintained or contributed
to by Licensor or any member of its controlled group (within the
meaning of section 414 of the United States Internal Revenue
Code).
5.5 With the exception of claims arising from the Transition referred to in
Clause 5.3 above, nothing contained in this Clause 5 will impose any
liability whatsoever on the Licensor should such claims arise
specifically as a result of the Distributor seeking to impose any new
terms and conditions of employment including, but not limited to, terms
and conditions relating to confidential information, restricting the
activities of such employees after termination of employment or
concerning stock options, as any such claims, should they arise, will be
the responsibility of the Distributor.
5.6 The Distributor shall not assume liability for:-
(a) any indebtedness of the Licensor outstanding at the Closing Date
except as expressly provided herein; or
-7-
<PAGE> 70
(b) any breach of contract, negligence, breach of duty or other
circumstance giving rise to liability to any third party which is
attributable to any act, neglect or default of the Licensor prior
to the Closing Date; or
(c) any other obligation which falls to be performed or any other
liability of the ICAD Business which falls to be satisfied prior
to, or by reference to a period occurring prior to the Closing
Date and the Licensor shall discharge all such debts and
liabilities and perform all such obligations and shall indemnify
and hold indemnified the Distributor against any liability in
respect of any such indebtedness, obligations or liabilities or as
a result of any such breach of contract, negligence, breach of
duty or other circumstance (and all costs reasonably incurred by
the Distributor in connection therewith).
6. DEBTORS
6.1 Debtors shall remain the property and the responsibility of the Licensor
and the Distributor shall endeavour to collect Debtors on the Licensor's
behalf but shall not be bound to take any legal proceedings or other
steps to recover the same save as may be usual in the ordinary course of
business. Subject to Clause 6.3, in the event that any Debtor is
unrecovered (in whole or in part) after December 31, 1998 the Licensor
shall be obliged (at its own cost) to actively pursue the Debtor
(including, if appropriate, to pursue litigation).
6.2 Subject to Clauses 6.6, 6.7 and 6.9 below, prior to June 30, 1999 the
amounts first collected by the Distributor from Debtors shall be applied
to the Licensor's account (on a Debtor by Debtor basis) as follows before
application toward the Distributor:-
(a) proceeds from a Debtor (other than IPTN) shall first be applied
toward any "Software" debts due from that Debtor;
(b) proceeds from a Debtor (other than IPTN) shall then be applied
toward any "Consultancy" debts due from that Debtor but only to
the extent that such Debtor has not disputed the amount owing or
the service provided by the Licensor;
(c) proceeds from a Debtor (other then IPTN) shall finally be applied
toward any "Maintenance" debts due from that Debtor but only to
the extent that such Debtor has provided the Licensor with a
purchase order and the Licensor has not, as at the date of
Closing, received written notification of a dispute in relation to
the amount owing or the level of service provided by the Licensor;
and
(d) proceeds from IPTN which can properly be considered to be payments
in respect of "Software" debts (but not any other proceeds from
IPTN) shall be applied toward any "Software" debt due from IPTN
(as reduced under Clause 6.6(d)).
6.3 The Licensor shall not seek to recover Debtors directly but shall inform
the Distributor of any payments that may be made to the Licensor in
respect thereof save that the Licensor shall be entitled to recover
Debtors directly in the event that the Licensor has not recovered a
Debtor within ninety (90) days of the date of issue of an invoice to that
Debtor.
6.4 Within twenty-one (21) days of the end of each month ending after Closing
the Distributor shall provide the Licensor with a statement of the
Debtors collected in that month and shall remit to the Licensor the
amounts so received during that period.
6.5 After the expiration of twelve (12) months from the Closing Date the
obligations of the Distributor under this Clause 6 to collect Debtors on
behalf of the Licensor shall cease save
-8-
<PAGE> 71
that if thereafter any payments are made to the Distributor in respect of
Debtors the Distributor shall promptly remit the same to the Licensor.
6.6 In respect of the debts owing from PT Industri Pesawat Terpang Nusantara
("IPTN") at December 31, 1997:-
(a) the first amounts collected shall be paid by the Distributor for
the account of the Licensor against the invoices identified on
Exhibit 6.6 and not paid by the Licensor prior to the Closing
Date;
(b) the next amounts collected, up to the sum of amounts paid by the
Licensor against the invoices identified in Exhibit 6.6 prior to
the Closing Date shall be paid to the Licensor by the Distributor
when received;
(c) the next amounts collected, shall be apportioned between the
Licensor and the Distributor in the percentages 25 per cent: 75
per cent respectively until such time as the "Maintenance" debt
has been paid in full;
(d) the next amounts collected shall be paid over to the Licensor in
respect of "Software" debt until such time as the aggregate
amounts received by the Licensor in respect of such "Software"
debt equals the full amount of IPTN "Software" debt less the
aggregate of the amounts paid by the Licensor prior to the Closing
Date against invoices identified in Exhibit 6.6 and the amounts
paid by the Distributor for the account of the Licensor pursuant
to Clause 6.6(a); and
(e) the balance of collections in respect of such debts shall be
retained by the Distributor for its own account.
The second sentence of Clause 6.1 and Clause 6.5 shall not apply with
respect to IPTN.
6.7 In respect of work performed by the Licensor or its consultants for the
benefit of British Aerospace prior to December 31, 1997 the first pound
sterling 50,000 collected by the Distributor from British Aerospace shall
promptly be passed to the Licensor when received and cashed by the
Distributor.
6.8 In the event that within 12 months of Closing the Distributor receives
maintenance revenue from a customer set out in Exhibit 6.8 (being the
list of Lapsed Maintenance Customers) the Distributor shall pay to the
Licensor that proportion of such maintenance revenue as is equal to the
proportion which the period from the date of the last activation of the
relevant account until January 1, 1998 bears to the period from the date
of the last activation of the relevant account until the last date in
respect of which such maintenance revenue is paid.
6.9 In the case of Debtors invoiced other than in US Dollars the sum of the
debt in US Dollars shall be adjusted to reflect any change in the
relevant exchange rate from December 31, 1997 to the time of payment.
6.10 The Licensor warrants to the Distributor that all of the Debtors were
properly and bona fide incurred in the ordinary course and that (so far
as it is aware having made due and careful inquiry) in respect of none of
the Debtors is there any affirmative defence to the payment in full
thereof.
6.11 If any of the Debtors is agreed by the Licensor or determined by a
competent court or arbitrator to be less than the amount shown in the
list in the Agreed Form headed "Debtors" the Licensor shall forthwith
upon such agreement or determination reimburse to the Distributor any
amount previously applied against that Debtor by the Distributor pursuant
to Clause 6.2 which would not have been required to be so applied had
such lesser amount been shown in such list.
-9-
<PAGE> 72
7. CONTRACTS
7.1 Subject to the receipt of any requisite third party consents, as of the
Closing Date the Licensor shall assign to the Distributor, and the
Distributor shall assume all of the Licensor's rights and obligations
under, the Contracts. The Licensor and the Distributor shall use their
best efforts to obtain all third party consents necessary to transfer the
Contracts to the Distributor.
7.2 In any case where the consent in Clause 7.1 above is refused or otherwise
not obtained and until it is obtained or where any of the Contracts are
incapable of transfer by assignment or by other means to the
Distributor:-
(a) the Licensor shall hold the Contracts and any monies, goods or
other benefits received thereunder as agent of and trustee for the
Distributor and shall forthwith upon receipt of the same account
for and pay or deliver to the Distributor without any deduction or
withholding whatsoever all such monies, goods and other benefits;
(b) the Distributor shall perform the Contracts in accordance with
their terms and conditions as sub-contractor to the Licensor
provided that sub-contracting is permissible under the terms of
the Contract in question, and where sub-contracting is not
permissible, the Distributor shall perform the Contracts in
accordance with their terms and conditions as agent for the
Licensor;
(c) the Licensor shall give all reasonable assistance to the
Distributor to enable it to enforce the rights of the Licensor
under the Contracts and shall at all times act with regard to the
Contracts in accordance with the Distributor's reasonable
instructions from time to time; and
(d) the Licensor shall not take any action in respect of the Contracts
without the prior written approval of the Distributor.
7.3 The Distributor hereby agrees to indemnify and hold harmless the Licensor
in respect of all claims arising under or relating to the performance of
the Contracts which arise after the Closing and are either directly or
indirectly attributable to an act, event or omission of the Distributor
provided that the Distributor shall be entitled to conduct any such claim
on behalf of the Licensor and provided that the Distributor shall not be
liable in respect for any claim arising in respect of the Contracts
directly or indirectly attributable to an act, event or omission of the
Licensor arising prior to Closing.
7.4 The Licensor hereby agrees to waive with effect from the Closing Date any
rights it may have against any European Employees and/or any US Employees
to enforce any conditions relating to competing with the Licensor,
disclosing information relating to the Licensor or developing
improvements to products or processes (which may or may not involve
intellectual property rights) which are contained in any agreements
between the Licensor and such employees and which relate to the conduct
of the Restricted Business by the Distributor.
8. PREPAYMENTS BY VENDOR AND CUSTOMERS
8.1 The Licensor shall account to the Distributor, on a percentage of
completion basis, for all prepayments in respect of any Contracts not
wholly completed or discharged at Closing by the Licensor.
-10-
<PAGE> 73
8.2 The Distributor shall account to the Licensor, on a percentage of
completion basis, for all payments made by the Licensor in respect of any
Contracts not wholly completed or discharged at Closing by suppliers of
goods and services.
9. FUTURE TRADING AND TRADE ENQUIRIES
The Licensor shall promptly refer to the Distributor all enquiries
relating to the ICAD Product, the Assets or the Contracts and assign to
the Distributor all orders relating to the ICAD Product, including
enquiries or orders for any services provided in connection with the ICAD
Product, which the Licensor may receive after Closing.
10. TAX
10.1 Except as specifically provided in Clauses 10.2 and 10.3 below, all
amounts expressed in this Agreement as being payable by the Distributor
to the Licensor are expressed to be exclusive of any value added tax, and
any transfer, documentary, sales, use stamp, registration, withholding
and other such Taxes and fees (including penalties and interest) which
may be chargeable thereon. Upon payment to the Licensor of any amount due
under this Agreement, the Distributor shall add to the amount of such
payment the amount of all Taxes referred to in this clause 10.1 that are
payable by the Licensor (except for certain withholding taxes as provided
in Clause 10.3, which taxes may be deducted by the Distributor).
10.2 To the extent that any value added tax referred to in Clause 10 is not
recoverable (by way of refund, rebate, credit or otherwise) by the
Distributor, the parties agree that any such value added tax shall be
borne equally by the Licensor and the Distributor. The Distributor will,
at its own expense, file all necessary Tax Returns and other
documentation with respect to all claims for value added tax recovery
and, if required by applicable law, the Licensor will join in the
execution of any such Tax Returns and other documentation. In the event
the Distributor is unable to recover any value added tax from the
applicable taxing authority (by way of refund, rebate, credit or
otherwise), the Licensor shall on demand reimburse the Distributor for
fifty percent (50%) of the unrecoverable amount.
10.3 To the extent that the Distributor is required under the applicable tax
treaties between the United States and the Grand Duchy of Luxembourg, or
between the United Kingdom and the United States to deduct any
withholding taxes from amounts payable to the Licensor under this
Agreement, such deductions may be made from the applicable amounts
expressed in this Agreement and the Distributor shall be liable to pay to
the Licensor only the net amount after such deduction. In the even the
Distributor is required to deduct withholding taxes under the laws of any
other jurisdiction, the Distributor shall be entitled to make any such
deduction or withholding but in such event the Distributor shall be
obliged to pay such an additional amount to the Licensor to ensure that
the Licensor will receive an amount equal to that which it would have
received had no such deduction or withholding been made.
10.4 The Licensor and the Distributor shall use all reasonable endeavours to
secure that the conditions of article 5(1) of the Value Added Tax
(Special Provisions) Order 1995 SI 1268 and of section 49 of the Value
Added Tax Act 1994 (or the relevant provisions in any jurisdiction other
than the United Kingdom) are fulfilled so that transactions contemplated
by this agreement are properly treated as neither a supply of goods nor a
supply of services for the purposes of value added tax.
10.5 Each party shall preserve all records referred to in section 49(1) of the
Value Added Tax Act 1994 (or the relevant provisions in any jurisdiction
other than the United Kingdom) for such periods as may be required by law
and shall during that period afford reasonable access to them at the
request (and cost) of the other party.
-11-
<PAGE> 74
10.6 In the event any taxing authority determines that value added tax is
chargeable on the transactions contemplated hereby or any of them then
the Licensor shall immediately notify the Distributor of such
determination and the Distributor agrees that such value added tax shall
be in addition to the sum specified in Clause 3 and the Distributor shall
(against production by the Licensor of tax invoices in respect thereof)
pay the amount of any such value added tax forthwith to the Licensor but
such payment shall be without prejudice to the right of the Distributor
under this agreement to call upon the Licensor to make or join an appeal
against the aforesaid determination subject to the provisions of Clause
10.7 below.
10.7 The Distributor at its sole discretion (but after consultation with the
Licensor) may within ten days of notification by the Licensor of a
determination having been made by any taxing authority, dispute that
determination or request the Licensor to dispute or join with the
Distributor or any other person in disputing that determination including
the making of a formal appeal to the appropriate taxing authority and
such higher court of law as may subsequently be required to reach a
decision on the dispute and the Licensor shall promptly comply with any
reasonable request but shall not be obliged to take any action under this
clause unless the Distributor shall indemnify it against all costs and
expenses so incurred.
10.8 All value added tax and any other Taxes payable in respect of goods and
services supplied or deemed to be supplied by the Licensor in connection
with the ICAD Business prior to Closing, and all interest payable thereon
and penalties attributable thereto, shall be paid to the appropriate
taxing authority by the Licensor, and the Licensor shall be entitled to
receive and to retain for its own benefit all reimbursement or credit
from such taxing authority for value added tax or such other Taxes borne
by the Licensor on goods and services supplied to the Licensor prior to
Closing and any payments received in respect of value added tax or such
other Taxes overpaid prior thereto.
11. BOOKS AND RECORDS
11.1 The Licensor shall, at the Closing, deliver to the Distributor the Books
and Records, which the Distributor shall retain for a period of three
years from the Closing Date or for such longer period as such records are
required to be preserved by law. The Books and Records shall be available
at all reasonable times by prior appointment during usual business hours
for inspection by the Licensor, its servants and agents and such other
persons as may be authorised by the Licensor who may (at the cost of the
Licensor) take such copies therefrom as the Licensor may reasonably
require.
11.2 For a period of three years from Closing or for such longer period as
such records are required to be preserved by law, the Licensor shall at
its own cost, make available to the Distributor any books and records
which contain information which is reasonably required by the Distributor
for the purpose of the activities of the ICAD Business for inspection and
copying by representatives of the Distributor during working hours on
reasonable advance notice and, if it is not practicable, only to make
available relevant parts thereof, with an undertaking as to
confidentiality as the Licensor may reasonably require being given by the
Distributor.
12. PROVISION OF SERVICES
12.1 Subject to Clauses 18 and 19 the Licensor agrees, unless otherwise agreed
in writing between the parties from time to time, to supply or procure to
be supplied to the Distributor the Services and the Licensor confirms to
the Distributor that in providing the Services during the term hereof,
such Services shall be provided upon the basis as more particularly set
out in Schedules 1 and 2 (as appropriate).
-12-
<PAGE> 75
12.2 Subject as provided in this Agreement, any additional service performed
or work done which is not part of the Services, or which is, at the
request of the Distributor, over and above the level specified in this
Agreement shall be the subject of a separate agreement between the
parties, provided that if the Distributor reasonably requests any other
service or services in connection with the ICAD Business, the Licensor
shall use its reasonable endeavours to provide any such additional
service or services to the Distributor if it is already supplying such
services to its own businesses (and only to the extent that it continues
to do so) and the parties shall agree charges for them on a basis
reflecting the cost of such service to the Distributor.
12.3 Without prejudice to either party's other rights under this Agreement
nothing in this Agreement shall prevent the Distributor, in each instance
upon thirty (30) days' notice to the Licensor, from purchasing the
Services from a third party and should the Distributor wish to obtain any
of the Services from a third party, then the Licensor shall use its
reasonable endeavours to provide such co-operation and assistance to the
Distributor as may be reasonably requested by the Distributor to enable
it to obtain such Services from a third party.
12.4 The Licensor shall maintain sufficient appropriately qualified and
experienced staff to enable it to fulfil its obligations at all times and
in all respects in relation to the Services.
12.5 The Licensor hereby warrants and represents to the Distributor that
subject to Clause 12.6 below it is able to provide the Services in the
terms more particularly set out in Schedules 1 and 2 and that it has in
its possession or will prior to Closing have all permissions, Licences
and consents or similar authority required to provide the Services.
12.6 The Licensor hereby acknowledges that it shall be responsible for
obtaining (at its own expense) all permissions, licences and consents
reasonably required or which it would be desirable to have in order to
enable the Distributor to operate the ICAD Business.
12.7 The Distributor acknowledges that it intends to procure alternative
premises to those to be provided at the Co-Occupied Properties as part of
the Services within six (6) months of Closing.
12.8 The Licensor shall take such actions as are necessary to fully vest the
account balances of any employees specified in the list of US employees
in the Agreed Form who accept employment with the Distributor within 30
days after the Closing Date and prevent any plan loans of such employees
under the Concentra Corporation 401(k) Retirement Plan from being placed
into default (unless such employees fail to make timely payment of their
monthly repayment amounts) and transfer such employees' account balances,
including any notes evidencing such plan loans, to a qualified defined
contribution plan sponsored by the Distributor as soon as practicable
after the Closing Date.
12.9 The Licensor shall take such actions as are necessary to continue to
employ each US Employee who is currently working in the United States
under a work visa and who has agreed to accept employment with
Distributor, until the earlier of the date that such employee may
lawfully accept employment in the United States with the Distributor or
its subsidiaries or the date that the Distributor or the employee gives
written notice to Licensor that the Distributor or employee wishes to
terminate their offer or acceptance of employment with the Distributor.
During the period of employment the by Licensor of each such employee
pursuant to this paragraph, the Licensor shall continue to pay such
employee his salary and incentive compensation (in amounts as directed by
Distributor) and to allow such employee to participate in those employee
benefit plans which are generally available to the Licensor's employees.
The Distributor shall reimburse the Licensor for the cost of each such
employee's salary and incentive compensation and the actual cost of
insurance and other benefit coverage
-13-
<PAGE> 76
for each such employee provided that the Distributor's liability in
respect of the Licensor's self-insurance in respect each such employee
shall be limited to a maximum of US$20,000 per family per policy year
only.
12.10 Without limitation to the provisions of this Agreement the parties will,
on the Closing Date, enter into licences in form acceptable to the
Licensor and the Distributor in respect of the Distributor's occupation
of certain parts of the Co-Occupied Properties (the "CO-OCCUPIED
LICENCES").
13. CHARGES
13.1 In consideration of the supply by or on behalf of the Licensor to the
Distributor of the Services, the Distributor will pay to the Licensor the
charges set out in Schedule 2 in accordance with the provisions of this
Clause 13.
13.2 All charges payable by the Distributor to the Licensor pursuant to
Schedule 2 shall be paid within twenty-eight (28) days of the date of
receipt of the relevant correct invoice. The Licensor shall provide
reasonable documentary evidence to support the charges as the Distributor
may reasonably require.
13.3 Without prejudice to either party's other rights under this Agreement, on
the termination of any of the Services, the Distributor will pay up to
the date of termination the charges as incurred by the Distributor save
that if the date of termination is other than at the end of a four week
period any such payment shall be adjusted to reflect the number of days
in the four week period that the Services were actually provided pursuant
to this Agreement.
13.4 In calculating the four weekly charges in Schedule 2, if the final period
is less than four weeks, the fixed charges for the Final Period shall be
adjusted pro rata on a daily basis.
13.5 All payments by the Distributor to the Licensor under this Agreement
shall be made without any set-off or deductions of any kind (except as
expressly set out in this Agreement).
14. LIAISON
Each of the Licensor and the Distributor shall appoint and shall
communicate to the other the identity of one person who shall act as the
principal contact point and channel of communication in respect of the
provision of the Services. Such persons shall be suitably qualified and
experienced and shall be entitled to delegate or pass responsibility to a
suitably qualified and experienced nominee form time to time.
15. LIABILITY AND INDEMNITY
15.1 The Licensor is providing the Services hereunder as an accommodation to
the Distributor and accepts liability to the Distributor in respect of
the Services specified in Schedule 1 only if the Licensor either:-
(a) wilfully withholds supply of such Service when it has the ability
to provide such Service to the level specified in Schedule 2; or
(b) wilfully withholds supply of a reasonable pro rata share of such
Service when it has the ability only to provide such Service to a
proportion of the level specified in Schedule 2.
-14-
<PAGE> 77
15.2 Nothing in this Clause 15 shall or shall be deemed to relieve either
party of any common law or other duty to mitigate any loss or damage
incurred by it.
15.3 The foregoing shall not affect the Distributor's liability for death or
personal injury resulting from its negligence.
15.4 Without prejudice to the provisions of Clauses 12, 15 and 18 and its
other rights, the Distributor may elect to procure such Services set out
in Schedules 1 and 2 from an independent third party if the Licensor
either fails to provide all or any of the Services set out in Schedules 1
and 2 for a period of more than five (5) consecutive days (save in case
of emergency or to fulfil a legal requirement for the operation of the
ICAD Business), or if the Licensor materially breaches the specifications
for the Services set out in Schedule 2 on the following terms:-
(a) the Distributor shall not be liable to make any payment to the
Licensor for the affected Service or Services from the date of the
occurrence of the breach to the date the breach is remedied by the
Licensor;
(b) the Licensor shall use its reasonable endeavours to recommence
provision of the Services as soon as practicable after the breach
has occurred;
(c) if the Licensor recommences provision of the affected Service or
Services within 30 days of the breach occurring, the Licensor
shall be liable to pay to the Distributor all charges in respect
of the affected Service or Services from such recommencement date;
(d) if the Licensor does not recommence provision of the affected
Service or Services within 30 days of the breach occurring, the
Distributor shall be entitled to terminate the agreement forthwith
in respect of the affected Service or Services and shall not be
liable to pay any charges in respect of the same (other than any
amounts remaining due and payable for any period prior to the date
of the breach).
15.5 This Clause 15 sets forth the Distributor's sole and exclusive remedy in
the event of a breach by the Licensor of its obligations hereunder
relating to the Services.
16. CONFIDENTIALITY
Each of the Licensor and the Distributor shall treat in confidence the
other's data, documentation and information obtained as a result of this
Agreement. Each party further agrees not to use the same save for the
purposes hereof or disclose the same or the terms of this Agreement to
any other person or entity, except as required by law or the regulations
of any governmental or other authority, or to its own employees or the
employees of any company associated with it, or its third party
consultants or contractors under conditions of the confidentiality and
only then to the extent required for the proper implementation and
performance of this Agreement.
17. 1998 TRANSITION ADJUSTMENT
17.1 For the purposes of putting the parties in the same economic position
they would have been had Closing taken place on 1 January 1998 the
Distributor shall, at least three business days prior the date of Closing
deliver to the Licensor the 1998 Transition Adjustment. The 1998
Transition Adjustment shall be prepared in the same form as set out in
Schedule 3 in accordance with generally accepted accounting principles
and practices which are in effect in the United States ("U.S. GAAP") at
the time of preparation. The Distributor agrees to adjust that amount of
the Fixed Royalty payable on the date of Closing in accordance with the
-15-
<PAGE> 78
1998 Transition Adjustment but shall retain the right, within forty-five
(45) days of the date of Closing to dispute the 1998 Transition
Adjustment.
17.2 Immediately following Distributor's disputing the 1998 Transition
Adjustment the Distributor and the Licensor shall have a period of thirty
(30) days (the "ADJUSTMENT DISPUTE PERIOD") in which to review and agree
or dispute the 1998 Transition Adjustment.
17.3 In the event that the 1998 Transition Adjustment has not been agreed by
the termination of the Adjustment Dispute Period the determination of the
1998 Transition Adjustment shall be referred to an independent firm of
accountants (the "EXPERTS") appointed by agreement in writing between the
Licensor and the Distributor. In making such determination the Expert
shall act as an expert and not as an arbitrator and his decision shall
(in the absence of manifest error (and the Expert shall give reasons for
his determination)) be final and binding on the parties. Each party shall
bear the costs and expenses of all counsel and other advisers, witnesses
and employees retained by it and the costs and expenses of the Expert
shall be borne by the parties in the proportions he may direct or, in the
absence of direction, equally. Subject to any rule of law or of any
regulatory body or any provision of any contract or arrangement entered
into prior to the date of this agreement to the contrary, the Distributor
and the Licensor shall afford as soon as reasonably practicable upon
request to the other and their respective agents and to the Expert all
facilities and access to their respective premises, personal papers,
books, accounts, records, returns and other documents as may be in their
possession or control as may be required by the Expert to make his
determination.
17.4 The Licensor and the Distributor shall, promptly provide each other, with
all information (in their respective possession or control) including
access at all reasonable times to all books and records and all
co-operation and assistance as may be reasonably required to:
(a) enable the production of the 1998 Transition Adjustment; and
(b) enable the Distributor and any independent firm of chartered
accountants appointed pursuant to this Clause to dispute and
subsequently determine the 1998 Transition Adjustment.
18. TERMINATION
18.1 Without prejudice to any outstanding liability of either party under this
Agreement, each party has the right exercisable forthwith by notice in
writing to terminate Clauses 12 to 15 of this Agreement if (save in
relation to a reorganisation, reconstruction or amalgamation) any order
is made or a resolution is passed for the winding-up of the other party,
or if an administrative order is made in respect of the other party, or
if an administrator or a receiver (which expression shall include an
administrative receiver) is appointed in respect of the other party or
all or any of its assets, or if the other party is unable to pay its
debts within the meaning of the relevant section(s) of the United States
Bankruptcy Code or if any voluntary arrangement is proposed under the
relevant section(s) of the United States Bankruptcy Code in respect of
the other party.
18.2 The Distributor shall be entitled to terminate Clauses 12 to 15 of this
Agreement forthwith by notice in writing if (i) the Licensor has failed
to provide or make available to the Distributor any of the Services and
(ii) the Distributor has notified the Licensor in writing of such failure
and (iii) the Licensor has failed to make available to the Distributor
(without cost to the Distributor) the necessary assets or personnel or
otherwise has failed to remedy the situation in either case within 30
days of such written notice.
-16-
<PAGE> 79
18.3 The Licensor shall be entitled to terminate Clauses 12 to 15 of this
Agreement forthwith by notice in writing if (i) the Distributor has
failed to pay to the Licensor any amount due or perform any of its other
obligations to the Licensor hereunder or under the Source Licence and
Exclusive Distributorship Agreement and (ii) the Licensor has notified
the Distributor in writing of such failure and (iii) the Distributor has
failed to pay such amount or undertake efforts to cure such other default
within thirty (30) days of such written notice.
