<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VIASOFT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-2892506
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
3033 NORTH 44TH STREET
PHOENIX, ARIZONA 85018
(602) 952-0050
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN D. WHITEMAN, PRESIDENT
VIASOFT, INC.
3033 NORTH 44TH STREET
PHOENIX, ARIZONA 85018
(602) 952-0050/FAX (602) 840-9058
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
WILLIAM M. HARDIN, ESQ. JORGE DEL CALVO, ESQ.
CLARK M. PORTER, ESQ. KATHARINE A. MARTIN, ESQ.
ANDREW P. KELLY, ESQ. COURTNEY M. LYNCH, ESQ.
OSBORN MALEDON, P.A. PILLSBURY MADISON & SUTRO, LLP
2929 NORTH CENTRAL AVENUE 2700 SAND HILL ROAD
PHOENIX, ARIZONA 85012-2794 MENLO PARK, CALIFORNIA 94025-7020
(602) 207-1288 (415) 233-4500
FAX (602) 235-9444 FAX (415) 233-4545
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE FEE(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value.......... 1,495,000 $57.50 $85,962,500 $26,050
===========================================================================================================
</TABLE>
(1) Includes 195,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee, based on the average of the high and low
prices of the Company's Common Stock as reported on the Nasdaq National
Market on August 13, 1997.
(3) The shares of Common Stock are not being registered for the purpose of sales
outside the United States.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 15, 1997
1,300,000 SHARES
[VIASOFT LOGO]
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
------------------------
Of the 1,300,000 shares of Common Stock offered, 1,040,000 shares are being
offered hereby in the United States and 260,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting."
Of the 1,300,000 shares of Common Stock offered, 1,170,000 shares are being
sold by VIASOFT, Inc. and 130,000 shares are being sold by the Selling
Stockholders. See "Selling Stockholders." The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders.
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "VIAS." On August 14, 1997, the last reported sale price of the
Common Stock on the Nasdaq National Market was $59.875 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
--------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share............ $ $ $ $
Total(3)............. $ $ $ $
</TABLE>
- ---------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $680,000, payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 156,000 shares of Common Stock at the offering
price per share, less the underwriting discount, solely to cover
over-allotments in the United States. Additionally, the Company has granted
the International Underwriters a similar option with respect to an
additional 39,000 shares as part of the concurrent international offering.
If such options are exercised in full, the total offering price,
underwriting discount and proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1997 against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
WESSELS, ARNOLD & HENDERSON
SOUNDVIEW FINANCIAL GROUP, INC.
VOLPE BROWN WHELAN & COMPANY
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZATION AND SHORT-COVERING TRANSACTIONS. IN
CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS,
IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by VIASOFT, INC. ("VIASOFT" or the "Company")
with the Securities and Exchange Commission (the "Commission") are hereby
incorporated by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 (File No. 0-25472);
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended September 30, 1996, December 31, 1996 and March 31, 1997
(File No. 0-25472);
(3) The Company's Current Report on Form 8-K dated December 5, 1996
(File No. 0-25472), as amended by its Current Report on Form 8-K/A dated
February 12, 1997; and
(4) The description of the Common Stock to be registered hereunder set
forth under the caption "Description of Securities" in the Registrant's
Form S-1 Registration Statement No. 33-88366, filed pursuant to the
Securities Act of 1933, as amended (the "Securities Act").
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
("the Exchange Act"), after the date of this Prospectus and prior to the
termination of the offering covered by this Prospectus shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in any
document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been or may be incorporated by reference
in this Prospectus, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be directed to Catherine R. Hardwick, Secretary, VIASOFT, Inc., 3033
North 44th Street, Phoenix, Arizona 85018, telephone (602) 952-0050.
------------------------
VIASOFT(R), Analytical Engine(TM), Application Knowledge Repository(TM),
Existing Systems Workbench(R), ESW(R), VIA/Insight(R), Visual Recap(TM),
VIA/SmartEdit(R), VIA/SmartTest(R), VIA/Renaissance(TM), VIA/SmartDoc(R),
VIA/Alliance(R), VIA/SmartAccess(R), VIASOFT's Insourcing(TM), US2000(TM),
VIASOFT's Enterprise 2000(TM), VIASOFT's Estimate 2000(TM), VIASOFT's FastPath
2000(SM), VIASOFT's Impact 2000(SM), VIASOFT's Operation 2000(SM), VIASOFT's
Plan 2000(SM), Bridge 2000(TM), ESW/PC(TM), VIASOFT's Legacy Transitions(SM) and
Rochade(TM) are trademarks and service marks of the Company. This Prospectus
also includes trade names, trademarks and references to intellectual property
owned by other companies. Fortune 1000 is a trademark of Time, Inc.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere or incorporated by reference in this Prospectus. Prospective investors
should carefully consider the information set forth under the heading "Risk
Factors." Except as otherwise specified, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment options. See
"Underwriting."
The following summary contains forward-looking statements that involve
risks and uncertainties. Such forward-looking statements include, but are not
limited to, statements regarding future events and the Company's plans and
expectations. The Company's actual results may differ materially from such
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below in "Risk Factors," as well as
those discussed elsewhere in this Prospectus and in the documents incorporated
herein by reference. See "Special Note on Forward-Looking Statements."
THE COMPANY
VIASOFT provides enterprise application management solutions that help
large organizations worldwide understand, manage and evolve the large-scale
software applications that support their fundamental business processes. These
business solutions are provided through a highly integrated suite of software
products and specialized professional services. Organizations that rely on
mainframe systems must continuously modify, maintain and redevelop existing
software applications to address changing information requirements resulting
from the ongoing evolution of business practices. The Company's products and
services are designed to reduce substantially the cost of maintaining and
redeveloping existing mainframe applications, improve the quality and
maintainability of these applications and assist in implementing specialized or
complex redevelopment initiatives, such as the year 2000 century date
conversion.
The Company's principal business solutions are based on VIASOFT's
proprietary technology, the Existing Systems Workbench ("ESW"), an integrated
suite of software tools. ESW supports the IBM MVS operating system and includes
products that are available individually or as a complete suite. VIASOFT's
business solutions, which combine the Company's products and professional
services offerings, include (i) VIASOFT's Enterprise 2000, including its
FastPath 2000 solution and Bridge 2000 product, for addressing the year 2000
problem, (ii) VIASOFT's Insourcing for reducing the costs and improving the
productivity of managing enterprise applications, and (iii) VIASOFT's Legacy
Transitions for reusing and evolving enterprise applications for the
implementation of distributed computing environments and packaged software
applications.
The Company's objective is to enhance its position as a leading provider of
enterprise application management solutions for large organizations worldwide. A
key element of the Company's strategy is to provide integrated business
solutions for its customers. The Company believes that the integration of
services with its product offerings is an effective strategy for addressing the
complex maintenance and redevelopment requirements of large organizations and
will promote long-term relationships with the Company's installed base of
customers. The Company also intends to capitalize on the year 2000 century date
conversion opportunity through expanded product and service offerings,
cooperative marketing relationships with third parties and leveraging year 2000
customer relationships to sell other products and services. Additional key
elements of the Company's strategy include the ongoing enhancement of its
technological leadership position, the acquisition of businesses, products and
technologies that complement its existing products and services and the
expansion of its worldwide sales and distribution channels, both directly and
through third-party relationships.
As part of the Company's strategy to broaden its enterprise application
management solutions, the Company acquired Rottger & Osterberg Software-Technik
GmbH ("R&O") in December 1996.
3
<PAGE> 5
R&O develops, markets and supports repository software tools through its Rochade
product line, together with related repository-based services and solutions.
Rochade is based on an open repository software technology that is designed to
help businesses capture, manage, monitor, disseminate, reuse and change their
information technology assets in both mainframe systems and distributed
computing environments. VIASOFT is developing and enhancing the Rochade
repository technology for integration with VIASOFT's product line and
professional services solutions. The Company believes that the Rochade
repository technology will provide significant additional benefits to customers
as part of a suite of integrated products and solutions, compared to
repositories offered as stand-alone products.
The Company markets its products and services primarily to Fortune 1000
companies and similarly sized business and governmental organizations worldwide.
The Company's marketing efforts are implemented through its domestic and
international direct sales forces, through a number of foreign independent
distributors located in Europe, the Far East, South Africa and Latin America and
through strategic relationships with third parties as part of its
Solution/Technology Provider program. Representative customers of the Company
include Abbott Laboratories, American General Life Insurance Co., BMW AG,
Boeing, Inc., Charles Schwab & Co., Citibank, N.A., Consolidated Rail, Deutsche
Bank AG, Goldman, Sachs & Co., Mastercard International, Incorporated, Motorola,
Inc., Pfizer, Inc., PTT Telecom B.V., T. Rowe Price Investments, Telstra
Corporation Ltd., and U.S. West.
RISK FACTORS
For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors".
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company........................ 1,170,000 shares
The Selling Stockholders........... 130,000 shares
Common Stock to be outstanding after
the Offering(1).................... 18,892,772 shares
Use of Proceeds...................... Addition of direct sales and research and development
personnel, marketing initiatives, potential
acquisitions of businesses, products and technologies,
enhancement and integration of the Rochade product
line, working capital and other general corporate
purposes.
Nasdaq National Market Symbol........ VIAS
</TABLE>
- ---------------
(1) Based on 17,722,772 shares outstanding as of June 30, 1997 and excludes (a)
1,410,272 shares of Common Stock issuable upon exercise of outstanding stock
options, (b) 164,084 shares of Common Stock reserved for future issuance
under the 1994 Equity Incentive Plan, (c) 285,642 shares of Common Stock
reserved for future issuance under the Employee Stock Purchase Plan, and (d)
350,000 shares of Common Stock reserved for future issuance under the
Outside Directors Stock Option Plan.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------- PRO FORMA
1995 1996 1997 JUNE 30, 1997(1)
------- ------- -------- ----------------
(IN THOUSANDS, EXCEPT (UNAUDITED)
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees................................... $14,311 $17,824 $ 40,292 $ 42,727
Maintenance fees........................................ 12,059 14,305 21,010 23,157
Professional services fees.............................. 4,387 11,307 23,832 25,081
Other................................................... 194 121 178 300
------- ------- -------- -------
Total revenues................................... 30,951 43,557 85,312 91,265
------- ------- -------- -------
Operating expenses:
Cost of software license and maintenance fees(2)........ 2,661 2,788 4,345 5,471
Cost of professional services fees...................... 4,052 8,025 18,316 19,529
Sales and marketing..................................... 13,517 18,137 31,573 33,193
Research and development................................ 3,193 4,237 7,893 9,135
Write-off of purchased in-process research and
development(3)........................................ -- -- 26,958 --
General and administrative(2)........................... 2,643 3,567 6,319 6,802
------- ------- -------- -------
Total operating expenses......................... 26,066 36,754 95,404 74,130
------- ------- -------- -------
Income (loss) from operations............................. 4,885 6,803 (10,092) 17,135
Total other income (expense).............................. 490 1,257 718 712
------- ------- -------- -------
Income (loss) before income taxes......................... 5,375 8,060 (9,374) 17,847
Provision for income taxes................................ 183 1,843 6,062 6,155
------- ------- -------- -------
Net income (loss)......................................... $ 5,192 $ 6,217 $(15,436) $ 11,692
======= ======= ======== =======
Earnings (loss) per common and common share
equivalent(4)........................................... $ .36 $ .36 $ (.90) $ .64
======= ======= ======== =======
Weighted average number of common and common share
equivalents outstanding(4).............................. 14,584 17,391 17,212 18,270
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
AS ADJUSTED(5)
ACTUAL (UNAUDITED)
------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 8,501 8,501
Working capital............................................................... 9,856 75,552
Total assets.................................................................. 64,601 130,297
Deferred revenue (current).................................................... 18,227 18,227
Deferred revenue (long-term).................................................. 230 230
Total stockholders' equity.................................................... 28,696 94,392
</TABLE>
- ---------------
(1) Gives pro forma effect to the acquisition by the Company of all of the
outstanding capital stock of R&O as if the acquisition had occurred at the
beginning of the period presented. The pro forma results exclude the
approximate $27.0 million purchased in-process research and development
charge. See "Pro Forma Combined Financial Data," "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations"
and Note 2 to Consolidated Financial Statements.
(2) For the period from December 5, 1996, the date of the R&O acquisition,
through June 30, 1997, cost of software license and maintenance fees and
general and administrative expense included amortization of $233,000 and
$311,000, respectively, of intangible assets acquired with the R&O
acquisition.
(3) See Note 2 to Consolidated Financial Statements and "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations."
(4) Reflects the conversion of all issued and outstanding shares of preferred
stock into 8,847,814 shares of Common Stock upon the closing of the
Company's initial public offering on March 8, 1995. Also reflects the effect
of a two-for-one stock split effected in the form of a dividend, with a
record date of August 30, 1996. See Note 1 to Consolidated Financial
Statements.
(5) Adjusted to give effect to the receipt of estimated net proceeds from the
sale of 1,170,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $59.875 per share, after deducting
underwriting discounts and estimated offering expenses. See "Use of
Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
Except for historical information contained herein, this Prospectus
contains forward-looking statements that involve risks and uncertainties. Such
forward-looking statements include, but are not limited to, statements regarding
future events and the Company's plans and expectations. The Company's actual
results may differ materially from such statements. Factors that cause or
contribute to such differences include, but are not limited to, those discussed
below as well as those discussed elsewhere in this Prospectus and in the
documents incorporated herein by reference. See "Special Note on Forward-Looking
Statements."
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following risk factors, among
others, should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
DEPENDENCE ON YEAR 2000 MARKET
The growth in the Company's professional services fees in fiscal 1996 and
1997 resulted primarily from increased demand for VIASOFT's Enterprise 2000
services as awareness of the year 2000 century date conversion problem has
grown. In the fiscal years ended June 30, 1996 and 1997, VIASOFT's Enterprise
2000 services represented 74% and 72%, respectively, of the Company's
professional services revenue. In addition, this demand has also accounted for a
significant portion of software license revenue for the same periods as
customers have acquired the Company's software products to help address their
year 2000 concerns. The Company has experienced this growth in both the domestic
and international markets. Should the demand for the Company's year 2000
solutions and products decline significantly as a result of new technologies,
competition or any other factors, the Company's professional services fees and
license revenues would be materially and adversely affected. The Company
anticipates that demand in the year 2000 market will decline, perhaps rapidly,
following the year 2000. It is the Company's strategy to leverage customer
relationships and knowledge of customer application systems derived from its
year 2000 services solutions to market other products and services beyond the
year 2000 market. However, there can be no assurance that this strategy will be
successful, and should the Company be unable to market other products and
services as demand in the year 2000 market declines, whether as a result of
competition, technological change or other factors, the Company's business,
results of operations and financial condition will be materially and adversely
affected.
VOLATILITY OF COMMON STOCK PRICE
The Company's stock price has been highly volatile since its initial public
offering. The Company believes that factors such as awareness of the year 2000
problem, quarterly fluctuations in results of operations, announcements of new
products and acquisitions by the Company or by its competitors, change in
revenue or earnings estimates by securities analysts, developments in litigation
affecting the Company, changes in accounting principles or their application and
other factors may cause the market price of the Company's stock to continue to
fluctuate, perhaps substantially. In addition, stock prices for many technology
companies fluctuate widely for reasons that may be unrelated to operating
results. Due to market and securities analysts' expectations of continued growth
and the higher price/earnings ratio at which the Company's stock may trade, any
shortfall in meeting such expectations may have a rapid and significant adverse
effect on the trading price of the Company's stock. These fluctuations, as well
as general economic, market and other conditions may adversely affect the market
price of the Company's stock in the future. Fluctuations in the market price of
the Company's stock may in turn adversely affect the Company's ability to
complete any targeted acquisitions, its access to capital and financing and its
ability to attract and retain qualified personnel. See "Price Range of Common
Stock."
6
<PAGE> 8
PRODUCT CONCENTRATION; DEPENDENCE ON MAINFRAME SYSTEMS
Most of the Company's software license fee revenues and maintenance fee
revenues are derived from products in the Company's primary product line, the
Existing Systems Workbench. In addition, a substantial portion of the Company's
professional services fee revenues is derived from customers that also license
ESW products. If license sales, maintenance renewals or pricing levels of ESW
products were to decline materially, whether as a result of technological
change, competition or any other factors, the Company's business, results of
operations and financial condition would be materially and adversely affected.
The Company's principal software products and services are designed for users of
IBM and IBM-compatible mainframe computers utilizing IBM's MVS/XA or MVS/ESA
operating systems. Future revenues from sales of products and services and
recurring maintenance revenues are therefore dependent on continued use of such
mainframe computers and related operating system software. In addition, because
VIASOFT products require the use of IBM's MVS operating systems, the Company
will be required to adapt its products to any changes made to these IBM
operating systems in the future. The Company's inability to adapt to future
changes in the MVS operating systems, or delays in doing so, could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "-- Ability to Respond to Technological Change." All of
the software license and maintenance revenues and all professional services fees
of R&O have been related to R&O's Rochade product line. See "-- Ability to
Assimilate Acquired Business."
FLUCTUATING QUARTERLY RESULTS
The Company has experienced significant quarterly and other fluctuations in
revenues and operating results and expects these fluctuations to continue in the
future. The Company believes that these fluctuations have been attributable to
the budgeting and purchasing practices of its customers, the length of the
customer product evaluation process for the Company's products, the timing of
its customers' system conversions, and to a lesser extent, the Company's sales
commission practices, which are based partly on quarterly incentives and annual
quotas, and other factors. The Company's revenues and results of operations may
also be affected by seasonal trends which have resulted in higher revenues in
the Company's second and fourth fiscal quarters and lower revenues in its first
and third fiscal quarters. This seasonality is a result of many customers'
annual purchasing and budgetary practices, the Company's sales commission
practices, lower revenues in the summer months (particularly in Europe) when
many businesses make fewer purchases, and other factors. The Company's
professional services revenues tend to fluctuate due to the completion or
commencement of significant projects, which may continue over multiple quarters,
the number of working days in a quarter and the utilization rate of professional
services personnel. Future revenues and operating results may fluctuate as a
result of these and other factors, including the demand for the Company's
products and services, the timing and cost of new product and service
introductions and product enhancements, changes in the mix of products and
services sold and in the mix of sales by distribution channels, timing of any
acquisitions and associated costs, the size and timing of customer orders,
changes in pricing policies by the Company or its competitors, the timing of
collection of accounts receivable and related reported days' sales outstanding,
changes in foreign currency exchange rates, competitive conditions in the
industry and general economic conditions. Furthermore, as a result of these and
other factors, it is likely that in some future quarter the Company's revenues
or operating results will be below the expectations of securities analysts or
investors, in which case the price of the Common Stock could likely be
materially and adversely affected. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations."