18.4 Any termination of Clauses 12 to 15 of this Agreement pursuant to this
Clause 18 shall not affect the continued validity and enforceability of
the remainder of this Agreement.
19. FORCE MAJEURE
19.1 In the event of any strike, lock-out, act of God, war, riot, civil
commotion, blockade, embargo, fire, explosion, flood, adverse weather or
any other circumstances (whether or not of a similar nature to the
foregoing) over which the Licensor has no control or of which the
Licensor cannot obtain any control which, in either case, causes the
cessation of or substantial interference with the performance of the
Services or any of them by the Licensor under this Agreement the duty of
the Licensor to perform the Services subject to disruption shall
forthwith be suspended until such circumstances have ceased and the
charges payable by the Distributor pursuant to Schedule 3 in respect of
the affected Services shall be reduced pro rata according to the number
of days the Licensor is unable to perform such services (by reference to
the days they should have been provided pursuant to this Agreement).
19.2 On the occurrence or likely occurrence of any of the events described in
Clause 19.1 above:-
(a) the Licensor shall notify Distributor as soon as reasonably
practicable;
(b) the Licensor shall use its reasonable endeavours to provide
alternative services at the charges pertaining at the date of the
incident and minimise disruption to the operation of the ICAD
Business; and
(c) the Distributor may at is discretion procure, for the period that
the force majeure continues, the provision of the relevant
disrupted Service(s) from third parties.
20. COSTS
Save as expressly otherwise provided in this Agreement each of the
parties hereto shall bear its own legal, accountancy and other costs,
charges and expenses connected with the negotiation, preparation and
implementation of this Agreement and any other agreement incidental to or
referred to in this Agreement.
21. ASSIGNMENT
21.1 It is hereby agreed and declared that the benefit and burden of this
Agreement may be assigned or novated in whole or in part by the
Distributor only to any company which is an affiliate of the Distributor
or to its holding company provided that in any such event any such
assignee enters into an agreement under seal supplemental to this
Agreement whereby it agrees to be bound by the provisions of this
Agreement (insofar as these have been assigned or novated) binding upon
the assignor provided however that the Distributor shall guarantee to the
Licensor the obligations of such member or members of the Distributor's
Group to which the benefit and burden of the rights and obligations
arising under this Agreement have been novated or assigned.
-17-
<PAGE> 80
21.2 Save as aforesaid this Agreement and all rights and benefits hereunder
are personal to the parties hereto and may not be assigned at law or in
equity without the prior written consent of the other party/parties
hereto.
22. ENTIRE AGREEMENT
This Agreement (together with any documents referred to herein)
constitutes the entire agreement between the parties hereto in connection
with the subject matter of this Agreement.
23. WAIVER, AMENDMENT
23.1 There shall be no waiver of any term, provision or condition of this
Agreement unless such waiver is evidenced in writing and signed by the
waiving party.
23.2 No omission or delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or of any other
right, power or privilege. The rights and remedies herein provided are
cumulative with and not exclusive of any rights or remedies provided by
law.
23.3 No variation to this Agreement shall be effective unless made in writing
and signed by all the parties.
24. FURTHER ASSURANCES
24.1 At any time after Closing the Licensor shall at its own expense execute
all such documents and do such acts and things as the Distributor may
reasonably require for the purpose of vesting in the Distributor the full
legal and beneficial title to the Assets and giving to the Distributor
the full benefit of this Agreement.
24.2 The terms of this Agreement shall insofar as they are not performed at
Closing and subject as specifically otherwise provided in this Agreement
continue in force after and notwithstanding Closing.
24.3 The Licensor and the Distributor hereby mutually undertake that in the
period from the date of this Agreement until Closing (the "INTERIM
PERIOD") they will use their reasonable endeavours to co-operate with one
another with a view to reaching agreement on any matters which arise
during the Interim Period and to execute any documents as may be
required.
25. NOTICES
25.1 Save as specifically otherwise provided in this agreement any notice,
demand or other communication to be served under this agreement may be
served upon any party hereto only by posting by first class post or
delivering the same or sending the same by facsimile transmission to the
party to be served at its address above, or facsimile number given below
or at such other address or number as he or it may from time to time
notify in writing to the other parties hereto:-
The Licensor:-
Concentra Corporation
21 North Avenue
Burlington MA
01803-3301
-18-
<PAGE> 81
USA
Fax no: (+) 1 781 229 4700
Marked for the attention of: Lawrence W. Rosenfeld
The Distributor:-
c/o Zeyen Beghin Feider Loeff Claeys Verbeke
58 rue Charles Martel
BP5017
L-1050
Luxembourg
Fax no: (+) 352 44 44 55 444
Marked for the attention of: Garreth Evans/Henri Wagner
25.2 A notice or demand served by first class post shall be deemed duly served
48 hours after posting and a notice or demand sent by facsimile
transmission shall be deemed to have been served at the time of
transmission and in proving service of the same it will be sufficient to
prove, in the case of a letter, that such letter was properly stamped or
franked first call, addressed and placed in the post and, in the case of
a facsimile transmission, that such facsimile was duly transmitted to a
current facsimile number of the addressee at the address referred to
above.
26. COUNTERPARTS
This Agreement may be executed in any number of counterparts and by the
several parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts
shall together constitute one and the same instrument.
27. GOVERNING LAW AND SUBMISSION TO JURISDICTION
27.1 This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, without regard to its choice
of law provisions.
27.2 In the event of a dispute relating to or arising out of this Agreement,
the party claiming breach of this Agreement shall give notice to the
other party setting forth the nature of such dispute. Within ten (10)
business days of the giving of such notice, the parties shall arrange to
have their chosen representatives meet (in person or telephonically) in
an effort to resolve such dispute. In the event that the parties'
representatives are unable to resolve their dispute within thirty (30)
business days of the first meeting of such representatives, each party
shall then designate, by further notice to the other party, a senior
officer to meet (in person or telephonically) with senior officer of the
other party in an effort to resolve such dispute. In the event that the
parities' senior officers are unable to resolve their dispute within
thirty (30) business days of the first meeting of such senior officer,
either party may submit such dispute to binding arbitration under the
International Rules of the American Arbitration Association (the "AAA").
Arbitration shall be conducted by a single arbitrator, who shall be
knowledgeable concerning legal issues involved in the licensing of
intellectual property rights to be selected by the parties by agreement
or, in the absence of such agreement, by the AAA. The arbitration shall
take place in New York City. The arbitrator shall have the authority to
award all forms of relief that are determined to be just and equitable;
provided however that notwithstanding anything to the contrary in this
Agreement or under the governing law, the arbitrator shall have no
authority to award punitive or exemplary damages or any other monetary
damages not measured by the prevailing party's actual damages. Any award
granted by the arbitrator may be enforced in any court of competent
-19-
<PAGE> 82
jurisdiction. Before an arbitration pursuant to this provision is
convened, either party may seek from any court of competent jurisdiction
interim or provisional relief. Such interim or provisional relief may
subsequently be vacated, continued or modified by the arbitrator on the
application of either party. Either party may request accelerated
proceedings to the extent that monies are, at the time of the dispute
arising, owed between the parties under the terms of this Agreement.
28. LIMITATION ON LIABILITY
The Licensor's liability under the Warranties set out in this agreement
and in the Source Licence and Exclusive Distributorship Agreement to the
Distributor for any cause whatsoever, regardless of the form of any claim
or action, shall not exceed the aggregate Fixed Royalties payable by the
Distributor to the Licensor under the Source Licence and Exclusive
Distributorship Agreement (not including support fees) paid or to be paid
by the Distributor for the Licensed Intellectual Property. In no event
shall either party be liable for any loss of data, profits or use of the
products, or for any special incidental, indirect or consequential
damages arising our of or in connection with the use or performance of
the Licensed Intellectual Property. The Licensor's liability under this
Clause 28 shall run for a period of four years from the Closing Date.
29. INVALIDITY
If at any time any one or more of the provisions hereof is or becomes
invalid, illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions hereof
shall not be in any way affected or impaired thereby.
IN WITNESS WHEREOF, the parties, as of the date first above shown, have caused
this Agreement to be executed by their duly authorised representatives.
-20-
<PAGE> 83
CONCENTRA CORPORATION
By: /s/ Lawrence W. Rosenfeld
---------------------------------
Lawrence W. Rosenfeld,
President
KNOWLEDGE TECHNOLOGIES INTERNATIONAL S.A.
By: /s/ Peter D. Wilson
----------------------------
As Attorney
Without prejudice to the foregoing, the Company expressly and specifically
confirms its agreement to Clause 27 for the purposes of article 1 of the
Protocol annexed to the Convention on Jurisdiction and Enforcement of Judgments
in Civil and Commercial Matters signed at Brussels on 27 September 1968, as
amended.
KNOWLEDGE TECHNOLOGIES INTERNATIONAL S.A.
By: /s/ Peter D. Wilson
----------------------------
As Attorney
-21-
<PAGE> 84
SCHEDULE 1
NATURE, DURATION AND DESCRIPTION OF SERVICES
OFFICE FACILITIES
Occupation of existing Licensor premises in Coventry, Paris and Burlington (USA)
together with those related services currently utilised including (but not to be
limited to) phone systems (to be a separate telephone number and answered as
Distributor where reasonably possible), property related insurance cover,
cafeteria facilities, meeting rooms and reception areas. The Licensor may, from
time to time, and at its cost, establish reasonable rules and regulations
governing the use of the office facilities utilised by the employees of ICAD
Newco and may erect such partitions and other barriers and establish such
restrictions as may be reasonably necessary to restrict access by employees
and/or customers of ICAD Newco to those portions of such facilities as the
Licensor may reserve for the exclusive use of the Licensor.
The Distributor shall purchase and maintain in force, at the Distributor's sole
expense, workers' compensation and other liability insurance coverage for all
employees of the Distributor occupying the Licensor premises and shall indemnify
and hold the Licensor harmless from and against any and all liabilities, losses,
charges and expenses arising from the presence of such employees as the
Licensor's premises, the Distributor's use of such premises, and any act or
omission of the Distributor, its employees or invitees with respect to such
premises.
NETWORK AND COMPUTING RESOURCES
The intention of the parties to this agreement is to enable the ICAD Business to
be operated with the minimum of disruption during the transition period by the
continued provision and maintenance of those systems currently utilised by the
ICAD Business in return for payment of the appropriately allocated cost
incurred.
The IT systems provided shall include all those IT systems (including e-mail)
necessary for the continued operation of the ICAD Business (and such assistance
as is requested to establish replacement IT systems).
CORPORATE SERVICES
The intention of the parties to this agreement is to enable the ICAD Business to
be operated with the provision of those central services currently required and
utilised by the ICAD Business provided by the Licensor during the transitional
period to minimise the disturbance caused to the ICAD Business by the transition
in return for payment of the appropriately allocated cost incurred.
The Services (and such assistance as is requested to establish replacement
services) to be provided shall include all those necessary for the continued
operation of the ICAD Business.
-22-
<PAGE> 85
SCHEDULE 2
SPECIFICATION OF SERVICES
OFFICE FACILITIES
<TABLE>
<CAPTION>
FACILITY MAX OCCUPANCY NOTICE PERIOD COST ALLOCATION BASIS
<S> <C> <C> <C>
Coventry (UK) office 1 year 1 month Headcount
Paris (France) office 1 year 1 month Headcount
Burlington (USA) office(1) 1 year 1 month Headcount
</TABLE>
NETWORK AND COMPUTING RESOURCES
<TABLE>
<CAPTION>
IT SYSTEMS TRANSITION PERIOD NOTICE PERIOD COST ALLOCATION BASIS
<S> <C> <C> <C>
Fileservers Maximum 1 year 1 month Agreed daily charge
Local network Maximum 1 year 1 month Agreed daily charge
Wide area network Maximum 1 year 1 month Agreed daily charge
PC support and support fees
Storage capacity
</TABLE>
CORPORATE SERVICES
<TABLE>
<CAPTION>
SERVICE TRANSITION PERIOD COST ALLOCATION BASIS
<S> <C> <C>
Management accounting up to 1 year with 1 Time charge at cost including
month's notice of all social security and other
termination taxes etc. etc.
Human resources and payroll up to 1 year with 1 Time charge at cost including
month's notice of all social security and other
termination taxes etc. etc.
Software shipment up to 1 year with 1 Time charge at cost including
month's notice of all social security and other
termination taxes etc. etc.
Assistance in establishing new up to 1 year with 1 Time charge at cost including
systems as required month's notice of all social security and other
termination taxes etc. etc.
</TABLE>
- -------------------
(1) All as more particularly set out in the Co-Occupied Licences
-23-
<PAGE> 86
SCHEDULE 3
PAYMENTS AND 1998 TRANSITION ADJUSTMENT
PROFORMA ADJUSTMENTS TO CLOSING
+ positive number means credit to the account of the Distributor
- - negative number means credit to the account of the Licensor
PROFORMA RESULTS FOR PERIOD OF JANUARY 1, 1998 THRU MARCH 31,1998
<TABLE>
<S> <C> <C>
Revenue (Non-Software) $ 1,405,000 estimate
Revenue (Software) $ 1,500,000 estimate
TOTAL REVENUE $ 2,905,000
EXPENSES $ (2,482,875) estimate
NET (REVENUE - EXPENSE) $ 422,125
OTHER ADJUSTMENT:
Deferred Income at Closing $ 1,000,000 estimate
Deferred Commissions $ (75,000) estimate
------------
$ 925,000
</TABLE>
<TABLE>
<CAPTION>
ACCRUAL BASIS CASH BASIS
------------- ----------
<S> <C> <C> <C>
Net Adjustment at Closing (actual Value) $ 1,347,125 $ 1,347,125
less trade receivables on post Jan 1 Revenue $(1,300,000) estimate
plus trade payables on post Jan 1 Expenses $ 400,000 estimate
Actual Cash Adjustment at Closing $ 1,347,125 $ 447,125
Gross First Payment (3,900,000) (3,900,000)
------------ -----------
NET ADJUSTED FIRST PAYMENT $ (2,552,875) $(3,452,875)
============ ===========
</TABLE>
CONTINGENT ADJUSTMENTS TO BE MADE AS THE CREDIT IS REALISED
<TABLE>
<S> <C>
NDP Prepayment $ (48,763)
Franz Prepayment $ (94,750)
</TABLE>
METHOD OF CALCULATING 1998 TRANSITION ADJUSTMENT
All revenues minus all expenses (but not expenses relating to this transaction)
for the period from January 1, 1998 to Closing properly accrued for during said
period using US GAAP.
The payment for the 98 Transition Adjustment shall be paid as follows:-
A) for all revenue from Licensor to Distributor, in cash if already received by
Closing or in all the trade debts generated from the revenues from January 1,
1998. Such debts shall not be considered part of the Debtors since the
collection risk shall be taken by Distributor.
B) for all expenses from Distributor to Licensor, in cash if already paid by
Licensor by Closing or in trade payables for expenses not yet paid. The
Distributor undertakes to pay the trade payables in accordance with normal
practice and not so as to breach the payment terms of the relevant contract.
-24-
<PAGE> 87
ANNEX C
Electra Investment Trust, P.L.C.
65 Kingsway
London WC2B 6QT
GUARANTEE
Guarantee, dated as of March 5, 1998, by Electra Investment Trust, P.L.C.,
a corporation incorporated in England and Wales ("EIT").
Subject to the matters set forth below, EIT hereby guarantees the due and
punctual payment by Knowledge Technologies International S.A. ("KIT") to
Concentra Corporation, a Delaware corporation ("Concentra") under the Source
License and Exclusive Distributorship Agreement (the "License") dated as of
February 26, 1998, by and between KTI and Concentra, of the Fixed Royalties (as
defined in the License) when the Fixed Royalties (which, in aggregate, amount to
and are no greater than US 418,654,000) shall become due and payable under the
License in accordance with Clause 5.2(a) thereof, together with all interest and
penalties accruing thereon pursuant to Clause 5.2(c) (collectively, the
"Obligations"). EIT's Obligations hereunder are subject to all of the conditions
of KTI to consummate the Closing (as defined in the License) referred to in
Clause 9 of the License, it being the purpose and intent of the parties that the
Obligations of EIT shall be coextensive with but not greater than, the
Obligations of KTI under Clauses 5.2(a) and 5.2(c) of the License.
The Obligations of EIT hereunder shall not be affected by any fraudulent,
illegal, or improper act by KTI, EIT, or any person liable or obligated to
Concentra for or with respect to the Obligations, by any release, discharge, or
invalidation, by operation of law or otherwise, of the Obligations, or by the
legal incapacity of KTI, EIT, or any other person liable or obligated to
Concentra for or with respect to the Obligations.
The within instrument incorporates all discussions and negotiations between
the undersigned and Concentra concerning the guaranty provided by EIT hereby. No
such discussions or negotiations shall limit, modify, or otherwise affect the
provisions hereof. no provision hereof may be altered, amended, waived,
cancelled or modified, except by a written instrument executed by Concentra and
EIT.
EIT waives presentment, demand, notice, and protest with respect to the
Obligations and this Guarantee, further waives any delay on the part of
Concentra, further waives any right to require Concentra to pursue or to proceed
against KTI or any collateral which KTI might grant to secure the Obligations,
and further waives notice of acceptance to this Guarantee.
The Obligations of EIT hereunder are primary, with no recourse necessary by
Concentra against KTI or any collateral given by KTI to secure the Obligations
or against any other person liable for or on the Obligations prior to proceeding
against EIT hereunder. EIT assents to any indulgence or waiver which Concentra
may grant or give KTI and/or any other person liable or obligated to Concentra
for or with respect to the Obligations. No release of any collateral securing
the Obligations or securing the obligations of any such other person
<PAGE> 88
shall affect the obligations of EIT hereunder. No action by Concentra which has
been assented to herein shall affect the Obligations of EIT to Concentra
hereunder.
The payment of any amounts due with respect to any indebtedness of KTI now
or hereafter held by EIT is hereby subordinated to the prior payment in full of
the Obligations. Any amounts which are collected, enforced and received by EIT
shall be held by EIT as trustee for Concentra and shall be paid over to
Concentra on account of the Obligations without affecting in any manner the
liability of EIT under the other provisions of this Guarantee.
This instrument shall inure to the benefit of Concentra and its successors,
and shall be binding upon the successors of EIT.
The rights, remedies, powers, privileges, and discretions of Concentra
hereunder (hereinafter, "Concentra's Rights and Remedies") shall be cumulative
and not exclusive of any rights or remedies which it would otherwise have. No
delay or omission by Concentra in exercising or enforcing any of Concentra's
Rights and Remedies shall operate as, or constitute a waiver thereof. No waiver
by Concentra of any of Concentra's Rights and Remedies or of any default or
remedies under any other agreement by EIT, shall operate as a waiver of any
other of Concentra's Rights and Remedies or of any default or remedy hereunder
or thereunder. No exercise of any Concentra's Rights and Remedies and no other
agreement or transaction of whatever nature entered into between Concentra and
EIT, between Concentra and KTI, and/or between Concentra and any such other
person at any time shall preclude any other exercise of Concentra's Rights and
Remedies. No waiver by Concentra of any of Concentra's Rights and Remedies on
any one occasion shall be deemed a waiver on any subsequent occasion, nor shall
it be deemed a continuing waiver. All of Concentra's Rights and Remedies, and
all of Concentra's rights, remedies, powers, privileges, and discretions under
any other agreement or transaction with EIT, KTI, or any other such person,
shall be cumulative and not alternative or exclusive, and may be exercise by
Concentra at such time or times and in such order of preference as Concentra in
its sole discretion may determine.
In the event of a dispute relating to or arising out of this Guarantee, the
party claiming breach of this Guarantee shall give notice to the other party
setting forth the nature of such dispute. Within ten (10) business days of the
giving of such notice, the parties shall arrange to have their chosen
representatives meet (in person or telephonically) in an effort to resolve such
dispute. In the event that the parties' representatives are unable to resolve
the dispute within thirty (30) business days of the first meeting of such
representatives, each party shall then designate, by further notice to the other
party, a senior officer to meet (in person or telephonically) with the
designated senior officer of the other party in an effort to resolve such
dispute. In the event that the parties' senior officers are unable to resolve
the dispute within thirty (30) business days of the first meeting of such senior
officers, either party may submit such dispute to binding arbitration under the
International Rules of the American Arbitration Association (the "AAA").
Arbitration shall be conducted by a single arbitrator, who shall be
knowledgeable in the legal issues involved in the dispute, to be selected by the
parties by agreement or, in the absence of such agreement, by the AAA. The
arbitration shall take place in New York City. The arbitrator shall have
authority to award all forms of relief
2
<PAGE> 89
that are determined to be just and equitable; provided, however, that
notwithstanding anything to the contrary in this Guaranty or under the governing
law, the arbitrator shall have no authority to award punitive or exemplary
damages or any other monetary damages not measured by the prevailing party's
actual damages. Any award granted by the arbitrator may be enforced in any court
of competent jurisdiction. Before an arbitration pursuant to this provision is
convened, either party may seek from any court of competent jurisdiction interim
or provisional relief. Such interim or provisional relief may subsequently be
vacated, continued or modified by the arbitrator on the application of either
party. Either party may request accelerated proceedings to the extent that
monies are, at the time of the dispute arising, owed between the parties under
the terms of this Guarantee.
EIT makes the following waiver knowingly, voluntarily, and intentionally,
and understands that Concentra, in the establishment and maintenance of
Concentra's relationship with KTI and EIT, is relying thereon. EIT, to the
extent entitled thereto, hereby irrevocably WAIVES any present or future right
of EIT, KTI or any guarantor or endorser of KTI, or any other similar person, to
a trial by jury of any case or controversy in which Concentra is or becomes a
party (whether such case or controversy is initiated by or against Concentra or
in which Concentra is joined as a party litigant), which case or controversy
arises out of, or is in respect of, any relationship between EIT, KTI, any such
person, and Concentra.
Under no circumstances shall EIT have any other obligation including
without limitation, any obligation under any provision of the License other than
in respect of the payment of the Fixed Royalties as set out in Clause 5.2(a).
This Guarantee shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, without regard to its choice of law
provisions.
Electra Investment Trust, P.L.C.
/s/ A.M. Vinton
--------------------------------------
/s/ R.J. Lewis
--------------------------------------
Title: Authorized Signing Officers
-------------------------------
ACCEPTED AND AGREED:
Concentra Corporation
/s/ Lawrence W. Rosenfeld
- -------------------------------------
Lawrence W. Rosenfeld
Chairman and Chief Executive Officer
3
<PAGE> 90
ANNEX D
-------
February 5, 1998
The Board of Directors
Concentra Corporation
21 North Avenue
Burlington, MA 01803-3301
Members of the Board:
Concentra Corporation ("Concentra" or the "Company") retained Volpe Brown Whelan
and Company LLC ("VBW&Co.") to act as its financial advisor with respect to a
licensing and distribution arrangement (the "Transaction") pursuant to a Source
License and Exclusive Distributorship Agreement (the "License Agreement") and a
Transition Agreement (the "Transition Agreement") between Concentra and
Knowledge Technologies International SA (the "Distributor").
Concentra requested VBW&Co., as part of its advisory services, to provide an
opinion (the "Opinion") to the Board of Directors of the Company as to the
fairness, from a financial point of view, to Concentra of the consideration to
be paid under the License Agreement and Transition Agreement (collectively, the
"Agreements").
The Agreements provide that Concentra will, among other things, grant to the
Distributor certain exclusive and non-exclusive licenses, and transfer to the
Distributor certain assets, relating to Concentra's knowledge based engineering
software business (the "ICAD Business"), as well as provide to the Distributor
certain ongoing technology transfer and administrative services related to the
licensed software. In exchange, the Distributor has agreed to pay Concentra
fixed and variable royalties (collectively the "Consideration"), consisting of:
(i) eight fixed quarterly royalty installments, totaling $18.65 million, on the
following schedule:
<TABLE>
<CAPTION>
Amount Due
Date of Payment to Concentra
--------------- ------------
<S> <C>
Closing $3,900,000
April 1, 1998 $3,800,000
July 1, 1998 $3,700,000
October 1, 1998 $2,800,000
January 1, 1999 $2,400,000
April 1, 1999 $1,750,000
July 1, 1999 $ 250,000
October 1, 1999 $ 54,000
</TABLE>
and (ii) a variable royalty in 1999, 2000 and 2001 equal to 10% of the
amount by which gross revenues of the Distributor related to the licensed
software, calculated on a cumulative basis from the date of closing of the
Transaction, exceed $17.5 million for the year ending March 31, 1999, $35.0
million for the two-year period ending March 31, 2000 and $52.5 million for the
three-year period ending March 31, 2001, in each case less the aggregate
variable royalties paid in respect of prior periods. The payments will be made
on or before the 20th day of June following each respective fiscal year end or
within 15 days after the date on which the relevant gross revenue is agreed or
determined pursuant to the License Agreement, whichever is earlier. The fixed
royalty payment obligations of the Distributor under the License Agreement are
to be guaranteed by Electra Investment Trust, p.l.c.
For the purposes of rendering the Opinion, we have, among other things:
(i) Reviewed a draft of the License Agreement dated January 30, 1998;
(ii) Reviewed a draft of the Transition Agreement dated January 30, 1998;
<PAGE> 91
Concentra Corporation
February 5, 1998
Page 2
(iii) Reviewed a draft of the Electra Investment Trust p.l.c. Guarantee
dated January 27, 1998;
(iv) Discussed the terms of the License Agreement and Transition
Agreement with Concentra management;
(v) Interviewed management of Concentra concerning the business
prospects, financial outlook and operating plans of the Company and the ICAD
Business, individually and combined;
(vi) Reviewed certain historical and certain projected financial
statements and other relevant financial and operating data of Concentra and the
ICAD Business prepared by the management of the Company and the ICAD Business;
(vii) Assessed, in consultation with our associates in the Corporate
Finance department of VBW&Co., the positioning of Concentra without the ICAD
Business, in an effort to evaluate Concentra's alternatives and strategic
options and the potential market reaction and the potential market perception of
the remaining businesses under different transaction scenarios;
(viii) Reviewed the valuation of selected publicly-traded companies we
deemed relevant for the valuation analysis;
(ix) Reviewed, to the extent publicly-available, the financial terms of
selected merger and acquisition transactions that we deemed relevant for the
valuation analysis;
(x) Performed a discounted cash flow analysis of the ICAD Business as a
stand-alone entity based upon financial projections of Concentra and the ICAD
Business management;
(xi) Performed a pro forma financial impact analysis of the separated
entities, based upon financial projections provided by Concentra and the ICAD
Business management; and
(xii) Performed other such studies, analyses and inquiries and
considered other such information as we deemed relevant.
VBW&Co. relied without independent verification upon the accuracy and
completeness of all of the financial, accounting, legal, tax, operating and
other information provided to VBW&Co. by Concentra and has relied upon the
assurances of Concentra that all such information is complete and accurate in
all material respects and that there is no additional material information known
to it that would make any of the information made available to VBW&Co. either
incomplete or misleading.
Concentra has also retained outside legal, accounting, and tax advisors to
advise on matters relating to the Transaction. Accordingly, VBW&Co. has assumed
the accuracy of such advice for purposes of its opinion and has not
independently verified or confirmed such advice and expresses no opinion on
such matters. VBW&Co. has assumed that the payments referred to as royalty
payments in the Agreements will be accounted for by the Company as royalty
payments, but VBW&Co. has not reviewed or analyzed the accounting treatment of
these payments; and VBW&Co. expresses no opinion as to such issue.
Although Concentra had discussions with third parties concerning possible
business combinations, we were not requested to consider, and we are expressing
no opinion as to, the relative merits of the Transaction as compared to any
alternative business strategies that might exist for Concentra or the effect of
any other transaction in which Concentra might engage.
With respect to the projected financial data of Concentra and the ICAD Business,
all of which has been provided
<PAGE> 92
Concentra Corporation
February 5, 1998
Page 3
by the management of Concentra, VBW&Co. has relied upon assurances of Concentra
that such data has been prepared in good faith on a reasonable basis reflecting
the best currently available estimates and judgments of Concentra and the ICAD
Business management as to the future financial performance of Concentra and the
ICAD Business. Our Opinion is based, in large part, on these projected financial
data and estimates.
VBW&Co. is relying upon the information provided to it by Concentra and the ICAD
Business for the purposes of rendering the Opinion. VBW&Co. expresses no opinion
and has made no investigation with respect to the validity, accuracy or
completeness of the information provided to it and does not warrant any
projections included in such information. Actual results that Concentra or the
ICAD Business might achieve in the future as stand-alone entities may vary
materially from those used in VBW&Co.'s analysis.
VBW&Co. has assumed that the Transaction will be consummated in accordance with
the terms of the draft Agreements and Guarantee which VBW&Co. reviewed and that
no subsequent material changes or amendments will be made prior to closing. Any
material changes could impact the VBW&Co. analysis and Opinion. VBW&Co. has,
furthermore, not made any independent appraisals or valuations of any assets of
Concentra, the ICAD Business or Electra, nor has VBW&Co. been furnished with any
such appraisals or valuations. VBW&Co. has performed no investigations relating
to the representations and warranties made by Concentra or the Distributor,
including representations with respect to intellectual property rights and
status of any litigation pending or threatened against either company. While
VBW&Co. believes that its review, as described herein, is an adequate basis for
the Opinion, the Opinion is necessarily based upon market, economic and other
conditions that exist and can be evaluated as of the date of the Opinion, and
any change in such conditions would require a re-evaluation of the Opinion.
The Opinion addresses only the fairness, from a financial point of view, of the
Consideration to Concentra and does not address the relative merits of the
Transaction and any alternatives to the Transaction, Concentra's decision to
proceed with or the effect of the Transaction, or any other aspect of the
Transaction.
The preparation of a fairness opinion involves various judgments as to
appropriate and relevant quantitative and qualitative methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Accordingly, we believe our analyses and the factors utilized in
such analysis must be considered as a whole and that considering any portion of
such analyses or factors, without considering all analyses and factors could
create a misleading or incomplete view of the process underlying the Opinion. In
our analyses, we made numerous assumptions with respect to industry performance,
general business and other conditions and matters, many of which are beyond
Concentra's control and are not susceptible to accurate prediction.
No opinion is expressed herein as to the future trading price or range of prices
of any securities of Concentra issued prior to after the Transaction.
Furthermore, the Opinion does not constitute a recommendation as to the Board of
Director's decision on whether to support the Transaction and recommend it to
Concentra's shareholders and does not constitute a recommendation to
shareholders as to whether to vote in favor of the Transaction. The Opinion and
related materials have been prepared for the use and benefit of the Board of
Directors of Concentra and may not be used for any other purpose, except that
this opinion may be included in any filing which Concentra makes with the
Securities and Exchange Commission with respect to the Transaction (and included
in a proxy statement related to the Transaction).
As a customary part of its investment banking business, VBW&Co. engages in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its business, VBW&Co. and its affiliates may actively trade
the equity securities of Concentra or Electra Investment Trust, p.l.c. and its
affiliates for their own account and for the accounts of customers and,
accordingly, may at any
<PAGE> 93
Concentra Corporation
February 5, 1998
Page 4
time hold a long or short position in such securities.
VBW&Co. will receive a fee for rendering its Opinion, no portion of which is
conditioned upon the Opinion being favorable.
Based upon and subject to the foregoing limitations and restrictions and after
considering such other matters as we deem relevant, it is our opinion that, as
of the date hereof, the Consideration in the Transaction is fair, from a
financial point of view, to Concentra.
Very truly yours,
VOLPE BROWN WHELAN & COMPANY, LLC
/S/Steve Piper
By: _____________________________
Steve Piper
Compliance Officer
<PAGE> 94
Appendix A
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
-------------------
Commission File Number 0-25498
CONCENTRA CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2827026
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
21 NORTH AVENUE
BURLINGTON, MA 01803
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 229-4600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Rights to Purchase Series A Participating Cumulative Preferred Stock
--------------------------------------------------------------------
$.00001 par value
-----------------
Common Stock $.00001 par value
------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. \__\
Aggregate market value of Registrant's voting stock held by non-affiliates
of the Registrant as of June 24, 1997 was $43,590,708. As of June 27, 1997,
there were issued and outstanding 5,535,328 shares of the Registrant's Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following document has been incorporated by reference in the following
part of the Form 10-K: Definitive Proxy Statement for the August 29, 1997 Annual
Meeting incorporated by reference (to the extent specified) in Part III.
================================================================================
<PAGE> 95
CONCENTRA CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
TABLE OF CONTENTS
PART I
<CAPTION>
ITEM DESCRIPTION PAGE(S)
- ---- ----------- -------
<S> <C> <C>
1 Business ....................................................................................... 3-18
2 Properties ..................................................................................... 18
3 Legal Proceedings .............................................................................. 18
4 Submission of Matters to a Vote of Security Holders ............................................ 19
PART II
5 Market for Registrant's Common Equity and Related Stockholder Matters .......................... 20
6 Selected Financial Data ........................................................................ 21
7 Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 22-30
8 Financial Statements ........................................................................... 31-50
9 Changes and Disagreements with Accountants on Accounting and Financial Disclosure .............. 51
PART III
10 Directors and Executive Officers of the Registrant ............................................. 51
11 Executive Compensation ......................................................................... 51
12 Security Ownership of Certain Beneficial Owners and Management ................................. 51
13 Certain Relationships and Related Transactions ................................................. 51
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................... 52
</TABLE>
2
<PAGE> 96
PART I
ITEM 1. BUSINESS
- ----------------
Concentra Corporation was incorporated under the laws of Delaware in 1984
as ICAD, Inc. and changed its name to Concentra Corporation in 1995. Unless the
context otherwise requires, references herein to the "Company" or "Concentra"
include Concentra Corporation and its subsidiaries. Concentra develops, markets
and supports software products that automate the processes that underlie
engineering and selling complex products. A significant portion of the time it
takes to develop and sell new products goes into performing well-defined,
repetitive tasks. The Company has developed an innovative approach based on
capturing and applying knowledge through generative technology which addresses
the full scope of the problems encountered in selling and engineering complex
products. This new approach enables companies to capture the way sales and
engineering practices are performed and generate new designs, configurations,
pricing and complete sales proposals directly from unique and specific customer
requirements for how the product will be used. As a result, sales and
engineering productivity is improved and the time it takes to respond to market
opportunities is substantially decreased.
INDUSTRY BACKGROUND
Businesses that develop, manufacture and market products must compete based
on response time, quality, cost, service, innovation and flexibility. These
competitive pressures have forced companies to seek technological solutions to
improve their business processes. The Company provides technological solutions
that help manufacturers compete in the areas of product development and sales
force effectiveness.
PRODUCT DEVELOPMENT
The product development process involves several phases including
conceptual design, detail design, analysis, testing and manufacturing.
Traditionally, engineers developed sketches of design concepts from which
draftsmen generated two-dimensional (2-D) drawings that served as the basis for
engineering analysis and prototype construction. Product design modifications
were usually undertaken only after a prototype had been constructed and tested.
As computer-aided design (CAD) technology became available, companies began
replacing drafting boards with this electronic means of drawing and editing the
geometry and dimensions representing the physical aspects of a product. As CAD
products evolved from 2-D drafting tools to three-dimensional (3-D) geometric
tools, users were able to build 3-D solid models of their products. As the use
of CAD products became widespread, the productivity of engineers involved in
certain aspects of the design process improved as specific tasks were performed
more easily and quickly. Modern CAD systems that are based on parametric
geometry represent the most sophisticated and time-saving generation of these
tools.
Despite the advances represented by CAD products, problems remain because a
significant portion of engineering work involves more than geometry creation and
manipulation. The Company believes that these issues have been inadequately
addressed by geometry-centric systems:
Too much time lost on repetitive tasks. The performance of repetitive and
well-defined tasks contributes substantially to the time required for the
product design cycle. The Company believes that engineers, even with the
assistance of CAD systems (which primarily address geometric tasks), devote
a majority of their product design time to these routine tasks, limiting
time for creative design and problem solving.
No automatic method to optimize across multiple disciplines. The design
process involves the interaction of numerous, often conflicting,
disciplines (e.g., conceptual design, engineering, manufacturing, marketing
and finance). CAD systems do not have an automatic mechanism to
3
<PAGE> 97
balance and optimize design across these disciplines because CAD systems
limit their scope of focus to design and geometry.
Too much time lost building, testing and modifying prototypes. Today,
manufacturers seek to reduce the number of design iterations involved in
the product development process. While CAD systems and analysis tools allow
users to test geometric feasibility and structural integrity during the
design process, testing for other factors (including manufacturability,
serviceability and conformance to customer requirements) must be performed
after a design has been completed and a prototype has been manufactured.
Manufacturers are forced to spend extensive time engaged in building and
testing costly prototypes and then redesigning products based on the
results of such tests because there is no available tool to rapidly
evaluate the manufacturing impact or the performance of design
alternatives. As a result, manufacturers must forego the opportunity to
explore multiple "what-if" scenarios because they have no mechanism for
looking at all aspects of a design, let alone a range of designs, in the
time frame that the market demands.
Difficulty in responding to changes. CAD systems generally document the end
result of a designer's work, not the process itself. CAD systems with
parametric capabilities provide a methodology to change geometric
relationships, but do not capture the full spectrum of engineering
decisions that go into the design of a complex product or process. Because
of these limitations, engineers must spend time and effort re-thinking and
checking all aspects of designs whenever requirements change. This
re-evaluation may create extended delays or compromise quality because the
engineer must spend a significant amount of time on manually validating the
integrity of the non-geometric impact of each change.
No automatic mechanism to apply engineering expertise and best practices.
As businesses recognize the importance of quality, they try to capture
design know-how as well as the best practices of the company's most
accomplished employees in disciplines that are integral to product
development. CAD systems and databases do not record a company's best
practices in a manner that allows automatic application of the engineering
knowledge gained in the design of earlier products. This limitation results
in repeated mistakes and the loss of valuable time.
The Company believes that an opportunity exists for applying
knowledge-based technology to the practice of product development and providing
solutions that automate the engineering process. Today's engineering automation
systems must enable agile and responsive design, allowing companies to rapidly
respond to market changes and deliver quality products in shorter time frames.
SALES FORCE EFFECTIVENESS
The process of selling configured-to-order products entails performing
needs assessment, applying engineering knowledge to perform product
configuration, and generating a quote and proposal. In most cases, salespeople
perform an ad hoc needs assessment as part of the qualification process which
requires subsequent sales calls involving a technical sales specialist who
extracts detailed vocational needs from the customer and maps those to the
company's ability to configure the most advantageous solution, based on the
engineer's experience or a detailed analysis. The technical sales specialist
then transfers his or her understanding of the "solution" to a cost engineer who
figures out the pricing and maybe even the manufacturing schedule. This
information is either given back to the salesperson or to a proposal specialist,
who creates a complex document, recapping the prospect's needs and proposing the
manufacturer's best product configuration, price, delivery date and any other
relevant terms.
Since the late 1980s, Sales Force Automation (SFA) or Technology-Enabled
Selling (TES) tools have been improving the administrative productivity of
salespeople by automating tasks such as sales contact management, sales
forecasting, call reporting, and order entry validation. Despite the
productivity advances represented by SFA technology, little has been done to
improve the effectiveness of salespeople in the area of increasing sales volume,
trimming sales cycle time and lowering the cost per sale. The Company believes
that issues that have been inadequately addressed include:
Too much time lost translating prospect needs into product specifications.
As industrial products have become more complex, customers are more likely
to purchase from salespeople who have the ability to understand their needs
and quickly respond with the best custom-configured product their company
4
<PAGE> 98
has to offer. Although Sales Configuration Systems (SCS) have been
available for several years, they do not assist a salesperson in selecting
the best configuration for the customer's needs; they merely determine
whether or not the selected configuration is valid. The cost of failing to
address the customer's unique vocational needs can range from poor customer
satisfaction to lost sales and market share.
Excessive cost of pre-sales technical support. One technique for addressing
the issue of translating prospect needs into product specifications is the
increased use of technical sales specialists during the pre-sale phase of
the sales process. Generally, technical sales specialists have better
knowledge of the capabilities of the entire product line and a better
understanding of how these capabilities meet prospects needs. While
somewhat effective, this technique drives up the cost of selling and simply
shifts the burden of expertise from the salesperson to the technical sales
specialist.
Excessive time consumed preparing complex sales quotes and proposals. Sales
proposals are becoming more important in today's sales process as a result
of increased customer demand for custom-fit product configurations, rapidly
changing product lines and increased product complexity. At the same time,
the cost of preparing high-quality, accurate quotes and proposals is
rising. Companies that fail to systematically address the quality and
turnaround time associated with their sales quotes and proposals are likely
to lose sales and market share.
The increasing cost of order errors. The increased technical sophistication
of industrial products has resulted in an overall increase in the cost and
frequency of order errors. Order errors occur throughout the sales and
delivery cycle. At the point of sale, an error can be made by simply
proposing a product configuration that does not actually meet a customer's
technical requirements or that is not manufacturable. Errors occur in order
entry because incompatible options are not rejected or ancillary equipment
has not been included in the order. In manufacturing, an invalid or
unbuildable configuration can shut down the production line. If a
misconfigured order is actually shipped to a customer, the cost of
correcting the mistake in the field can be excessive, if not irrecoverable.
No matter where the errors occur in the sales cycle, companies lose money
as a result.
Global markets have created intense competition where industrial products
companies gain competitive advantage by offering customized, high-quality
products delivered in short time frames and accompanied by superior service
levels. Speedy delivery and responsiveness to customers' needs can impact the
buyer's decision-making process, in some cases almost as much as price. Today's
intensely competitive marketplace is putting increased pressure on manufacturers
to automate their front office and change the way that customer's buy their
products.
THE CONCENTRA SOLUTION
The Company has developed innovative approaches in both Design Process
Automation (DPA) and Sales Engineering Automation (SEA) to solve the problems
facing today's manufacturers.
Design Process Automation
The Company is addressing the needs of the mechanical design industry by
automating the engineering process, specifically by capturing and applying
knowledge through generative technology. Generative technology is an approach in
which the details of a fully engineered product design are automatically
generated from a customer's functional requirements. The Company's products,
collectively known as The ICAD System, utilize generative technology to
complement a customer's existing CAD tools.
Using The ICAD System, a company develops a Generative Model which
incorporates the full spectrum of engineering rules, industry standards,
governmental regulations, manufacturing constraints, cost and scheduling
constraints, experience and other factors applicable to that customer's design
process. As a result, engineering productivity increases as engineers automate
repetitive, time-consuming tasks and spend more time on product innovation.
Because product requirements fundamentally drive the design process, the
need and effort to test against the satisfaction of those requirements is
reduced or eliminated. Adjustments and changes can be more readily accommodated
and complex designs can be created faster and with higher quality. Over time,
5
<PAGE> 99
organizational productivity rises as Concentra's customers build Generative
Models which re-use engineering expertise derived from prior product experience.
Users are able to build enterprise-wide practices and constraints into the
design process, optimizing the resulting product across all applicable
disciplines and departments. Companies that employ this approach are able to
reduce the occurrence of errors, shorten the overall product development cycle
and reduce costs associated with both. Generative Models are created and
deployed using The ICAD System. The ICAD System consists of a development
environment, which contains all of the programming utilities used to create a
Generative Model and a production environment, which is the end-user application
that is used to generate new product designs from a given set of functional
requirements.
The Development Environment. The core application development technology in
The ICAD System is the ICAD Design Language (IDL). IDL is an
object-oriented language specifically developed to enable manufacturing
companies to capture and manipulate geometric and non-geometric information
in a consolidated product model. Users construct a Generative Model by
codifying their engineering product development and manufacturing practices
in IDL. IDL's unique ability to model non-geometric information is
augmented with a full family of geometric modeling tools that enable the
Generative Model to construct full 3-D wireframe, surface and solid model
representations of generated product designs.
The Production Environment. Once a product's engineering design practices
have been defined using IDL, they are available to designers through a
Generative Model. The Generative Model enables designers to automatically
generate a new design by varying a pre-determined set of functional
requirements (e.g., size, weight, amount of power, geographic or
environmental requirements, legislative constraints, etc.). The production
environment provides a robust set of integration tools and enables the
Generative Model to read from and write to the user's business and
engineering systems. Through IDL the user can create a wide variety of
customized user interfaces for the Generative Model. Additionally, the
production environment enables direct user access to the Generative Model
from The ICAD System, leading CAD systems or custom-developed user
interfaces developed with commercially available graphical user interface
tool kits. The ICAD System supports a client/server architecture enabling
users to work on remote UNIX workstations or personal computers.
SALES ENGINEERING AUTOMATION
The Company has been aware for many years that its customers have been
addressing their sales engineering challenges informally in the "back office" of
the sales organization by applying generative technology through the use of The
ICAD System. Sales engineers have been taking customer requirements gathered by
the salesperson and using The ICAD System to generate custom-configurations, and
associated costs and manufacturability, to produce an accurate bid or proposal.
As sales forces were becoming increasingly mobile and as technical improvements
increased chip speed, storage size and memory capacity increased the usefulness
of PCs, the company identified an opportunity to develop a PC-based deployment
of generative technology to support the needs of remote or mobile salespeople
who were selling customized products. The Company believes that its technology
for consultative selling, SellingPoint, addresses the challenges cited above --
at the point of sale (or "front office") -- and provide manufacturers and their
distributors with a sales engineering-based SFA solution that will help them
sell more product, more effectively and in shorter time frames.
SellingPoint increases sales effectiveness by applying consultative selling
to each sales opportunity. The system allows global sales forces to quickly zero
in on a customer's functional requirements, custom configure the ideal solution
and generate a highly specific, tailored proposal at the point of sale.
SellingPoint takes critical back office information about products, pricing,
manufacturability and delivery and makes it available to the front office in
real time, on a laptop or via the Internet, to increase sales throughput and
order accuracy.
SellingPoint features a highly interactive object-oriented modeling
environment to more effectively encapsulate the knowledge of the entire
organization (product marketing, engineering, costing, inventory, manufacturing,
scheduling, etc.) and deploy it in a laptop-based consultative selling system.
This unique object-oriented modeling environment allows companies to build
reusable libraries of corporate knowledge objects that can be extended or
modified as their business and products change. This allows companies to
6
<PAGE> 100
build an easy-to-maintain sales force automation tool for that supports both
what and how they sell, ultimately increasing sales effectiveness and improving
the quality of the buying experience.
The SellingPoint modeling environment goes beyond the current state of
configuration technologies based on feature/option validation that have become
commodity in the Technology-Enabled Selling market. Typically, sales engineers
and engineering departments have developed rules of thumb for how products will
perform in the prospective customer's environment. This information, along with
detailed competitive product performance metrics, is made available in real time
to the customer at the point of sale.
SellingPoint allows manufacturers and distributors who sell
custom-configured products to integrate logical and functional modeling enabling
them to perform interactive customer needs assessments based on the intended use
of the product, to analyze price/performance tradeoffs, to generate proposal
drawings, to instantly solve engineer-to-order problems and generate a proposal
during the sales session. This engineering power at the point of sale should
eliminate order errors and returns; expedite new product launch; reduce the need
for in-depth sales training; minimize the amount of technical support associated
with each sale; and generally lower the cost per sale.
SellingPoint is licensed separately for developers and end users with
significant differences between the development environment and the production
environment.
The Development Environment
SellingPoint's development environment is a range of tools, technologies
and utilities used by developers and sales/marketing management to build
product models. The development environment includes an interactive
drag-and-drop programming environment, the configuration modeling language
and a series of object libraries, templates and utilities that can be used
for building and deploying product models and the associated user
interface.
The Production Environment
Product SellingPoint applications are the run-time version of the product
model, the user interface and the configuration engine used by salespeople
to sell customized products. These applications are commonly integrated
with enterprise databases and other enterprise systems upon which
configuration and selling are interdependant. Production applications can
be deployed on laptop and desktop machines, and over the World Wide Web.
CONCENTRA'S STRATEGY
The Company's goal is to be the leader in engineering and sales automation
by promoting the widespread acceptance of generative technology, delivering
strategic advantage by empowering the knowledge-based organization from product
conception through delivery. Key elements of the Company's strategy for
achieving this goal include:
Focus on major market segments. The Company has recently organized into
three strategic business units on a global basis: the Aerospace and
Automotive Business Unit, the Industrial Products and High Technology
Business Unit, and the OEM Business Unit. The Company believes that this
structure will better focus the organization around the specific needs of
the target market segments, enable the creation and deployment of global
strategies, and improve customer satisfaction within the target market
segments.
Technological leadership. The Company believes that technological
leadership is a result of the quality of its core technologies, its ongoing
product development activities and its understanding of and responsiveness
to the design and manufacturing issues faced by its customers. The Company
plans to build upon its technology base by adding new features and
functionality to its existing products and expanding its product line.
Ease of developing Generative Models. To gain acceptance by a broader range
of users, the Company plans to continue to develop products that reduce the
time and skill required to build Generative
7
<PAGE> 101
Models. This may include language enhancements, improved user interface
capabilities and expanded sets of application libraries. The Company
believes that reducing the amount of time it takes for a new user to
develop a Generative Model will lead to increased implementation of and
demand for its products.
Focus on customer relationships. The Company has instituted a large account
management program to focus internal Company resources on assisting
customers in achieving measurable success from their use of the Company's
products and services. Key accounts represent a loyal customer base, help
provide strategic product direction and serve as a foundation for future
sales.
Consultative engagement methodology. The Company believes that its
customers' strategic implementation of generative technology can be
accelerated through application development consulting. Accordingly, the
Company has developed a set of implementation methodologies and dedicated
resources to provide its customers with this fee-based service.
Strategic expansion into the automotive conceptual design market. The
Company believes that an opportunity exists to apply generative technology
to the process of automobile conceptual design. The company has entered
into a joint venture with Lotus Engineering in the United Kingdom and Tata
Technologies of India to address this opportunity. This venture has
resulted in the development of a conceptual vehicle design system called
the Integrated Car Engineer (I.C.E.). The I.C.E. product was launched at
the Geneva Auto Show on March 6, 1996 and reviewed by many of the world's
largest automotive suppliers.
Vertically focused consultative selling systems packages for the Industrial
Products market. The Company believes that it holds a significant
competitive advantage over its SFA competitors in the Industrial Products
marketplace as a result of its engineering heritage and its history of
providing configuration capability with The ICAD System. To that end, the
Company has taken the core SellingPoint technology and bundled it with
industry-specific templates and object libraries to give Industrial
Products companies a custom-tailored software solution that delivers more
"out-of-the-box" functionality and speeds implementation. The Company
believes that vertically focused applications in SFA will follow the
success model established by vertically focused ERP systems.
Complementary relationships with third parties. The Company's strategy is
to develop and market software that addresses the specific requirements in
design process automation and sales engineering automation. Accordingly,
the Company has developed a series of complementary relationships with CAD,
SFA, enterprise software and systems integration consulting organizations
to help meet the broader requirements of the market place. Neither the
Company nor any of these parties is subject to any specific performance
obligations or goals, and any amounts payable by or to the Company in the
form of referral fees, sales commissions or the like are not material. The
Company believes, however, that these relationships may enhance its sales
and marketing efforts and add further value for its customers. In addition,
the Company believes that by working closely with systems integrators,
consulting firms and VARs, its own growth may be enhanced. Accordingly, the
Company is pursuing relationships with appropriate third parties who have
expertise in certain market segments which are incremental to the Company's
current business.
PRODUCTS
THE ICAD SYSTEM
The ICAD System is available as a development or production system.
Development systems licenses give engineers the necessary tools to capture and
apply product design and engineering in a Generative Model. Production systems
are the ICAD applications employed by end-users to execute these Generative
Models without having to perform any programming.
Four major system components comprise The ICAD System:
* The ICAD Design Language (IDL) for defining Generative Models
* Geometry modeling and drawing tools for creating rule-based
definitions of complex surfaces, solids, and drawings
8
<PAGE> 102
* User interfaces for developing and interacting with Generative Models
* Data integration tools for linking to other software products
including CAD systems, relational databases, analysis systems and
manufacturing equipment
THE ICAD DESIGN LANGUAGE
The ICAD Design Language (IDL), the foundation of The ICAD System, is an
object-oriented development language that enables users to design
engineering methods and procedures that encompass both geometric and
non-geometric objects. The language includes features for defining product
structures, part interdependencies, assembly relationships, manufacturing
methodologies, and 2-D and 3-D geometry. The language's object-oriented
structure streamlines application development and simplifies application
enhancement and maintenance. In addition, the structure of the language
itself promotes scalability, which is essential to handling very large and
complex engineering problems.
GEOMETRIC MODELING AND DRAWING CREATION
The ICAD System includes tools for surfaces and solids advanced modeling
that is required for applications in the automotive and aerospace
industries. All of these tools are fully integrated within IDL to provide
the powerful combination necessary to capture both the geometric aspects of
the engineering process, as well as the critical non-geometric logic such
as product structure, engineering analysis, cost, and manufacturing
constraints.
The Surface Designer extends The ICAD System's method and rule-based design
capabilities to complex 3-D curve and surface modeling. It provides
geometric modeling capabilities similar to those found in the most advanced
CAD systems.