Historically, the Company has had little or no backlog. Quarterly revenues
and operating results therefore depend primarily on the volume and timing of
orders received during the quarter, which are difficult to forecast. The Company
has often recognized a substantial portion of its license fees in the last month
of each quarter, frequently in the last week. A significant portion of the
Company's
7
<PAGE> 9
operating expenses is relatively fixed, since personnel levels and other
expenses are based upon anticipated revenues. Because a substantial portion of
the Company's revenues may not be generated until the end of each quarter, the
Company may not be able to reduce spending in response to sales shortfalls or
delays. These factors, many of which are not within the Company's control, can
cause significant variations in operating results from quarter to quarter.
Accordingly, the Company believes that quarter to quarter comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. See "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations."
RISKS FROM INTERNATIONAL OPERATIONS
Approximately 25% and 32% of the Company's total revenues in the fiscal
years ended June 30 1996 and 1997, respectively, were attributable to
international sales. The Company believes that international business will
continue to account for a significant portion of its revenues, due in part to
continued expansion of its ESW product line internationally and the recent
acquisition of R&O. In R&O's fiscal year ended December 31, 1995 and the
nine-month period ended September 30, 1996, approximately 73% and 60% of its
total revenues were from sources outside North America, respectively.
International operations are subject to a number of risks, including longer
accounts receivable payment cycles, exchange rate fluctuations, difficulty in
enforcing agreements and collecting accounts receivable, tariffs and other
restrictions on foreign trade, U.S. export requirements, withholding and other
tax consequences, economic and political instability, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. The Company has experienced longer payment cycles from some of its
foreign distributors. Sales made through the Company's foreign distributors are
denominated in U.S. dollars except in Italy, where they are denominated in lira.
Sales by the Company's foreign subsidiaries are principally denominated in the
currencies of the countries where sales are made. The Company experienced losses
of approximately $704,000 from foreign currency fluctuations in the fiscal year
ended June 30, 1997. The Company has not to date sought to hedge the risks
associated with fluctuations in foreign exchange rates and does not currently
plan to do so. The Company's foreign operations are also affected by general
economic conditions in its international markets. A prolonged economic downturn
in its foreign markets could have a material adverse effect on the Company's
business. In addition, the laws of certain countries do not protect the
Company's products and intellectual property rights to the same extent as do the
laws of the United States. There can be no assurance that the factors described
above will not have an adverse effect on the Company's future international
revenues and, consequently, on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" and "Business -- Sales, Marketing
and Distribution."
In addition, approximately 9% and 5% of the Company's total revenues and
35% and 13% of international revenues were realized through the sales and
marketing efforts of its independent distributors in the fiscal years ended June
30, 1996 and 1997, respectively. The efforts expended and results achieved by
independent distributors are less within the control of the Company than its
direct sales operations. A reduction in sales by the Company's distributors or a
termination of their relationships with the Company could have a material
adverse effect on the Company's international revenues, its business, results of
operations and financial condition.
DEPENDENCE ON ACQUISITIONS
The Company expects to continue its strategy of identifying, acquiring and
developing businesses, products and technologies to enhance and expand its
software product line and solution offerings, including acquisitions that could
be material in size and scope. The Company believes that the continued success
of its existing businesses, as well as its future growth, depends, in part, upon
the success of this strategy. Acquisitions involve a number of special risks and
factors,
8
<PAGE> 10
including increasing competition for attractive acquisition candidates in the
Company's markets, the technological enhancement and incorporation of acquired
products into existing product lines and services, the assimilation of the
operations and personnel of the acquired companies, adverse short-term effects
on reported operating results, the amortization of acquired intangible assets,
the assumption of undisclosed liabilities of any acquired companies, the failure
to achieve anticipated benefits such as cost savings and synergies, as well as
the diversion of management's attention during the acquisition and integration
process. The Company does not have significant experience in the identification
and management of acquisitions and the success of its acquisition strategy will
depend on the effective management of the foregoing risks and its ability to
identify, complete and integrate strategic acquisitions on favorable terms. See
"-- Ability to Assimilate Acquired Business."
ABILITY TO ASSIMILATE ACQUIRED BUSINESS
VIASOFT is in the process of integrating the Rochade repository technology
acquired from R&O into VIASOFT's software product and solution offerings. The
cost of these efforts is expected to approximate $2.2 million, of which
approximately $500,000 has been incurred to date. VIASOFT is also enhancing the
Rochade product line and marketing it to VIASOFT's customer base and marketing
its ESW product line and professional service solutions to the customer base of
R&O. Costs associated with these and other integration activities will continue
to be incurred by the Company, including product and service development costs
and additional marketing and sales costs, among others. These costs will
increase the Company's operating expenses in the periods in which they are
incurred over and above amounts already reserved. In addition, many of the
operations of the Company and R&O are continuing to be integrated in order to
achieve planned cost savings and synergies. There may be substantial
difficulties associated with integrating the technology and operations of the
Company and R&O, and there can be no assurance that this integration will be
accomplished expeditiously or successfully or that the anticipated benefits from
these activities, such as improved product performance, cost savings, synergies,
and increased penetration of the two companies' respective customer bases, will
be realized. The integration of certain technology and operations will continue
to require the dedication of management resources that may temporarily distract
attention from the day-to-day business of the Company. The business of the
Company may also be disrupted by employee uncertainty and lack of focus during
this integration. The Company has experienced some attrition of R&O employees
and there can be no assurance that the Company will be able to retain key
technical, managerial and other employees. Failure to complete the integration
of the technology and operations of the Company and R&O on a timely basis and as
planned could have a material adverse effect on the Company's business,
financial condition and results of operations.
ABILITY TO MANAGE CHANGE
The Company has experienced changes in its operations and in the software
industry in the last several fiscal years that have placed increased demands on
its managerial, operational and financial resources. The Company expects its
business and the industry as a whole to continue to undergo rapid change. The
Company's integration of the Rochade business, its plans to continue expansion
of its professional services offerings, particularly in the year 2000 market,
and its plans to continue expansion of its international operations, together
with ongoing required product development and future acquisition activity in
response to changes in the industry and customer needs, will require VIASOFT to
manage effectively its operations in a rapidly changing environment. The
Company's future performance will depend in part on its ability to manage change
in both its domestic and international operations and will require the Company
to continue to hire additional management, technical and professional services
personnel, particularly in the professional services and year 2000 areas. The
Company has experienced difficulties in recruiting and retaining qualified
personnel and anticipates that these efforts will become increasingly difficult,
as industry sources predict an insufficient supply of programmers and
consultants to meet demand, especially in the year 2000
9
<PAGE> 11
market. The failure of the Company's management team to manage changing
technological and business conditions as well as the growth of its own business,
should it occur, could have a material adverse impact on the Company's business,
results of operations and financial condition.
INTENSE COMPETITION
The market for the Company's software products is intensely competitive and
is characterized by rapid change in technology and user needs and the frequent
introduction of new products. The market for the type of professional services
provided by the Company is also highly competitive. With the growth of the year
2000 market, significant competition has emerged and is expected to increase in
the next few years. The professional services segment of the market is
characterized by low barriers to entry. The principal competitive factors
affecting the year 2000 market include functionality, performance and
reliability of technology and methodology, availability and productivity of
personnel, the ability to demonstrate achievement of results, depth of
experience in year 2000 projects, price and reputation. There are generally
three categories of competitors for VIASOFT in the year 2000 market: software
vendors, consulting organizations and system integrators and outsourcers.
Software vendors provide tools targeted for the year 2000 market. Competitive
factors include tools' compatibility with customers' platforms and languages,
vendors' ability to deliver training and ongoing support during customers'
implementation of the tools, and the value of the tools to an organization
beyond the year 2000. Consulting organizations that compete in the year 2000
market range from large, generalized consulting firms to small- to medium-sized
consulting firms that have become highly focused on the year 2000 problem. These
companies provide supplemental personnel and contract programming resources to
customers and some have licensed tools from software vendors to enhance their
offerings. Large systems integrators and outsourcing firms have also entered the
year 2000 market to include year 2000 conversion services with the maintenance
and data processing services they already provide to their existing market and
customer base. Some integrators/outsourcers offer licensed tools from software
vendors.
Most of the Company's competitors and potential competitors have
substantially greater financial, marketing, recruiting and technology resources
than the Company. Major competitors for software product license sales include
Computer Associates International, Inc.; Compuware Corporation; Intersolv, Inc.;
Micro Focus Group Public Limited Company and Platinum Technology, Inc. The
Company believes that the principal factors affecting competition in its product
markets include compatibility with customers' platforms and languages, product
functionality, quality of support, product performance and reliability, ability
to respond to changing customer needs, ease of use and price. Major competitors
of the Company's professional services business are primarily the consulting
organizations of the Big Six accounting firms. Other competitors of the
Company's professional services business include Data Dimensions, Inc.,
Electronic Data Systems Corporation and IBM's Integrated Systems Solutions Corp.
The principal competitive factors affecting the market for the Company's
professional services include responsiveness to customer needs, availability and
productivity of personnel, the ability to demonstrate achievement of results,
depth of technical skills, price and reputation.
The Company's ability to compete successfully in the sale of both its
products and services will depend in large part upon its ability to implement
successfully its strategy of selling products and services as a total solution
as well as its ability to attract new customers, sell new products and services,
deliver and support product enhancements to its existing customers and respond
effectively to continuing technological change by developing and acquiring new
products and services. There can be no assurance that the Company will be able
to compete successfully in the future, nor that future competition for product
sales and professional services will not have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business -- Competition."
10
<PAGE> 12
RISKS ASSOCIATED WITH PROFESSIONAL SERVICES
During the fiscal years ended June 30, 1996 and 1997, fees from the
Company's professional services grew significantly and constituted 26% and 28%
of the Company's consolidated revenues, respectively. With the growing
percentage of revenue coming from professional services, a lower margin business
than software product licensing, the Company will be subject to the risks
associated with such service businesses, including volatility of workload and
dependence on the Company's ability to attract and retain qualified technical
personnel in an increasingly competitive market. The Company has experienced
difficulties in recruiting and retaining qualified personnel and anticipates
that these efforts will become increasingly difficult, as industry sources
predict an insufficient supply of programmers and consultants to meet demand,
especially in the year 2000 market. In addition, a portion of the Company's
professional services fees is derived from fixed-price contracts, which are more
difficult to manage profitably due to greater risk of cost overruns,
particularly in the relatively new year 2000 market. The Company experienced
declines in its professional services margins in the fourth quarter of fiscal
1997, due primarily to revised estimates of revenue recognized under percentage
of completion contracts and decreased utilization of personnel associated with
the transition to its new FastPath 2000 services methodology. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". There
can be no assurance that the Company will be able to maintain professional
services margins consistently at historical levels.
ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE
The Company's future success will depend significantly on its ability to
enhance its current products and develop or acquire and market new products that
keep pace with technological developments and evolving industry standards as
well as respond to changes in customer needs. There can be no assurance that the
Company will be successful in developing or acquiring product enhancements or
new products to address changing technologies and customer requirements
adequately, that it can introduce such products on a timely basis, or that any
such products or enhancements will be successful in the marketplace. The
Company's delay or failure to develop or acquire technological improvements or
to adapt its products to technological change would have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, most of the Company's products and services are purchased by
customers using mainframe systems, and the Company's business is largely
dependent on its core product line designed for mainframe systems. The computing
needs of organizations worldwide increasingly include alternative computing
platforms, including client/server and other distributed computing networks,
LANs, mid-range computers, workstations and PCs. A significant shift in the way
the Company's customers use computing platforms could have a material adverse
effect on the Company's business. See " -- Product Concentration; Dependence on
Mainframe Systems."
RISKS ASSOCIATED WITH PRODUCTS CURRENTLY UNDER DEVELOPMENT
The Company is currently developing and enhancing certain products that are
unfinished, untested and unproven in the marketplace. These products include,
but are not limited to: enhancements to integrate and complement the Rochade
line of products acquired by the Company in connection with its acquisition of
R&O; products designed to extend certain language support for the Company's
products; and additional options and language support for the Company's new
Bridge 2000 product. There can be no assurance that these products will be
completed and commercially introduced at the times scheduled by the Company, or
that if completed and introduced, that these products will function in
accordance with the Company's and its customers' current expectations or be able
to compete successfully in the marketplace. The Rochade product line, Bridge
2000 and certain of the Company's products under development address mission-
critical applications that operate continuously, and have required the Company
to develop and maintain 24-hour, 7-day per week support capability. The Company
does not have extensive
11
<PAGE> 13
experience in providing continuous customer support, which requires additional
personnel, management and infrastructure resources. The Company will be subject
to the risks associated with its products' increased support requirements,
including increased risks of customer dissatisfaction and the need to recruit,
train, retain and manage qualified personnel to provide continuous support
services. See "-- Dependence on Key Personnel;" and "Business -- Bridge
2000; -- Product Development."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in part upon the retention of key senior
management and technical personnel. The Company does not have employment
agreements with most of its key personnel, nor does it maintain key man life
insurance on any of these persons. In July 1997, the Company's Chief Technology
Officer, Michael A. Wolf, resigned as officer and director of VIASOFT and
entered into a 13-month consulting agreement to provide strategic consulting
services to the Company. The Company has begun a search for a vice president of
technology. Several senior management personnel are relatively new to the
Company and the Company's success will depend in part on the successful
assimilation and performance of these individuals. The Company believes that its
future success will also depend upon its ability to attract and retain
additional highly skilled technical, professional services, management and
marketing personnel, including in particular a vice president of technology. The
market for these individuals has historically been, and the Company expects that
it will continue to be, intensely competitive. The Company has experienced
difficulties in recruiting and retaining qualified personnel and anticipates
that these efforts will become increasingly difficult, as industry sources
predict an insufficient supply of programmers and consultants to meet demand,
especially in the year 2000 market. The loss of one or more of its key employees
or the Company's inability to attract and retain other qualified employees could
have a material adverse effect on the Company's business.
PRODUCT LIABILITY
The Company markets its products and services to customers for managing the
maintenance and redevelopment of mission-critical computer software systems. In
addition, a large and increasing portion of the Company's business is devoted to
addressing the year 2000 problem, which affects the performance and reliability
of many mission-critical systems. The Company's agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product and service liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any material product or service
liability claims to date, the sale and support of its products and services may
entail the risk of such claims, particularly in the year 2000 market, which
could be substantial in light of the use of its products and services in
mission-critical applications. A successful product or service liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.
IMPORTANCE OF PROPRIETARY RIGHTS
The Company regards its software products and some of the methodology and
processes it uses in connection with performing professional services as
proprietary and attempts to protect them under a combination of copyright, trade
secret and trademark laws and contractual restrictions on employees and third
parties. Despite these precautions, it may be possible for unauthorized parties
to copy the Company's software or to reverse engineer or obtain and use
information the Company regards as proprietary. The Company has no patents and
existing trade secret and copyright laws provide only limited protection.
Certain provisions of the license and distribution agreements generally used by
the Company, including provisions protecting against unauthorized
12
<PAGE> 14
use, copying, transfer and disclosure, may be unenforceable under the laws of
certain jurisdictions and the Company is required to negotiate limits on these
provisions from time to time. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. There can be no assurance that the protections put in
place by the Company will be adequate.
In 1996, the Company acquired the date bridging technology incorporated in
its new Bridge 2000 product, together with a pending patent application. The
Company is continuing to prosecute the patent application. However, there can be
no assurance that a patent will issue as a result of this application, nor as to
the extent of the protection any such patent might afford.
Significant and protracted litigation may be necessary to protect the
Company's intellectual property rights, to determine the scope of the
proprietary rights of others or to defend against claims of infringement.
Although the Company is not currently involved in any litigation with respect to
intellectual property rights, infringement claims against software developers
are likely to increase as the number of functionally similar products in the
market increases. There can be no assurance that third-party claims, with or
without merit, alleging infringement will not be asserted against the Company in
the future. Such assertions can be time-consuming and expensive to defend and
could require the Company to discontinue the use of certain software or
processes, to cease the manufacture, use and sale of infringing products and
services, to incur significant litigation costs and expenses and to develop or
acquire noninfringing technology or to obtain licenses to the alleged infringing
technology. There can be no assurance that the Company would be able to develop
or acquire alternative technologies or to obtain such licenses or, if licenses
were obtainable, that the terms would be commercially acceptable to the Company.
See "Business -- Intellectual Property."
SIGNIFICANT UNALLOCATED NET PROCEEDS
The Company intends to use the net proceeds of this offering for the
addition of direct sales and research and development personnel, marketing
initiatives, potential acquisitions of businesses, products and technologies
complementary to the Company's business and enhancement and integration of the
Rochade product line. In addition, a portion of the net proceeds will be used
for general corporate purposes, including working capital. Although the Company
from time to time engages in discussions with respect to possible acquisitions,
it has no present understandings, commitments or agreements, nor is it currently
engaged in any negotiations, with respect to any such transaction. Pending such
uses, the Company intends to invest the net proceeds from this offering in
short-term, investment-grade, interest-bearing securities. The Company has no
other specific uses for the proceeds of this offering, and the exact uses of
such proceeds will be subject to the discretion of management. See "Use of
Proceeds."
DILUTION
Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution in the net tangible book value of the Common
Stock from the offering price and will incur additional dilution upon the
exercise of stock options and warrants. See "Capitalization."
ANTI-TAKEOVER EFFECT OF CHARTER AND BYLAWS
Certain provisions of the Company's Amended and Restated Bylaws impose
certain procedures and limitations applicable to stockholders' meetings,
proposals of business and nominations of directors that could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. These provisions
may limit the price that certain investors may be willing to pay in the future
for shares of the Company's Common Stock. These provisions may also reduce the
likelihood of an acquisition of the Company at a premium price by another person
or entity. In addition, under the Company's Restated Certificate of
Incorporation, the Board of Directors has the authority to fix the rights and
13
<PAGE> 15
preferences of, and issue shares of, Preferred Stock without further action of
the stockholders. Therefore, Preferred Stock could be issued, without
stockholder approval, that could have voting, liquidation and dividend rights
superior to that of existing stockholders. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and the likelihood
that such holders would receive dividend payments and payments on liquidation
and could have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
Preferred Stock.
POTENTIAL FUTURE SALES OF COMMON STOCK
Sales of a substantial number of shares of Common Stock in the public
market, whether by purchasers in this offering, other stockholders of the
Company, including affiliates of the Company or former stockholders of R&O,
could adversely affect the prevailing market price of the Common Stock, and
could impair the Company's future ability to raise capital through an offering
of its equity securities. Immediately after the completion of this offering
(assuming no exercise of the Underwriters' over-allotment option) there will be
18,892,772 shares of Common Stock outstanding (based on the shares outstanding
as of June 30, 1997), substantially all of which will be freely tradeable in the
public markets, subject in certain cases to the volume and other limitations set
forth in Rule 144 or 145 promulgated under the Securities Act. The Company and
directors and executive officers of the Company and the Selling Stockholders,
who together hold 908,750 shares of Common Stock (including options exercisable
within 60 days of June 30, 1997), have signed lockup agreements with the
representatives of the Underwriters and have agreed to be subject to lockup
restrictions ("Lockup"), unless released by Goldman, Sachs & Co. See
"Underwriting". Subject to certain exceptions, the Lockup prohibits the
disposition of any shares of Common Stock by the Company or by directors and
executive officers of the Company until the date 90 days after the date of this
Prospectus. Any shares subject to the Lockup may be released at any time with or
without notice to the public.
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<PAGE> 16
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act and the Company intends that
such forward-looking statements be subject to the safe harbors created thereby.
Such forward-looking statements involve risks and uncertainties and include, but
are not limited to, statements regarding future events and the Company's plans
and expectations. The Company's actual results may differ materially from such
statements. Factors that cause or contribute to such differences include, but
are not limited to, those discussed above in "Risk Factors", as well as those
discussed elsewhere in this Prospectus and the documents incorporated herein by
reference. Although the Company believes that the assumptions underlying its
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the results
contemplated in such forward-looking statements will be realized. In addition,
as disclosed above under "Risk Factors", the business and operations of the
Company are subject to substantial risks which increase the uncertainties
inherent in the forward-looking statements included in this Prospectus. The
inclusion of such forward-looking information should not be regarded as a
representation by the Company or any other person that the future events, plans
or expectations contemplated by the Company will be achieved.
THE COMPANY
VIASOFT was formed under the name Software Renovation Technology as a
California corporation in 1983. In 1986, the Company changed its name to
VIASOFT, Inc. and reincorporated in Delaware. When used in this Prospectus,
unless the context requires otherwise, the terms "Company" and "VIASOFT" refer
to Software Renovation Technology and VIASOFT, Inc. and all of VIASOFT's
subsidiaries. The Company's executive offices are located at 3033 North 44th
Street, Phoenix, Arizona 85018, and its telephone number is (602) 952-0050.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,170,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$65.7 million ($76.8 million if the Underwriters' over-allotment option is
exercised in full), based on an assumed public offering price of $59.875 per
share, after deducting estimated underwriting discounts and offering expenses.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
The Company intends to use the net proceeds of this offering for the
addition of direct sales and research and development personnel, marketing
initiatives, potential acquisitions of businesses, products and technologies and
enhancement and integration of the Rochade product line. In addition, a portion
of the proceeds will be used for general corporate purposes, including working
capital. With respect to acquisitions, the Company will seek to acquire
businesses, products and technologies complementary to the Company's business.
Although the Company from time to time engages in discussions with respect to
possible acquisitions, it has no present understandings, commitments or
agreements, nor is it currently engaged in any negotiations, with respect to any
such transaction. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently anticipates that it will retain future earnings, if any,
to fund the development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.
15
<PAGE> 17
PRICE RANGE OF COMMON STOCK
The following table presents quarterly information on the price range of
the Common Stock (Nasdaq National Market symbol "VIAS") beginning at the
Company's initial public offering in fiscal 1995. The prices have been adjusted
to give retroactive effect to the Company's two-for-one stock split that was
payable on September 13, 1996 to stockholders of record as of August 30, 1996.
This information indicates the high and low reported sale prices on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1995:
Third quarter (beginning March 1, 1995).................... 4 7/8 3 7/8
Fourth quarter............................................. 7 1/2 4 1/4
FISCAL 1996:
First quarter.............................................. 8 1/2 4 15/16
Second quarter............................................. 7 15/16 5 3/4
Third quarter.............................................. 14 1/4 6 5/8
Fourth quarter............................................. 34 1/2 10 3/4
FISCAL 1997:
First quarter.............................................. 49 1/4 14 3/8
Second quarter............................................. 61 39 1/8
Third quarter.............................................. 65 1/4 27 1/4
Fourth quarter............................................. 55 3/8 30 3/8
FISCAL 1998
First quarter (through August 14, 1997).................... 65 1/4 47
</TABLE>
As of June 30, 1997, there were approximately 309 holders of record of the
Common Stock. A recent last reported sale price on the Nasdaq National Market
for the Common Stock is set forth on the cover page of this Prospectus.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, on an actual basis and as adjusted to give effect to the receipt of
the estimated net proceeds from the sale of 1,170,000 shares of Common Stock
offered hereby (based upon an assumed public offering price of $59.875 per
share). This table is qualified in its entirety by the more detailed information
and financial statements contained elsewhere or incorporated by reference in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
LONG-TERM OBLIGATIONS:
Deferred revenue, recognized after one year................. $ 230 $ 230
Other long-term liabilities................................. 138 138
---------
STOCKHOLDERS' EQUITY:
Preferred stock, 2,000,000 authorized, 0 shares issued and
outstanding at June 30, 1997 and as adjusted............. -- --
Common Stock, 24,000,000 authorized, 17,722,772 and
18,892,772 issued and outstanding at June 30, 1997 and as
adjusted, respectively(1)................................ 18 19
Capital in excess of par value.............................. 43,970 109,665
Common stock subscriptions receivable....................... (55) (55)
Accumulated deficit......................................... (14,930) (14,930)
Cumulative translation adjustment........................... (307) (307)
---------
Total stockholders' equity.......................... 28,696 94,392
-------- ---------
Total capitalization................................ $ 29,064 $ 94,760
======== =========
</TABLE>
- ---------------
(1) Does not include, as of June 30, 1997 (a) 1,410,272 shares of Common Stock
issuable upon exercise of outstanding stock options, (b) 164,084 shares of
Common Stock reserved for future issuance under the 1994 Equity Incentive
Plan, (c) 285,642 shares of Common Stock reserved for future issuance under
the Employee Stock Purchase Plan, and (d) 350,000 shares of Common Stock
reserved for future issuance under the Outside Directors Stock Option Plan.
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<PAGE> 19
PRO FORMA COMBINED FINANCIAL DATA
The following pro forma financial data of the Company presents the
Company's unaudited pro forma combined statements of operations for the fiscal
years ended June 30, 1996 and 1997, adjusted to give effect to the R&O
acquisition as if it had been consummated as of the beginning of each respective
period.
On December 5, 1996, the Company acquired all of the capital stock of R&O.
The Company initially paid $10.8 million in cash and issued approximately
425,000 shares of restricted Common Stock valued at $12.8 million to the selling
stockholders of R&O. Additional consideration of $2.0 million was paid on
February 28, 1997 based on the achievement of certain financial performance
criteria. The Company also assumed liabilities of approximately $9.4 million and
recorded other direct costs of approximately $3.8 million related to the
acquisition. The acquisition has been accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16. See "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations" and
Note 2 to Consolidated Financial Statements.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 YEAR ENDED JUNE 30, 1997
--------------------------------------------------- ---------------------------------------------------
BUSINESS PRO FORMA PRO FORMA BUSINESS PRO FORMA PRO FORMA
HISTORICAL ACQUIRED ADJUSTMENTS COMBINED HISTORICAL ACQUIRED ADJUSTMENTS COMBINED
---------- -------- ----------- --------- ---------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license
fees............. $ 17,824 $11,318 $ -- $29,142 $ 40,292 $ 2,435 $ -- $42,727
Maintenance fees... 14,305 4,262 -- 18,567 21,010 2,147 -- 23,157
Professional
services fee..... 11,307 3,448 -- 14,755 23,832 1,249 -- 25,081
Other.............. 121 169 -- 290 178 122 -- 300
-------- ------- ------- ------- -------- ------- ------- -------
Total revenues... 43,557 19,197 -- 62,754 85,312 5,953 -- 91,265
-------- ------- ------- ------- -------- ------- ------- -------
Operating expenses:
Cost of software
license and
maintenance
fees............. 2,788 1,787 400(1) 4,975 4,345 959 167(1) 5,471
Cost of
professional
services fees.... 8,025 4,214 (221)(2) 12,018 18,316 1,374 (161)(2) 19,529
Sales and
marketing........ 18,137 6,022 (721)(2,4) 23,438 31,573 2,243 (623)(2,4) 33,193
Research and
development...... 4,237 4,077 (257)(2,4) 8,057 7,893(5) 1,511 (269)(2,4) 9,135
General and
administrative... 3,567 2,598 (495)(1,2,3,4) 5,670 6,319 1,311 (828)(1,2,3,4) 6,802
-------- ------- ------- ------- -------- ------- ------- -------
Total operating
expenses....... 36,754 18,698 (1,294) 54,158 68,446 7,398 (1,714) 74,130
-------- ------- ------- ------- -------- ------- ------- -------
Income (loss) from
operations......... 6,803 499 1,294 8,596 16,866 (1,445) 1,714 17,135
-------- ------- ------- ------- -------- ------- ------- -------
Total other income
(expense).......... 1,257 (308) 227(6) 1,176 718 (144) 138(6) 712
-------- ------- ------- ------- -------- ------- ------- -------
Income (loss) before
income taxes....... 8,060 191 1,521 9,772 17,584 (1,589) 1,852 17,847
Provision for income
taxes.............. 1,843 -- 394(7) 2,237 6,062 -- (93)(7) 6,155
-------- ------- ------- ------- -------- ------- ------- -------
Net income (loss).... $ 6,217 191 $ 1,127 $ 7,535 $ 11,522 $(1,589) $ 1,759 $11,692
======== ======= ======= ======= ======== ======= ======= =======
Earnings per common
and common share
equivalent......... $ .36 $ .42 $ .64 $ .64
======== ======= ========
Weighted average
number of common
and common share
equivalents
outstanding........ 17,391 425(8) 17,816 18,086(9) 184(8) 18,270
======== ======= ======= ======== ======= =======
</TABLE>
- ---------------
(1) To adjust amortization expense to reflect amortization of the cost in excess
of the fair value of net assets acquired over a 5-year period and for
amortization of other identifiable intangible assets over the appropriate
periods.
(2) To adjust payroll and employee benefits related to the reduction of
duplicate or redundant positions identified by the Company as part of the
acquisition.
(3) To adjust other operating expenses to reflect expenditures which would not
have been incurred had the acquisition of R&O occurred at the beginning of
the respective periods.
(4) To reflect a reduction in expenses related to excess office space that would
not have been incurred by the Company had the acquisition occurred at the
beginning of the periods presented.
(5) Excludes a charge of approximately $27.0 million for write-off of purchased
in-process research and development.
(6) To adjust interest expense to reflect the payoff of R&O debt assumed in the
acquisition, as of the beginning of the periods presented.
(7) To adjust income taxes to reflect the tax effect of the adjustments
described above.
(8) To adjust weighted average number of common and common share equivalents
outstanding as if the Common Stock issued in connection with the acquisition
of R&O had been outstanding since the beginning of the periods presented.
(9) Adjusted to include additional common share equivalents as a result of
excluding a charge of approximately $27.0 million for write-off of purchased
in-process research and development. See Note (5) above.
18
<PAGE> 20
The foregoing unaudited pro forma combined financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto. The
unaudited pro forma combined financial data is provided for illustrative
purposes only and is not necessarily indicative of the combined results of
operations that would have been reported had the R&O acquisition occurred on the
dates indicated, nor does it represent a forecast of the combined results of
operations for any future period. No pro forma adjustments have been included
herein which reflect the potential effect of (i) any efficiencies which may be
obtained by combining the Company and R&O operations or (ii) the costs of
restructuring, integrating or consolidating their operations. Certain statements
in this Prospectus concerning the R&O acquisition, including descriptions of the
acquisition and pro forma financial information, are forward-looking statements
that involve risks and uncertainties. There can be no assurance that the R&O
acquisition will have the desired benefits or that it will not have an adverse
effect on the Company's business, financial condition or results of operations.
Actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, among others, those
discussed herein under "Risk Factors" and "Special Note on Forward-Looking
Statements," as well as those discussed elsewhere in this Prospectus and in the
documents incorporated herein by reference.
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" included elsewhere herein. The selected
consolidated financial data presented below has been derived from the Company's
consolidated financial statements which have been audited by Arthur Andersen
LLP, independent public accountants, whose report covering the financial
statements as of June 30, 1997 and 1996 and for each of the three years in the
period ended June 30, 1997 also is included elsewhere herein. The consolidated
statements of operations data for the years ended June 30, 1994 and 1993 and the
consolidated balance sheet data as of June 30, 1995, 1994, and 1993 are derived
from audited financial statements not included herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
PRO FORMA
JUNE 30,
1993 1994 1995 1996 1997 1997(1)
------- ------- ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees........................................... $11,343 $13,029 $14,311 $17,824 $ 40,292 $42,727
Maintenance fees................................................ 7,645 10,041 12,059 14,305 21,010 23,157
Professional services fees...................................... 1,341 2,715 4,387 11,307 23,832 25,081
Other........................................................... 313 199 194 121 178 300
------- ------- ------- ------- -------- -------
Total revenues............................................ 20,642 25,984 30,951 43,557 85,312 91,265
------- ------- ------- ------- -------- -------
Operating expenses:
Cost of software license and maintenance fees(2)................ 2,254 1,544 2,661 2,788 4,345 5,471
Cost of professional services fees.............................. 1,626 2,522 4,052 8,025 18,316 19,529
Sales and marketing............................................. 13,308 11,993 13,517 18,137 31,573 33,193
Research and development........................................ 3,692 3,291 3,193 4,237 7,893 9,135
Write-off of purchased in-process research and development(3)... -- -- -- -- 26,958 --
General and administrative(2)................................... 2,406 2,480 2,643 3,567 6,319 6,802
------- ------- ------- ------- -------- -------
Total operating expenses.................................. 23,286 21,830 26,066 36,754 95,404 74,130
------- ------- ------- ------- -------- -------
Income (loss) from operations..................................... (2,644) 4,154 4,885 6,803 (10,092) 17,135
Total other income (expense)...................................... (350) (22) 490 1,257 718 712
------- ------- ------- ------- -------- -------
Income (loss) before income taxes................................. (2,994) 4,132 5,375 8,060 (9,374) 17,847
Provision for income taxes........................................ 278 487 183 1,843 6,062 6,155
------- ------- ------- ------- -------- -------
Net income (loss)................................................. $(3,272) $ 3,645 $ 5,192 $ 6,217 $(15,436) $11,692
======= ======= ======= ======= ======== =======
Earnings (loss) per common and common share equivalent(4)......... $ (.28) $ .29 $ .36 $ .36 $ (.90) $ .64
======= ======= ======= ======= ======== =======
Weighted average number of common and common share equivalents
outstanding(4).................................................. 11,620 12,720 14,584 17,391 17,212 18,270
======= ======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 1,025 $ 4,099 $ 7,680 $ 5,009 $ 8,501
Working capital (deficit)............................................... (2,654) 1,149 17,950 25,388 9,856
Total assets............................................................ 9,551 14,257 32,614 46,591 64,601
Deferred revenue (current).............................................. 6,127 7,679 8,482 9,985 18,227
Deferred revenue (long term)............................................ 28 182 185 298 230
Total stockholders' equity (deficit).................................... (690) 3,039 20,423 28,259 28,696
</TABLE>
- ---------------
(1) Gives pro forma effect to the acquisition by the Company of all of the
outstanding capital stock of R&O as if the acquisition had occurred at the
beginning of the period presented. The pro forma results exclude the
approximate $27.0 million purchased in-process research and development
charge. See "Pro Forma Combined Financial Data," "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations"
and Note 2 to Consolidated Financial Statements.
(2) For the period from December 5, 1996, the date of the R&O acquisition,
through June 30, 1997, cost of software license and maintenance fees and
general and administrative expense included amortization of $233,000 and
$311,000, respectively, of intangible assets acquired in the R&O
acquisition.
(3) See Note 2 to Consolidated Financial Statements and "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations."
(4) Reflects the conversion of all issued and outstanding shares of preferred
stock into 8,847,814 shares of Common Stock upon the closing of the
Company's initial public offering on March 8, 1995. Also reflects the effect
of a two-for-one stock split effected in the form of a dividend, with a
record date of August 30, 1996. See Note 1 to Consolidated Financial
Statements.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed above in "Risk Factors", as well as those discussed
elsewhere in this Prospectus or incorporated herein by reference. See "Special
Note on Forward-Looking Statements."
OVERVIEW
The Company derives its revenues primarily from software license fees,
software maintenance fees and professional services fees. The Company's software
is licensed primarily to Fortune 1000 companies and similarly-sized business and
governmental organizations worldwide. Professional services are provided in
conjunction with software products and are also provided separately to similar
large organizations. The Company's products and services are marketed through
its United States sales force, both domestically and in Canada and Latin
America, and through foreign subsidiaries and independent distributors in other
international markets.
The Company licenses software products directly to customers and to
distributors for resale. Software license fees are recognized upon delivery and
acceptance of the software, receipt of an executed noncancellable license
agreement from the customer or the distributor's end-user and completion of any
significant remaining obligations under the agreement. Revenues from software
licensing related to the Company's obligation to provide certain customer
support are deferred and recognized straight-line over the contract support
period, which is generally one year. Software maintenance contracts are
generally renewable on an annual basis, although the Company also negotiates
long-term maintenance contracts from time to time. Revenues from maintenance
contract renewals are deferred and recognized straight-line over the term of the
contracts. Revenues from professional services fees are recognized on a
percentage of completion basis, which is generally as the related services are
provided.
On December 5, 1996, the Company acquired all of the outstanding shares of
capital stock of R&O pursuant to a stock purchase agreement with the
stockholders of R&O. R&O develops, markets and supports repository software
tools through its Rochade product line, together with related repository based
services and solutions. The Company accounted for the R&O acquisition as a
purchase and allocated approximately $27.0 million of the purchase price to
in-process research and development, resulting in a significant charge to the
Company's results of operations during the year ended June 30, 1997. Total
revenues of R&O were $12.5 million for the period from the acquisition date to
June 30, 1997.