The Solids Designer allows ICAD developers to create feature-based,
parametric solid models of mechanical parts and assemblies with complex
part shape geometry. Underlying this module is Parasolid(R), a widely used
double-precision B-rep solid modeling kernel from EDS.
GenDesigner, an interactive design tool to create 2-D parametric sketches,
can be directly integrated with either the Solids Designer or Surface
Designer. Specifically designed for ease-of-use, GenDesigner provides a
Motif-compliant user interface that incorporates industry standard
pull-down menus along with a customizable icon-based toolbar.
The Drawing Tools enable ICAD users to generate complete drawing sets
directly from a Generative Model. After specifying the geometry
relationships and characteristics for the model, users can employ this
module to define drawing layout and content, including dimensions, labels,
and notes. The Drawing Tools support all major drafting standards including
ANSI, DIN, JIS, and ISO.
DEVELOPMENT AND DEPLOYMENT USER INTERFACES
The ICAD System provides both a development user interface (the ICAD
Browser) for building Generative Models and a deployment user interface
toolkit (ICAD Production UI Toolkit) for creating end-user interfaces to a
Generative Model. In addition, the ICAD Kernel Interface gives the
application developer the ability to use a third-party user interface
toolkit for a deployment environment. Also, the GII Access Facility allows
a production user to access a Generative Model from within an interactive
CATIA session.
The ICAD Browser is an interactive graphical interface for developing,
testing, debugging, and applying Generative Models. The module lets users
display 3-D representations of products and components, view product
structures, modify input values, and generate outputs to CAD systems and
engineering reports.
The ICAD Production UI Toolkit enables ICAD application developers to
create a custom, menu-driven user interface for their specific application
to resemble those interfaces used by engineers, enabling them to work in a
familiar production environment.
The ICAD Kernel Interface is a development toolkit that provides an API for
integration of The ICAD System as a server with an external process in a
client/server mode. For example, this functionality
9
<PAGE> 103
allows the customer to develop a custom user interface external to The ICAD
System or run the application in batch mode from a PC.
The GII Access Facility allows a production user to access a Generative
Model from within an interactive CATIA session. A production user can
supply numerical and text input and can select existing geometry in the
CATIA model to use as a top-level input to the Generative Model. Geometric
selections can supply input parameters such as dimensions and attributes as
well as information about position and orientation. Geometry produced by
the Generative model is placed directly into the model active within the
CATIA session. The GII Access Facility allows multiple designs produced by
the Generative model to be active simultaneously, allowing production users
to switch among them.
DATA INTEGRATION TOOLS
Integrating The ICAD System with a company's information systems is
critical to the success of an automation application. These information
systems can include CAD systems, corporate databases, and existing
engineering analysis routines. The ICAD System includes modules for sharing
geometric data with popular CAD packages such as AutoCAD, CADDS, CATIA,
Pro/ENGINEER, and EDS Unigraphics. Users can also generate IGES files, STEP
files, and generate information for reports and analysis.
The AutoCAD Output Tools allows users to generate a DXF file, Autodesk's
published format for AutoCAD, from their Generative Model.
The CADDS Integration Tools consists of a set of software tools that enable
the data integration of a Generative Model with a CADDS system (CADDS 4X &
CADDS 5) from Computervision.
The CATIA Integration Tools enable the data integration of a Generative
Model with a CATIA system from Dassault. In addition, Concentra offers the
GII Access Facility which allows operation of a Generative Model, developed
using IDL, from within an interactive CATIA session.
The Pro/Engineer Integration Tools provide interactive and batch access to
a Generative Model from within Parametric Technology Corporation's (PTC)
CAD solution.
The UG II Integration Tools is a set of integration tools that link a
Generative Model with the Unigraphics (UG) CAD System from EDS. EDS has
developed a complementary user interface module, GenConnect, designed to
allow UG users to access the Generative Model from within the UG menu
system.
The IGES Interface Tools provide an easy means of reading or writing an
IGES file, an industry standard format that provides data translations
between most CAD systems.
The STEP Interface Tools provide the ability to read and write a STEP AP203
file for data exchange. The implementation of AP203 supports configuration
management information, product structure, and wireframe, surface, and
advanced b-rep solid geometry.
The Network Services Facility provides a simple mechanism for users to
automatically generate a remote procedure call (RPC) interface which can be
linked into their external (i.e., non IDL) applications to provide the
ability to make function calls from IDL to the external server programs.
The Oracle Interface provides access for Generative Models to an Oracle
database.
The ICAD System operates on various industry-standard UNIX workstations
from Sun Microsystems, Hewlett Packard, Silicon Graphics, and IBM. The Company's
software is network licensed through FlexLM by Globetrotter. The domestic,
end-user list price for a single development seat ranges from $70,000 to
$100,000 depending on modules licensed; a production seat is approximately
one-third the price of the corresponding development seat. A development seat
typically includes a greater number of modules and features and can be used for
production as well as development, while a production seat is specifically
limited to run-time operation. The Company also offers volume pricing to
customers who license multiple copies.
10
<PAGE> 104
SELLINGPOINT
SellingPoint technology is able to bring back office information to the
point of sale (front office) because of its unique component-based architecture
and resultant flexible enterprise integration scheme. SellingPoint consists of a
generative specification language that is used to build product configuration
models, a generative specification environment that is a graphical
object-oriented development environment used for programming the models, a
generative configuration engine that powers the models, and a flexible user
interface facility that allows a salesperson to input customer information and
receive sales and product information from the model and data sources.
Generative Specification Language
The Generative Specification Language (GSL) is a high-level,
object-oriented modeling language for expressing functional definitions,
product structure, market packaging, quotations, proposals, catalogs,
pricing options, physical relationships, and generic outputs.
Unlike other configuration languages that can only model logical
relationships among product components (e.g., this part fits with
that/requires this part/is not compatible with that part) the GSL is able
to model functional relationships (i.e., how the configuration will perform
under given conditions) and can also take into account geometric
information (e.g., space, fit, etc.) within a single modeling environment.
Other solutions must rely on multiple technologies to model the entire
range of configuration scope, resulting in degraded throughput, limited
scalability, and hidden short- and long-term maintenance costs.
GSL uses a "building block" approach to construct models. SellingPoint
ships with a base set of building blocks that can be used to construct
object libraries that are specific to a customer's product needs.
SellingPoint includes building blocks for logical configuration, functional
descriptions, geometric modeling, graphical display, report input and
output, and database connectivity. Models are constructed by assembling
reusable building blocks from customized libraries. GSL delivers rapid
development power by allowing customers to group select objects to create
new, more comprehensive objects. The new objects inherit the collective
properties of the combined building blocks and can by further refined by
modifying or adding properties.
Generative Specification Environment
The Generative Specification Environment (GSE) is an interactive
development and maintenance environment integrated with GSL and delivered
with building block object libraries. The building block object libraries
supplied with the system include utilities to generate valid product
configurations, geometric constraints, 3D photorealistic product
visualizations, schematic drawings, and product outputs. End user
interfaces are developed either with Visual Basic, or other third-party
products. This environment greatly reduces the time it takes to build a
comprehensive Consultative Selling System for a mobile sales force. These
tools also make it feasible to provide a much richer set of functionality
to field selling teams. Applications for sizing and simulating the
performance of products such as motors, generators, compressors or even
complex communications networks can now be fully integrated into the sales
configuration system. Rules of thumb and heuristics developed by sales
engineers and R&D departments determining how products will perform in the
customer's environment, along with detailed competitive product performance
data can be displayed in real time to the customer at the point of sale.
The GSE provides multiple views which enable an application developer to
selectively focus and debug specific aspects of a model. Views are provided
for navigating model structure, displaying shaded graphics, evaluating
property definitions, generating report output, and locating object
libraries. GSE's graphical Sketcher allows users to construct
two-dimensional constrained profiles using an interactive point and click
user interface. This graphical approach substantially reduces the time it
takes to create geometric profiles and schematic diagrams.
Generative Configuration Engine
SellingPoint's Generative Configuration Engine uses a combination of
demand-directed attribute
11
<PAGE> 105
evaluation and bi-directional constraints. Demand-directed attribute
evaluation allows companies to map what their customer wants to possible
configurations that meet those requirements. This "what if" functional
needs assessment capability is referred to as "mission-driven"
configuration. Bi-directional constraints ensure component compatibility as
a customer fine tunes their selections. This real-time capability enforces
proper configurations even when the customer makes a series of choices and
changes their mind about selections. The Generative Configuration Engine is
the power behind a SellingPoint model's ability to provide application
flexibility, allowing geometry, reports, drawings and renderings to be
created on the fly, and thus reducing product data storage requirements.
User Interface Generation Library
The User Interface Generation Library contains functions for easily
communicating information from an end user interface to a SellingPoint
model. The library is packaged as a Dynamic Link Library (DLL) which can be
called from an external user interface development tool such as Visual
Basic. This approach allows application developers to leverage industry
standard development tools for building end user interfaces. SellingPoint
includes custom controls in Visual Basic for displaying product renderings.
This control interfaces with the Graphics Building Block Library which is
used for defining graphics viewports and their contents.
Comprehensive Function Library
The comprehensive function library contains over 250 functions for modeling
calculated properties such as mathematical equations, string and character
manipulations, pricing algorithms, and transportation costs. Traditional
configurators require a third-party programming environment to perform
these calculations which results in a fragmented model with high
maintenance overhead. Customers can combine and extend the system-supplied
functions to meet their unique business requirements.
Database Connectivity Library
The Database Connectivity Library contains objects for reading and writing
data from and to external data sources. The Building Blocks are architected
to use any formatted data source. Data sources can be flat files, Excel,
relational or customer proprietary. There are specific utilities provided
for communicating with ODBC-compliant data bases.
Report Library
The Report Library contains objects for reading information from external
file formats and generating formatted output to other software systems such
as word processors and spreadsheets. Output capabilities include simple
character based strings, integers, and various floating point formats. In
addition, higher level formats such as tabular, fixed-line-width, automatic
line-feed, and page-feed are also supported. The Library can also be used
to generate high-quality proposals by directly integrating with word
processors and publishing systems using Object Linking and Embedding (OLE).
CatalogPoint
CatalogPoint, an electronic product catalog, provides an easy-to-use
graphical environment for browsing, searching and ordering a company's
products and services. Engineered for both standalone or Web-based use,
CatalogPoint is easily customized by inserting marketing information
(images, text, sound, video) in a simple, pre-defined data schema.
CatalogPoint is integrated with product configuration for order validation
and with ProposalPoint for inserting catalog information into customized
proposals.
ProposalPoint
ProposalPoint generates custom-tailored sales proposals for
customer-configured products. Fully integrated with the other SellingPoint
modules, ProposalPoint simply "reads in" all of the details of a custom
product configuration and then allows salespeople to drag and drop
predefined templates into an electronic "table of contents" to layout and
create custom sales proposals.
QuotePoint
QuotePoint generates quotations on custom-configured products. QuotePoint
provides salespeople with the ability to quickly generate multiple product
quotation alternatives incorporating customer information, complex
discounting and pricing methods, taxes, and shipping costs. The salesperson
can
12
<PAGE> 106
then either generate a finished quote directly out of QuotePoint or use the
quote as a part of a full proposal from ProposalPoint.
FinancePoint
FinancePoint enables salespeople to develop and present customized
purchasing alternatives to their customers. FinancePoint supports purchase
by acquisition or lease, and can include linked multiple capital equipment
quotations. By simply varying the customer's lease objectives, FinancePoint
can quickly perform "what-if" scenarios to close in on the most appropriate
purchasing plan for the customer.
WebPoint WebPoint brings the power of a SellingPoint consultative selling
system to the Web. WebPoint utilizes an open architecture to take
continuous advantage of both JAVA and ActiveX technologies.
SellingPoint Industrial uses SellingPoint's base technology in
conjunction with additional building block libraries and application modules
specific for the Industrial Products industry. Unlike traditional product
configurators that require extensive customization to meet the vocational
requirements of industrial products companies, SellingPoint Industrial comes
with a complete set of modules that support both what and how these types of
companies sell. Based on SellingPoint's unique functional modeling capability,
SellingPoint Industrial allows MIS organization can rapidly build and deploy
applications that meet the most pressing needs of industrial products sales
forces.
SellingPoint Industrial includes these modules:
SolidPoint
SolidPoint contains objects for performing complex geometric operations.
The geometry is a solid boundary representation that allows applications
easily to detect component-to-component interference problems, calculate
mass-properties such as volumetric properties or moments of inertia, and
generate detailed product visualizations. Products which have physical
components are defined by describing how their physical properties relate
to one another. The library includes a full suite of geometric features
such as extrusions, revolutions, blocks, cylinders, and cones.
SketchPoint
SketchPoint is a easy but powerful tool to quickly and easily sketch out
two-dimensional geometry. Using industry-standard technology, SketchPoint
can create parametric component geometry, accelerating the time it takes to
put new products into the hands of your sales force and ultimately reducing
time to market. SketchPoint integrates directly with SolidPoint to turn
those two-dimensional sketches into three-dimensional solid models.
CAD Point
CAD Point utilizes industry standard data exchange technology to output
two- and three-dimensional geometry and drawings, in the form of DXF or DWG
files, to leading CAD systems.
EngineerPoint
EngineerPoint gives salespeople a point-of-sale capability that guides them
through the right questions, performs all of the necessary engineering
computations, and provides feedback about the possible product/option
combinations that would meet the customer's needs. This ability is a key
enabler of consultative selling and dramatically reduces pre-sale technical
resources and the number of calls required to close the sale.
StartingPoint
StartingPoint contains a set of fully reusable component building blocks
and user interface templates that allow Industrial Products companies to
rapidly develop and deploy consultative selling systems without starting
from scratch.
DrawingPoint
DrawingPoint provides a comprehensive set of drawing and annotation objects
to automatically generate proposal drawings that can include notes,
dimensions, labels, title blocks and other information that is unique to
each customer proposal. At the push of a button, salespeople can have
13
<PAGE> 107
custom drawings that slash response time, improve proposal quality, and
ultimately increase sales "hit rate."
RenderPoint
RenderPoint contains objects for displaying three-dimensional geometric
renderings and engineering drawings during runtime. Renderings can range
from outlines to photorealistic textures. Graphics generated from this
library are displayed in the custom control provided in SellingPoint. Using
the custom control, end users have full multi-view display and graphical
manipulation capabilities such as rotating, zooming, and panning.
SellingPoint and SellingPoint Industrial are sold per seat for both runtime
and development. The domestic, end-user list price for a single development seat
ranges from $35,000 to $68,000 depending on modules licensed; a single runtime
seat ranges from $4,500 to $9,800. Since SEA applications generally involve a
very large number of users, the Company offers volume pricing.
SALES AND MARKETING
The Company distributes its products and provides related services through
a direct sales organization covering North America, Europe and Asia and through
independent distributors and value-added resellers (VARs) in certain
geographies. The Company has also established marketing relationships with
leading CAD, SFA vendors and systems integrators. The Company's marketing
strategy focuses on expanding sales to its existing customers, developing new
customers and expanding its international sales.
The Company markets products and services in North America, Europe and the
Pacific Rim through a direct sales force. In addition to sales and marketing
infrastructure at the Company's Burlington, Massachusetts corporate
headquarters, the Company has established sales offices in the Atlanta, Detroit,
Houston, San Jose and Seattle metropolitan areas. Through European subsidiaries,
the Company also maintains offices in the United Kingdom, Germany and France to
conduct sales and provide technical support.
In certain foreign markets, the Company has entered into agreements with
independent distributors to market products to customers not served by the
Company's direct sales organization or to expand sales at lower cost. Currently,
the Company uses independent distributors as its principal distribution channel
in Asia, with representatives covering Japan, Korea and Singapore. The Company
also has distributor relationships in Italy and Denmark.
The Company has instituted a strategic account management program to assist
key customers in their use of the Company's software. These key strategic
accounts represent a loyal customer base, help provide strategic product
direction and serve as a foundation for future revenues. The Company's largest
customers have historically accounted for a significant percentage of the
Company's revenues in any fiscal period. During the year ended March 31, 1997,
sales of products and services to Boeing, IPTN and British Aerospace accounted
for 20.9%,19.3% and 14.9%, respectively, of the Company's revenues during that
period. Revenues from Boeing and Tata Technologies constituted 16.0% and 10.1%,
respectively, of the Company's revenues in fiscal 1996. Revenues from EDS,
Boeing and San Giorgio S.A. (a principal stockholder of the Company) constituted
17.2%, 12.6% and 10.7%, respectively, of the Company's revenues in fiscal 1995.
The Company's agreements with all of its current principal customers are
master licenses or distribution agreements pursuant to which the Company has
agreed to provide products and services against issuance from time to time by
the customer of purchase orders, but none of the Company's agreements with its
principal customers provides for any minimum purchases or obligates the customer
to issue any purchase orders. Except for pricing and volume discounts, the terms
of the Company's agreements with its principal customers (including affiliates
of the Company) do not differ from the terms generally offered by the Company to
its other customers.
CUSTOMER SERVICE AND SUPPORT
The Company believes that providing its customers with support, training,
consulting and other customer services helps ensure that customers maximize the
benefits offered by their products as quickly as
14
<PAGE> 108
possible. In addition, the demand by customers for various support services
provides the Company with incremental revenue opportunities.
The Company's customers have access to the following services and benefits:
Customer Support. Maintenance, enhancements and support are provided for
annual fees equal to approximately 15% of the initial license fees for the
supported products. The Company believes such fees are comparable to other
such fees within the industry. These services consist of periodic updates,
functional and operational problem remedies and hot-line support for simple
help and general feedback. Feedback from customers also provides important
input for the Company's product planning process.
Training. Initial training consists of a three-week class at the Company's
headquarters or, when appropriate, at a customer site. After initial
training, the Company provides continuing education for special product
modules and advanced features of the system.
Consulting Services. Consulting services are provided by the Company's
Worldwide Client Services group. After initial purchases of software, the
Company usually recommends that customers purchase consulting services to
assist in planning and implementation of the system. The Company generally
charges between $1,200 and $1,800 per day for consulting services.
User Groups. User groups in the United States, Europe and Japan are
independently organized and supported by users in each of those areas. User
groups also exist internally at certain large customers. These user groups
provide a valuable means for the Company to communicate with customers
about its strategy and product direction and to obtain feedback on these
topics.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend upon its ability
not only to enhance existing products, but also to develop and introduce new
products that keep pace with technological developments in the marketplace and
address the increasingly sophisticated needs of its customers. The Company
intends to expand existing product offerings and to introduce new applications.
While the Company expects that certain new products will be developed
internally, the Company may, based on timing and cost considerations, acquire or
license technology and/or products from third parties or consultants.
Historically, the Company has released enhanced versions of its software
modules periodically and has introduced a number of new product modules each
year. Most of the Company's software modules share the same object-oriented
foundations which have made enhancement of the entire product line more
efficient.
During the fiscal years ended March 31, 1997, 1996 and 1995, the Company
spent $3.6 million, $2.8 million and $2.4 million, respectively, on research and
development.
PROPRIETARY RIGHTS
The Company believes that, due to the rapid pace of technological
innovation, the Company's ability to establish and maintain a position of
technological leadership in its industry is more dependent upon the skills and
expertise of its development personnel than upon the legal protections afforded
its technology. In addition, the Company employs a combination of contracts,
copyright law and trade secret law to protect its proprietary technology.
The Company has a program in effect to facilitate copyright registration of
its software and documentation with the U.S. Copyright Office. Source codes of
the Company's products are protected both as trade secrets and as unpublished
copyrighted works. The Company also has internal policies and systems to ensure
limited access to, and confidential treatment of, its trade secrets. The Company
distributes its products under software license agreements, which grant
end-users licenses to use (rather than ownership of) the Company's products and
which contain various provisions to protect the Company's ownership and the
confidentiality of the underlying technology. The Company's software is
distributed with a software lock that requires an authorization code generated
by the Company's internal systems to enable the
15
<PAGE> 109
software to function on a particular workstation. It is the Company's policy to
require its employees and other parties with access to its confidential
information to execute agreements prohibiting the unauthorized use or disclosure
of the Company's technology. Furthermore, the Company periodically reviews its
proprietary technology for patentability. Despite these precautions, it may be
possible for a third party to misappropriate the Company's technology by reverse
engineering or otherwise or independently to develop similar technology. In
addition, effective copyright and trade secret protection may not be available
in every foreign country in which the Company's products are distributed and the
licenses may be unenforceable in certain jurisdictions.
Certain technology used in the Company's products is licensed from third
parties. The Company licenses Allegro CL, a compiler embedded in IDL, from
Franz, Inc. on a perpetual, royalty-bearing basis. In the event the compiler
becomes unavailable to the Company, the Company believes that it would be able
to obtain or develop an alternative. The costs of such an effort and the time
required could, however, be significant and, until an alternative compiler is
developed or obtained, the Company's ability to market The ICAD System would be
substantially impaired. The Company also licenses on a perpetual,
royalty-bearing basis from EDS software permitting an interface between IDL and
EDS's Parasolid software product, which is embedded in a widely used module of
The ICAD System. Although loss of the right to use such software could reduce
the attractiveness of the Company's products to certain customers, it would not
impair the overall operation of such products. The Company does not believe that
any of the Company's products are significantly dependent upon any other
licensed technologies due to the availability of other sources of similar
products or due to the Company's ability to build or maintain, through source
code escrow agreements, any integral source code which may in the future become
unsupported by a third party. The Company believes that the cost associated with
technology licensed from third parties is not material to its results of
operations and does not constitute a significant portion of the total cost of
the Company's products into which such third party technology is incorporated.
The Company has a trademark program to promote proper use and registration
of its primary trademarks. "Concentra," "ICAD" and "SellingPoint" and their
respective marks are registered trademarks of the Company in the United States
and certain foreign jurisdictions.
The Company is not engaged in any material disputes with other parties with
respect to the ownership or use of the Company's proprietary technology and the
Company believes that no basis for any such dispute exists. However, as the
number of software products in the industry increases and the functionality of
these products increasingly overlaps, the Company believes that software may
become the subject of frequent claims of infringement of the rights of others.
There can be no assurance that other parties will not assert technology
infringement claims against the Company in the future. Such a claim would
involve significant litigation expense and management time and the Company could
be required to pay monetary damages and either refrain from distributing an
infringing product or obtain a license from a party asserting a claim (which
license may not be available to the Company on commercially reasonable terms).
COMPETITION
The Company believes that the principal bases for competition in its market
are product functionality, product reliability, price/performance
characteristics, ease of product use, customer support and service, distribution
networks and corporate reputation. Competitive pressures faced by the Company
could force the Company to reduce its prices, resulting in slower revenue growth
and reduced profitability. No assurance can be given that the Company will be
able to compete successfully against current and future sources of competition
or that the competitive pressures faced by the Company will not adversely affect
its business, operating results or financial condition.
Competition in both the CAD and SFA industry is intense. While major CAD
companies, including EDS (Unigraphics division), IBM, Dassault, PTC and
Computervision are involved in cooperative marketing relationships with the
Company and currently offer products that complement those of the Company, there
can be no assurance that these or other companies will not develop products or
provide services which compete with those of the Company. Most of these
companies have significantly greater financial, technological and marketing
resources than those of the Company.
16
<PAGE> 110
The Company also faces competition for SellingPoint from companies such as
Trilogy Development, Antalys, Calico Technologies and Clear With Computers
(CWC). There can be no assurance that competitors will not develop products or
provide services equivalent or superior to those of the Company or that achieve
greater market acceptance.
MANUFACTURING
The Company's manufacturing operation consists of assembling, packaging and
shipping its software products and the documentation needed to fulfill each
order. All manufacturing is currently performed in the Company's Burlington,
Massachusetts facility. Outside vendors provide media (tape or CD-ROM)
duplication, printing of documentation and manufacturing of packaging materials.
BACKLOG
The Company generally ships its products within 30 days after acceptance of
a customer purchase order and execution of a software license agreement.
Accordingly, the Company does not believe that its backlog at any particular
point in time is indicative of future sales levels.
EMPLOYEES
As of June 26, 1997, the Company had 139 employees, including 60 in sales
and marketing (including 27 international), 24 in technical support, 35 in
product development and 20 in general and administrative functions. The
Company's employees are not represented by a labor union and the Company
believes its relations with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
Certain information with respect to Executive Officers of the Company, as
of June 26, 1997, is set forth below:
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Lawrence W. Rosenfeld (1) ...... 44 Chairman of the Board of Directors, Chief
Executive Officer and President
David I. Lemont ................. 39 Senior Vice President and Chief Operating Officer
Alex N. Braverman ............... 37 Vice President, Chief Financial Officer and
Treasurer
Peter T. Lanell ................. 45 Vice President, Business Units Industrial Products and
High Technology
Garreth P. Evans ................ 48 Senior Vice President, Business Units
Aerospace and Automotive
Robert E. Phillips, Ph.D ........ 41 Vice President, Engineering
Noreen H. Brochu ................ 42 Vice President, Worldwide Client Services
<FN>
- --------------------------------
(1) Member of the Executive Committee
</TABLE>
Mr. Rosenfeld, a founder of the Company, has been Chief Executive Officer
and a director since the Company's inception in 1984, Chairman of the Board of
Directors since March 1993 and President from inception through March 1993 and
again since July 1994. From 1982 to 1984, Mr. Rosenfeld was an independent
CAD/CAM consultant. From 1974 to 1981, Mr. Rosenfeld was employed in various
positions at Hood Sailmakers, Inc.
Mr. Lemont joined the Company in June 1994 as Senior Vice President and
Chief Operating Officer. From February 1992 to May 1994, Mr. Lemont held several
Vice President positions in the sales organization at Computervision
Corporation. From January 1981 to February 1992, he held various sales and sales
management positions with the Unigraphics Division of McDonnell Douglas.
17
<PAGE> 111
Mr. Braverman has been Vice President, Chief Financial Officer and
Treasurer since November 1996. From July 1994 to November 1996, he was Corporate
Controller. Mr. Braverman was Controller of Artel Communications Corporation, a
manufacturer of computer networking and video products, from 1988 until it was
merged with Chipcom Corporation in February 1994, and was employed thereafter by
Chipcom Corporation until July 1994. From 1982 to 1988, he held various
financial and managerial positions with BTU Engineering and the William Carter
Company.
Mr. Lanell has been Vice President, Business Units Industrial Products and
High Technology since April 1996. From April 1993 to April 1996, he was Vice
President, North American Field Operations. From April 1992 to April 1993, he
was the Company's Vice President, North American Sales. Mr. Lanell joined the
Company in 1988 and has held various positions within North American Sales since
that time. Prior to joining the Company, Mr. Lanell was a salesman for
Intellicorp, Inc. from 1986 to 1988. From 1982 to 1986, he held positions in
sales and technical sales support at Calma, a division of General Electric.