21
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain expense and income items:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Software license fees.................................... 46.2% 40.9% 47.2%
Maintenance fees......................................... 39.0 32.8 24.6
Professional services fees............................... 14.2 26.0 28.0
Other.................................................... 0.6 0.3 0.2
----- ----- -----
Total revenues................................... 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Cost of software license and maintenance fees............ 8.6 6.4 5.1
Cost of professional services fees....................... 13.1 18.4 21.4
Sales and marketing...................................... 43.7 41.6 37.0
Research and development................................. 10.3 9.7 9.3
Write-off of purchased in-process research and
development........................................... -- -- 31.6
General and administrative............................... 8.5 8.3 7.4
----- ----- -----
Total operating expenses......................... 84.2 84.4 111.8
----- ----- -----
Income (loss) from operations.............................. 15.8 15.6 (11.8)
Total other income, net.......................... 1.6 2.9 0.8
----- ----- -----
Income (loss) before income taxes.......................... 17.4 18.5 (11.0)
Provision for income taxes................................. 0.6 4.2 7.1
----- ----- -----
Net income (loss)................................ 16.8% 14.3% (18.1)%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
REVENUES
Total revenues were $85,312,000 for the fiscal year ended June 30, 1997, an
increase of 95.9% from $43,557,000 for the fiscal year ended June 30, 1996.
Software license fees were $40,292,000 for the fiscal year ended June 30, 1997,
an increase of 126.1% from $17,824,000 for the fiscal year ended June 30, 1996.
Software license fees increased both domestically and internationally as a
result of the demand for the Company's tools to assist in addressing the year
2000 century date change problem. The increase in international software license
fees was attributable primarily to a 386.6% improvement in results from the
Company's direct operations over the same period in the prior year, due
primarily to sales of the Company's year 2000 solutions in the United Kingdom
and growth of the German and Australian operations. In addition, license fees
increased due to the acquisition of R&O, which contributed license fees of
$7,398,000 since the December 5, 1996 acquisition date.
Maintenance fees were $21,010,000 in fiscal 1997, an increase of 46.9% from
$14,305,000 in fiscal 1996. The increase was due in part to the R&O acquisition,
which contributed $3,219,000 in maintenance revenue, with the remainder
attributable to new software licenses, customer system upgrades and increases in
the fees charged for annual maintenance.
Professional services fees were $23,832,000 in fiscal 1997, an increase of
110.8% from $11,307,000 in fiscal 1996. The Company continued to expand its
professional services business throughout most of fiscal 1997 to continue to
meet the increasing demand for its year 2000 solution offerings, VIASOFT's
Enterprise 2000. VIASOFT's Enterprise 2000 solution offerings comprised
22
<PAGE> 24
72.4% and 74.7% of the Company's professional services revenues during fiscal
1997 and 1996, respectively. In addition, R&O contributed $1,818,000 in
professional services fee revenue in fiscal 1997. During the fourth quarter of
fiscal 1997, the Company began to enhance its year 2000 solution offerings. The
Company's initial offering was focused on a three-phase, enterprise level
solution for the year 2000 problem using VIASOFT's Impact 2000, VIASOFT's Plan
2000, and VIASOFT's Operation 2000. In the fourth quarter of fiscal 1997, the
Company introduced VIASOFT's FastPath 2000, which is designed to provide the
primary components of a successful year 2000 conversion on an application level,
rather than an enterprise-wide level. See "Business -- VIASOFT Services --
VIASOFT's Enterprise 2000." This resulted in decreased utilization of personnel
during the quarter due to training required for this new solution. During the
fourth quarter of fiscal 1997, the Company also re-evaluated certain of its
service engagements and determined that the level of effort to complete these
engagements was more than originally estimated. As such, the Company revised the
amount of revenue recognized per day on a percentage of completion basis under
the engagements. The impact was to reduce professional services fees by
approximately $700,000 compared to the third quarter of fiscal 1997. The
combination of these revenue adjustments and the decreased personnel utilization
associated with the FastPath 2000 introduction caused a slowdown in revenue
growth in professional services fees during the fourth quarter of fiscal 1997.
The Company does not anticipate that these factors will affect revenue growth in
fiscal 1998.
COST OF REVENUES
Cost of software license and maintenance fees, which include royalties,
cost of customer support and packaging and product documentation, was $4,345,000
for the fiscal year ended June 30, 1997, an increase of 55.8% from $2,788,000
during the fiscal year ended June 30, 1996. The increase was primarily due to
additional R&O expenses of $1,074,000. Without the R&O costs, these expenses
would have increased 17.3%. Gross margins on software license and maintenance
fees remained relatively consistent at 92.9% compared to 91.3% for fiscal 1997
and fiscal 1996, respectively. The expense increase is primarily due to
additional personnel in the customer support area and increased salaries, as
well as amortization of the purchased research and development from the R&O
acquisition.
Cost of professional services fees, which consists principally of personnel
costs, third-party subcontracting fees, and other costs related to the
professional services business, was $18,316,000 for the fiscal year ended June
30, 1997, an increase of 128.2% from $8,025,000 for the fiscal year ended June
30, 1996. The increase in expenses is a result of additional personnel hired and
their related costs as well as third-party costs to deliver the Company's
solutions in response to increased customer demand, both domestically and
internationally, and to a lesser extent, additional expenses incurred by R&O of
$1,681,000. The overall gross margin on professional services fees for fiscal
1997 was 23.2% compared to 29.0% for fiscal 1996. Excluding the R&O professional
services business, the gross margin on other professional services business was
24.4%. During the fourth quarter of fiscal 1997, the Company experienced lower
margins as a result of its introduction of FastPath 2000, noted above, and the
related costs incurred to train the professional services organization. In
addition, the percentage of completion revenue adjustments noted above also
reduced the margins on professional services. Overall, the Company expects a
decrease in professional services margins as it continues to integrate the R&O
professional services organization with its own operations.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions and
related benefits and administrative costs allocated to the Company's sales and
marketing personnel. Sales and marketing expenses were $31,573,000 in fiscal
1997, an increase of 74.1% from $18,137,000 in fiscal 1996. Of this increase,
R&O expenses accounted for $4,027,000. Excluding R&O expenses, sales and
marketing expenses increased 51.9%. This increase is attributable primarily to
an increase in personnel and the associated costs, including higher salaries,
travel and bonuses, as well as
23
<PAGE> 25
general salary increases, increased commissions as a result of revenue growth,
increased marketing costs, and an increase in bad debt expense due to the
absolute dollar increase in accounts receivable. Sales and marketing expenses as
a percentage of total revenues declined to 37.0% in fiscal 1997, compared to
41.6% in fiscal 1996, due primarily to the increase in revenues.
RESEARCH AND DEVELOPMENT
Research and development expenditures consist primarily of personnel costs
of research and development staff and the facilities, computing, benefits and
other administrative costs allocated to such personnel and to a lesser extent,
third-party development costs. Total expenditures for research and development
were $7,893,000 for fiscal year ended June 30, 1997, excluding an approximate
$27.0 million charge for purchased in-process research and development in
connection with the R&O acquisition, an increase of 86.3% from $4,237,000 for
the fiscal year ended June 30, 1996. The increase in expenses includes costs
associated with R&O's research and development of $1,728,000. Excluding costs
related to R&O, research and development costs increased 45.5% in fiscal 1997 as
a result of general salary increases, the addition of personnel and the related
cost of recruiting, costs of external consultants and increased expenses for
external service bureau computing costs. As a percentage of total revenues,
research and development costs were 9.3% for fiscal 1997 (excluding the
approximate $27.0 million purchased in-process research and development charge)
compared to 9.7% for the same period in fiscal 1996, due primarily to the
increase in revenue.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of finance and
accounting, legal, human resources, corporate information systems and other
administrative functions of the Company. General and administrative expenses
were $6,319,000 in the fiscal year ended June 30, 1997, representing an increase
of 77.2% compared to $3,567,000 in the fiscal year ended June 30, 1996. The
increase included $1,158,000 in general and administrative expenses related to
R&O. Excluding those expenses and the one-time charge of $350,000 incurred in
the third quarter of fiscal 1996 related to the change in the CFO position,
general and administrative expenses increased 60.4%. This increase is a result
of additional legal fees and administrative personnel and their related costs,
general salary increases, additional bonuses, amortization of intangibles
related to the R&O acquisition, increased external consulting costs and
additional insurance costs. As a percentage of total revenues, general and
administrative expenses were 7.4% for fiscal 1997 compared to 8.2% for period in
fiscal 1996, due primarily to the increase in revenues.
OTHER INCOME (EXPENSE)
Interest income in the fiscal year ended June 30, 1997 was $1,309,000,
compared to $1,350,000 in the fiscal year ended June 30, 1996. This decrease was
due primarily to the decrease in funds available for short-term investment as a
result of the R&O acquisition, net of cash generated from operations during the
year. Other expense for the fiscal year ended June 30, 1997 increased to
$546,000 as compared to $82,000 for the same period in fiscal 1996, primarily
due to exchange losses on transactions with the Company's subsidiaries in
Germany and the United Kingdom, which are valued in their local currencies, as
well as certain transactions with its Italian distributor which are valued in
lira. This was primarily a result of the strengthening of the U.S. dollar
against various European currencies during the second half of fiscal 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes was $6,062,000 and $1,843,000 for fiscal
years ended June 30, 1997 and 1996, respectively. The Company's effective tax
rate was 34.5% in fiscal 1997, excluding the effect of the non-deductible
purchased in-process research and development charge, compared to 22.9% in
fiscal 1996. The Company's effective tax rate in fiscal 1997 was affected by the
decreased availability of net operating loss carryforwards, which were fully
utilized in fiscal 1996, and certain tax credit carryforwards, which were mostly
utilized in fiscal 1996.
24
<PAGE> 26
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995
REVENUES
Total revenues were $43,557,000 for fiscal 1996, an increase of 40.7% from
$30,951,000 for fiscal 1995. Software license fees were $17,824,000 for fiscal
1996, an increase of 24.5% from $14,311,000 for fiscal 1995. Domestic license
revenues increased 30.7% in fiscal 1996 as compared to fiscal 1995, primarily as
a result of heightened awareness of the year 2000 date change problem in the
domestic marketplace and demand for the Company's tools to assist in the
solution to this problem. Internationally, in fiscal 1996, the Company's
software license fees increased by 9.9% as compared to 1995, a slower growth
than experienced domestically. The Company believes the slower international
growth is primarily attributable to the international market awareness of the
year 2000 problem lagging behind the domestic marketplace.
In order to broaden its distribution channels, the Company established its
Solution/Technology Provider program in fiscal 1996. VIASOFT's
Solution/Technology Provider program licenses VIASOFT's Enterprise 2000 solution
offering (consisting of VIASOFT's Impact 2000, VIASOFT's Plan 2000, and
VIASOFT's Operation 2000) to third-party Solution/Technology Providers,
generally consulting services companies, in exchange for license fees and/or
royalties. In conjunction with a services engagement, VIASOFT will lease or
license certain of its products to the customer or Solution/Technology Provider
in order to provide a total solution to the customer. This program generated
both software license and royalty revenue in fiscal 1996. Domestic software
license revenue generated through this program was approximately $1.6 million.
Royalty revenue is included in professional services fees and is immaterial. As
of June 30, 1996, the Company had 19 Solution/Technology Providers worldwide.
Maintenance fees were $14,305,000 in fiscal 1996, an increase of 18.6% from
$12,059,000 in fiscal 1995. This increase is primarily a result of new software
licenses, and, to a lesser extent, customer system upgrades and increases in the
fees charged for annual maintenance.
Professional services fees were $11,307,000 in fiscal 1996, an increase of
157.7% from $4,387,000 in fiscal 1995. The Company continued to expand its
professional services business to meet the growing demand for VIASOFT's
Enterprise 2000 solution offerings created by the year 2000 date change problem.
Enterprise 2000 solution offerings comprised 73.6% of the Company's professional
services fees in fiscal 1996. Additionally, revenue from the Company's education
services continued to grow in fiscal 1996, improving 55.1% to $1,393,000 from
$898,000 in fiscal 1995, primarily as a result of a renewed focus on the sale of
education services and increased license sales.
COST OF REVENUES
Cost of software license and maintenance fees was $2,788,000 in fiscal
1996, an increase of 4.8% from $2,661,000 in fiscal 1995. The increase was
primarily attributable to an increase in the average number of personnel devoted
to customer support and increased product documentation costs related to new
product releases, offset by savings in royalties. See Note 8 of Notes to
Consolidated Financial Statements incorporated by reference herein.
The cost of professional services fees was $8,025,000 in fiscal 1996, an
increase of 98.1% from $4,052,000 in fiscal 1995. The increase is a result of
the additional personnel hired and their related costs as well as third-party
costs to deliver the Company's solutions in response to increased customer
demand, both domestically and internationally. The gross margin on professional
services fees improved to 29.0% in fiscal 1996 compared to 7.6% in fiscal 1995.
This margin improvement reflects the significant increase in professional
service fee income, together with the Company's focus on improving the
management and delivery of its solution offerings.
25
<PAGE> 27
SALES AND MARKETING
Sales and marketing expenses were $18,137,000 in fiscal 1996, an increase
of 34.2% from $13,517,000 in fiscal 1995. This increase is attributable
primarily to increased personnel, higher salaries, increased travel expenses
primarily related to the increase in personnel, increased sales incentive costs,
and additional marketing expenditures. These increases were offset by a decrease
in bad debt expense. Bad debt expense in fiscal 1995 included a third quarter
$200,000 increase in the reserve to provide for a specific account which was
subsequently resolved for an amount that was less than the established reserve.
In management's opinion, there was no need for any bad debt expense in fiscal
1996. Sales and marketing expenses as a percentage of total revenues declined to
41.6% in fiscal 1996 compared to 43.7% in fiscal 1995 due primarily to the
increase in revenues.
RESEARCH AND DEVELOPMENT
Total expenditures for research and development were $4,237,000 for fiscal
1996, an increase of 32.7% from $3,193,000 for fiscal 1995. This increase was
due to the hiring of additional personnel and their related costs, as well as
increased third-party development costs. As a percentage of total revenues,
research and development costs remained relatively constant at 9.7% for fiscal
1996 and 10.3% for fiscal 1995.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $3,567,000 in fiscal 1996,
representing an increase of 34.9%, as compared to $2,643,000 in fiscal 1995. In
the third quarter of fiscal 1996, the Company incurred approximately $350,000 in
one time charges, consisting primarily of severance and relocation costs,
related to a change in the Chief Financial Officer position. Without these one
time costs, general and administrative expenses would have increased 21.7%.
Excluding the one time charge, the increases were due to general salary
increases, additional personnel and the related costs associated with those
personnel, and external professional service consulting costs. As a percentage
of total revenues, general and administrative expenses were constant at 8.3% and
8.5%, respectively, for fiscal 1996 and 1995.
OTHER INCOME (EXPENSE)
Other income was $1,257,000 in fiscal 1996 as compared to $490,000 in
fiscal 1995. The increase is primarily due to interest income which was
$1,350,000 in fiscal 1996 compared to $508,000 in fiscal 1995. This increase was
due primarily to an increase in funds available for short term investment as a
result of the Company's initial public offering and from cash generated from
operations. Foreign currency gains and losses were negligible in fiscal 1996 and
1995.
PROVISION FOR INCOME TAXES
The provision for income taxes was $1,843,000 and $183,000, resulting in
effective tax rates of 22.9% and 3.4%, in fiscal 1996 and 1995, respectively.
The Company's effective tax rates were affected by the availability of net
operating loss carryforwards and certain tax credit carryforwards, which reduced
the Company's federal tax liability for fiscal 1996 and eliminated the Company's
federal tax liability in fiscal 1995. See Note 5 to Consolidated Financial
Statements.
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<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
results of operations for each of the eight quarters ended June 30, 1997. In the
opinion of management, this quarterly information has been prepared on the same
basis as the Company's annual audited Consolidated Financial Statements and
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the information for the periods presented when read
in conjunction with the Consolidated Financial Statements of the Company and
Notes thereto. The operating results for any quarter are not necessarily
indicative of the results of the full year or any future quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
---------------------------------------- -----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees.......... $ 3,602 $ 4,674 $ 3,977 $ 5,571 $ 4,714 $ 8,381 $11,380 $15,817
Maintenance fees............... 3,312 3,567 3,608 3,818 4,047 4,853 5,716 6,394
Professional services fees..... 1,491 1,984 2,748 5,084 5,177 6,498 6,765 5,392
Other.......................... 35 32 28 26 38 51 40 49
------- ------- ------- ------- ------- -------- ------- -------
Total revenues........... 8,440 10,257 10,361 14,499 13,976 19,783 23,901 27,652
------- ------- ------- ------- ------- -------- ------- -------
Operating expenses:
Cost of software license and
maintenance fees............. 659 799 683 647 624 953 1,221 1,547
Cost of professional services
fees......................... 1,464 1,514 1,833 3,214 3,921 4,549 5,009 4,837
Sales and marketing............ 3,664 4,201 4,271 6,001 5,168 7,152 8,626 10,627
Research and development....... 936 1,109 1,030 1,162 1,127 1,725 2,210 2,831
Write-off of purchased
in-process research and
development.................. -- -- -- -- -- 26,958 -- --
General and administrative..... 763 762 1,174 868 1,115 1,505 1,862 1,837
------- ------- ------- ------- ------- -------- ------- -------
Total operating
expenses............... 7,486 8,385 8,991 11,892 11,955 42,842 18,928 21,679
------- ------- ------- ------- ------- -------- ------- -------
Income (loss) from operations.... 954 1,872 1,370 2,607 2,021 (23,059) 4,973 5,973
------- ------- ------- ------- ------- -------- ------- -------
Other income (expense):
Interest income................ 306 322 378 344 386 344 249 330
Interest expense............... (3) (2) (4) (2) (1) (52) 9 (1)
Other, net..................... (2) (1) (42) (37) 4 (11) (422) (117)
Total other income
(expense).............. 301 319 332 305 389 281 (164) 212
Income (loss) before income
taxes.......................... 1,255 2,191 1,702 2,912 2,410 (22,778) 4,809 6,185
Provision for income taxes....... 314 551 432 546 854 1,406 1,661 2,124
------- ------- ------- ------- ------- -------- ------- -------
Net income (loss)................ $ 941 $ 1,640 $ 1,270 $ 2,366 $ 1,556 $(24,184) $ 3,148 $ 4,044
======= ======= ======= ======= ======= ======== ======= =======
Earnings (loss) per common and
common share equivalent........ $ 0.06 $ 0.10 $ 0.07 $ 0.13 $ 0.09 $ (1.42) $ 0.17 $ 0.22
======= ======= ======= ======= ======= ======== ======= =======
Weighted average number of common
and common share equivalents
outstanding.................... 17,040 17,092 17,278 17,558 17,668 17,045 18,337 18,460
======= ======= ======= ======= ======= ======== ======= =======
</TABLE>
The Company's revenues and operating results are subject to quarterly and
other fluctuations resulting from a variety of factors, including the effect of
budgeting and purchasing practices of its customers, the length of the customer
evaluation process for Company products, the timing of customer system
conversions, and, to a lesser extent, the Company's sales commission practices,
which are based partly on quarterly incentives and annual quotas, and other
factors. The Company's revenues and results of operations may also be affected
by seasonal trends, which have resulted in higher revenues in the Company's
second and fourth fiscal quarters and lower revenues in its first
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<PAGE> 29
and third fiscal quarters. This seasonality is a result of many customers'
annual purchasing and budgetary practices, the Company's sales commission
practices, lower revenues in the summer months (particularly in Europe) when
many businesses make fewer purchases, and other factors. The Company's
professional services revenues tend to fluctuate due to the completion or
commencement of significant projects, which may continue over several quarters,
the number of working days in a quarter and the utilization rate of professional
services personnel. The Company has little or no backlog. Therefore, quarterly
revenues and operating results depend primarily on the volume and timing of
orders received during the quarter, which are difficult to forecast. The Company
has often recognized a substantial portion of its license fees in the last month
of the quarter, frequently in the last week. A significant portion of the
Company's operating expenses is relatively fixed, since personnel levels and
other expenses are based upon anticipated revenues. Because a substantial
portion of these revenues may not be generated until the end of each quarter,
the Company may not be able to reduce spending in response to sales shortfalls
or delays. These factors, many of which are not within the Company's control,
can cause significant variations in operating results from quarter to quarter.
The Company believes that quarter to quarter comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. See "Risk Factors -- Fluctuating Quarterly
Results; -- Volatility of Common Stock Price."
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through the private
sale of equity securities, the initial public offering of its common stock in
March 1995, and, since July 1, 1993, from cash flow from operations. At June 30,
1997 the Company had cash and cash equivalents and investments of $28,575,000,
representing a decrease of $229,000 from the total of $28,804,000 at June 30,
1996. See Notes 1, 2 and 3 of Notes to Consolidated Financial Statements.
The Company's net cash provided by operating activities was $15,136,000 and
$7,976,000 for the fiscal years ended June 30, 1997 and 1996, respectively. Net
cash provided from operations in fiscal 1997 was composed primarily of net
income excluding non-cash charges for the write-off of purchased in-process
research and development, depreciation and amortization and a net increase in
working capital. Net cash provided in fiscal 1996 was composed primarily of net
income excluding non-cash charges for depreciation and amortization and
compensation related to the Company's stock plans, and a net increase in working
capital.
The Company's investing activities used cash of $9,371,000 and $11,803,000,
in the fiscal years ended June 30, 1997 and 1996, respectively. In fiscal 1997,
cash was used for the purchase of R&O, net of the cash acquired, and to a lesser
extent, the purchase of furniture, fixtures and equipment, offset in part by
sales or maturities of investments in excess of purchases of investments. In
fiscal 1996, the primary use of cash was for the purchase of investments, net of
investment maturities.
The Company's financing activities used cash of $1,942,000 and provided
cash of $1,158,000 in the fiscal years ended June 30, 1997 and 1996,
respectively. In fiscal 1997, the cash was used for payment of R&O debt
acquired, offset in part by cash provided from the issuance of common stock upon
the exercise of options and through the employee stock purchase plan. In fiscal
1996, cash was provided primarily by the sale of common stock through the
employee stock purchase plan and the exercise of stock options.
As of June 30, 1997, the Company did not have any material commitments for
capital expenditures. In the fiscal year ending June 30, 1998, the Company
anticipates capital expenditures of approximately $7.0 million, primarily for
computer hardware and software to update the Company's communications equipment
and systems.
The Company expects that the proceeds of this offering and existing working
capital, together with cash from operations, will be sufficient for at least the
next 12 months to meet its capital and liquidity needs for existing operations
and general corporate purposes, as well as the addition of
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<PAGE> 30
direct sales and research and development personnel, marketing initiatives, and
potential acquisitions of businesses, products and technologies.
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
The results of operations of the Company for the periods discussed above
have not been significantly affected by inflation or foreign currency
fluctuations. Sales made through the Company's foreign distributors are
denominated in U.S. dollars except in Italy, where they are denominated in lira.
Sales by the Company's foreign subsidiaries are principally denominated in the
currencies of the countries where sales are made. The Company has not to date
sought to hedge the risks associated with fluctuations in foreign exchange rates
and does not currently plan to do so. Gains or losses relating to translation of
the financial statements of the Company's foreign subsidiaries are included as a
separate component of stockholders' equity in the Company's Consolidated
Financial Statements.
29
<PAGE> 31
BUSINESS
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed above in "Risk Factors," as well as those discussed
elsewhere in this Prospectus or incorporated herein by reference. See "Special
Note on Forward-Looking Statements."
GENERAL
VIASOFT provides enterprise application management solutions that help
large organizations worldwide understand, manage and evolve the large-scale
software applications that support their fundamental business processes. These
business solutions are provided through a highly integrated suite of software
products and specialized professional consulting services. The Company's
products and services are designed to reduce substantially the cost of
maintaining and redeveloping existing mainframe applications, improve the
quality and maintainability of these applications and assist in implementing
specialized or complex redevelopment initiatives, such as the year 2000 century
date conversion.
The Company's principal business solutions are based on VIASOFT's
proprietary technology, the Existing Systems Workbench, an integrated suite of
software development tools. ESW, which is also the Company's primary software
product line, supports the IBM MVS operating system and includes products that
are available individually or as a complete suite. VIASOFT's business solutions,
which combine the Company's products and professional services offerings,
include (i) VIASOFT's Enterprise 2000, including its FastPath 2000 solution and
Bridge 2000 product, for addressing the year 2000 problem, (ii) VIASOFT's
Insourcing for reducing the costs and improving the productivity of managing
enterprise applications and (iii) VIASOFT's Legacy Transitions for reusing and
evolving enterprise applications for the implementation of distributed computing
environments and packaged software applications. As part of the Company's
strategy to broaden its enterprise application management solutions, the Company
acquired R&O in December 1996 and is in the process of integrating R&O's
repository technology into VIASOFT's solutions offerings.
The Company markets its products and services to Fortune 1000 companies and
similarly sized business and governmental organizations worldwide. As of June
30, 1997, the Company had approximately 850 customers with licenses to the
Company's products and current maintenance contracts. Representative customers
of the Company include Abbott Laboratories, American General Life Insurance Co.,
BMW AG, Boeing, Inc., Charles Schwab & Co., Citibank, N.A., Consolidated Rail,
Deutsche Bank AG, Goldman, Sachs & Co., Mastercard International, Incorporated,
Motorola, Inc., Pfizer, Inc., PTT Telecom B.V., T. Rowe Price Investments,
Telstra Corporation Ltd., and U.S. West.
INDUSTRY BACKGROUND
Worldwide, large business and governmental organizations rely on
large-scale computer applications to help manage their businesses. These
applications, many of which are mission-critical, contain the core knowledge and
processes that support the major operations of these organizations. Examples of
such applications include insurance claims processing systems, on-line banking
systems, manufacturing systems and utility and telephone billing systems.
Mission-critical applications are primarily run on large, mainframe
computers using programs written in COBOL and a variety of other mainframe
programming languages. According to industry estimates, there are over 13,000
IBM and IBM-compatible MVS mainframe sites worldwide. Organizations that rely on
mainframe systems must continuously modify, maintain and redevelop
30
<PAGE> 32
existing software applications to address changing information requirements
resulting from the ongoing evolution of business practices. The cost of these
efforts is enormous.
In addition to ongoing maintenance and redevelopment requirements,
organizations periodically have a need to implement specialized, complex
application redevelopment initiatives to accommodate changed circumstances or
business requirements. In recent years, many large businesses and governmental
organizations have begun to address the year 2000 century date conversion
problem, which is a large-scale redevelopment requirement. Many existing
software applications employ date representations limited to the last two digits
of the year. For example, the year 1997 is typically stored as "97." These
two-digit representations create problems for existing systems that perform
calculations using dates after 1999. For example, "00" may be interpreted as
"1900," rather than "2000." These existing applications must be modified to
implement date representations that identify the correct century.
Large organizations are also seeking to leverage investments in existing
systems by integrating their mainframe systems with distributed computing
environments. The Company believes that this integration will continue to be
gradual, especially as it relates to mission-critical applications, because
mainframes have the demonstrated capability to run complex applications with
speed, security and reliability. Organizations have made large investments in
mainframe systems and the personnel to maintain and redevelop these systems, and
much of the core business knowledge of large organizations is already embedded
in existing mainframe applications. As a result, the Company expects many large
organizations will continue to pursue a strategy to retain many key
mission-critical applications on the mainframe, migrate all or part of other
existing applications to distributed computing environments and pursue new
application development in both mainframe and distributed computing
environments. In addition, the Company believes that organizations will seek to
reuse existing mainframe applications in distributed computing environments to
leverage long-standing existing systems investments.
Industry estimates suggest that many large organizations dedicate between
40% and 60% of their application development resources to maintenance and
redevelopment of existing applications. The use of such a large proportion of
organizations' resources in maintenance and redevelopment limits the resources
available for other tasks, such as developing new applications and addressing
specialized initiatives. Consequently, many large organizations are seeking to
improve the maintenance and redevelopment process in order to reduce costs and
improve productivity and return on their information systems investment. This
has resulted in an increasing demand for automated software tools. In addition,
many organizations are also seeking to improve maintenance and redevelopment
methodologies and train personnel to take full advantage of available
technology.
The limited functionality of many existing processes and tools, together
with the inability of some organizations to fully utilize available technology,
has created increasing demand for integrated software development tools and
professional services to help organizations fully utilize available technology
and improve their own maintenance and redevelopment processes. In addition, the
growing awareness of the size and complexity of the year 2000 problem has
created demand for technology and professional services that provide integrated
solutions. The Company believes that many organizations will be unable to
address their year 2000 conversion requirements in a timely manner using
internal resources alone and that demand for integrated solutions from outside
professionals, such as those provided by VIASOFT, will continue to grow.
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<PAGE> 33
COMPANY STRATEGY
VIASOFT's objective is to enhance its position as a leading provider of
enterprise application management solutions for large organizations worldwide.
To achieve its business objective, the Company is pursuing the following
strategies:
PROVIDE INTEGRATED BUSINESS SOLUTIONS
VIASOFT markets its products and professional services together to provide
comprehensive business solutions for its customers. The Company believes that
the integration of its products with its services offerings is an effective
strategy for addressing the complex maintenance and redevelopment requirements
of large organizations. This strategy is also designed to create long-term
relationships with the Company's installed base of customers, through which
VIASOFT strives to develop subsequent opportunities to market new products and
services.
CAPITALIZE ON THE YEAR 2000 OPPORTUNITY
The Company intends to continue to expand its product and service offerings
to meet the year 2000 century date conversion requirements of its customers. For
example, in June 1997 VIASOFT released its Bridge 2000 date bridging product to
enable organizations to change applications to accommodate the century date
change without making simultaneous changes to data files. The Company also plans
to increase its utilization of third-party strategic relationships with
professional services, consulting and other organizations to expand the
distribution of its year 2000 solutions and respond to anticipated demand.
Further, VIASOFT intends to leverage the customer relationships and knowledge of
customer application systems developed through its year 2000 services solutions
to market other products and services to assist in maintenance and redevelopment
of those systems.
ENHANCE TECHNOLOGY LEADERSHIP
The Company believes that it is the technology leader in its markets. The
Company intends to continue to expand the functionality of its products by
internally developing new products and enhancements that build on both its core
technology and its experience with maintenance and redevelopment processes. The
Company plans to pursue additional opportunities for acquisitions of, or
investments in, businesses, products and technology that complement its existing
product line or allow expansion into new product and service areas, such as the
acquisition of R&O. Management believes that opportunities exist to capitalize
on the Company's development expertise to enhance and integrate acquired
businesses, products and technologies into the Company's product and service
solutions.
ENHANCE AND INTEGRATE ROCHADE TECHNOLOGY
VIASOFT's strategy is to develop and enhance the Rochade repository
technology for integration with VIASOFT's ESW product line and professional
services solutions. The Company believes that the Rochade repository technology
will provide significant additional benefits to customers as part of a suite of
integrated products and solutions, compared to repositories offered as
stand-alone products. VIASOFT believes that this open, enterprise-wide
repository will create a working model of its customers' information assets,
providing a foundation on which to develop and market new integrated products
and solutions. The R&O acquisition also presents an opportunity for VIASOFT to
market the enhanced Rochade product line to VIASOFT's existing customer base and
to market VIASOFT's products and services to R&O's customer base.
EXPAND EXISTING WORLDWIDE SALES AND DISTRIBUTION CHANNELS
The Company intends to target new and existing customers, both domestically
and internationally, by expanding its direct sales organization and through
increased relationships with
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<PAGE> 34
distributors and other third parties. The Company has established its
Solution/Technology Provider program pursuant to which approximately 30
professional organizations are authorized to use VIASOFT technology and/or
methodology in engagements with their customers.
VIASOFT CUSTOMERS
The Company's products and services are used by information technology
departments of Fortune 1000 companies and similarly sized business and
governmental organizations worldwide. At June 30, 1997, the Company had
approximately 850 customers with licenses to the Company's products and current
maintenance contracts. The Company believes that the following customers, each
of which accounted for at least $100,000 in revenue during the 12 months ended
June 30, 1997, are representative of the organizations that make up the
Company's domestic and international customer base.
BANKING
- --------------------------
ABN/AMRO Bank
Citibank, N.A.
Commerzbank AG
Commonwealth Bank of Australia
Deutsche Bank AG
The Governor and Company of the Bank of Scotland
National Australia Bank Limited
PNC Bank National
Association
Union Bank of California
TELECOMMUNICATIONS
BellSouth Telecommunications, Inc.
PTT Telecom B.V.
Saskatchewan Telephone (SASKTEL)
Telstra Corporation Ltd.
US West
INSURANCE
- --------------------------
American General Life Insurance Co.
Ameritas Life Insurance
Franklin Life Insurance
John Alden Life Insurance
Munich American
Reinsurance Co.
Universal Underwriters, Inc.
Zurich Australian Insurance Group
MANUFACTURING
- --------------------------
Boeing, Inc.
BMW AG
Matsushita Electronic
Corporation of America
Motorola, Inc.
Nissan North America, Inc.
Sara Lee Knit Products
GOVERNMENT
- --------------------------
Arizona Department of Administration
Arizona Department of Revenue
Arizona Department of Transportation
City of Phoenix
Social Security
Administration
State of Arkansas
State of California
State of Illinois --
Department of
Employment Security
State of Missouri: Office of Information Technology
State of New Jersey
State of Tennessee
FINANCIAL SERVICES
- --------------------------
Charles Schwab & Co.
Goldman, Sachs & Co.
Mastercard International, Incorporated
T. Rowe Price Investments
VISA International
OTHER
- --------------------------
AAA Michigan
Abbott Laboratories
ADP Corp.
Alamo Rent-A-Car, Inc.
CNF Transportation, Inc.
Consolidated Rail
Corporation (Conrail)
Florida Power & Light
Pfizer, Inc.
Phillips Petroleum Company
Union Pacific Railroad
VIASOFT PRODUCTS
VIASOFT offers a range of products that enable organizations to understand,
manage and evolve their existing mission-critical enterprise applications. The
Company's primary product line is the Existing Systems Workbench, which to date
has accounted for substantially all of the Company's software license revenue.
THE EXISTING SYSTEMS WORKBENCH
ESW is an integrated suite of software tools built around the Company's
core technology, the Analytical Engine and the Application Knowledge Repository.
ESW products are available as a complete suite or as individual products that
address each phase of the existing applications maintenance and redevelopment
life-cycle.
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[APPLICATION KNOWLEDGE REPOSITORY CHART]
The Analytical Engine extracts and builds comprehensive information on
programs and applications, including overall structure, logic, data and control
flow, data definitions and usage, cross references, interface information,
standards exceptions, system metrics and business functions. This information is
automatically stored in the Application Knowledge Repository, which makes the
information immediately available for use with all ESW products.
The Analytical Engine and Application Knowledge Repository support an
integrated suite of products with a common look and feel that enables management
of multi-task projects without interruption and eliminates the need to switch
between different vendors' products for separate tasks. The Analytical Engine
and Application Knowledge Repository technology were designed to promote
integration and extensibility. The Company believes these features enable it to
develop new ESW capabilities, features and technologies more efficiently and
effectively than competitors with non-integrated product lines. The Company
plans to continue to build on the core ESW technology to address customers'
existing applications requirements as they evolve.
Each component product of ESW is described briefly below:
VIA/ALLIANCE: APPLICATION UNDERSTANDING. VIA/Alliance is designed to
determine the scope of an application and the number of changes required to
deliver a specified enhancement by analyzing different components of an
application and revealing the interrelationships between these components.
VIA/Alliance is also used to plan and estimate maintenance, enhancement and
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<PAGE> 36
redevelopment projects and to facilitate projects involving file or database
conversions, enabling and populating repositories, or integrating new
applications and packaged software.
VISUAL/RECAP: PORTFOLIO ANALYSIS AND REPORTING. Visual/Recap is the
decision support component of ESW. Visual/Recap allows information systems
managers to measure and gauge objectively the quality, complexity and business
value of applications and programs by providing industry-accepted measurements
and standards, including automation of the counting of function points.
VIA/INSIGHT: PROGRAM UNDERSTANDING. VIA/Insight automates the process of
analyzing and understanding complex COBOL logic. VIA/Insight is designed to
enable users to automate routine maintenance tasks and allow programmers to
assess the impact of changes, estimate the time changes will take and determine
the level of difficulty involved in making proposed changes.
VIA/SMARTEDIT: CODE CHANGE. VIA/SmartEdit is designed to provide
automated, COBOL-intelligent change facilities and automatic syntax checking in
the MVS operating system's editing environment. VIA/SmartEdit automatically
identifies program components directly and indirectly related to a proposed
program change.
VIA/SMARTTEST: CODE TESTING. VIA/SmartTest is designed to promote speed
and accuracy in code testing and debugging. VIA/SmartTest is designed to analyze
a program's structure, data relationships and execution paths and reveals both
the locations and the underlying causes of bugs and structural problems in
program code. VIA/SmartTest is also designed to allow programmers to monitor and
change program logic, data values and memory interactively from within the test
session, and automatically apply COBOL changes to the source code without
recompiling.