Mr. Evans has been the Company's Senior Vice President, Business Units
Aerospace and Automotive since April 1996. Mr. Evans joined the Company in June
1994 and served as the Company's Senior Vice President, European Operations
until April 1996. From May 1993 to April 1994, Mr. Evans was Vice President and
General Manager, Worldwide Sales at Computervision Corporation. From August 1990
to May 1993, Mr. Evans managed European and U.K. operations for Computervision
Corporation and from 1983 to July 1990, he managed the Unigraphics and GDS U.K.
operations of McDonnell Douglas.
Dr. Phillips has been Vice President, Engineering since April 1994. He was
the Company's Director of Product Engineering from February 1993 through April
1994. Dr. Phillips was previously employed by the Company during 1986 and 1987
as an application engineer. From 1987 to 1993, he was employed at General
Electric Aircraft Engine division as a Senior Engineer. Dr. Phillips was an
Assistant Professor of Mechanical Engineering at the University of New Hampshire
from 1985 to 1986. Prior to that time, he held various engineering positions in
the field of nuclear and fossil fueled power generation systems.
Ms. Brochu has been Vice President, Worldwide Client Services since June
1995. From June 1993 to June 1995, she was Director of Technical Services. Ms.
Brochu joined the Company in 1988 and held the position of Director of Technical
Sales Support until June 1993. Prior to joining the Company, Ms. Brochu was
employed by Computervision in various positions. Her final position was as the
director of their applied technology center. She was employed by Computervision
from 1979 to 1988.
Officers of the Company are elected by, and serve at the discretion of, the
Board of Directors.
There are no family relationships among any of the executive officers of
the Company.
IITEM 2 - PROPERTIES
- --------------------
The Company's headquarters and principal operations are located in
approximately 30,000 square feet of office space in Burlington, Massachusetts
under a lease expiring in June 2000. The Company also leases additional sales
offices in the Atlanta, Detroit and San Jose metropolitan areas and, through its
wholly owned subsidiaries, in the United Kingdom, France and Germany. While the
Company believes its facilities are adequate for its present needs, it is
continually evaluating its headquarters facilities and believes that suitable
alternative space would be available on commercially reasonable terms.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
The Company is not engaged in any material legal proceedings.
18
<PAGE> 112
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year ended March 31, 1997.
19
<PAGE> 113
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
<TABLE>
The Company's Common Stock is traded in the over-the-counter market and
prices are quoted on the NASDAQ National Market System under the symbol CTRA.
The following table sets forth, for the period indicated, the high and low sales
prices for the Company's Common Stock as reported by NASDAQ from April 1, 1995
through March 31, 1997. This information reflects inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1997:
First Quarter $ 7 $4 1/2
Second Quarter $ 7 3/8 $4 9/16
Third Quarter $11 3/4 $6 1/4
Fourth Quarter $15 1/4 $4 1/4
Fiscal 1996:
First Quarter $14 $9 1/8
Second Quarter $12 1/4 $8 1/2
Third Quarter $11 $7 1/4
Fourth Quarter $ 9 1/4 $4 1/8
</TABLE>
On June 26, 1997, there were 102 holders of record of the Company's Common
Stock. The Company believes the actual number of beneficial owners of the Common
Stock is greater than the stated number of holders of record because a large
number of the shares of the Company's Common Stock is held in custodial or
nominee accounts for the benefit of persons other than the record holder.
No dividends have been paid on the Company's Common Stock to date, and the
Company does not anticipate paying dividends in the foreseeable future.
20
<PAGE> 114
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
The selected consolidated financial data below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto included elsewhere in this filing.
<CAPTION>
CONSOLIDATED FINANCIAL SUMMARY Year Ended March 31,
(In thousands, except per share data) --------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses $17,670 $13,133 $10,050 $ 7,894 $ 7,474
Services 6,797 7,135 8,004 6,356 4,547
Related party software and services 104 452 2,163 1,459 --
------- ------- ------- ------- -------
Total revenues 24,571 20,720 20,217 15,709 12,021
Operating expenses:
Cost of software licenses 2,073 1,337 1,328 1,193 1,581
Cost of services 4,410 2,677 1,928 1,472 1,511
Sales and marketing 14,541 11,622 8,887 6,309 6,020
Research and development 3,558 2,849 2,423 2,840 2,716
General and administrative 2,655 2,511 1,971 1,778 1,530
Provision for bad debts 1,544 101 173 53 --
Restructuring charge 239 196 -- -- --
Charge for purchased research and development -- -- -- 3,711 --
------- ------- ------- ------- -------
Total operating expenses 29,020 21,293 16,710 17,357 13,358
------- ------- ------- ------- -------
(Loss) income from operations (4,449) (573) 3,507 (1,648) (1,337)
Interest income (expense), net 191 628 (149) (318) (345)
Other income (expense) 458 (10) 300 (4) (99)
------- ------- ------- ------- -------
(Loss) income before income taxes (3,800) 45 3,658 (1,970) (1,781)
Provision for income taxes 140 9 559 264 102
------- ------- ------- ------- -------
Net (loss) income $(3,940) $ 36 $ 3,099 $(2,234) $(1,883)
======= ======= ======= ======= =======
Net (loss) income per common and common equivalent share (1) $ (0.73) $ 0.01 $ 0.80 $ (0.76) $ (0.93)
======= ======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding (1) 5,391 5,750 3,865 2,947 2,029
======= ======= ======= ======= =======
<CAPTION>
As of March 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 3,890 $ 9,121 $17,010 $ 1,558 $ 908
Working capital (deficit) 9,568 12,179 15,137 114 (1,492)
Total assets 25,031 25,109 26,462 7,706 5,543
Total debt (including current portion) 1,034 1,161 221 3,638 3,012
Redeemable common stock -- -- -- 1,777 --
Total stockholders' equity (deficit) 15,068 18,307 17,907 (4,458) (3,119)
</TABLE>
- --------------------------------------------------------------------------------
(1) See Note B of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net income (loss) per
common and common equivalent share.
21
<PAGE> 115
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, markets and supports software products that automate
the engineering and sales process. The Company was founded in 1984 and initially
provided consulting services for customers relating to the automation of the
product design process. In the course of performing these consulting services,
the Company recognized a market opportunity for software tools to automate the
engineering process, and began the development of tools which became the
foundation for The ICAD System. The Company's proprietary software products
enable customers to reduce design cycle time and improve quality by automating
repetitive engineering processes.
The Company funded its early product development efforts and operations
through a combination of consulting service revenues and license fees from early
customers. As the Company grew, it funded its operations through private equity
transactions with corporate partners and product development agreements with
computer hardware vendors.
During fiscal 1995, the Company began development of its new sales
engineering automation product called Selling Point. The initial version of
Selling Point was released on June 30, 1995. This development continued through
fiscal 1997 and will continue as an ongoing development activity.
The Company distributes its products and provides related services through
a direct sales organization covering North America and has international direct
sales organizations in the United Kingdom, Germany and France. The Company has
also entered into distribution agreements covering certain other countries in
Europe and Asia.
Historically, a significant portion of the Company's revenues in any
particular period has been attributable to sales to a limited number of
customers. During fiscal 1997, the Company's largest five customers represented,
in the aggregate, approximately 62.6% of the Company's revenues during the
period. In fiscal 1996 and fiscal 1995, the Company's largest five customers
represented, in the aggregate, approximately 44.1% and 50.1%, respectively, of
the Company's revenues in those years. This concentration of customers can cause
the Company's revenues and earnings to fluctuate from quarter to quarter, based
on major customers' requirements and the timing of their orders. Sales to
affiliates represented 0.4% of the Company's revenues during fiscal 1997. In
fiscal 1996 and fiscal 1995, sales to affiliates represented 2.2% and 10.7%,
respectively, of the Company's revenues for such years.
The Company has experienced and may experience in the future significant
quarter-to-quarter fluctuations in its operating results. Factors such as the
timing of significant orders, the timing of new product introductions and
upgrades, the length of customer product evaluation periods, the mix of products
sold and the mix of domestic versus international revenues could contribute to
this quarterly variability. A substantial portion of the Company's revenues in a
quarter are derived from purchase orders received in that quarter, which makes
the Company's financial performance more susceptible to an unexpected downturn
in business and more unpredictable. In addition, the Company's expense levels
are based in part on expectations of future revenue levels and a shortfall in
expected revenues could therefore result in a disproportionate decrease in the
Company's net income.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, as well as other portions of this document, include certain
forward-looking statements about the Company's business and new products,
revenues, expenditures and operating and capital requirements. In addition,
forward-looking statements may be included in various other Company documents to
be issued in the future and in various oral statements by Company
representatives to security analysts and investors from time to time.
22
<PAGE> 116
Any such statements are subject to risks that could cause the actual results or
needs to vary materially. These risks are discussed later in "Risk Factors."
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
TOTAL REVENUES. Substantially all of the Company's revenues are derived
from the licensing of software products and the performance of related services.
The Company's total revenues increased 19% to $24.6 million for the year ended
March 31, 1997 from $20.7 million for the year ended March 31, 1996. This
increase resulted from an increase in software licenses partially offset by a
decrease in services, as discussed below. See "Liquidity and Capital Resources"
for discussion on extended payment terms granted to customers to close business.
SOFTWARE LICENSES. Software license fees increased 35% to $17.7 million for
the year ended March 31, 1997 from $13.1 million for the year ended March 31,
1996, and increased as a percentage of revenues to 71% from 63%. Contributing to
the increases were the increased adoption of the Company's products by both new
and existing customers.
SERVICES. Service fees decreased 5% to $6.8 million for the year ended
March 31, 1997 from $7.1 million for the year ended March 31, 1996, and
decreased as a percentage of revenues to 28% from 35%. Service revenues are
derived from consulting, training and customer support services. The decreases
in revenues were primarily due to more consulting services that were contracted
by the Company's customers to other consulting companies during fiscal 1997, as
compared to fiscal 1996. The Company does not expect this trend to continue.
RELATED PARTY SOFTWARE AND SERVICES. Revenues from related parties
decreased 77% to $0.1 million for the year ended March 31, 1997 from $0.5
million for the year ended March 31, 1996, and decreased as a percentage of
revenues to approximately 1% from 2%. The dollar and percentage decrease in
revenues was due to lower maintenance revenues for related party customers.
COST OF SOFTWARE LICENSES. Cost of software licenses, consisting of the
amortization of capitalized software, license fees to third party suppliers and
software duplication and fulfillment costs, increased 55% to $2.1 million for
the year ended March 31, 1997 from $1.3 million for the year ended March 31,
1996, and increased as a percentage of software license fees to 12% from 10%.
The increases in cost of software licenses were primarily due to royalties
associated with higher software license revenues and the amortization of
intangible assets for a full year and capitalized software.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, increased 65% to
$4.4 million for the year ended March 31, 1997 from $2.7 million for the year
ended March 31, 1996, and increased as a percentage of service revenues to 65%
from 38%. The increases in cost of services were primarily due to the
contracting of additional personnel at higher rates and consulting companies to
support consulting services previously performed by personnel who were
transferred to sales and marketing.
SALES AND MARKETING. Sales and marketing expenses increased 25% to $14.5
million for the year ended March 31, 1997 from $11.6 million for the year ended
March 31, 1996, and increased as a percentage of revenues to 60% from 56%. The
increases were primarily due to the transfer and addition of sales and marketing
employees and increased marketing and promotional activities, all of which
occurred in anticipation of increased selling activities.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development tools, increased 25%
to $3.6 million for the year ended March 31, 1997 from $2.8 million for the year
ended March 31, 1996, and increased as a percentage of revenues to 15% from 14%.
The increases were primarily due to the addition of research and development
employees
23
<PAGE> 117
associated with the development of the Company's new product, Selling Point, and
the utilization of consulting services from an outside engineering firm. The
Company intends to increase its research and development expenditures over the
next twelve months to keep pace with the technological needs of the marketplace.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, increased 6% to $2.7 million for the year ended
March 31, 1997 from $2.5 million for the year ended March 31, 1996, and
decreased as a percentage of revenues to 11% from 12%. The dollar increase is
primarily due to higher legal costs in the current period.
PROVISION FOR BAD DEBTS. Provision for bad debts increased to $1,544,000
for the year ended March 31, 1997 from $101,000 for the year ended March 31,
1996. The Company increased their provision for bad debts after repeated
unsuccessful attempts were made to collect certain receivables. This increased
provision is principally made up of two large domestic receivables and two
international receivables. Notwithstanding this fourth quarter provision, the
Company is continuing to pursue collection of these receivables.
RESTRUCTURING. Restructuring expenses, consisting of severance costs
associated with the termination of fourteen employees, were $239,000 for the
year ended March 31, 1997. Restructuring expenses, consisting of severance costs
associated with the termination of twelve employees, were $196,000 for the year
ended March 31, 1996.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, decreased 57% to $296,000 for the year ended March 31, 1997 from
$682,000 for the year ended March 31, 1996. This decrease was attributable to
lower cash balances during the year ended March 31, 1997.
INTEREST EXPENSE. Interest expense, consisting of interest on debt,
increased 94% to $105,000 for the year ended March 31, 1997 from $54,000 for the
year ended March 31, 1996. This increase was attributable to a full year of
interest expense associated with capital leases during the year ended March 31,
1997.
OTHER INCOME (EXPENSE). In fiscal year 1997, other income of $458,000
consisted primarily due to marking to market certain trading securities and
foreign exchange losses on intercompany transactions. In fiscal year 1996, other
expense of $10,000 consisted primarily of foreign exchange losses on
intercompany transactions.
PROVISION FOR INCOME TAXES. The income tax provision for the year ended
March 31, 1997 was $140,000 which primarily represents foreign withholding and
state taxes. The income tax provision for the year ended March 31, 1996 was
$9,000 representing an effective tax rate of approximately 20%. The effective
tax rate in 1996 is lower than the statutory rate principally due to the
utilization of net operating loss carryforwards and other reductions in the
valuation allowance against otherwise recognizable deferred tax assets. At March
31, 1997, the Company had net operating loss carryforwards of approximately $6.3
million which expire in the years 2008 through 2012 of which approximately $2.7
million is subject to an annual limitation of approximately $150,000. The
Company also has federal, state and foreign tax credit carryforwards of $.9
million, $.3 million and $.5 million, respectively, available to reduce taxable
income in future periods.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
TOTAL REVENUES. The Company's total revenues increased 2% to $20.7 million
for the year ended March 31, 1996 from $20.2 million for the year ended March
31, 1995. This increase resulted from an increase in software licenses partially
offset by a decrease in services and related party software and services, as
discussed below.
SOFTWARE LICENSES. Software license fees increased 31% to $13.1 million for
the year ended March 31, 1996 from $10.0 million for the year ended March 31,
1995, and increased as a percentage of revenues to 63% from 50%. Contributing to
the increases were the increased adoption of the Company's products by both new
and existing customers.
24
<PAGE> 118
SERVICES. Service fees decreased 11% to $7.1 million for the year ended
March 31, 1996 from $8.0 million for the year ended March 31, 1995, and
decreased as a percentage of revenues to 34% from 40%. Service revenues are
derived from consulting, training and customer support services. The decreases
in revenues were primarily due to consulting services that were outsourced to
consulting companies during fiscal 1996.
RELATED PARTY SOFTWARE AND SERVICES. Revenues from related parties
decreased 79% to $0.5 million for the year ended March 31, 1996 from $2.2
million for the year ended March 31, 1995, and decreased as a percentage of
revenues to 2% from 11%. The dollar and percentage decrease in revenues was the
result of revenues recognized upon the delivery to San Giorgio of master copies
of enhanced versions of certain products during fiscal 1995. No additional
license revenue is due from related parties recognized under the original
agreement and the amount of revenue from related parties recognized for fiscal
1995 and 1996 is not necessarily indicative of revenues likely to be derived
from related parties in future periods.
COST OF SOFTWARE LICENSES. Cost of software licenses, consisting of the
amortization of capitalized software, license fees to third party suppliers and
software duplication and fulfillment costs, remained constant at $1.3 million
for the fiscal years ended March 31, 1995 and 1996, but decreased as a
percentage of software license fees to 10% from 13%. The decline in cost of
software licenses as a percentage of software license fees was primarily due to
a lower mix of software licenses requiring the payment of third party fees and
lower third party royalty rates.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, increased 39% to
$2.7 million for the year ended March 31, 1996 from $1.9 million for the year
ended March 31, 1995, and increased as a percentage of service revenues to 38%
from 24%. The increases in cost of services were primarily due to the
contracting of additional personnel and consulting companies to support
consulting services previously performed by personnel who were transferred to
sales and marketing.
SALES AND MARKETING. Sales and marketing expenses increased 31% to $11.6
million for the year ended March 31, 1996 from $8.9 million for the year ended
March 31, 1995, and increased as a percentage of revenues to 56% from 44%. The
increases were primarily due to the transfer and addition of sales and marketing
employees and increased marketing and promotional activities, all of which
occurred in anticipation of increased selling activities.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development tools, increased 18%
to $2.8 million for the year ended March 31, 1996 from $2.4 million for the year
ended March 31, 1995, and increased as a percentage of revenues to 14% from 12%.
The increases were primarily due to the addition of research and development
employees associated with the development of the Company's new product, Selling
Point, and the utilization of consulting services from an outside engineering
firm.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, increased 27% to $2.5 million for the year ended
March 31, 1996 from $2.0 million for the year ended March 31, 1995, and
increased as a percentage of revenues to 12% from 10%. The increases in general
and administrative expenses were primarily due to the increased costs of being a
public company.
PROVISION FOR BAD DEBTS. Provision for bad debts decreased to $101,000 for
the year ended March 31, 1997 from $173,000 for the year ended March 31, 1996.
The decrease was due to a lower provision for bad debts within the current
period.
RESTRUCTURING. Restructuring expenses, consisting of severance costs
associated with the termination of twelve employees, for the year ended March
31, 1996 were $196,000.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, increased to $682,000 for the year ended March 31, 1996. Interest
income, for the year ended March 31, 1995 was $174,000. This increase was
attributable to the proceeds received from the completion of the Company's
initial public offering "IPO."
25
<PAGE> 119
INTEREST EXPENSE. Interest expense, consisting of interest on debt,
decreased to $54,000 for the year ended March 31, 1996. Interest expense, for
the year ended March 31, 1995 was $323,000. This decrease was attributable to
the repayment of debt with the proceeds received from the completion of the IPO.
OTHER (EXPENSE) INCOME. In fiscal year 1996, other expense of $10,000
consisted primarily of foreign exchange losses on intercompany transactions. In
fiscal year 1995, other income of $300,000 consisted primarily of foreign
exchange gains on intercompany transactions.
PROVISION FOR INCOME TAXES. The income tax provision for the year ended
March 31, 1996 was $9,000 representing an effective tax rate of approximately
20%. The income tax provision for the year ended March 31, 1995 was $559,000
representing an effective tax rate of approximately 15%. The effective tax rate
in 1996 and 1995 is lower than the statutory rate principally due to the
utilization of net operating loss carryforwards and other reductions in the
valuation allowance against otherwise recognizable deferred tax assets. At March
31, 1996, the Company had net operating loss carryforwards of approximately $3.5
million which expire in the years 2008 through 2011 of which approximately $2.9
million is subject to an annual limitation of approximately $150,000. The
Company also has federal, foreign and state tax credit carryforwards of $0.8
million, $0.8 million and $0.2 million, respectively, available to reduce
taxable income in future periods.
LIQUIDITY AND CAPITAL RESOURCES
In February of 1995, the Company raised $17.7 million (net of expenses)
from an initial public offering ("IPO") of its common stock. As of March 31,
1997, the Company had cash and cash equivalents of $3.9 million. The Company
also has a line of credit with a commercial lender. Under this credit line, as
amended, the Company has a $2,500,000 unsecured working capital line of credit.
This line of credit bears interest at the bank's base lending rate, and expires
on June 30, 1997. The line of credit contains financial covenants which consist
of minimum tangible capital base, ratio of total liabilities to tangible capital
base and debt service coverage. The Company is currently in violation of these
covenants and is negotiating with the commercial lender to extend and amend the
line of credit. The Company also has a $1,750,000 equipment line of credit,
collateralized by the equipment, bearing interest at the bank's base lending
rate and expires on March 31, 1997. The Company is also currently negotiating
with the commercial lender to extend and amend the equipment line of credit.
There can be no assurance that the Company will be successful in extending and
amending the line of credit nor can there be any assurance that such extended
and amended line of credit will be on similar terms as the existing agreement.
Additionally, there can be no assurance that alternative financing will be
available if required. As of March 31, 1997, the Company had borrowings under
the equipment line of credit of $1,322,000.
During fiscal 1997, the Company had a net loss of $3.9 million and used
cash of $5.2 million. The decrease in cash was primarily due to $4.2 million
used from operations and $1.4 million used in investing activities. The
Company's operating activities included a net increase in accounts receivable of
$6.8 million, an increase in accrued expenses of $1.9 million and a increase in
deferred revenue of $0.9 million. Investing activities included the purchase of
property and equipment for $0.3 million, the purchase of intangible assets for
$0.1 million and capitalized software costs of $1.0 million. The Company
regularly extends payment terms with new and existing customers to close
business in a particular reporting period.
During fiscal 1996, the Company had net income of $36,000 but used cash of
$7.9 million. The decrease in cash was primarily due to $3.9 million used from
operations and $4.1 million used in investing activities. The Company's
operating activities included a net increase in accounts receivable of $2.5
million, a decrease in accrued expenses of $0.9 million and a decrease in
deferred revenue of $1.6 million. Investing activities included the purchase of
property and equipment for $1.9 million, the purchase of intangible assets for
$1.3 million and capitalized software costs of $0.9 million.
During fiscal 1996, the Company relocated its corporate headquarters. The
terms of the five year lease for the new facility provide that the Company will
make annual rental payments of approximately $202,000. Also, during fiscal 1996,
the Company entered into a $5,000,000 five year applications
26
<PAGE> 120
consulting services contract with a significant customer of the Company. The
five year applications consulting services contract contains volume pricing
discounts subject to adjustments for increased costs. The Company has a minimum
commitment of $2,500,000 of outside applications services that will be used by
the Company over a five year period. The minimum commitment of $2,500,000 will
be paid in five yearly payments commencing December 31, 1996. These yearly
payments are $250,000, $500,000, $550,000, $600,000 and $600,000 for the five
calendar years beginning December 31, 1996, respectively. The Company is
current with all payments under this commitment. Pursuant to this reciprocal
buying agreement, the Company recognized revenue and collected cash in the
amount of $1,805,000 upon the execution and delivery of software with respect
to the software license agreement for the year ended March 31, 1996. The
Company's policy is to record the consulting service expenses as the expenses
are incurred. The Company believes that based on current forecasts the minimum
payment accruals will be utilized. However, given the significant sales
fluctuations which may occur in any given period, it is possible that the
minimum commitment would not be met, thus requiring the Company to record a
charge in excess of the services utilized. At March 31, 1997, the Company did
not use the minimum first-year commitment of $250,000 and has recorded an asset
for the unused portion, that can be carried forward under the contract, of
$88,000. The Company has included such amount in other current assets and
expects to recognize this amount, along with the fiscal 1998 minimum
commitment, during the next fiscal year.
During fiscal 1995, the Company had net income of $3.1 million and
generated a net cash increase of $15.5 million. The increase in cash was due
primarily to $1.7 million generated in cash from operations offset by $0.9
million used in investing activities, and $14.8 million in financing activities.
The Company's operating activities included an increase in accounts receivable
of $1.7 million. Investing activities included the purchase of property and
equipment for $0.4 million and capitalized software costs of $0.4 million.
Financing activities included the $17.7 million from the net proceeds from the
IPO, $2.3 million for the repayment of advances from corporate partners and $0.7
million for the repayment of a related party note payable.
During fiscal 1995, the Company entered into a three year agreement to
purchase consulting services from an outside engineering firm. Under the terms
of the agreement, the Company's total purchase commitment ranges from $700,000
to $1,500,000. Also, in connection with the Company's agreement to license a
software module, the Company paid $1,000,000 in four quarterly installments
during fiscal 1996.
The Company believes that existing sources of liquidity and funds from
operations will satisfy the Company's working capital and capital expenditure
requirements through at least fiscal 1998.
In the normal course of business, the Company evaluates potential
acquisitions of businesses, products or technologies that complement the
Company's business. The Company has no present plans, agreements or commitments
and is not currently engaged in any negotiations with respect to any material
acquisitions of other businesses, products or technologies. However, the Company
may acquire businesses, products or technologies in the future.
Inflation is not expected to have a significant effect upon the Company's
business in the near future.
Newly Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which is effective for fiscal years ending after December 15, 1997, including
interim periods. Earlier application is not permitted. However, an entity is
permitted to disclose pro forma earnings per share amounts computed using SFAS
128 in the notes to financial statements in periods prior to adoption. SFAS 128
requires restatement of all prior-period earnings per share data presented after
the effective date. SFAS 128 specifies the computation, presentation and
disclosure requirements for earnings per share and is substantially similar to
the standard recently issued by the International Accounting Standards Committee
entitled International Accounting Standard, Earnings per Share ("IAS 33"). The
Company plans to adopt SFAS 128 in Fiscal 1998 and has not yet determined the
impact.
27
<PAGE> 121
RISK FACTORS
Dependence on Principal Products. The Company currently derives
substantially all of its revenues from licenses of the ICAD System, Selling
Point and related products and services. As a result, any factor adversely
affecting sales of the Company's core group of products would have a material
adverse effect on the Company. The Company's future financial performance will
depend in part upon the successful development, introduction and customer
acceptance of new or enhanced versions of its existing products and other
products. There can be no assurance that the Company will continue to be
successful in marketing the ICAD System, Selling Point and related products or
any new or enhanced products the Company may develop in the future. In addition,
competitive pressures or other factors may result in price erosion that could
have a material adverse effect on the Company's results of operation. See
"Business - Products."
Broader Market Acceptance. Broader market acceptance of the Company's
products is critical to the Company's future success. The Company believes that
broader market acceptance of its products will depend on a number of factors
including: product functionality, product reliability, price/performance
characteristics, ease of use and the displacement of existing design approaches.
For many potential customers, the methodology represented in the Company's
products generally represents a new approach to the design process. As a result,
a decision by a customer to purchase the Company's products often involves a
significant evaluation period. Failure or material delay of the Company's
products to achieve broader market acceptance would have a material adverse
effect on the Company's business and financial results. Although the Company has
established a user base of large manufacturing companies, there can be no
assurance that the Company will be able to broaden that base and attain critical
market penetration. In addition, any factor adversely affecting the overall CAD
software market could have a material adverse effect on the Company's business
and financial results. See "Business - Industry Background."
History of Losses. Although the Company has been profitable for the fiscal
years ended March 31, 1995 and 1996, the Company has experienced net losses in
the fiscal years ended March 31, 1997, 1994 and 1993. As a result, as of March
31, 1997, the Company had an accumulated deficit (including acquisition-related
expenses) of approximately $10.1 million. There can be no assurance that sales
of the Company's existing products will either continue at historical rates or
increase, or that new products introduced by the Company will achieve broad
market acceptance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Concentration of Customers. Historically, a significant portion of the
Company's revenues in any particular period has been attributable to sales to a
limited number of customers. During the fiscal year ended March 31, 1997, three
customers each accounted for greater than ten percent of the Company's revenues,
and revenues from the Company's five largest customers during such period
represented, in the aggregate, approximately 62.6% of the Company's revenues
during such period. In fiscal 1996, two customers each accounted for greater
than ten percent of the Company's revenues, and revenues from the Company's five
largest customers represented approximately 44.1% of the Company's revenues for
such year. In fiscal 1995, three customers each accounted for greater than ten
percent of the Company's revenues, and revenues from the Company's five largest
customers (including two affiliated entities related to the Company which,
considered together as a single customer, accounted for 10.7% of the Company's
revenues), represented approximately 50.1% of the Company's revenues for such
year. This concentration of customers can cause the Company's revenues and
earnings to fluctuate from quarter to quarter, based on major customers'
requirements and the timing of their orders. Although the Company believes it
has good relationships with its largest customers and has in the past received a
substantial portion of its revenues from repeat business with established
customers, none of its major customers has any obligation to purchase additional
products or services and, thus, there can be no assurance that any of the
Company's major customers will continue to purchase products and services in
amounts similar to previous years. Furthermore, no additional license revenue is
due from related parties. The loss of business from one or more of these
customers may have a material adverse impact on the Company. See "Business -
Sales and Marketing" and "Certain Transactions."
28
<PAGE> 122
Competition. The market in which the Company offers its products is highly
competitive. While several major CAD companies are involved in cooperative
marketing relationships with the Company and currently offer products that
complement those of the Company, there can be no assurance that these or other
companies will not develop products or provide services that compete with those
offered by the Company and that are superior to the Company's products or
services or that achieve greater market acceptance. In addition, many of the
Company's competitors and potential competitors have significantly greater
financial, technological and marketing resources than the Company. Competitive
pressures faced by the Company could force the Company to reduce its prices,
resulting in slower revenue growth and reduced profitability. There can be no
assurance that the Company will be able to compete successfully against current
and future sources of competition or that competition will not have a material
adverse effect on the Company's business, operating results or financial
condition. See "Business - Competition."
Variability of Quarterly Operating Results. The Company has experienced and
may experience in the future significant quarter-to-quarter fluctuations in its
operating results. Factors such as the timing of significant orders, the timing
of new product introductions and upgrades, the length of customer product
evaluation periods, the mix of products sold and the mix of domestic versus
international revenues could contribute to this quarterly variability. A
substantial portion of the Company's revenues in a quarter are derived from
purchase orders received that quarter, which makes the Company's financial
performance more susceptible to an unexpected downturn in business and more
unpredictable. In addition, the Company's expense levels are based in part on
expectations of future revenue levels and a shortfall in expected revenues could
therefore result in a disproportionate decrease in the Company's net income.
Dependence on Third Party Licensed Technology. Certain technology used in
the Company's products is licensed from third parties. The Company licenses
Allegro CL, a compiler embedded in The ICAD System, from Franz, Inc. Should this
compiler become unavailable to the Company, the Company believes that it would
be able to develop or obtain an alternative compiler; however, the costs of such
an effort and the time required could be significant and, until an alternative
compiler is developed or obtained, the Company's ability to market its products
would be substantially impaired. The Company also licenses from Electronic Data
Systems ("EDS"), a principal customer and marketing partner of the Company, a
solid modeling software module called Parasolid, which is one of the most widely
used of The ICAD System modules. The loss of the right to use such software
could reduce the attractiveness of the Company's products to certain customers.
The Company believes that alternative solid modeling software is available.
However, there can be no assurances that such alternatives would achieve market
acceptance or be available on a timely basis or on similar terms. The Company
believes that the cost associated with technology licensed from third parties is
not material to its results of operations and does not constitute a significant
portion of the total cost of the Company's products into which such third party
technology is incorporated. See "Business - Proprietary Rights."
Technological Demands of the Marketplace. The market in which the Company
competes is characterized by rapid technological changes and advances. The
Company's future success will depend upon its ability to enhance its existing
products and introduce new products which keep pace with technological
developments in the marketplace and address the increasingly sophisticated needs
of its end-users. There can be no assurance that the Company will be successful
in introducing and marketing product enhancements or new products on a timely
basis, or that enhancements or new products will achieve market acceptance. See
"Business - Products" and "- Product Development."
Dependence on Proprietary Technology. The Company's success is heavily
dependent upon its proprietary technology. The Company does not have patents on
any of its technology and relies on contracts and the laws of copyright and
trade secrets to protect such technology. The Company maintains a trade secrets
program, enters into confidentiality or license agreements with its employees,
resellers and end-users and limits access to and distribution of its software,
documentation and other proprietary information. Effective copyright and trade
secret protection may not be available in every foreign country in which the
Company's products are distributed. There can be no assurance that the steps
taken by the Company to protect its proprietary technology will be adequate to
prevent misappropriation of its technology by third parties, or that third
parties will not be able to develop similar technology independently. Although
the Company is not aware that any of its technology infringes the rights of
third
29
<PAGE> 123
parties, there can be no assurance that other parties will not assert technology
infringement claims against the Company, or that, if asserted, such claims will
not prevail. See "Business - Proprietary Rights."
Dependence on Key Personnel. The Company's success depends in large part
upon a number of key management and technical employees. The loss of the
services of one or more key employees, including Lawrence W. Rosenfeld, the
Company's Chairman and Chief Executive Officer, could have a material adverse
effect on the Company. In addition, the Company's success will depend in
significant part upon its ability to attract and retain highly-skilled
management, technical, and sales and marketing personnel. Competition for such
personnel is intense and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. See "Executive Officers
of the Registrant."
Management of Growth. The Company's business has grown significantly over
the past several years as a result of both internal growth and business and
product acquisitions. The Company may make additional acquisitions in the
future. Managing this growth and integrating acquired products and businesses
require a significant amount of management time and skill. There can be no
assurance that the Company will be effective in managing its future growth or in
assimilating acquisitions or that any failure to manage growth or assimilate an
acquisition will not have a material adverse effect on the Company's business,
operating results or financial condition.
International Operations. The Company's international revenues were $12.0
million, $7.7 million and $6.7 million in the fiscal years ended 1997, 1996 and
1995 respectively, representing 50.0%, 37.3% and 33.2%, respectively, of the
Company's revenues in such years. Although the Company expects that
international revenues will fluctuate from period to period, it expects such
revenues to account for a significant percentage of its revenues in the future.
The international portion of the Company's business is subject to a number of
inherent risks, including difficulties in building and managing international
operations, difficulties in managing distributors, difficulties in translating
products into foreign languages, fluctuations in the value of foreign
currencies, import/export duties and quotas and unexpected regulatory, economic
or political changes in international markets. There can be no assurance that
these factors will not adversely affect the Company's international revenues or
its overall financial performance. See "Business - Sales and Marketing."
Forward-Looking Statements. The Private Securities Litigation Reform Act of
1995 contains certain safe harbors regarding forward-looking statements. From
time to time, information provided by the Company or statements made by its
directors, officers or employees may contain "forward-looking" information
subject to numerous risks and uncertainties. Any statements made herein that are
not statements of historical fact are forward-looking statements including, but
not limited to, statements concerning the characteristics and growth of the
Company's markets and customers, the Company's objectives and plans for future
operations and products and the Company's expected liquidity and capital
resources. Such forward-looking statements are based on a number of assumptions
and involve a number of risks and uncertainties, and, accordingly, actual
results could differ materially. Factors that may cause such differences
include, but are not limited to: the continued and future acceptance of the
Company's products; the rate of growth in the industries of the Company's
products; the presence of competitors with greater technical, marketing and
financial resources; the Company's ability to promptly and effectively respond
to technological change to meet evolving customer needs; risks associated with
sales in foreign countries; and the Company's ability to successfully expand its
operations.
30
<PAGE> 124
ITEM 8 - FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
CONCENTRA CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Page(s)
<S> <C>
Report of Independent Accountants ............................................................. 32
Consolidated Balance Sheets as of March 31, 1997 and 1996 ..................................... 33
Consolidated Statements of Operations for the years ended March 31, 1997, 1996 and 1995 ....... 34
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended March 31, 1997,
1996 and 1995 ............................................................................ 35
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and 1995 ....... 36
Notes to Consolidated Financial Statements .................................................... 37-50
</TABLE>
31
<PAGE> 125
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Concentra Corporation:
We have audited the accompanying consolidated balance sheets of Concentra
Corporation as of March 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Concentra
Corporation as of March 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.
s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 7, 1997
32
<PAGE> 126
<TABLE>
CONCENTRA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
March 31,
---------------------------
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,890 $ 9,121
Marketable securities 203 --
Accounts receivable, net of allowance for doubtful accounts of $125 and $190 14,050 8,284
Other current assets 693 628
-------- --------
Total current assets 18,836 18,033
Property and equipment, net 2,612 3,241
Capitalized software costs, net 1,878 1,268
Intangible assets, net 1,333 2,232
Other assets 372 335
-------- --------
Total assets $ 25,031 $ 25,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,551 $ 1,173
Accrued expenses 4,123 2,177
Income tax payable 273 200
Deferred revenue 2,898 1,848
Deferred revenue from related parties -- 93
Current portion of capital lease obligations 423 363
-------- --------
Total current liabilities 9,268 5,854
Capital lease obligations 611 798
Deferred revenue 84 150
Commitments and contingencies (Note E) -- --
Stockholders' equity:
Preferred stock - $.01 par value; 4,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock - $.00001 par value; 40,000,000 shares authorized, 5,499,211
and 5,333,651 shares issued and outstanding at March 31, 1997 and 1996 -- --
Additional paid-in capital 25,578 24,809
Accumulated deficit (10,099) (6,159)
Cumulative translation adjustment (411) (343)
-------- --------
Total stockholders' equity 15,068 18,307
-------- --------
Total liabilities and stockholders' equity $ 25,031 $ 25,109
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 127
<TABLE>
CONCENTRA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<CAPTION>
Year Ended March 31,
--------------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Software licenses $17,670 $13,133 $10,050
Services 6,797 7,135 8,004
Related party software and services 104 452 2,163
------- ------- -------
Total revenues 24,571 20,720 20,217
Operating expenses:
Cost of software licenses 2,073 1,337 1,328
Cost of services 4,410 2,677 1,928
Sales and marketing 14,541 11,622 8,887
Research and development 3,558 2,849 2,423
General and administrative 2,655 2,511 1,971
Provision for bad debts 1,544 101 173
Restructuring charge 239 196 --
------- ------- -------
Total operating expenses 29,020 21,293 16,710
(Loss) income from operations (4,449) (573) 3,507
Interest income 296 682 174
Interest expense (105) (54) (323)
Other income (expense) 458 (10) 300
------- ------- -------
(Loss) income before income taxes (3,800) 45 3,658
Provision for income taxes 140 9 559
------- ------- -------
Net (loss) income (3,940) 36 3,099
Accretion of redeemable common stock -- -- 223
------- ------- -------
Net (loss) income available to common stockholders $(3,940) $ 36 $ 2,876
======= ======= =======
Net (loss) income per common and common equivalent share $ (0.73) $ 0.01 $ 0.74
======= ======= =======
Weighted average number of common and common equivalent
shares outstanding 5,391 5,750 3,865
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE> 128
<TABLE>
CONCENTRA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(In thousands, except share data)
<CAPTION>
SERIES A
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
------------------------------------------ PAID-IN ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 220,953 $ 3,766 2,803,701 -- $ 1,121 $ (9,294) $ (51) $(4,458)
-------- ------- --------- ----- ------- -------- ----- -------
Shares issued in connection
with initial public offering -- 1,700,000 -- 17,718 17,718
Shares issued in connection
with conversion of preferred
stock to common stock (220,953) (3,766) 401,732 3,766 --
Conversion of redeemable
common stock into common
stock 271,968 2,000 2,000
Stock options exercised 69,774 171 171
Accretion of redeemable
common stock to
redemption value (223) (223)
Translation adjustment (400) (400)
Net income -- -- -- -- -- 3,099 -- 3,099
-------- ------- --------- ----- ------- -------- ----- -------
Balance at March 31, 1995 -- -- 5,247,175 -- 24,553 (6,195) (451) 17,907
-------- ------- --------- ----- ------- -------- ----- -------
Stock options exercised 79,152 224 224
Shares issued in connection with
employee stock purchase plan 7,324 32 32
Translation adjustment 108 108
Net income -- -- -- -- -- 36 -- 36
-------- ------- --------- ----- ------- -------- ----- -------
Balance at March 31, 1996 -- -- 5,333,651 -- 24,809 (6,159) (343) 18,307
-------- ------- --------- ----- ------- -------- ----- -------
Stock options exercised 142,070 667 667
Shares issued in connection with
employee stock purchase plan 23,490 102 102
Translation adjustment (68) (68)
Net loss -- -- -- -- -- (3,940) -- (3,940)
-------- ------- --------- ----- ------- -------- ----- -------
Balance at March 31, 1997 -- -- 5,499,211 -- $25,578 $(10,099) $(411) $15,068
======== ======= ========= ===== ======= ======== ===== =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE> 129
<TABLE>
<CAPTION>
CONCENTRA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Year Ended March 31,
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(3,940) $ 36 $ 3,099
Adjustments to reconcile net income (loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 2,413 1,362 715
Foreign exchange loss (gain) 166 38 (308)
Provision for bad debts 1,544 101 173
Change in net unrealized holding gain on trading security (203) -- --
Changes in operating assets and liabilities:
Accounts receivable (7,288) (2,546) (1,666)
Other assets (102) (244) (228)
Accounts payable 382 48 491
Accrued expenses 1,883 (890) (585)
Deferred revenue 875 (1,591) (262)
Income taxes payable 73 (212) 315
------- -------- --------
Net cash (used in) provided by operating activities (4,197) (3,898) 1,744
------- -------- --------
Cash flows used in investing activities:
Capitalized software costs (970) (865) (416)
Purchase of property and equipment (326) (1,928) (422)
Purchase of intangible assets (96) (1,322) (61)
------- -------- --------
Net cash used in investing activities (1,392) (4,115) (899)
------- -------- --------
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net of issuance cost 102 32 17,718
Proceeds from exercise of stock options 667 224 171
Repayment of advances from corporate partners -- -- (2,276)
Principal payments under capital lease obligations (230) (243) (98)
Repayment of related party note payable -- -- (746)
------- -------- --------
Net cash provided by financing activities 539 13 14,769
------- -------- --------
Effects of exchange rates on cash and cash equivalents (181) 111 (162)
Net (decrease) increase in cash and cash equivalents (5,231) (7,889) 15,452
Cash and cash equivalents at beginning of year 9,121 17,010 1,558
------- -------- --------
Cash and cash equivalents at end of year $ 3,890 $ 9,121 $ 17,010
======= ======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 106 $ 54 $ 260
Income taxes paid 67 221 244
Supplemental disclosure of non-cash investing and financing activities:
Purchase of intangible asset -- -- 1,000
Equipment acquired under capital lease obligations 139 1,183 242
Conversion of redeemable common stock to common stock -- -- 2,000
Conversion of preferred stock to common stock -- -- 3,766
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE> 130
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS
Description of Business
Concentra Corporation, formerly ICAD, Inc. (the "Company") was incorporated
in April 1984 and operates in one business segment. The Company develops,
markets and supports software products that automate the engineering and sales
process.
The Company is subject to a number of risks similar to other companies in
the industry, including dependence on two principal products, concentration of
customers, competition from substitute products and larger companies, rapid
technological change, uncertainty of market acceptance of products, dependence
on third-party licensed technology and proprietary technology, dependence on
key personnel, dependence on domestic and international distributors and
resellers, the need to obtain additional financing, and the risks associated
with international operations.
The Company has experienced and may experience in the future significant
quarter-to-quarter fluctuations in its operating results. Factors such as the
timing of significant orders, the timing of new product introductions and
upgrades, the length of customer product evaluation periods, the mix of products
sold and the mix of domestic versus international revenues could contribute to
this quarterly variability. A substantial portion of the Company's revenues in a
quarter are derived from purchase orders received in that quarter, which makes
the Company's financial performance more susceptible to an unexpected downturn
in business and more unpredictable. In addition, the Company's expenses levels
are based in part on expectations of future revenue levels and a shortfall in
expected revenues could therefore result in a disproportionate decrease in the
Company's net income.
B. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned foreign subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact financial position, results of operations and cash flows.
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents. Those
instruments with maturities between three months and twelve months are
considered to be short-term marketable securities and investments with
maturities of greater than one year are classified as long-term marketable
securities.
Cash equivalents, which include debt securities, are carried at amortized
cost plus accrued interest which approximates fair value.
37
<PAGE> 131
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Upon being subject to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
classified a previously owned common stock investment as a trading security.
Trading securities are carried at their fair market value based upon the quoted
market prices in effect at the balance sheet date. Net unrealized gains on
trading securities of approximately $203,000 are included in other income
(expense) for the year ended March 31, 1997.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the following estimated useful lives:
Computer equipment 3-5 years
Furniture and fixtures 5-7 years
Amortization of leasehold improvements is computed on a straight-line
method over the shorter of the estimated useful life of the leasehold
improvements or the remaining term of the lease.
Expenditures for maintenance, repairs and renewals that neither materially
add to the value of the property nor appreciably prolong its life are charged to
expense as incurred. When assets are retired or disposed of, the assets and
related allowances for depreciation are eliminated from the accounts and any
resulting gain or loss is reflected in operations.
Research and Development and Capitalized Software Costs
Costs incurred prior to the establishment of technological feasibility are
charged to research and development expense. Software production costs incurred
subsequent to the establishment of technological feasibility are capitalized
until the product is available for general release to customers. Amortization of
capitalized software costs are recognized on a straight-line basis over the
estimated economic lives of the related products of three years, which amount is
greater than the amount computed using the ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues for that
product.
Amortization of capitalized software costs, included in cost of software
licenses, amounted to approximately $360,000, $290,000 and $174,000 for the
years ended March 31, 1997, 1996 and 1995, respectively.
Intangible Assets
Intangible assets, which represent various software licenses, are recorded
at cost and are amortized over their estimated useful lives of three to five
years. Amortization of intangible assets amounted to approximately $995,000,
$317,000 and $141,000 for the years ended March 31, 1997, 1996, and 1995,
respectively, and are included in cost of software licenses.
During 1995, the Company entered into a five year software license
agreement with a significant customer and marketing partner. The agreement
required an upfront fee of $1,000,000, as well as additional payments (See Note
E) for the use of software which is embedded in certain of the Company's
products. This asset is being amortized over the five year life of the
agreement.
38
<PAGE> 132
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
Revenue from software license agreements is recognized upon shipment of the
license provided that no significant vendor obligations remain outstanding and
collection of the related receivable is deemed probable by management. Revenue
from annual or multi-year maintenance agreements, including maintenance bundled
in initial software licenses, is recognized ratably over the term of the
agreements. Revenue from consulting and training agreements is recognized as the
services are performed.
Income Taxes
The Company provides taxes for income based on the liability method, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred taxes are determined
based on the difference between the income tax bases of assets and liabilities
and the corresponding financial reporting amounts using enacted tax rates in
effect in the years in which the differences are expected to reverse. The
Company provides a valuation allowance against net deferred tax assets if, based
upon the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Foreign Currency
Assets and liabilities of the Company's foreign subsidiaries are translated
at the exchange rates in effect at year end. Revenues and expenses are
translated using currency exchange rates in effect during the year. Gains or
losses resulting from translation adjustments are reported as a separate
component of stockholders' equity. Foreign exchange (losses) gains resulting
from intercompany foreign currency transactions of approximately $(166,000),
$(38,000) and $308,000 for the years ended March 31, 1997, 1996 and 1995,
respectively, are included in other income and expense.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of temporary cash investments and trade
receivables.
The Company invests its cash balances with banks and other financial
institutions. As of March 31, 1997 and 1996, the Company had $0 and $3,962,000,
respectively, of cash equivalents invested in commercial paper which are
considered to be cash equivalents due to their short-term maturity. The Company
also has cash equivalents which are comprised of a repurchase agreement with a
bank and U.S. Treasury Securities. The carrying amount of these cash equivalents
approximates fair value because of their short-term maturity. The Company does
not require collateral on its repurchase agreements.
Credit risk with respect to trade receivables is concentrated due to the
limited amount of large orders recorded in any particular reporting period. The
Company regularly extends payment terms with new and existing customers to close
business in a particular reporting period. The Company does not require
collateral, letters of credit, or other security to support customer
receivables. The Company's credit review procedures are generally more limited
for overseas customers and the Company has experienced greater credit losses
with such overseas customers than anticipated. In some cases, the Company does
have private foreign credit insurance to protect against foreign credit losses.
Due to the factors discussed above, it is reasonably possible that the Company's
estimate for doubtful accounts could differ from actual experience and adversely
impact the Company's financial position, results of operations and cash flows.
39
<PAGE> 133
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Income (Loss) Per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is based upon the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares are included in the per share calculations where the
effect of their inclusion would be dilutive.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83 ("SAB No. 83"), all common and common equivalent shares issued
during the twelve month period prior to the initial public offering ("cheap
stock") which was completed on February 6, 1995, have been included in the
calculation as if they were outstanding for all periods. As permitted under SAB
No. 83, these common equivalent shares, which consist of stock options, were
determined using the treasury stock method and the initial public offering
("IPO") price of $12.00 per share. In the computation of net income (loss) per
common and common equivalent share, accretion of redeemable common stock is
included as a decrease in net income or increase in net loss available to common
stockholders. Series A Preferred Stock is not considered a common stock
equivalent based on its effective yield to maturity.
Fully diluted net income (loss) per common and common equivalent share did
not differ materially from primary net income (loss) per common and common
equivalent share.
Newly Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which is effective for fiscal years ending after December 15, 1997, including
interim periods. Earlier application is not permitted. However, an entity is
permitted to disclose pro forma earnings per share amounts computed using SFAS
128 in the notes to financial statement in periods prior to adoption. SFAS 128
requires restatement of all prior-period earnings per share data presented upon
adoption. SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share and is substantially similar to the standard
recently issued by the International Accounting Standards Committee entitled
International Accounting Standard, Earnings per Share ("IAS 33"). The Company is
required to adopt SFAS 128 in the fourth quarter of 1997 and has not yet
determined the impact.
C. CASH AND CASH EQUIVALENTS
<TABLE>
Cash and cash equivalents consist of the following investments (in
thousands):
<CAPTION>
March 31,
-------------------
1997 1996
<S> <C> <C>
Demand Deposits and CDs $1,762 $1,387
U.S. Treasury Securities 2,128 3,772
Commercial Paper - 3,962
------ ------
$3,890 $9,121
====== ======
</TABLE>
40
<PAGE> 134
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following (in thousands):
<CAPTION>
March 31,
-------------------
1997 1996
<S> <C> <C>
Computer equipment $4,353 $4,054
Furniture and fixtures 1,615 1,538
Leasehold improvements 1,142 1,091
------ ------
7,110 6,683
Less accumulated depreciation and amortization 4,498 3,442
------ ------
$2,612 $3,241
====== ======
</TABLE>
Depreciation and amortization expense was approximately $1,056,000,
$761,000 and $400,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
Fully depreciated assets of $240,000 were retired during fiscal year 1996
pursuant to the Company's relocation of facilities.
<TABLE>
Property and equipment under capital leases consists of the following (in
thousands):
<CAPTION>
March 31,
-----------------
1997 1996
<S> <C> <C>
Computer equipment $1,109 $ 988
Furniture and fixtures 739 721
------ ------
1,848 1,709
Less accumulated amortization 1,067 572
------ ------
$ 781 $1,137
====== ======
</TABLE>
E. COMMITMENTS AND CONTINGENCIES
Line of Credit
On June 20, 1996, the Company renewed its demand line of credit of
$2,500,000 with a commercial bank pursuant to the terms under the unsecured
working capital line of credit. This line of credit bears interest at the bank's
base lending rate, and expires on June 30, 1997. There were no amounts
outstanding under the working capital line of credit at March 31, 1997 or 1996.
The line of credit contains financial covenants which consist of minimum
tangible capital base, ratio of total liabilities to tangible capital base and
debt service coverage. The Company is currently in violation of these covenants
and is negotiating with the commercial lender to extend and amend the demand
line of credit. There can be no assurance that the Company will be successful in
extending and amending the line of credit nor can there be any assurance that
such extended and amended line of credit will be on similar terms as the
existing agreement. Additionally, there can be no assurance that alternative
funding will be available if required.
41
<PAGE> 135
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Capital and Operating Leases
The Company has a $1,750,000 equipment line of credit, collateralized by
the equipment, bearing interest at the bank's base lending rate and expired on
March 31, 1997. The Company is currently negotiating with the commercial lender
to extend and amend the equipment line of credit. As of March 1997, the Company
purchased $1,322,000 of furniture and computer equipment under the equipment
line of credit.
The Company has entered into certain operating lease agreements for
computer equipment and its office and sales facilities, expiring through fiscal
2001. The Company also leases certain computer equipment and furniture and
fixtures under capital leases. Under the terms of certain operating lease
agreements, the Company may be required to pay for utilities, real estate taxes,
insurance and maintenance expenses.
On June 2, 1995, the Company signed a new five year operating lease for its
corporate headquarters. The terms of the new lease provide that the Company will
make annual rental payments of approximately $202,000.
<TABLE>
At March 31, 1997, approximate future minimum lease payments under capital
and operating leases are as follows (in thousands):
<CAPTION>
Year ended March 31, Capital Leases Operating Leases
-------------------- -------------- ----------------
<S> <C> <C>
1998 $ 400 $ 438
1999 339 413
2000 339 252
2001 122 84
2002 25 -
------ ------
Total future minimum lease payments 1,225 $1,187
======
Amount representing interest (191)
------
Present value of future minimum lease
payments on capital leases 1,034
Current portion (423)
------
$ 611
======
</TABLE>
Rental expense under operating leases was approximately $588,000,
$1,005,000 and $1,191,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
42
<PAGE> 136
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Royalty and Consulting Arrangements
During fiscal 1996 the Company entered into a $5,000,000 five year
applications consulting services contract with a significant customer of the
Company. The five year applications consulting services contract contains
volume pricing discounts subject to adjustments for increased costs. The
Company has a minimum commitment of $2,500,000 for outside applications
services that will be used by the Company over a five year period. The minimum
commitment of $2,500,000 will be paid in five yearly payments commencing
December 31, 1996. These yearly payments are $250,000, $500,000, $550,000,
$600,000 and $600,000 for the five calendar years beginning December 31, 1996,
respectively. The Company's policy is to recognize the consulting service
expenses as the expenses are incurred. The Company believes that based on
current forecasts the minimum payment accruals will be utilized. However, given
the significant sales fluctuations which may occur in any given period, it is
possible that the minimum commitment would not be met, thus requiring the
Company to record a charge in excess of the services utilized. At March 31,
1997, the Company did not use the minimum first-year commitment of $250,000 and
has recorded an asset for the unused portion, that can be carried forward under
the contract, of $88,000. The Company has included such amount in other current
assets and expects to recognize this amount, along with the fiscal 1998 minimum
commitment, during the next fiscal year. Pursuant to this reciprocal buying
agreement, the Company recognized revenue and collected cash in the amount of
$1,805,000 upon the execution and delivery of software with respect to the
software license agreement for the year ended March 31, 1996.