VIA/SMARTDOC: PROGRAM DOCUMENTATION. VIA/SmartDoc is designed to
synthesize comprehensive program information directly from the source code and
organize it into convenient reports, graphical charts and listings. VIA/SmartDoc
provides advanced source listings, program structure charts, enhanced data
cross-reference reports, control flow and data flow information and a variety of
industry-accepted software metrics concerning complexity, architecture and
software quality.
VIA/RENAISSANCE: PROGRAM RE-ENGINEERING. VIA/Renaissance is designed to
isolate and extract specific business functions from a program such as reports,
calculations, computational variables, input/output definitions and transactions
and generate compilable, executable programs or modules. The results provided by
VIA/Renaissance assist in reuse of existing COBOL code, enabling customers to
build libraries of reusable and shared code for new development, modularization
or redevelopment projects. In addition, re-engineered programs or modules can be
transferred to different platforms as part of a system conversion or
client/server implementation.
ROCHADE
Through the Company's December 1996 acquisition of R&O, VIASOFT acquired
R&O's Rochade technology and product line. Rochade is based on an open,
enterprise-wide repository software technology that is designed to help
businesses better capture, manage, monitor, disseminate, reuse and change their
information technology for both mainframe computers and distributed computing
environments. Rochade provides a unified, open method for viewing and sharing
information about systems, tools, techniques and processes across platforms that
is easily accessible to a broad range of users, allowing users to search, query
and report on business data as they need it.
The Company believes that an enterprise-wide repository is necessary to
fully manage cross-application dependencies, plan and execute large-scale
conversion projects, and extend information models to accommodate new
application components, languages, and execution environments. The Company
believes that its acquisition of Rochade will enhance the Company's repository
technology by permitting the storage of greater volumes of information at the
enterprise level.
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<PAGE> 37
Rochade is designed to allow more efficient access to, and understanding and
management of, customers' applications and data utilizing a variety of computer
languages, operating systems and non-VIASOFT products.
VIASOFT is enhancing the Rochade repository technology for integration with
VIASOFT's product line and professional services solutions. The Company believes
that the Rochade repository technology will provide significant additional
benefits to customers as part of a suite of integrated products and solutions,
compared to repositories offered as standalone products. VIASOFT also believes
Rochade will permit greater flexibility to create repository information models
to accommodate data warehousing, process management, project tracking and
similar initiatives. In addition, Rochade, an open enterprise-wide repository,
will provide an additional foundation in the Company's strategy to develop and
market new integrated products and solutions.
BRIDGE 2000
The Company introduced its new date bridging product, Bridge 2000, in June
1997. Bridge 2000 is designed to help reduce the time, complexity and cost of
modifying large, interrelated applications for the year 2000 date change by
enabling customers to convert the source code of programs without being required
to simultaneously expand date fields in their databases. Bridge 2000
automatically translates two-digit date formats in customer data files to the
four-digit formats required by programs that have been converted for year 2000
compliance.
Bridge 2000 uses dynamic bridging technology that automatically expands
data during the execution of a program. Date fields are expanded using century
windowing techniques, through which Bridge 2000 adds a customer-defined century
designation to each two-digit date field, based on its value. For example, a
window could direct that years 00 to 60 in the date field be interpreted as 2000
to 2060, while the years 61 to 99 would be interpreted as 1961 to 1999.
The Company believes the primary benefits of Bridge 2000 for customers are:
(i) the ability to plan and implement the year 2000 date conversion effort one
program at a time; (ii) the ability to postpone data file conversion until after
year 2000, if necessary, resulting in significant time savings that can be used
to convert mission-critical applications prior to the year 2000 deadline; (iii)
protection from the exchange and transfer of non-compliant data from outside
sources, such as trading partners and customers; and (iv) the ability to access
historical and archival data beyond the year 2000 without conversion of the data
files. In addition, Bridge 2000 is designed to minimize secondary maintenance
problems presented by competing alternative technologies, because program source
code modified to use Bridge 2000 requires no subsequent changes once data files
have been converted.
Bridge 2000 is available individually and as an additional component of the
Company's broader ESW and year 2000 product lines. The Company is also using
Bridge 2000 in its Enterprise 2000 services offering, particularly with the
introduction of FastPath 2000. See "Business -- VIASOFT's Enterprise 2000." In
addition, Bridge 2000 can be utilized in connection with the products and
services of other vendors. The Company plans to market Bridge 2000 to its
existing installed customer base and to new customers in the year 2000 market.
VIASOFT'S ESTIMATE 2000
VIASOFT's Estimate 2000 is a separately available software product and a
component of VIASOFT's Enterprise 2000 solution. Estimate 2000 is a tool for
analyzing and assessing the size of the programming effort required for year
2000 date conversions. Estimate 2000 is designed to evaluate year 2000
conversion projects in the IBM MVS COBOL, Assembler and PL/I mainframe
environments, and also to provide comprehensive reports for both management and
technical levels. Estimate 2000 is also capable of analyzing the impact of
programming projects unrelated to the year 2000 market that require location of
specified numerical or other fields.
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<PAGE> 38
PRODUCT DEVELOPMENT
The Company continues to acquire, develop and enhance technology for its
existing product lines. For example, VIASOFT entered into licensing arrangements
with several vendors to provide additional language support for its ESW products
and Estimate 2000. The Company is in the process of developing and enhancing the
licensed technology to provide ESW functionality for customer applications
utilizing PL/I, Assembler, Natural and a variety of COBOL dialects. The Company
is conducting beta tests and currently expects to begin introduction of this
additional language capability in its ESW product line in the first half of
fiscal 1998. See "Risk Factors -- Risks Associated with Products Currently Under
Development."
The Company recently acquired the rights to distribute a package of testing
software programs, which it plans to market under the name "VIA/AutoTest."
VIA/AutoTest is designed to provide an enterprise-wide, automated testing
solution, including application regression testing capabilities. VIA/AutoTest
enables customers to plan, manage and execute the test cases that determine
proper application functioning. The Company believes testing will play a key
role in successful year 2000 conversion projects and is enhancing its offering
of testing products and methodologies to meet year 2000 needs, as well as to
provide strategic value beyond the year 2000 market. The Company currently
expects to release VIA/AutoTest in the first half of fiscal 1998.
VIASOFT SERVICES
The Company's specialized professional services provide processes,
technology and expertise to address the complex, large-scale maintenance and
redevelopment requirements of large organizations. VIASOFT's service offerings
have grown significantly, representing 14%, 26% and 28% of total revenues in the
fiscal years ended June 30, 1995, 1996 and 1997, respectively.
VIASOFT'S ENTERPRISE 2000
VIASOFT's Enterprise 2000 is designed to help customers address the year
2000 century date conversion requirements for existing applications through a
combination of professional services, the Company's ESW technology, its new
Bridge 2000 product, other Company technology and methodologies and third-party
resources. VIASOFT's Enterprise 2000 accounted for 15%, 74% and % of total
professional services revenue during the fiscal years ended June 30, 1995, 1996
and 1997, respectively.
When organizations first began to consider the year 2000 problem, customers
were most interested in surveying the impact of the problem on their own
applications. In response, VIASOFT developed a three-phase process designed to
address customers' year 2000 conversion needs at the enterprise level. Through
VIASOFT's Impact 2000, VIASOFT determines the scope, size and level of effort
needed to implement the year 2000 changes. In VIASOFT's Plan 2000, the Company
identifies the project goals, prepares a detailed work plan and executes a pilot
project. Through VIASOFT's Operation 2000, VIASOFT manages the implementation
and testing of the required changes.
Recently, customers have begun to seek strategies to convert
mission-critical applications as rapidly as possible, without the delays
associated with enterprise-wide impact and planning approaches. In addition, as
time passes, certain year 2000 conversion strategies, such as field expansion,
may not be feasible on a timely basis for all applications. Customers are also
seeking ways to leverage conversion resources, as available personnel have
decreased and the costs have increased. VIASOFT has responded to these customer
needs and industry changes by enhancing its year 2000 solutions to provide an
additional enablement methodology for its customers called FastPath 2000.
FastPath 2000 is designed to provide the primary components of a successful year
2000 conversion on an application level, rather than on an enterprise-wide
level. These include inventory of components, conversion planning, and change
coding and testing. Utilizing FastPath 2000, customers can begin their year 2000
conversion by addressing their most critical applications,
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<PAGE> 39
one at a time. Through FastPath 2000, VIASOFT also provides the training to
enable customers to perform the planning and conversion tasks using internal
resources. VIASOFT also has integrated Bridge 2000 into its FastPath 2000
solution to offer dynamic bridging as another near-term conversion strategy. See
"VIASOFT Products -- Bridge 2000."
VIASOFT'S INSOURCING
To assist organizations that desire to increase productivity in their
maintenance and redevelopment activities while avoiding the loss of control over
their systems associated with outsourcing, the Company has developed a solution
known as VIASOFT's Insourcing. VIASOFT's Insourcing combines VIASOFT's ESW
technology with onsite professional services to enable customers to successfully
implement enhanced, repeatable processes for maintenance and redevelopment of
existing applications. The Company believes that the combination of its
expertise, technology and professional services can free significant existing
customer programming resources for redeployment by increasing productivity and
reducing the costs, time and effort required to maintain existing applications.
VIASOFT'S LEGACY TRANSITIONS
Many organizations have implemented a transition from exclusive reliance on
mainframe computers to the use of the mainframe together with distributed
computing environments for certain applications. VIASOFT has developed services
and technology designed to enable organizations to reuse existing mainframe
applications in new computing architectures, including distributed computing
environments, and to integrate existing mainframe applications with these
architectures. The Company believes that use of its technology and services
should improve customers' ability to leverage their existing mainframe
applications by increasing flexibility to integrate mission-critical
applications with new architectures and systems, or by migrating and reusing
existing mainframe code in these new environments.
CUSTOMER SUPPORT AND TRAINING
The Company offers maintenance for each of its products, entitling the
customer to receive technical support and advice, including problem resolution
services, installation assistance, error corrections and any product
enhancements released during the maintenance period. Under the Company's
standard license agreement for mainframe products, maintenance is provided
without charge for the first year, is renewable on an annual basis, and is
generally priced at a percentage of the then current list price. In the fiscal
years ended June 30, 1995, 1996 and 1997, maintenance fees represented
approximately 39%, 33% and 25%, respectively, of the Company's total revenues.
Maintenance and support services are provided primarily by telephone from
VIASOFT's Phoenix, Arizona, headquarters and R&O's Westford, Massachusetts and
German locations, as well as certain offices of the Company's international
subsidiaries and distributors.
The Company provides a variety of training services designed to enable
customers to utilize fully the Company's technology solutions. These training
offerings are generally conducted at the customer's site by specialists, and
range from introductory courses in using the Company's products to advanced
techniques courses. The Company also offers customized training for specific
customers and instructs customer personnel to conduct ongoing training of their
information systems staff.
SALES, MARKETING AND DISTRIBUTION
VIASOFT markets its products and services principally to Fortune 1000 and
similarly sized business and governmental organizations worldwide. The Company's
marketing efforts are implemented through its domestic and international direct
sales organizations, through a number of foreign independent distributors,
located in Europe, the Far East, South Africa, and Latin America,
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and through strategic relationships with third parties as part of its
Solution/Technology Provider program.
DIRECT SALES
The Company sells and supports its products and services in North and South
America from its Phoenix, Arizona, headquarters and 11 primary field offices in
the United States. As of June 30, 1997, the Company had 55 salespersons
worldwide, including 36 located at the Company's headquarters and the United
States field offices. These offices cover the territories of Canada, the United
States, Mexico, Central America and all of South America, with the exception of
Brazil, where the Company utilizes a distributor. Internationally, the Company
sells directly to customers in the following territories: Australia, Austria,
Belgium, Germany, Luxembourg, the Netherlands, New Zealand, Switzerland and the
United Kingdom.
INTERNATIONAL DISTRIBUTORS
VIASOFT markets its products to international customers both directly and
through independent distributors. Distributors are authorized by VIASOFT to
license the Company's software products to end-users. In addition to its
subsidiary offices, the Company markets Rochade and/or the ESW product line
internationally in 37 countries through 16 independent distributors. To date,
the Company has not offered significant professional services through its
distributors, although in both fiscal 1996 and 1997 some distributors became
Solution/Technology Providers.
SOLUTION/TECHNOLOGY PROVIDERS
The Company utilizes third-party relationships to broaden the distribution
of its products and services in certain markets. During fiscal 1996, the Company
established a program which provides for non-exclusive relationships with
professional services and consulting organizations, computer and software
integration companies and hardware and software vendors ("Solution/Technology
Providers") who are authorized to use VIASOFT technology and/or methodology,
principally VIASOFT's Enterprise 2000, in connection with services they perform
for their customers. Generally, the Solution/Technology Providers pay an initial
license fee for the transfer and use of VIASOFT's service solutions and training
in VIASOFT products and solutions. In addition, customers of certain
Solution/Technology Providers that have not previously licensed the Company's
products pay lease fees or license fees for the use of VIASOFT products in each
engagement with a Solution/ Technology Provider. These relationships are
intended to augment VIASOFT's own distribution channels to expand the reach of
its business solutions and obtain new customers for VIASOFT products. VIASOFT
continues to invest resources in training and supporting these providers. The
Company currently has Solution/Technology Provider relationships with
approximately companies and intends to continue to devote resources to expand
this distribution channel.
FEDERAL GOVERNMENT MARKETING INITIATIVE
In February 1997, the Company announced a new marketing initiative focused
on the federal government. To assist agencies of the federal government in their
year 2000 projects, VIASOFT is offering US2000, a solution comprising ESW and
certain process management and year 2000 methodologies. Licenses of this
solution, together with maintenance services, are offered to agencies of the
federal government in one-year, renewable contracts at a significantly reduced
license fee. US2000 has not generated significant revenues to date and there can
be no assurance as to the timing or magnitude of any revenue that may be
generated.
COMPETITION
PRODUCTS
The market for the Company's software products is intensely competitive and
is characterized by rapid change in technology and user needs and the frequent
introduction of new products. Most
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of the Company's competitors and many potential competitors have substantially
greater financial, marketing and technology resources than the Company. Major
competitors for software product license sales include Computer Associates
International, Inc.; Compuware Corporation; Intersolv, Inc.; Micro Focus Group
Public Limited Company; and Platinum Technology, Inc. The Company believes that
the principal factors affecting competition in its product markets include
compatibility with customers' platforms and languages, product functionality,
quality of support, product performance and reliability, ability to respond to
changing customer needs, ease of use and price.
CONSULTING SERVICES
The market for the type of professional services provided by the Company is
also highly competitive. Major competitors of the Company's services business
are primarily the consulting organizations of the Big Six accounting firms.
Other competitors of the Company's services business include Data Dimensions,
Inc., Electronic Data Systems Corporation, and IBM's Integrated Systems
Solutions Corp. Other system integrators and application outsourcers also
compete to perform professional services competitive to VIASOFT's Insourcing and
VIASOFT's Legacy Transitions solutions. These companies position themselves as
long-term business partners, able to lower an organization's staff and
maintenance costs and improve control of information systems functions with
well-established work practices. Many smaller local or regional organizations
also compete in the services market, which is fragmented and characterized by
low barriers to entry. The Company's principal competitors and many potential
competitors have significantly greater financial, marketing, recruiting and
technological resources than the Company. The principal competitive factors
affecting the market for the Company's professional services include
responsiveness to customer needs, availability and productivity of personnel,
the ability to demonstrate achievement of results, depth of technical skills,
price and reputation.
THE YEAR 2000 MARKET
With the growth of the year 2000 market, significant competition has
emerged and is expected to increase in the next few years. The consulting
services segment of the market is characterized by low barriers to entry. The
principal competitive factors affecting this market include functionality,
performance and reliability of technology and methodology, availability and
productivity of personnel, the ability to demonstrate achievement of results,
depth of experience in year 2000 projects, price and reputation. There are
generally three categories of competitors for VIASOFT in the year 2000 market,
each focusing on a different market segment.
SOFTWARE VENDORS. Software vendors provide tools targeted for the year 2000
market. Many of these products focus on a particular phase of a year 2000
project, such as inventory and assessment, scanning, parsing, conversion,
testing and documentation. Competitive factors include the tool's compatibility
with customers' platforms and languages, the vendor's ability to deliver
training and ongoing support during the customers' implementation of the tools,
and the value of the tool to an organization beyond the year 2000. Primary
competitors in this category include Computer Associates International, Inc.;
Intersolv, Inc.; Micro Focus Group Public Limited Company; and Platinum
Technology, Inc. through its affiliation with ADPAC Corp. In addition, several
companies have announced the availability of certain "change factory" products,
designed to automate conversion of software code, which may become a competitive
factor in the future.
CONSULTING ORGANIZATIONS. Competitors in this category range from large,
generalized consulting firms to small- to medium-sized consulting firms that
have become highly focused on the year 2000 problem. These companies provide
supplemental personnel and contract programming resources to customers and some
have licensed tools from software vendors to enhance their offering. These
companies are often selected by customers based on the skills, experience and
process that each firm uses. Competitors in this category include Andersen
Consulting LLP, CIBER, Inc.; Computer Horizons, Corp.; Computer Task Group,
Inc.; Data Dimensions, Inc., Ernst & Young LLP; and Keane, Inc.
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<PAGE> 42
SYSTEMS INTEGRATORS AND APPLICATION OUTSOURCERS. Large systems integrators
and outsourcing firms have also entered the year 2000 market. These are
companies that may already have relationships with customers and are able to
include year 2000 conversion services with the maintenance and data processing
services they already provide. They provide a customer with an alternative to
managing the year 2000 conversion project themselves by outsourcing the whole
project to an organization with an established relationship and a working
knowledge of the customer's systems. Some integrators/outsourcers offer licensed
tools from software vendors. Competitors in this category include CapGemini;
Computer Sciences Corp.; Electronic Data Systems Corporation; IBM's Integrated
Systems Solutions Corp. and most Big Six accounting firms.
RESEARCH AND DEVELOPMENT
Historically, VIASOFT's development of new products has been accomplished
primarily with in-house development personnel and resources. As of June 30,
1997, the Company had 124 employees engaged in product development. Of the
Company's research and development personnel, 86 were software developers with
the balance divided between customer support, documentation, and quality
assurance. Substantially all of these employees are located at either the
Company's Phoenix, Arizona, headquarters or the R&O research and development
facilities in Germany. In addition to developing new products, the Company
continually updates its existing products through enhancements and new releases.
The Company also continues to develop new products and technologies to
facilitate its service solutions.
Beginning in fiscal 1996 and continuing in the current year, VIASOFT has
expanded its strategy to acquire and/or license new products and technologies to
complement, expand and enhance its existing products and services. The Company
expects to increase its reliance on this strategy and plans to continue to
devote research and development resources to the enhancement and integration of
acquired and licensed technologies. See "Business -- Bridge 2000" and
"-- Product Development."
During the fiscal years ended June 30, 1996 and 1997, research and
development expenditures were $4,237,000 and $7,893,000, respectively, excluding
a one-time charge of approximately $26.9 million in the second quarter of fiscal
1997 related to the purchase of in-process technology from R&O. The Company
anticipates that it will continue to commit substantial resources to research
and development in the future.
INTELLECTUAL PROPERTY
VIASOFT relies on a combination of copyright, trade secret and trademark
laws, and contractual provisions to establish and protect its rights in its
software products and proprietary technology. The Company protects the source
code version of its products as a trade secret and as an unpublished copyrighted
work. Despite these precautions, it may be possible for unauthorized parties to
copy certain portions of the Company's products or reverse engineer or obtain
and use information that the Company regards as proprietary. The Company has no
patents and existing copyright and trade secret laws offer only limited
protection. Certain provisions of the license and distribution agreements
generally used by the Company, including provisions protecting against
unauthorized use, copying, transfer and disclosure, may be unenforceable under
the laws of certain jurisdictions and the Company is required to negotiate
limits on these provisions from time to time. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. The Company has been and may be
required from time to time to enter into source code escrow agreements with
certain customers and distributors, providing for release of source code in the
event the Company breaches its support and maintenance obligations, files
bankruptcy or ceases to continue doing business.
In 1996, Company acquired the date bridging technology incorporated in its
new Bridge 2000 product, together with a pending patent application. The Company
is continuing to prosecute the
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patent application. However, there can be no assurance that a patent will issue
as a result of such application, nor as to the extent of the protection, if any,
such patent might afford.
The Company's competitive position may be affected by its ability to
protect its proprietary information. However, because the software industry is
characterized by rapid technological change, the Company believes that patent,
trademark, copyright, trade secret and other legal protections are less
significant to the Company's success than other factors such as the knowledge,
ability and experience of the Company's personnel, new product and service
development, frequent product enhancements, customer service and ongoing product
support.
While the Company has no knowledge that it is infringing the proprietary
rights of any third party, there can be no assurance that such claims will not
be asserted in the future with respect to existing or future products. Any such
assertion by a third party could require the Company to pay royalties, to
participate in costly litigation and defend licensees in any such suit pursuant
to indemnification agreements, or to refrain from selling an alleged infringing
product or service. See "Risk Factors -- Importance of Proprietary Rights."
EMPLOYEES
The Company had 447 full-time employees as of June 30, 1997, including 172
in sales and marketing, 124 in research, development and support, 98 in
professional services and 53 in corporate operations and administration. The
future success of the Company will depend in large part upon its continued
ability to attract and retain highly skilled and qualified personnel.
Competition for such personnel is intense in the computer software industry,
particularly for talented software developers, service consultants and sales and
marketing personnel. Management anticipates that as the year 2000 approaches, it
will become more and more difficult to recruit and retain experienced
programmers and consultants, as industry sources generally estimate that there
will not be a sufficient number of such persons to fill the demand created by
the year 2000 problem. None of the Company's employees is represented by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
PROPERTIES
The Company's principal administrative and marketing facilities are located
in approximately 38,000 square feet of space in Phoenix, Arizona. The Company
occupies these premises under a lease agreement expiring on December 31, 1999,
subject to certain renewal options. The Company's research and development and
customer support facilities are located in approximately 24,000 square feet of
space in Phoenix, Arizona. The Company occupies these premises under a lease
agreement expiring on May 31, 2001. In August 1997, the Company signed a letter
of intent to lease an additional 13,000 square feet in this facility, expiring
May 31, 2001.
In addition, the Company maintains field offices and executive suite sales
offices within the United States and Canada located in leased space aggregating
approximately 22,000 square feet as of June 30, 1997. The Company also leased an
aggregate of approximately 55,000 square feet of space as of June 30, 1997 in
Australia, Belgium, Germany, Japan, the Netherlands and the United Kingdom for
operations of its international branch offices and subsidiaries.
The Company believes that its facilities are adequate for its current needs
and that suitable additional space will be available as needed.
LEGAL PROCEEDINGS
VIASOFT is subject to certain legal proceedings and claims that arise in
the conduct of its business. In the opinion of management, the amount of
liability, if any, as a result of these claims and proceedings is not likely to
have a material effect on the financial condition or results of operations of
the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers and their ages as of July
31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- -------------------------------------------------
<S> <C> <C>
Steven D. Whiteman............ 46 Chairman of the Board, President and Chief
Executive Officer
Kevin M. Hickey............... 39 Executive Vice President and Chief of Operations
Mark R. Schonau............... 41 Senior Vice President, Finance & Administration,
Chief Financial Officer and Treasurer
Catherine R. Hardwick......... 38 Vice President, General Counsel and Secretary
Colin J. Reardon.............. 44 Senior Vice President, International Operations
Jean-Luc G. Valente........... 36 Senior Vice President, Marketing
John J. Barry, III............ 57 Director
Alexander S. Kuli............. 52 Director
J. David Parrish.............. 54 Director
Arthur C. Patterson........... 53 Director
</TABLE>
Steven D. Whiteman has served as President of the Company since May 1993,
as Chief Executive Officer and a director since January 1994 and as Chairman of
the Board since April 1997. Prior to holding these offices, Mr. Whiteman served
as Vice President of Sales and Marketing of the Company from December 1990.
Before joining VIASOFT, Mr. Whiteman served as Senior Vice President, Sales and
International Operations of Systems Center, Inc., a developer and marketer of
network and systems management software, from January 1989 to October 1990. Mr.
Whiteman is a director of Unify Corporation.
Kevin M. Hickey has served as Executive Vice President and Chief of
Operations since July 1997. Mr. Hickey served as Senior Vice President, Americas
Operations of the Company from January 1994 to July 1997. Mr. Hickey joined
VIASOFT in February 1993 to manage the domestic sales organization of the
Company. Prior to joining VIASOFT, Mr. Hickey had been employed by International
Business Machines Corporation as a Business Unit Executive in the Phoenix office
from January 1991 through January 1993; as an Administrative Assistant from
November 1989 to December 1990; and as Marketing Manager from January 1988
through October 1989.
Mark R. Schonau has served as Senior Vice President, Finance &
Administration, since July 1997 and as Chief Financial Officer and Treasurer
since September 1996. Mr. Schonau also served as Vice President, Finance &
Administration, from September 1996 to July 1997. He had consulted with the
Company for a short period of time prior to his employment. Before joining
VIASOFT, Mr. Schonau served as Chief Financial Officer, Corporate Secretary and
Treasurer of CyCare Systems, Inc., a healthcare software company, from October
1989 to August 1996.
Catherine R. Hardwick has served as Vice President of the Company since
July 1997 and as Secretary and General Counsel of the Company since January
1996. Prior to holding these offices, Ms. Hardwick served as Corporate Counsel
for the Company from February 1995. Before joining the Company, Ms. Hardwick
practiced law with the law firm of Meyer, Hendricks, Victor, Osborn & Maledon,
P.A. in the areas of corporate and securities law and intellectual property
licensing.
Colin J. Reardon has served as Senior Vice President, International
Operations of the Company since July 1997. Mr. Reardon served as Vice President,
International Operations of the Company from August 1994 to July 1997. Prior to
joining VIASOFT, Mr. Reardon served as Vice President of International Marketing
of Sterling Software, Inc., a systems management software and services company,
from July 1993 through July 1994. Mr. Reardon was previously employed by Systems
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Center, Inc., a developer and marketer of network and systems management
software, where Mr. Reardon served as Vice President of European Operations from
November 1992 through June 1993 and Managing Director of its United Kingdom
operations from July 1988 through October 1992.
Jean-Luc G. Valente has served as Senior Vice President, Marketing, since
July 1997. Mr. Valente served as Vice President, Marketing, from April 1996
through July 1997. Prior to joining the Company in April, 1996, Mr. Valente was
employed by Computer Associates International, Inc., a software manufacturer,
where he served as Vice President, Strategic Marketing from July 1993 through
April 1996, Regional Marketing Manager from March 1992 through June 1993 and a
Marketing Director, from March 1991 through March 1992.
John J. Barry, III has served as a director of the Company since August
1991. Mr. Barry presently provides strategic and management consulting services
to senior management in the information technology and other industries. From
May 1991 through December 1996 Mr. Barry served as the Chairman, President and
CEO of Petroleum Information Corporation, an energy industry information
solutions company in Houston, Texas. From January 1989 through June 1990, Mr.
Barry served as President and Chief Operating Officer of Systems Center, Inc., a
developer and marketer of network and systems management software. From 1985
through 1988, Mr. Barry served as President and Chief Executive Officer of The
Systems Center, Inc., a software data transfer company. Mr. Barry serves on the
boards of directors of several privately held companies.
Alexander S. Kuli has served as a director of the Company since January
1994. Mr. Kuli is currently Vice President, Worldwide Sales for Tivoli Systems,
Inc., a vendor of distributed software products, a position held since January
1993. Prior to joining Tivoli, Mr. Kuli served as Vice President, Worldwide
Sales for Candle Corporation, a vendor of mainframe systems performance
management software, from October 1985 through December 1992.
J. David Parrish has served as a director of the Company since January
1994. Mr. Parrish is currently the Senior Vice President, Professional Services
and Customer Support for Walker Interactive Systems, Inc., a financial
application software company. Prior to joining Walker Interactive Systems in
November 1989, Mr. Parrish was a partner with Price Waterhouse with
responsibility for its Western Region package implementation consulting
practice.
Arthur C. Patterson has served as a director of the Company since September
1984. He served as President of the Company from October 1984 to June 1985. Mr.
Patterson is a founder and General Partner of Accel Partners, a venture capital
firm. Mr. Patterson also serves on the board of directors of LGT Global Group of
Investment Companies, PageMart Wireless, Inc., and Unify Corporation, as well as
several other privately held technology companies.
Effective July 17, 1997, A. LeRoy Ellison and Michael A. Wolf resigned as
directors of the Company and Mr. Wolf resigned as Executive Vice President and
Chief Technology Officer of the Company. The Company and Mr. Wolf have entered
into a 13-month agreement for Mr. Wolf to provide strategic consulting services
to the Company.
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SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of June 30, 1997, and as adjusted to reflect the
sale of the Common Stock being offered hereby, by the Company and the Selling
Stockholders:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)
--------------------- SHARES BEING ---------------------
SELLING STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
John J. Barry, III................ 36,412 * 10,000 26,412 *
Director
A. LeRoy Ellison(2)............... 412,564 2.3% 50,000 362,564 2.0%
Former Director
Kevin M. Hickey(3)................ 36,827 * 20,000 16,827 *
Officer
J. David Parrish(4)............... 27,336 * 13,000 14,336 *
Director
Mark R. Schonau(5)................ 35,207 * 12,000 23,207 *
Officer
Silverman Heller Associates(6).... 16,000 * 5,000 11,000 *
Steven D. Whiteman(7)............. 313,009 1.8 20,000 293,009 1.7%
Director and Officer
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%
(1) Except as otherwise noted, and subject to community property laws where
applicable, each person named in the table has sole voting and investment
power with respect to all shares shown as beneficially owned by him.
(2) These shares are held by the Allen Leroy Ellison Family Trust of which Mr.
Ellison is trustee and a beneficiary.
(3) Includes 28,915 shares that Mr. Hickey may acquire upon the exercise of
options exercisable within 60 days of June 30, 1997.
(4) Includes 26,668 shares that Mr. Parrish may acquire upon the exercise of
options exercisable within 60 days of June 30, 1997.
(5) Includes 35,000 shares that Mr. Schonau may acquire upon the exercise of
options exercisable within 60 days of June 30, 1997.
(6) Silverman Heller Associates is an investor relations consultant to the
Company.
(7) Includes 36,000 shares held by a trust for the benefit of Steven D. and
Beverly C. Whiteman, of which Mr. Whiteman is trustee, and 81,251 shares
that Mr. Whiteman may acquire upon the exercise of options exercisable
within 60 days of June 30, 1997.
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LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by the
Company and the Selling Stockholders will be passed upon by Osborn Maledon,
P.A., Phoenix, Arizona. Pillsbury Madison & Sutro LLP, Menlo Park, California,
is acting as counsel for the Underwriters in connection with certain legal
matters relating to the shares of Common Stock offered hereby.
EXPERTS
The Consolidated Financial Statements and schedules of VIASOFT, Inc. at
June 30, 1996 and 1997, and for each of the three years in the period ended June
30, 1997, and the Consolidated Financial Statements of Rottger & Osterberg
SoftwareTechnik GmbH and subsidiaries for the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1996, incorporated by reference in
this Prospectus and the related Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in accounting and auditing in giving said
reports.
AVAILABLE INFORMATION
VIASOFT is subject to the informational requirements of the Exchange Act
and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities of the Commission located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 7
World Trade Center, Suite 1300, New York, New York 10048, and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be obtained at prescribed rates from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Such
materials and other information concerning the Company are also filed
electronically with the Commission and are accessible via the World Wide Web at
http://www.sec.gov. The Common Stock is traded on the Nasdaq National Market.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit or incorporated by reference
to the Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Copies of the Registration Statement and the exhibits and schedules
thereto may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549.
46
<PAGE> 48
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VIASOFT, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Operations............................................... F-4
Consolidated Statements of Stockholders' Equity..................................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VIASOFT, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of VIASOFT, Inc. (a
Delaware corporation) and Subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 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 financial position of VIASOFT, Inc. and Subsidiaries
as of June 30, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
July 29, 1997.
F-2
<PAGE> 50
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)............................................ $ 5,009 $ 8,501
Investments, at amortized cost (Note 3)....................................... 23,795 12,697
Accounts receivable (less allowance for doubtful accounts of $279 and $678, at 13,335 21,240
June 30, 1996 and 1997 respectively)........................................
Prepaid expenses and other (Notes 5 and 8).................................... 1,130 2,954
------- --------
Total current assets................................................... 43,269 45,392
------- --------
Furniture and equipment (Note 1):
Computer equipment............................................................ 2,692 4,789
Office furniture and equipment................................................ 1,905 2,986
Capitalized leased equipment.................................................. 264 279
------- --------
Total furniture and equipment.......................................... 4,861 8,054
Less: Accumulated depreciation................................................ (2,895) (3,775)
------- --------
Furniture and equipment, net................................................ 1,966 4,279
------- --------
Other assets (Notes 2 and 8):
Investments, at amortized cost................................................ -- 7,377
Intangible assets, net........................................................ -- 4,675
Other......................................................................... 1,356 2,878
------- --------
Total other assets..................................................... 1,356 14,930
------- --------
Total assets........................................................... $46,591 $ 64,601
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 1,456 $ 2,016
Accrued compensation.......................................................... 1,491 3,309
Accrued income taxes payable.................................................. 1,824 3,276
Other accrued expenses........................................................ 3,100 8,709
Deferred revenue (Note 1)..................................................... 9,985 18,227
Current maturities of obligations under capital leases (Note 4)............... 25 --
------- --------
Total current liabilities.............................................. 17,881 35,537
------- --------
Deferred revenue, recognized after one year (Note 1)............................ 298 230
------- --------
Obligations under capital leases, less current maturities (Note 4).............. 18 --
------- --------
Other long term liabilities..................................................... 135 138
------- --------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares authorized, 0 shares issued -- --
and outstanding.............................................................
Common stock, $.001 par value, 24,000,000 shares authorized; 16,718,556 and 17 18
17,722,772 shares issued and outstanding at June 30, 1996 and 1997,
respectively (Notes 6 and 7)................................................
Capital in excess of par value................................................ 27,771 43,970
Common stock subscriptions receivable (Note 7)................................ (59) (55)
Accumulated earnings (deficit)................................................ 506 (14,930)
Cumulative translation adjustment (Note 1).................................... 24 (307)
------- --------
Total stockholders' equity............................................. 28,259 28,696
------- --------
Total liabilities and stockholders' equity............................. $46,591 $ 64,601
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 51
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenues:
Software license fees.................................... $14,311 $17,824 $ 40,292
Maintenance fees......................................... 12,059 14,305 21,010
Professional services fees............................... 4,387 11,307 23,832
Other.................................................... 194 121 178
------- ------- --------
Total revenues................................... 30,951 43,557 85,312
------- ------- --------
Operating expense:
Cost of software license and maintenance fees............ 2,661 2,788 4,345
Cost of professional services fees....................... 4,052 8,025 18,316
Sales and marketing...................................... 13,517 18,137 31,573
Research and development................................. 3,193 4,237 7,893
Write-off of purchased in-process research and
development........................................... -- -- 26,958
General and administrative............................... 2,643 3,567 6,319
------- ------- --------
Total operating expense.......................... 26,066 36,754 95,404
------- ------- --------
Income (loss) from operations.............................. 4,885 6,803 (10,092)
------- ------- --------
Other income (expense):
Interest income.......................................... 508 1,350 1,309
Interest expense......................................... (27) (11) (45)
Other income (expense), net.............................. 9 (82) (546)
------- ------- --------
Total other income............................... 490 1,257 718
------- ------- --------
Income (loss) before income taxes.......................... 5,375 8,060 (9,374)
Provision for income taxes............................... 183 1,843 6,062
------- ------- --------
Net income (loss).......................................... $ 5,192 $ 6,217 $(15,436)
======= ======= ========
Earnings (loss) per common and common share equivalent
(Note 1)................................................. $ .36 $ .36 $ (.90)
======= ======= ========
Weighted average number of common and common share
equivalents outstanding (Note 1)......................... 14,584 17,391 17,212
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 52
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(NOTE 1)
<TABLE>
<CAPTION>
SERIES B
PREFERRED STOCK COMMON STOCK COMMON
---------------------- ------------------- CAPITAL IN STOCK ACCUMULATED
NUMBER NUMBER EXCESS OF SUBSCRIPTIONS EARNINGS
AMOUNT OF SHARES AMOUNT OF SHARES PAR VALUE RECEIVABLE (DEFICIT)
-------- ----------- ------ ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994................ 12,703 13,271,895 $ 3 3,438,708 $ 1,462 $(265) $ (10,903)
Conversion of preferred stock........... (12,703) (13,271,895) 9 8,847,814 12,694 -- --
Sale of common stock,net.............. -- -- 4 3,434,658 12,136 -- --
Exercise of options................... -- -- -- 227,916 62 -- --
Payments on common stock subscriptions
receivable.......................... -- -- -- -- -- 7 --
Net income............................ -- -- -- -- -- -- 5,192
Translation adjustment................ -- -- -- -- -- -- --
-------- ----------- ---- ---------- -------- ----- ---------
Balance at June 30, 1995................ -- -- 16 15,949,096 26,354 (258) (5,711)
Sale of common stock, net............. -- -- -- 214,722 747 -- --
Exercise of options, net.............. -- -- 1 279,734 195 -- --
Exercise of warrants.................. -- -- -- 275,004 103 -- --
Income tax benefit relating to stock
plans (Note 5)...................... -- -- -- -- 170 -- --
Compensation relating to stock plans
(Note 7)............................ -- -- -- -- 202 -- --
Payments on common stock subscriptions
receivable (Note 7)................. -- -- -- -- -- 199 --
Net income............................ -- -- -- -- -- -- 6,217
Translation adjustment................ -- -- -- -- -- -- --
-------- ----------- ---- ---------- -------- ----- ---------
Balance at June 30, 1996................ -- -- 17 16,718,556 27,771 (59) 506
Sale of common stock, net............. -- 299,636 1,281
Exercise of options, net.............. -- 279,468 914
Shares issued in connection with
acquisition of R&O Software-Technik
(Note 2)............................ 1 425,112 12,805
Income tax benefit relating to stock
plans (Note 5)...................... 1,199
Payments on stock subscriptions
receivable (Note 7)................. 4
Net loss.............................. (15,436)
Translation adjustment................