If the Company does not make the Fixed Payments in a timely manner, the
customer or its assigns may, at their option, gain access to the source code
through an escrow arrangement and may market KBCar to others or require the
Company to market to others in order to regain any shortfall in the Fixed
Payments. This remedy is not available in the event of a failure to make the
Variable Payments.
During fiscal 1996 the Company entered into a distribution agreement with
this same significant customer to exclusively distribute the Company's products
to the customer's group of companies. The Company also licensed, through this
customer as a distributor, $500,000 of ICAD software. In addition, the Company
licensed through the distributor use of 100 copies of the software application
known as Obedient Mannequin ("OM") for $1,265,000, in addition to the continuing
rights to OM for $50,000 on an exclusive, perpetual basis. Additionally, the
Company licensed to the customer for $50,000, an unlimited number of copies of
the product known as Concept Car ("CC"). The customer also granted to the
Company the exclusive rights to distribute the product known as KBCar which
property includes both CC and OM. The customer also agreed to continue the
development and enhancement of KBCar. The royalty paid to the customer is 50% of
the net revenue after payment of all royalties to third parties. To date, there
have been no revenues generated from KBCar.
During fiscal 1995 the Company entered into a five year license and royalty
agreement, as amended, with a significant customer and marketing partner of the
Company (See Note H). Pursuant to this agreement, the Company recognized revenue
and collected cash in the amount of $1,000,000 upon the execution and delivery
of software with respect to this software license arrangement. In addition, the
Company, in connection with an arrangement to license a software module from
this significant customer, has paid $1,000,000 in prepaid royalties to be
amortized over the life of the five year agreement, commencing January 1, 1995.
Also, during fiscal 1996 the Company paid additional royalty amounts of
$1,000,000 in four quarterly installments. The Company amortizes these
additional royalty payments to cost of software licenses based upon
predetermined percentages of revenues generated from the sale of product.
F. INCOME TAXES
<TABLE>
The components of the provision for income taxes consist of the following
(in thousands):
<CAPTION>
Year Ended March 31,
------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $344
Foreign 120 -- 108
State 20 9 107
---- ---- ----
140 9 559
Deferred:
Federal -- -- --
State -- -- --
---- ---- ----
-- -- --
---- ---- ----
$140 $ 9 $559
==== ==== ====
</TABLE>
43
<PAGE> 137
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
Income (loss) before income taxes for domestic and foreign operations are
as follows (in thousands):
<CAPTION>
Year Ended March 31,
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Domestic $(2,240) $ 828 $3,668
Foreign (1,560) (783) (10)
------- ----- ------
$(3,800) $ 45 $3,658
======= ===== ======
</TABLE>
<TABLE>
The following is a reconciliation between the U.S. federal statutory rate
and the effective tax rate:
<CAPTION>
Year Ended March 31,
---------------------------
1997 1996 1995
<S> <C> <C> <C>
U.S. federal statutory rate (34.0)% 34.0% 34.0%
State taxes, net of applicable federal tax benefit .3 13.2 1.9
Foreign withholding tax 3.2 -- 2.9
Losses not benefited 33.5 -- --
Net operating loss utilized -- -- (12.8)
Other reductions in valuation allowance -- (60.1) (12.4)
Non-deductible meals and entertainment .7 32.9 1.7
---- ----- -----
3.7% 20.0% 15.3%
==== ===== =====
</TABLE>
<TABLE>
The following represents the significant components of the Company's net
deferred tax assets (in thousands):
<CAPTION>
March 31,
--------------------
1997 1996
<S> <C> <C>
Deferred tax assets (liabilities):
Federal net operating losses $ 2,144 $ 1,196
Tax credit carryforwards 1,426 1,398
Foreign net operating loss 1,793 1,272
Deferred revenue -- 68
Difference in cost recognition basis, accrual
for books and cash for tax 456 402
Depreciation and amortization 200 103
State tax credits and net operating
losses, net of federal benefit 717 440
Capitalized software (756) (510)
Valuation allowance for deferred tax assets (5,980) (4,369)
------- -------
$ -- $ --
======= =======
</TABLE>
The Company believes there is uncertainty surrounding the realization of
favorable tax benefits in future tax returns; accordingly the net deferred tax
assets at March 31, 1997 and 1996 have been fully offset by a valuation
allowance.
44
<PAGE> 138
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of March 31, 1997, the Company had approximately $6,305,000 of net
operating loss carryforwards for federal income tax purposes which begin to
expire in the years 2008 through 2012. Approximately $737,000 of the Company's
net operating loss is attributable to the exercises of stock options which, when
utilized, will be credited to additional paid in capital. Pursuant to a change
in ownership, $2,700,000 of the federal net operating loss is subject to an
annual limitation of approximately $150,000. The Company has research and
development credits for federal and state income tax purposes of approximately
$860,000 and $314,000, respectively, that begin to expire in 2000. Foreign tax
credit carryforwards of approximately $507,000 expire in the years 1998 through
2001. Alternative minimum tax credits of approximately $60,000 carries forward
indefinitely. The Company has net operating loss carryforwards in foreign
jurisdictions of approximately $4,924,000 of which approximately $1,083,000
expire in the years 1997 through 2001.
G. SIGNIFICANT CUSTOMERS
<TABLE>
The following represents significant customer revenue:
<CAPTION>
Year Ended March 31,
-------------------------
1997 1996 1995
<S> <C> <C> <C>
Customer A 20.9% 16.0% 12.6%
Customer B 19.3% -- --
Customer C 14.9% -- --
Customer D 4.2% -- --
Customer E 3.3% 6.5% 17.2%
---- ---- ----
62.6% 22.5% 29.8%
==== ==== ====
</TABLE>
H. RELATED PARTY TRANSACTIONS
The Company acquired Wisdom Systems, Inc. ("Wisdom"), a developer of
mechanical design automation software products in June 1993, from its parent
(the "Parent").
In June 1993, the Company and an affiliate of the Parent (the
"Distributor"), entered into a fixed fee distribution license agreement for the
Italian market. The Distributor purchased for resale 40 licenses totaling
$1,200,000, payable in four equal quarterly installments of $300,000, commencing
on July 1, 1993.
In June 1993, the Company and the Parent entered into a fixed fee license
agreement for 60 licenses totaling $2,800,000, which agreement was subsequently
assigned to an affiliate of the Parent (the "End-User"). License fees totaling
approximately $600,000 were paid based upon the shipment of the master version
of the licensed products. In September 1994, the Company shipped the master
version of the enhanced licensed products as required under the agreement and
the remaining fixed fee amount of $2,200,000 became payable over one year which
was repaid in full during fiscal 1995.
45
<PAGE> 139
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has recognized approximately $104,000 and $452,000 in service
revenues during fiscal 1997 and 1996 respectively under the aforementioned fixed
fee arrangements. The Company has deferred revenue for the product enhancement
privileges which include and extend to any replacement products introduced prior
to installation of the respective licenses. The deferred amounts were determined
using the Company's standard European maintenance fee. These fees are being
amortized over three years based upon the Distributor contract term of three
years and the installation schedule of the End User. The Company delivered the
master versions of the licensed products. There is no right of refund or
adjustment to the amounts received or remaining significant obligations.
I. STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
On November 18, 1994, the Board of Directors authorized 4,000,000 shares of
$.01 par value Preferred Stock. The Board of Directors is authorized, subject to
certain limitations prescribed by law, without further stockholder approval, to
issue from time to time up to an aggregate of 4,000,000 shares of Preferred
Stock in one or more series and to fix the designations, preferences,
qualifications and limitations on restrictions of the shares of each said
series, including the dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights and the number of shares constituting any series.
Preferred Share Purchase Rights
On April 21, 1997, the Board of Directors declared a dividend of one Right
for each outstanding share of Common Stock, par value $0.00001 per share, of the
Company. The Rights were distributed on April 24, 1997, to holders of record on
that date. The rights will expire on April 24, 2007. Each Right will entitle
shareholders to buy 1/1000 of a share of Series A preferred stock at an exercise
price of $30.00. Initially, no separate Rights certificates will be distributed.
The Rights will trade with the Company's Common Stock and will not be
exercisable until one of the following conditions occur: 1) the Company receives
notice of the acquisition of 20 percent or more of the Company's Common Stock by
a person or group; or 2) such date as the Company's Board of Directors
determines following the commencement of a tender offer for 20 percent or more
of the Company's Common Stock. At the discretion of the Board of Directors, the
Rights can be redeemed at any time prior to the date that the Rights become
exercisable. If the Rights are not redeemed by the Board, and the Company is
acquired, holders of the Rights (other than an "Acquiring Person") will be
entitled to purchase shares of Preferred Stock of the Company equivalent to
shares of Common Stock having a fair market value of twice the exercisable
price.
Stock Options
On September 15, 1987 and June 11, 1993, the Board of Directors and
stockholders approved the Company's 1987 Stock Plan and 1993 Stock Plan (the
"Plans"), respectively. The Plans provide for the granting of incentive stock
options to officers and employees, to purchase shares of the Company's common
stock at a price not less than fair value, as determined by the Board of
Directors, on the grant date. The Plans also provide for the granting of
non-qualified stock options or awards of Common Stock to employees, officers and
directors of and consultants to the Company. Options expire 10 years from the
date of grant. Certain executive officers have options that vest eight years
from the date of grant. If certain performance targets are met, 20% of these
options will vest linearly over three years annually from the time of
achievement so long as the executive officer continues to be employed by the
Company. At March 31, 1997, 1,794,477 shares of Common Stock are reserved for
issuance under the Plans.
46
<PAGE> 140
10-K
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
Information related to stock options granted under the Plans is as follows:
<CAPTION>
EXERCISABLE
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE NUMBER EXERCISE
SHARES OPTION PRICE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
Outstanding at March 31, 1994 719,385 $1.375 - $ 5.500 $3.91 281,205 $2.88
--------- ------ ------- ----- ------- -----
Granted 254,730 5.500 - 11.250 8.05
Canceled (110,273) 1.375 - 6.875 2.80
Exercised (24,319) 1.375 - 4.125 2.29
--------- ------ ------- -----
Outstanding at March 31, 1995 839,523 1.375 - 11.250 $5.25 305,540 $3.61
--------- ------ ------- ----- ------- -----
Granted 369,033 5.500 - 11.000 9.14
Canceled (52,061) 4.125 - 11.250 8.01
Exercised (79,152) 1.375 - 6.875 9.96
--------- ------ ------- ----- ------- -----
Outstanding at March 31, 1996 1,077,343 1.375 - 11.250 $6.44 464,004 $4.83
--------- ------ ------- ----- ------- -----
Granted 440,750 4.875 - 14.500 5.64
Canceled (135,304) 4.125 - 14.500 7.21
Exercised (142,070) 1.375 - 11.250 9.34
--------- ------ ------- ----- ------- -----
Outstanding at March 31, 1997 1,240,719 $1.375 - $14.500 $6.33 476,107 $5.55
========= ================ ===== ======= =====
</TABLE>
At March 31, 1997, options for 553,758 shares of Common Stock were
available for future grants.
At March 31, 1997, fully vested options not issued pursuant to the
Company's Plans to purchase an aggregate of 32,923 shares of Common Stock at a
weighted average exercise price of $0.00006 are outstanding.
On October 24, 1995, the stockholders approved the Company's 1995 Employee
Stock Purchase Plan (the "Stock Purchase Plan"), which is intended to qualify as
an employee stock purchase plan under Section 423 of the Internal Revenue Code.
The Stock Purchase Plan covers up to 440,000 shares of the Company's Common
Stock. At March 31, 1997, 30,814 shares of Common Stock were issued under the
Stock Purchase Plan.
Stock Compensation Plan
At March 31, 1997, the Company has several stock-based compensation plans,
which are described above. The Company applies Accounting Principles Board
Opinion No. 25 ("APB Opinion 25"), "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan. Had compensation cost for the Company's two stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the
47
<PAGE> 141
10-K
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
method prescribed by Statement of Financial Accounting Standards No. 123 ("SFAS
123") "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
---- ----
<S> <C> <C>
Net (loss) income
As reported $(3,940) $ 36
Pro forma* $(4,791) $ (635)
Primary earnings per share
As reported $ (0.73) $ 0.01
Pro forma* $ (0.88) $(0.11)
</TABLE>
*SFAS No. 123 requires pro forma disclosure of the effect of all options
granted in fiscal years after March 31, 1995; therefore, there are no pro forma
amounts required for fiscal 1995. The pro forma effect of the compensation cost
determined using the fair value-base method are not indicative of future amounts
when the new method will apply to all vested and non-vested awards.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. In computing these pro forma amounts,
the Company has assumed weighted-average assumptions used for grants in 1997 and
1996, respectively; dividend yield of 0.0%; expected volatility of 80 percent;
weighted average risk-free interest rates of 5.96% and 5.96%; and expected lives
of five years. The average fair value of the options granted during 1997 and
1996 is estimated as $3.84 and $6.23, respectively, on the date of the grant.
Fixed Stock Option Plans
The Company has two fixed option plans. Under the 1987 Employee Stock
Option Plan, the Company may grant options to its employees for up to 909,091
shares of common stock. Under the 1993 Employee Stock Option Plan, the Company
may grant options to its employees for up to 1,159,091 shares of common stock.
Under the plans, the exercise price of each option equals the market price of
the Company's stock on the date of grant and option's maximum term is 10 years.
Options are granted throughout the year and typically begin vesting at the end
of the first year under the Plans.
The following table summarizes information about fixed stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 3/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 3/31/97 EXERCISE PRICE
--------------- ---------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$0.0001 - $ 2.7500 73,959 2.09 $1.2503 73,595 $ 1.2496
$4.1250 - $ 4.1250 318,413 5.96 $4.1250 266,470 $ 4.1250
$4.8750 - $ 4.8750 327,400 9.01 $4.8750 -- --
$5.0000 - $ 9.2500 225,494 7.88 $6.9141 75,450 $ 6.8034
$9.5000 - $14.5000 328,376 7.18 $9.9613 93,515 $10.0367
</TABLE>
This table includes 32,923 options that are not part of either stock
option plan.
48
<PAGE> 142
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
J. FOURTH QUARTER ADJUSTMENTS AND CHARGES
The Company recorded net adjustments affecting receivables of approximately
$1,544,000 in the fourth quarter of fiscal 1997. Of this amount, $1,026,000
relates to an increase in the provision for doubtful accounts which the Company
recorded after repeated unsuccessful attempts were made to collect certain
receivables. This provision is principally made up of one large domestic
receivable and two international receivables. Notwithstanding this fourth
quarter provision, the Company is continuing to pursue collection of these
receivables. The remaining $518,000 relates to a receivable recorded in the
first quarter to a new customer. This customer experienced turnover of the key
officer who committed their respective company to the license agreement. In the
fourth quarter of fiscal 1997, the Company recorded the provision based upon the
customer's refusal to honor the prior contract.
The Company recorded a restructuring charge of approximately $239,000 in
the fourth quarter consisting of severance costs associated with the termination
of fourteen employees for fiscal 1997. At March 31, 1997, the outstanding unpaid
balance of $216,000 is included in accrued expenses.
The Company also recorded in other income a gain of $203,000 based upon
classifying a common stock investment as a trading security.
K. ACCRUED EXPENSES
<TABLE>
Accrued expenses consist of the following (in thousands):
<CAPTION>
Year Ended March 31,
---------------------
1997 1996
<S> <C> <C>
Compensation $1,347 $ 767
Value-added tax 922 255
Other 1,854 1,155
------ ------
$4,123 $2,177
====== ======
</TABLE>
L. DEFINED CONTRIBUTION PLAN
In 1991, the Board of Directors adopted the Company's 401(k) Plan (the
"401(k) Plan"), which is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). All employees who are at
least 21 years of age and have been employed by the Company for at least six
months are eligible to participate in the 401(k) Plan. Each eligible employee
may elect to contribute to the 401(k) Plan, through payroll deductions, up to
15% of his or her salary, subject to statutory limitation.
The Company may at its discretion make matching contributions on behalf of
each participating employee in an amount equal to some uniform percentage fixed
from time to time by the Board of Directors. The Company is not currently making
matching contributions. If the Company were to do so in the future, under the
current terms of the 401(k) Plan, employees would become vested in such Company
contributions at the rate of 25% per year of service.
49
<PAGE> 143
CONCENTRA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. GEOGRAPHIC DATA
The Company has subsidiaries in various foreign countries in Europe, which
sell the Company's products and services in their respective geographic areas.
Revenues are reflected in the geographic areas from which the sales are made.
Financial information, summarized by geographic area, is as follows (in
thousands):
<TABLE>
<CAPTION>
North America Europe Eliminations Consolidated
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Total revenues:
Unaffiliated customers $ 17,491 $ 6,976 $ -- $ 24,467
Affiliated customers (Note H) 104 -- -- 104
Intercompany transfers 3,526 -- (3,526) --
-------- ------- ------- --------
Total $ 21,121 $ 6,976 $(3,526) $ 24,571
======== ======= ======= ========
Net income (loss) $ (2,380) $(1,560) $ -- $ (3,940)
======== ======= ======= ========
Identifiable assets $ 19,738 $ 5,293 $ -- $ 25,031
======== ======= ======= ========
Year ended March 31, 1996
Total revenues:
Unaffiliated customers $ 16,822 $ 3,446 $ -- $ 20,268
Affiliated customers (Note H) 452 -- -- 452
Intercompany transfers 1,297 -- (1,297) --
-------- ------- ------- --------
Total $ 18,571 $ 3,446 $(1,297) $ 20,720
======== ======= ======= ========
Net income (loss) $ 819 $ (783) $ -- $ 36
======== ======= ======= ========
Identifiable assets $ 21,903 $ 3,206 $ -- $ 25,109
======== ======= ======= ========
Year ended March 31, 1995
Total revenues:
Unaffiliated customers $ 14,696 $ 3,358 $ -- $ 18,054
Affiliated customers (Note H) 2,163 -- -- 2,163
Intercompany transfers 1,283 -- (1,283) --
-------- ------- ------- --------
Total $ 18,142 $ 3,358 $(1,283) $ 20,217
======== ======= ======= ========
Net income (loss) $ 3,110 (11) -- $ 3,099
======== ======= ======= ========
Identifiable assets $ 23,669 $ 2,793 $ -- $ 26,462
======== ======= ======= ========
</TABLE>
- --------------------------------------------------------------------------------
Intercompany transfers primarily represent shipments of software to
international subsidiaries and are eliminated from consolidated revenues.
Export sales to unaffiliated customers were approximately $5,400,000,
$3,829,000 and $1,197,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
50
<PAGE> 144
ITEM 9 - CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
- -------------------------------------------------------------------------------
DISCLOSURE
----------
None.
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report an certain information included therein
is incorporated herein by reference. Only those sections of the Proxy Statement
that specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation Committee Report
or the Performance Graph included in the Proxy Statement.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information concerning the Company's directors required by this Item is
incorporated by reference to the sections entitled "Proposal No.1 - Election of
Directors," "Meetings of the Board of Directors and Committees," and "Director
Compensation" in the Company's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on August 29, 1997.
The information concerning the Company's executive officers required by
this Item is incorporated by reference herein to this section of this Report in
Part I, Item 1, entitled "Executive Officers of the Registrant."
There is incorporated herein by reference to the discussion under
"Principal and Management Stockholders" in the Company's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held on August 29, 1997
the information with respect to delinquent filing of reports pursuant to section
16(a) of the Securities Exchange Act of 1934.
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
The information required by this Item is incorporated by reference to the
section entitled "Executive Compensation" in the Company's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held on August 29, 1997.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this Item is incorporated by reference to the
section entitled "Principal and Management Stockholders" in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held on
August 29, 1997.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this Item is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement for its Annual Meeting of Stockholders to
be held on August 29, 1997.
51
<PAGE> 145
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) The following documents are included as part of this report:
(1) FINANCIAL STATEMENTS
The following financial statements of the Company and the report
of the independent accountants are filed as part of this report:
Report of Independent Accountants
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Operations for the years ended
March 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
(3) EXHIBITS
Certain of the exhibits listed hereunder have been previously
filed with the Commission as exhibits to certain registration
statements as indicated in the footnotes below and are
incorporated herein by reference pursuant to Rule 411 promulgated
under the Securities Act of 1933 and Rule 24 of the Commission's
Rules of Practice. The location of each document so incorporated
is indicated by footnote.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- --------------------------------------------------------------------------------
+3.01 -- Restated Certificate of Incorporation of the Registrant, as
amended.
+ 3.02 -- Restated By-Laws of Registrant.
++++++ 3.03 -- Certificate of Designations.
+ 4.01 -- Specimen Stock Certificate for Common Stock, $.00001 par
value.
++++++ 4.02 -- Rights Agreement dated April 24, 1997 between the
Registrant and the First National Bank of Boston.
++++++ 4.03 -- Form of Rights Certificate representing Right to Purchase
shares of Series A Participating Cumulative Preferred
Stock.
+10.01 -- Noncompetition and Termination Agreement dated June 16, 1993
between the Registrant and Lawrence W. Rosenfeld.
+10.03 -- Employee Non-competition, Nondisclosure and Developments
Agreement between the Registrant and Garreth P. Evans.
+10.04 -- Employment Agreement between ICAD Engineering Automation
Ltd. and Garreth P. Evans.
+10.05 -- Letter Agreement amending Employment Agreement and Employee
Non-competition, Nondisclosure and Developments Agreement
of Garreth P. Evans
52
<PAGE> 146
+10.07 -- Employee Non-competition, Nondisclosure and Developments
Agreement between the Registrant and David I. Lemont.
+10.08 -- Form of Employee Non-competition, Nondisclosure and
Developments Agreement.
+10.09 -- Form of Indemnity Agreement between the Registrant and
each director and executive officer of the Registrant.
**+10.10 -- 1987 Stock Plan, together with forms of Stock
Option Agreements.
**+++++10.11 -- 1993 Stock Plan, together with forms of Stock
Option Agreements, as amended.
**+10.12 -- 1994 Non-Employee Directors Stock Option Plan.
**+++10.13 -- 1995 Employee Stock Purchase Plan.
+10.14 -- Registration Rights Agreement dated as of June 16, 1993 by
and among the Registrant, Elsag International N.V., Toyo
Corporation, Avrum P. Belzer, Steven J. Cucchiaro, Patrick
M. O'Keefe, David F. Place, and Lawrence W. Rosenfeld.
+10.15 -- Stock Option Agreement between the Registrant and Philip G.
Greenspun, together with Partial Assignment of Stock Options
to Mark A. Stull.
+++10.16 -- Credit Facility Agreement dated August 11, 1995 between the
Registrant and United States Trust Company.
++10.17 -- Lease dated June 2, 1995 between MTP Limited Partnership
and the Registrant for premises located at 21 North Avenue,
Burlington, Massachusetts, together with supplements.
++++10.18 -- Developer Software License Agreement between Franz, Inc. and
the Registrant, together with Amendment No. 1 (previously
filed as an Exhibit to the Registrant's Registration
Statement No. 33-86550) and Amendment No. 2 dated February
16, 1996 (filed herewith).
++*10.19 -- License Agreement dated June 21, 1989 between the Registrant
and McDonnell Douglas Corporation, together with Amendment
No. 1, Amendment No. 2 and letter agreement dated October
21, 1991 regarding the assignment of contracts to Electronic
Data Systems Corporation (previously filed as an Exhibit to
the Registrant's Registration Statement No. 33-86550) and
Amendments dated March 31, 1995 and June 26, 1995 (filed
herewith).
+10.20 -- Form of Software License Agreement.
+10.22 -- Corporate Software License Agreement dated September 29,
1990 between the Boeing Company and the Registrant, together
with Addendum No. 1 and Addendum No. 2.
+10.23 -- Corporate Software License Agreement dated June 16, 1993
between the Registrant and Elsag International N.V.,
together with letter agreement dated November 15, 1993
assigning rights to San Giorgio S.A.
+10.23.1 -- Letter agreement dated December 15, 1994 assigning rights
under Corporate Software License Agreement (Exhibit 10.23)
to Finmeccanica S.p.A.
+10.24 -- Exclusive Distributor Agreement dated June 16, 1993
between the Registrant and San Giorgio System Technology
S.p.A.
++21.01 -- Subsidiaries of Registrant.
+++++++23.01 -- Consent of Coopers & Lybrand L.L.P.
- -----------------
+ Previously filed as an Exhibit to the Registrant's Registration
Statement No. 33-86550.
++ Previously filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995.
+++ Previously filed with the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
++++ Previously filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996.
+++++ Previously filed with the Registrant's Definitive Proxy Statement
dated July 26, 1996.
++++++ Previously filed as an exhibit to the Registrant's Registration
Statement on Form 8-A filed on May 6, 1997.
+++++++ Filed herewith.
* Confidential treatment as to certain portions.
** Indicates an exhibit which constitutes an executive compensation plan.
53
<PAGE> 147
(b) Reports on Form 8-K
None.
54
<PAGE> 148
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONCENTRA CORPORATION
By: /s/ Alex N. Braverman
----------------------------------------
Alex N. Braverman
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
- -------------------------- ------------------------ -------------
<S> <C> <C>
/s/ Lawrence W. Rosenfeld
- -----------------------------
Lawrence W. Rosenfeld Chairman of the Board of June 27, 1997
Directors, President
and Chief Executive
Officer (Principal
Executive Officer)
/s/ Alex N. Braverman
- -----------------------------
Alex N. Braverman Vice President, June 27, 1997
Chief Financial
Officer and Treasurer
(Principal Financial
and Accounting Officer)
/s/ A. William Berkman, Jr.
- -----------------------------
A. William Berkman, Jr. Director June 27, 1997
/s/ Vincenzo Cannatelli
- -----------------------------
Vincenzo Cannatelli Director June 27, 1997
/s/ Stephen J. Cucchiaro
- -----------------------------
Stephen J. Cucchiaro Director June 27, 1997
/s/ Alberto de Benedictis
- -----------------------------
Alberto de Benedictis Director June 27, 1997
/s/ William E. Kelly
- -----------------------------
William E. Kelly Director June 27, 1997
</TABLE>
55
<PAGE> 149
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Balance at Charged to Additions Balance at
Beginning of Costs and Charged to End of
Description Period Expenses Other Accounts Deductions Period
- ----------- ------ -------- -------------- ---------- ------
<S> <C> <C> <C> <C> <C>8
Allowance for
Doubtful Accounts
March 31, 1997 $190,000 1,026,000 $ -- $1,091,000 $125,000
March 31, 1996 169,000 101,000 -- 80,000 190,000
March 31, 1995 100,000 173,000 -- 104,000 169,000
</TABLE>
56
<PAGE> 150
APPENDIX B
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1997
-------------------
Commission File Number 0-25498
CONCENTRA CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2827026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 NORTH AVENUE
BURLINGTON, MA 01803-3301
(Address of principal executive offices)
(781) 229-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
AS OF FEBRUARY 12, 1998, THERE WERE ISSUED AND OUTSTANDING 6,074,341 SHARES OF
THE REGISTRANT'S COMMON STOCK.
================================================================================
<PAGE> 151
CONCENTRA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
ITEM 1. Condensed Consolidated Financial Statements:
a) Condensed Consolidated Balance Sheets as of December 31, 1997
(unaudited) and March 31, 1997................................. 3
b) Condensed Consolidated Statements of Operations for the three-
and nine-months ended December 31, 1997 and 1996 (unaudited)... 4
c) Condensed Consolidated Statements of Cash Flows for the nine-
months ended December 31, 1997 and 1996 (unaudited)............ 5
d) Notes to Condensed Consolidated Financial
Statements.................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................. 12
Signatures........................................................ 13
2
<PAGE> 152
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
(Unaudited)
----------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,532 $ 3,890
Marketable securities -- 203
Accounts receivable, net of allowance for doubtful accounts of $1,224
and $125, respectively 4,181 13,128
Other current assets 1,819 1,615
-------- --------
Total current assets 8,532 18,836
Property and equipment, net 2,079 2,612
Capitalized software costs, net 1,965 1,878
Intangible assets, net 611 1,333
Other assets 290 372
-------- --------
Total assets $ 13,477 $ 25,031
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,830 $ 1,551
Accrued expenses 3,203 4,123
Income tax payable 263 273
Deferred revenue 1,631 2,898
Current portion of capital lease obligations 347 423
-------- --------
Total current liabilities 7,274 9,268
Capital lease obligations 549 611
Deferred revenue 58 84
Commitments and contingencies (Note B) -- --
Stockholders' equity:
Preferred stock - $.01 par value; 4,000,000 shares authorized, no
shares issued or -- --
outstanding
Common stock - $.00001 par value; 40,000,000 shares authorized,
6,074,341 and 5,499,211 shares issued and outstanding at
December 31, 1997 and March 31, 1997, respectively -- --
Additional paid-in capital
27,736 25,578
Accumulated deficit (21,721) (10,099)
Cumulative translation adjustment (419) (411)
-------- --------
Total stockholders' equity 5,596 15,068
-------- --------
Total liabilities and stockholders' equity $ 13,477 $ 25,031
======== ========
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 153
CONCENTRA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Software licenses $ 622 $ 6,327 $ 3,524 $ 14,654
Services 1,983 1,604 7,146 5,242
Related party software and services 143 3 789 96
-------- -------- -------- --------
Total revenues 2,748 7,934 11,459 19,992
Operating expenses:
Cost of software licenses 411 531 1,840 1,502
Cost of services 1,351 1,000 3,511 2,641
Sales and marketing 3,401 3,839 10,005 10,297
Research and development 996 972 2,685 2,426
General and administrative 1,858 627 3,229 1,921
Restructuring charge -- -- 283 --
-------- -------- -------- --------
Total operating expenses 8,017 6.969 21,553 18,787
Income (loss) from operations (5,269) 965 (10,094) 1,205
Interest income 37 75 157 250
Interest expense (23) (26) (75) (79)
Other (expense) income (79) 55 (70) 462
Loss on investment (933) -- (1,510) --
-------- -------- -------- --------
Income (loss) before income taxes (6,267) 1,069 (11,592) 1,838
Provision for income taxes 10 267 30 460
-------- -------- -------- --------
Net income (loss) $ (6,277) $ 802 $(11,622) $ 1,378
======== ======== ======== ========
Basic income (loss) per common and
common equivalent share $ (1.10) $ 0.14 $ (2.08) $ 0.24
======== ======== ======== ========
Weighted average number of
common shares outstanding 5,693 5,852 5,582 5,700
======== ======== ======== ========
Diluted income (loss) per common and
common equivalent share $ (1.10) $ 0.14 $ (2.08) $ 0.24
======== ======== ======== ========
Weighted average number of diluted
common and common equivalent shares
outstanding 5,693 5,858 5,582 5,705
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 154
CONCENTRA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1997 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(11,622) $ 1,378
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,867 1,708
Foreign exchange (gain) loss 79 (62)
Write off of intangible assets 372 --
Provision for bad debt 1,101 --
Loss on sale of marketable securities 14 --
Write down of other asset 82 --
Changes in operating assets and liabilities:
Accounts receivable 7,841 (5,140)
Other assets (191) (105)
Accounts payable 280 (370)
Accrued expenses (980) 172
Deferred revenue (1,302) (672)
Income taxes payable (10) 429
-------- -------
Net cash provided by (used in) operating activities (2,469) (2,662)
-------- -------
Cash flows from investing activities:
Purchase of property and equipment (163) (326)
Capitalized software costs (700) (720)
Purchase of intangible assets (104) (96)
Proceeds from sale of marketable securities 189 --
-------- -------
Net cash used in investing activities (778) (1,142)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance cost 2,052 --
Proceeds from exercise of stock options 106 407
Principal payments under capital lease obligations (242) (190)
-------- -------
Net cash provided by (used in) financing activities 1,916 217
-------- -------
Effects of exchange rates on cash and cash equivalents (27) (302)
Net increase (decrease) in cash and cash equivalents (1,358) (3,889)
Cash and cash equivalents at beginning of year 3,890 9,121
-------- -------
Cash and cash equivalents at end of period $ 2,532 $ 5,232
======== =======
Supplemental disclosure of cash flow information:
Interest paid $ 75 $ 79
Income taxes paid $ 40 $ 31
Supplemental disclosure of non-cash investing and financing activities:
Equipment acquired under capital lease obligations $ 104 $ --
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 155
CONCENTRA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Concentra Corporation (the "Company") and its wholly-owned foreign subsidiaries.
All significant intercompany transactions and balances have been eliminated. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to present such information fairly. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to Securities and Exchange Commission rules and
regulations. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997. Operating results for the three-month and nine-month periods
ended December 31, 1997 may not necessarily be indicative of the results to be
expected for any other interim period or for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates in the financial statements
include but are not limited to accounts receivable, sales and return, and income
tax valuation allowances. Actual results could differ from those estimates.
The Company has adopted the standards for calculating earnings per share
("EPS") pursuant to Statement of Financial Accounting Standards No. 128 ("SFAS
128") which supersedes APB Opinion No. 15, "Earnings Per Share" ("Opinion 15")
and replaces the presentation of primary EPS with a presentation of basic EPS.
Basic EPS is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding during the year of
computation. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Opinion 15 with some modifications and is not materially different for the
three-month and nine-month periods ended December 31, 1997 and 1996. The
condensed consolidated financial statements for the three-month and nine-month
periods ended December 31, 1997 and 1996 have been restated to conform to SFAS
128.
Options to purchase 1,467,880 shares of common stock at prices ranging from
$1.375 to $11.25 were outstanding during the three and nine-month periods ended
December 31, 1997, but were not included in the computation of diluted EPS
because of their anti-dilutive nature. Options to purchase 903,862 and 1,026,679
shares of common stock at prices ranging from $4.875 to $11.25 were outstanding
during the three and nine-month periods ended December 31, 1996, respectively,
but were not included in the computation of diluted EPS because of their
anti-dilutive nature.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -----------------
Description 1997 1996 1997 1996
- ----------- ----- ----- ----- -----
(in thousands of shares)
<S> <C> <C> <C> <C>
Basic weighted average
shares outstanding 5,693 5,852 5,582 5,700
Weighted average effect of
dilutive stock options -- 6 -- 5
Dilutive weighted average
shares outstanding 5,693 5,858 5,582 5,705
</TABLE>
Certain fiscal year 1997 balances have been reclassified to conform to
fiscal year 1998 presentation.
B. COMMITMENTS AND CONTINGENCIES
Lines of Credit
The Company's demand line of credit of $2,500,000 expired on June 30, 1997.
This line of credit contained financial covenants consisting of minimum tangible
capital base, ratio of total liabilities to tangible capital base and debt
service coverage. The Company would not currently be in compliance with these
covenants were the line of credit in effect and is negotiating with the
commercial lender to extend and amend the line of credit. The Company's
$1,750,000 equipment line of credit, collateralized by equipment, expired on
March 31, 1997. The Company is negotiating with the commercial lender to extend
and amend this line of credit. As of December 31, 1997, the Company had borrowed
$1,413,000 under the equipment line of credit. There can be no assurance the
Company will be successful in extending and amending the lines of credit, nor
can there be any assurance that such extended and amended lines of credit
6
<PAGE> 156
will be on similar terms as the existing agreements. Additionally, there can be
no assurance that alternative funding will be available if required.
Consulting Arrangements
During fiscal 1996, the Company entered into a $5,000,000 five-year
applications consulting services contract with a significant customer of the
Company. The five-year applications consulting services contract contains volume
pricing discounts subject to adjustments for increased costs. The Company has a
minimum commitment of $2,500,000 for outside applications services to be used by
the Company over a five-year period. The minimum commitment of $2,500,000 will
be paid in five yearly payments commencing December 31, 1996. These yearly
payments are $250,000, $500,000, $550,000, $600,000 and $600,000 for the five
calendar years beginning December 31, 1996, respectively. The Company recognizes
the consulting service expenses as incurred. The Company believes that the
minimum payment accruals will be fully utilized based on current forecasts.
However, given the significant sales fluctuations which may occur in any given
period, it is possible the minimum commitments would not be met, thus requiring
the Company to record a charge in excess of the services utilized. At December
31, 1997, the Company had fully used the minimum first-year commitment of
$250,000.
C. INVESTMENT IN LOANDATA.inc.
During fiscal 1997, the Company made an investment of $82,000 in
Loandata.inc., an e-commerce company developing the electronic underwriting of
car leases and loans using the SellingPoint product. Additional investments of
$143,000, $200,000 and $425,000 were made in the three-month periods ended June
30, 1997, September 30, 1997 and December 31, 1997, respectively. The Company
has recorded this as a majority owned subsidiary which it has consolidated in
the Company's results. Prior to the quarter ended December 31, 1997, the
Company, under the equity method, recognized its share of loss each reporting
period. Accordingly, the Company recorded a loss of $50,000 in the three-month
period ended June 30, 1997, a loss of $527,000 for the three-month period ended
September 30, 1997 and a loss of $933,000 for the three-month period ended
December 31, 1997. Such losses are recorded in loss on investment. Additionally,
included in the $527,000 loss and the $933,000 loss recorded for the three-month
periods ended September 30, 1997 and December 31, 1997 are operating expenses of
$152,000 and $79,000 respectively which represent cross-functional work
performed on the Loandata.inc. product. These operating expenses have been
reclassified primarily from cost of services and research and development
expenses.
On December 24, 1997, the Company entered into an agreement to acquire a
53.4% majority interest in a newly-created limited liability company that will
be the successor to the business of Loandata.inc. Loandata.inc. will contribute
all of its assets, including its proprietary technology, to the
newly-established subsidiary of the Company, in exchange for a minority interest
in the subsidiary.
Prior to December 24, 1997, the Company had an ownership percentage of 15%
in Loandata.inc. and used the equity method of accounting based upon its
significant influence on the operations of Loandata.inc.
D. PRIVATE PLACEMENT
On December 3, 1997, the Company completed a private placement of 470,589
shares of common stock at $4.25 per share, providing gross proceeds of $2.0
million. The Company intends to use the net proceeds of the private placement
for working capital and general corporate purposes.
E. AGREEMENT IN PRINCIPAL TO LICENSE ICAD SYSTEM
On December 30, 1997, the Company announced that it had agreed in principal
to license its ICAD System to a company created and financed by Electra Fleming,
a leading UK-based investment house. The new company will become the exclusive
worldwide distributor of the ICAD System and will be led by members of the ICAD
business unit team.
7
<PAGE> 157
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations include certain forward-looking statements about the Company's
business and new products, revenues, expenditures and operating and capital
requirements. In addition, forward-looking statements may be included in various
other Company documents to be issued in the future and in various oral
statements by Company representatives to security analysts and investors from
time to time. Any such statements are subject to risks that could cause the
actual results or needs to vary materially. The Company discusses such risks in
detail in its Annual Report on Form 10-K for the year ended March 31, 1997.
RESULTS OF OPERATIONS
TOTAL REVENUES. Substantially all of the Company's revenues are derived
from the licensing of software products and the performance of related services.
The Company's total revenues decreased 65% to $2.7 million for the three-month
period ended December 31, 1997, from $7.9 million for the three-month period
ended December 31, 1996. The Company's total revenues decreased 43% to $11.5
million for the nine-month period ended December 31, 1997, from $20.0 million
for the nine-month period ended December 31, 1996. These decreases were
primarily due to the decrease in ICAD software license fees within the
aerospace sector.
SOFTWARE LICENSES. Software license fees decreased 90% to $0.6 million for
the three-month period ended December 31, 1997, from $6.3 million for the
three-month period ended December 31, 1996, and decreased as a percentage of
revenues to 23% from 80%. Software license fees decreased 73% to $4.0 million
for the nine-month period ended December 31, 1997, from $14.7 million for the
nine-month period ended December 31, 1996, and decreased as a percentage of
revenues to 35% from 73%. The decreases were primarily due to the decrease in
ICAD software license fees within the aerospace sector.
SERVICES. Service fees increased 24% to $2.0 million for the three-month
period ended December 31, 1997, from $1.6 million for the three-month period
ended December 31, 1996, and increased as a percentage of revenues to 72% from
20%. Service fees increased 28% to $6.7 million for the nine-month period ended
December 31, 1997, from $5.2 million for the nine-month period ended December
31, 1996, and increased as a percentage of revenues to 58% from 26%. Service
revenues are derived from customer support, consulting, and training services.
The increases were primarily due to higher consulting revenues.
RELATED PARTY SOFTWARE AND SERVICES. Revenues from related parties
increased to $0.1 million for the three-month period ended December 31, 1997
from $3,000 for the three-month period ended December 31, 1996, and increased as
a percentage of revenues to 5% from less than one percent. Revenues from related
parties increased to $0.8 million for the nine-month period ended December 31,
1997 from $0.1 million for the nine-month period ended December 31, 1996, and
increased as a percentage of revenues to 7% from less than one percent. The
increases were due to a software license sale and consulting agreement with a
related party.
COST OF SOFTWARE LICENSES. Cost of software licenses, consisting of the
amortization of capitalized software, license fees to third-party suppliers and
software duplication and fulfillment costs, decreased 23% to $0.4 million for
the three-month period ended December 31, 1997, from $0.5 million for the
three-month period ended December 31, 1996, and increased as a percentage of
software revenues to 66% from 8%. The dollar decrease for the three-month period
ended December 31, 1997 was primarily due to lower license fees to third
parties. This decrease was partially offset by an increase in the amortization
of capitalized software. Cost of software licenses increased 23% to $1.8 million
for the nine-month period ended December 31, 1997, from $1.5 million for the
nine-month period ended December 31, 1996, and increased as a percentage of
software revenues to 46% from 10%. The dollar and percentage increases for
8
<PAGE> 158
the nine-month period ended December 31, 1997 were primarily due to a write off
of an intangible asset amounting to $372,000 during the three-month period
ending June 30, 1997 and amortization of capitalized software.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, increased 35% to
$1.4 million for the three-month period ended December 31, 1997, from $1.0
million for the three-month period ended December 31, 1996, and increased as a
percentage of service revenues to 68% from 62%. Cost of services increased 33%
to $3.5 million for the nine-month period ended December 31, 1997, from $2.6
million for the nine-month period ended December 31, 1996, and increased as a
percentage of service revenues to 53% from 50%. The increases for the three -
and nine-month periods ended December 31, 1997 were due primarily to the
outsourcing of additional personnel at higher rates to support consulting
services and increased headcount.
SALES AND MARKETING. Sales and marketing expenses, which include
distribution, pre-sales support and marketing costs, decreased 11% to $3.4
million for the three-month period ended December 31, 1997, from $3.8 million
for the three-month period ended December 31, 1996, and increased as a
percentage of revenues to 124% from 48%. The dollar decrease was primarily due
to decreased commissions associated with decreased revenues and a decrease in
salary related expenses due to a decrease in sales and marketing headcount.
Sales and marketing expenses decreased 3% to $10.0 million for the nine-month
period ended December 31, 1997, from $10.3 million for the nine-month period
ended December 31, 1996. As a percentage of revenues, sales and marketing
expenses increased to 87% for the nine-month period ended December 31, 1997,
compared to 52% for the comparable period in 1996. The dollar decrease for the
nine-month period ended December 31, 1997 was primarily due to the decreased
commissions associated with decreased revenues and decreased marketing. These
decreases were offset by an increase in marketing and promotional activities
during the three month period ended December 31, 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development costs remained
constant at $1.0 million for the three-month period ended December 31, 1997 and
December 31, 1996, but increased as a percentage of revenues to 36% from 12%.
Research and development expenses increased 11% to $2.7 million for the
nine-month period ended December 31, 1997, from $2.4 million for the nine-month
period ended December 31, 1996, and increased as a percentage of revenues to 23%
from 12%. The increases for the nine-month period ended December 31, 1997 were
primarily due to the addition of research and development employees associated
with the development of the Company's SellingPoint product.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, increased 196% to $1.9 million for the three-month
period ended December 31, 1997, from $0.6 million for the three-month period
ended December 31, 1996, and increased as a percentage of revenues to 68% from
8%. The increase was primarily due to a bad debt provision of $1.0 million to
protect against currency issues in Asia and for a United Kingdom VAT receivable
that has aged significantly, and an increase in higher legal costs associated
with the transition of ICAD during the three-month period ended and December 31,
1997. The Company views the bad debt provision as an isolated occurrence and
does not expect this trend to continue. General and administrative expenses
increased 68% to $3.2 million for the nine-month period ended December 31, 1997,
from $1.9 million for the nine-month period ended December 31, 1996, and
increased as a percentage of revenues to 28% from 10%. These increases for the
nine-month period ended December 31, 1997 were primarily due to higher legal
costs and an increase in the bad debt provision during the nine-month period
December 31, 1997.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, for the three- and nine-month period ended December 31, 1997 was
$37,000 and $157,000, respectively. Interest income for the three - and
nine-month period ended December 31, 1996 was $75,000 and $250,000,
respectively.
9
<PAGE> 159
INTEREST EXPENSE. Interest expense for the three- and nine-month period
ended December 31, 1997 was $23,000 and $75,000, respectively. Interest expense
for the three - and nine-month period ended December 31, 1996 was $26,000 and
$79,000, respectively.
OTHER INCOME (EXPENSE). Other income (expense), consisting primarily of
foreign exchange gains (losses) on intercompany transactions, and marking to
market certain trading securities, for the three-month period ended December 31,
1997, was an expense of $79,000, compared with income of $55,000 for the
three-month period ended December 31, 1996. Other income for the nine-month
period ended December 31, 1997, was an expense of $70,000 compared with income
of $462,000 for the nine-month period ended December 31, 1996. During the three
month period ended September 30, 1997, the Company sold its marketable security.
LOSS ON INVESTMENT. Loss on investment consists of the recording of losses
related to an investment in Loandata.inc. During the three and nine-month
periods ended December 31, 1997, the Company adjusted the investment in
Loandata.inc. to expense the amounts funded of $933,000 and $1,510,000,
respectively, due to uncertainty related to the realizability of the investment.
PROVISION FOR INCOME TAXES. The income tax provision for the three- and
nine-month periods ended December 31, 1997, was $10,000 and $30,000,
respectively, and relates to foreign taxes. The income tax provision for the
three- and nine-month period ended December 31, 1996, was $267,000 and $460,000,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had cash and cash equivalents of
approximately $2.5 million. The Company completed a private placement on
December 5, 1997 providing gross proceeds of $2.0 million. The Company had a
line of credit with a commercial lender, bearing interest at the bank's base
lending rate, which expired on June 30, 1997. Under this line of credit, as
amended, the Company had a $2,500,000 unsecured working capital line of credit.
The line of credit contained financial convenants, which consisted of minimum
tangible capital base, ratio of total liabilities to tangible capital base and
debt service coverage. The Company would not currently be in compliance with
these covenants were the line of credit in effect and is negotiating with the
commercial lender to extend and amend the line of credit. The Company's
$1,750,000 equipment line of credit, collateralized by equipment, expired on
March 31, 1997. The Company is negotiating with the commercial lender to extend
and amend the equipment line of credit. As of December 31, 1997, the Company had
borrowed $1,413,000 under the equipment line of credit. There can be no
assurance that the Company will be successful in extending and amending the
lines of credit nor can there be any assurance that such extended and amended
lines of credit will be on similar terms as the existing agreements.
Additionally, there can be no assurance that alternative financing will be
available if required.
During the nine-month period ended December 31, 1997, the Company had a net
loss of $11.6 million and generated a net cash decrease of $1.4 million. The
decrease in cash and cash equivalents was due primarily to $2.5 million used in
operating activities. The Company's operating activities included a decrease in
accounts receivable of $7.8 million. Investing activities included the private
placement of $2.0 million, capitalized software costs of $0.7 million and the
purchase of property and equipment for $0.2 million consisting primarily of
computer equipment.
During fiscal 1996, the Company entered into a $5,000,000 five-year
applications consulting services contract with a significant customer of the
Company. The five-year applications consulting services contract contains volume
pricing discounts subject to adjustments for increased costs. The Company has a
minimum commitment of $2,500,000 of outside applications services that will be
used by the Company over a five-year period. The minimum commitment of
$2,500,000 will be paid in five yearly payments commencing December 31, 1996.
These yearly payments are $250,000, $500,000, $550,000, $600,000 and $600,000
for the five calendar years beginning December 31, 1996, respectively. The
Company's policy is to recognize the consulting service expenses as incurred.
The Company believes that based on current forecasts the minimum payment
accruals will be utilized. However, given the significant sales fluctuations
which may occur in any given period, it is possible that the minimum commitment
would not
10
<PAGE> 160
be met, thus requiring the Company to record a charge in excess of the services
utilized. At December 31, 1997, the Company had used the minimum first-year
commitment of $250,000.
On December 24, 1997, the Company entered into an agreement to acquire a
53.4% majority interest in a newly-created limited liability company that will
be the successor to the business of Loandata.inc., an e-commerce company
developing the electronic underwriting of car leases and loans using the
SellingPoint product. Loandata.inc. will contribute all of its assets, including
its proprietary technology, to the newly-established subsidiary of the Company,
in exchange for a minority interest in the subsidiary.
On December 30, 1997, the Company announced that it had agreed in principal
to license its ICAD System to a company created and financed by Electra Fleming,
a leading UK-based investment house. The new company will become the exclusive
worldwide distributor of the ICAD System and will be led by members of the ICAD
business unit team.
The terms of the offer submitted by Electra Fleming call for the Company to
receive fixed payments of approximately $18.7 million over the next two years
plus variable payments until March 2001, based on ICAD revenues. Negotiations
and due diligence are progressing in anticipation of the execution of a formal
agreement. The transaction is subject to a number of conditions, including
completion of due diligence, commercial negotiations and final approval by
Electra's board of directors and Concentra's board of directors and
shareholders.
The Company believes that existing sources of liquidity and anticipated
funds from operations will satisfy the Company's working capital and capital
expenditure requirements at least through fiscal 1998 and fiscal 1999 provided
that the Electra Fleming transaction is completed. The Company is continuing to
explore alternative sources of financing.
11
<PAGE> 161
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
+3.01 Restated Certificate of Incorporation of the Registrant, as
amended to date
+3.02 Restated By-Laws of the Registrant.
++3.03 Certificate of Designations.
+4.01 Specimen Stock Certificate for Common Stock, $.00001 par value.
++4.02 Rights Agreement dated as of April 24, 1997, between the
Registrant and The First National Bank of Boston, as Rights
Agent.
++4.03 Form of Right Certificate.
++++10.25 Loandata LLC Operating Agreement.
+++10.26 Stock Purchase Agreement dated as of December 3, 1997 by and
between Concentra Corporation and the Purchasers named on the
signature page thereto.
++++27 Financial Data Schedule.
- -------------------------------------------------------------------------------
+ Previously filed as an Exhibit to the Registrant's Registration
Statement No. 33-86550.
++ Previously filed as an Exhibit to the Registrant's Form 8-K dated
April 24, 1997.
+++ Previously filed as an Exhibit to the Registrant's Form 8-K dated
December 3, 1997.
++++ Filed herewith.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated December 3, 1997
reporting the completion of a private placement of 470,589 shares of the
Company's common stock, $.00001 par value per share, at a purchase price of
$4.25 per share, in a transaction led by Special Situations Fund.
12
<PAGE> 162
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.
CONCENTRA CORPORATION
Date: May 12, 1998
By: /s/ Alex Braverman
--------------------
Alex Braverman
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
13
<PAGE> 163
CONCENTRA CORPORATION
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Lawrence
W. Rosenfeld and Alex Braverman, and each of them, with full power of
substitution, as proxies to represent and vote as designated herein, all shares
of stock of Concentra Corporation (the "Company") which the undersigned would be
entitled to vote if personally present at the Special Meeting of Stockholders of
the Company to be held at the Renaissance Bedford Hotel, 44 Middlesex Turnpike,
Bedford, Massachusetts 01730, on Monday, June 1, 1998 at 8:00 a.m., or any
adjourned sessions thereof.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDERS. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2. Attendance of the undersigned at the
meeting or at any adjournment thereof will not be deemed to revoke this proxy
unless the undersigned revokes this proxy in writing before it is exercised.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
<PAGE> 164
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Special Meeting of Stockholders,
you can be sure your shares are represented at the Special Meeting by promptly
returning your proxy (attached below) in the enclosed envelope. Thank you for
your attention to this important matter.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
1. To approve the licensing of certain software and business assets of the
Company pursuant to the terms of a Source License and Exclusive
Distributorship Agreement and a Transition Agreement between the Company
and Knowledge Technologies International S.A., copies of which agreements
are attached as Annexes A and B to the accompanying Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or adjournments thereof.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT.
Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give the full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer. If
a partnership, please sign in partnership name by authorized person.
Signature: ____________________________ Date:_____________________
Signature: ____________________________ Date:_____________________