-------- ----------- ---- ---------- -------- ----- ---------
Balance at June 30, 1997................ -- -- $ 18 17,722,772 $ 43,970 $ (55) $ (14,930)
======== =========== ==== ========== ======== ===== =========
<CAPTION>
CUMULATIVE
TRANSLATION
ADJUSTMENT TOTAL
---------- --------
<S> <C> <C>
Balance at June 30, 1994................ $ 39 $ 3,039
Conversion of preferred stock........... -- --
Sale of common stock,net.............. -- 12,140
Exercise of options................... -- 62
Payments on common stock subscriptions
receivable.......................... -- 7
Net income............................ -- 5,192
Translation adjustment................ (17) (17)
---- --------
Balance at June 30, 1995................ 22 20,423
Sale of common stock, net............. -- 747
Exercise of options, net.............. -- 196
Exercise of warrants.................. -- 103
Income tax benefit relating to stock
plans (Note 5)...................... -- 170
Compensation relating to stock plans
(Note 7)............................ -- 202
Payments on common stock subscriptions
receivable (Note 7)................. -- 199
Net income............................ -- 6,217
Translation adjustment................ 2 2
---- --------
Balance at June 30, 1996................ 24 28,259
Sale of common stock, net............. 1,281
Exercise of options, net.............. 914
Shares issued in connection with
acquisition of R&O Software-Technik
(Note 2)............................ 12,806
Income tax benefit relating to stock
plans (Note 5)...................... 1,199
Payments on stock subscriptions
receivable (Note 7)................. 4
Net loss.............................. (15,436)
Translation adjustment................ (331) (331)
---- --------
Balance at June 30, 1997................ $ (307) $ 28,696
==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 53
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................................... $ 5,192 $ 6,217 $(15,436)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Write-off of purchased in-process research and
development...................................... -- -- 26,958
Depreciation and amortization...................... 638 695 1,826
Compensation expense related to stock plans........ -- 202 --
Loss on disposal of fixed assets................... 16 6 26
Changes in operating assets and liabilities net
of effect of business acquired:
Increase in accounts receivable.................. (1,165) (4,358) (3,188)
Increase in prepaid expenses and other assets.... (857) (1,184) (3,180)
Increase (decrease) in accounts payable and other
accrued expenses.............................. 622 2,203 (2,343)
Increase (decrease) in accrued compensation...... (262) 625 1,818
Increase (decrease) in accrued income taxes
payable....................................... (82) 1,954 2,651
Increase in deferred revenue..................... 806 1,616 6,004
-------- -------- --------
Total adjustments............................. (284) 1,759 30,572
-------- -------- --------
Net cash provided by operating activities........ 4,908 7,976 15,136
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures.................................. (722) (987) (2,747)
Cash paid for business acquired, net of cash acquired
(Note 2)........................................... -- -- (10,225)
Sale of investments................................... -- 32,890 36,098
Purchase of investments............................... (12,628) (43,706) (32,497)
-------- -------- --------
Net cash used in investing activities......... (13,350) (11,803) (9,371)
-------- -------- --------
FINANCING ACTIVITIES:
Payments of short term debt (Note 2).................. -- -- (4,099)
Principal payments on obligations under capital
leases............................................. (171) (87) (43)
Payments for offering costs........................... (636) -- --
Proceeds from issuance of common stock................ 12,840 1,046 2,196
Payments received on common stock subscriptions
receivable......................................... 7 199 4
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. 12,040 1,158 (1,942)
-------- -------- --------
Effect of exchange rate changes on cash................. (17) (2) (331)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 3,581 (2,671) 3,492
Cash and cash equivalents, beginning of year............ 4,099 7,680 5,009
-------- -------- --------
Cash and cash equivalents, end of year.................. $ 7,680 $ 5,009 $ 8,501
======== ======== ========
Supplemental cash flow information:
Interest paid......................................... $ 27 $ 11 $ 46
Income taxes paid..................................... $ 409 $ 450 $ 2,934
Capital lease obligations incurred.................... $ 93 $ -- $ --
Income tax benefit related to stock plans............. $ -- $ 170 $ 1,199
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 54
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
VIASOFT, Inc. and its subsidiaries (the "Company") provide enterprise
application management solutions that help large organizations worldwide
understand, manage and evolve the large-scale software applications that support
their fundamental business processes. The Company also provides professional
services to large corporations and public entities to help them effectively
manage and automate the evolution of their existing applications. The Company
operates through its wholly-owned subsidiaries in Australia, the United Kingdom,
Germany, Belgium and Mexico and an established network of semi-exclusive
distributors in other international markets.
SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
VIASOFT, Inc. and its subsidiaries VIASOFT Pty. Ltd. (VIASOFT Pty); VIASOFT
International, Inc.; VIASOFT U.K. Limited (VIASOFT UK); VIASOFT International
GmbH (VIASOFT Germany); VIASOFT de Mexico, S.A. de C.V.; VIASOFT Benelux and
Rottger & Osterberg Software-Technik GmbH. The subsidiary books are prepared in
local currency and converted at time of consolidation to U.S. dollars using the
exchange rate at the balance sheet date for balance sheet items and an average
exchange rate during the period presented for income and expense items. All
significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
Revenue is recognized in accordance with Statement of Position 91-1,
"Software Revenue Recognition." Accordingly, revenue from software licensing is
recognized when delivery of the software has occurred, a signed non-cancellable
license agreement has been received from the customer and any remaining
obligations under the license agreement are insignificant. Revenue related to
insignificant obligations is deferred and recognized as the obligations are
fulfilled. Revenue from software license fees related to the Company's
obligation to provide certain post-contract customer support without charge for
the first year of the license is unbundled from the license fee at its fair
value and is deferred and recognized straight-line over the contract support
period. Revenue from annual or other renewals of maintenance contracts
(including long-term contracts) is deferred and recognized straight-line over
the term of the contracts. Revenues from professional services fees are
recognized on a percentage of completion basis, which is generally as related
services are provided. Professional services do not involve significant
customization, modification or production of the licensed software. Such
professional services fees are recognized as the related services are provided.
Revenue generated by domestic operations from sales to unaffiliated foreign
customers was 15%, 11% and 5% of total revenues in the years ended June 30,
1995, 1996 and 1997, respectively. See Note 9.
CASH AND CASH EQUIVALENTS
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. The Company's investments include commercial
paper, corporate bonds, and U.S. Treasury bills, all of which are stated at
amortized cost, which approximates fair market value. For purposes of the
statements of cash flows, the Company considers all investments with a maturity
of three months or less when purchased to be cash equivalents.
F-7
<PAGE> 55
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial Accounting
Standards No. 105, consist primarily of trade accounts receivable. The Company's
customer base is primarily Fortune 1000 and similarly-sized organizations
worldwide, and the Company's international distributor network. The Company does
not require collateral upon delivery of its products.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of three to seven
years. Depreciation expense was $1,266,000, $664,000, and $558,000 in the years
ended June 30, 1997, 1996, and 1995, respectively.
PRODUCT DEVELOPMENT
Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", capitalization of software development costs begins upon
the establishment of technological feasibility of the product. The establishment
of technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenues, estimated economic product lives and changes in software and
hardware technology. In addition, the Company has and plans to continue to
purchase software from third parties. Purchased software is also accounted for
in accordance with SFAS No. 86. Amounts that could have been capitalized under
this statement after consideration of the above factors were immaterial, and
therefore no internal software development costs have been capitalized by the
Company to date.
FOREIGN CURRENCY TRANSLATION
Financial information relating to the Company's foreign subsidiaries is
reported in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." The net foreign currency transaction gain (loss)
in the years ended June 30, 1995, 1996 and 1997, was approximately $10,000,
$16,000, and ($704,000), respectively. The gains or losses resulting from the
translation of the financial statements of the Company's foreign subsidiaries
have been included as a separate component of stockholders' equity.
EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and common share equivalents assumed
outstanding during the period. Shares issuable upon the exercise of employee
stock options that are considered anti-dilutive are not included in the weighted
average number of common and common share equivalents outstanding. Primary and
fully diluted earnings (loss) per share are considered to be the same in all
periods presented. For purposes of these calculations, the Series B preferred
stock, which was converted into 8,847,814 shares of common stock upon the
closing of the Company's initial public offering on March 8, 1995, has been
assumed to have been converted on a one-for-three basis into shares of common
stock as of the beginning of each year presented to give effect to the
one-for-three reverse split of the common stock in December 1994.
Effective December 1, 1994, the Board of Directors declared a one-for-three
reverse stock split of the Company's common stock. On August 19, 1996, the
Company's Board of Directors approved
F-8
<PAGE> 56
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a two-for-one stock split of its outstanding common stock, to be effected in the
form of a stock dividend. Each holder of shares of the Company's common stock on
August 30, 1996 received one additional share of common stock for every one
share of stock held. All share and per share information presented in these
financial statements reflects the effect of this event.
In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" ("SFAS No. 128"), which supersedes Accounting
Principles Board Opinion No. 15, the existing authoritative guidance. SFAS No.
128 is effective for financial statements for fiscal years ending after December
15, 1997 and, when adopted, requires restatement of all prior-period earnings
per share data presented. The new statement modifies the calculations of primary
and fully diluted earnings per share and replaces them with basic and diluted
earnings per share. The following table sets forth the proforma effect on net
income (loss) per common share for the fiscal years ended June 30, 1997 and
1996, respectively, assuming the Company had adopted SFAS No. 128 on July 1,
1995:
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
------------------
1996 1997
------- --------
(SHARES IN
THOUSANDS)
<S> <C> <C>
Earnings (loss) per common and common share equivalent
As reported........................................... $ .36 ($ .90)
Pro forma-basic....................................... $ .38 ($ .90)
Pro forma-diluted..................................... $ .36 ($ .90)
Weighted average number of common and common share
equivalents outstanding
As reported........................................... 17,391 17,212
Pro forma-basic....................................... 16,237 17,212
Pro forma-diluted..................................... 17,391 17,212
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange. The carrying amounts of cash, receivables and accounts
payable approximate fair values.
RECENTLY ISSUED ACCOUNTING STATEMENTS
During 1997, the Financial Accounting Standards Board released SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130, which is effective for fiscal
years beginning after December 15, 1997, establishes standards for reporting and
display of comprehensive income and
F-9
<PAGE> 57
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its components in an entity's financial statements. The objective of SFAS No.
130 is to report a measure of all changes in the equity of an enterprise that
result from transactions and other economic events of the period. Comprehensive
income is the total of net income and all other nonowner changes in equity. SFAS
No. 130 does not address issues of recognition or measurement for comprehensive
income and its components, therefore, it will not have an impact on the
financial condition or results of operation of the Company upon adoption.
DEPENDENCE ON YEAR 2000
The growth in the Company's professional services fees in fiscal 1996 and
1997 resulted primarily from increased demand for VIASOFT's Enterprise 2000
services as awareness of the year 2000 century date conversion problem has
grown. In the fiscal years ended June 30, 1996 and 1997, VIASOFT's Enterprise
2000 services represented 74% and 72%, respectively, of the Company's
professional services revenue. In addition, this demand has also accounted for a
significant portion of software license revenue for the same periods as
customers have acquired the Company's software products to help address their
year 2000 concerns. The Company has experienced this growth in both the domestic
and international markets. Should the demand for the Company's year 2000
solutions and products decline significantly as a result of new technologies,
competition or any other factors, the Company's professional services fees and
license revenues would be materially and adversely affected. The Company
anticipates that demand in the year 2000 market will decline, perhaps rapidly,
following the year 2000. It is the Company's strategy to leverage customer
relationships and knowledge of customer application systems derived from its
year 2000 services solutions to market other products and services beyond the
year 2000 market. However, there can be no assurance that this strategy will be
successful, and should the Company be unable to market other products and
services as demand in the year 2000 market declines, whether as a result of
competition, technological change or other factors, the Company's business,
results of operations and financial condition will be materially and adversely
affected.
The Company markets its products and services to customers for managing the
maintenance and redevelopment of mission-critical computer software systems. In
addition, a large and increasing portion of the Company's business is devoted to
addressing the year 2000 problem, which affects the performance and reliability
of many mission-critical systems. The Company's agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product and service liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any material product or service
liability claims to date, the sale and support of its products and services may
entail the risk of such claims, particularly in the year 2000 market, which
could be substantial in light of the use of its products and services in
mission-critical applications. A successful product or service liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.
2. ACQUISITION OF ROTTGER & OSTERBERG SOFTWARE-TECHNIK GMBH ("R&O")
On December 5, 1996, the Company acquired all of the outstanding shares of
capital stock of R&O for cash, common stock and the assumption of certain
liabilities pursuant to a stock purchase agreement with the stockholders of R&O.
R&O develops, markets and supports repository software tools through its Rochade
product line, together with related repository-based services and solutions. R&O
was founded in 1976, is headquartered in Munich, Germany and has operations in
F-10
<PAGE> 58
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Europe and the United States. The aggregate cost of the R&O acquisition
consisted of the following (in thousands):
<TABLE>
<S> <C>
Cash...................................................... $12,800
Common stock.............................................. 12,805
Assumption of liabilities and acquisition costs........... 13,200
-------
Total................................................ $38,805
=======
</TABLE>
The Company issued 425,112 unregistered shares of its Common Stock pursuant
to Regulation S in connection with this transaction, subject to certain
restrictions imposed under the stock purchase agreement and applicable
securities laws. Included in the cost of the acquisition was a payment of $2.0
million made to the former stockholders of R&O in February 1997 for meeting
certain performance criteria. The Company also committed to pay additional cash
consideration of $2.0 million (or, at each former R&O stockholder's election,
additional shares of Common Stock with an equivalent market value) if certain
financial performance criteria were met for the period from January 1, 1997
through June 30, 1997. This contingent earnout was not achieved and no further
payments are due under the purchase agreement.
The R&O acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion Nos. 16 and 17 and, accordingly, the
purchased assets and assumed liabilities were recorded at their estimated fair
values at the acquisition date. The Company received an appraisal of the
intangible assets which indicated that approximately $27.0 million of the
acquired intangible assets was in-process research and development that had not
yet reached technological feasibility. Because there can be no assurance that
the Company will be able to successfully complete the development and
integration of the in-process research and development into its suite of
software products or that the acquired technology has any alternative future
use, the acquired in-process research and development was charged to expense by
the Company in its quarter ended December 31, 1996. In order to bring the
in-process software products to commercial availability, the Company estimated
that it will need to spend up to $2.6 million on product integration and
performance improvements. The Company allocated the aggregate cost of the
acquisition as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable....................................... $ 4,672
Other assets.............................................. 1,956
In-process research and development....................... 26,958
Purchased research and development........................ 2,000
Other intangible assets................................... 3,219
-------
$38,805
=======
</TABLE>
Other intangible assets consist of customer list ($900,000), assembled
workforce ($800,000) and cost in excess of net assets acquired ($1,519,000). The
customer list, assembled workforce and cost in excess of net assets acquired are
being amortized on a straight-line basis over eight, seven and five year
periods, respectively.
F-11
<PAGE> 59
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma combined condensed statements of
operations for the fiscal years ended June 30, 1997 and 1996 give effect to the
R&O acquisition as if it had been consummated as of the beginning of each
respective period (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Total revenues......................................... $62,754 $91,265
Income before income taxes............................. 9,772 17,847
Net income............................................. 7,535 11,692
Earnings per share..................................... $ .42 $ .64
</TABLE>
The pro forma combined condensed statements of operations exclude the
effect of the approximate $27.0 million charge related to the write-off of
purchased in-process research and development. The unaudited pro forma combined
financial data is provided for illustrative purposes only and is not necessarily
indicative of the combined results of operations that would have been reported
had the R&O acquisition occurred on the dates indicated, nor does it purport to
project the results of operations of the Company for the current year or for any
future period.
3. INVESTMENTS
The Company's investments are all classified as held-to-maturity and
consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities.................... $ 5,648 $ -- $(109) $ 5,539
Government-backed securities................ 8,500 -- (34) 8,466
Corporate bonds............................. 5,926 44 -- 5,970
------- ---- ------ --------
Total............................. $20,074 $ 44 $(143) $ 19,975
======= ==== ====== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities.................... $13,846 $ 1 $ (11) $ 13,836
Government-backed securities................ 6,580 -- (6) 6,574
Corporate bonds............................. 3,369 -- (50) 3,319
------- ---- ---- --------
Total............................. $23,795 $ 1 $ (67) $ 23,729
======= ==== ==== ========
</TABLE>
The following table reflects the investment maturities at June 30, 1997 (in
thousands):
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
-------- ----------
<S> <C> <C>
Under one year................................................. $12,697 $ 12,714
Greater than one year and less than five years................. 7,377 7,261
------- --------
$20,074 $ 19,975
======= ========
</TABLE>
All of the Company's investments at June 30, 1996 matured within one year.
F-12
<PAGE> 60
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OBLIGATIONS UNDER CAPITAL LEASES
During the first quarter of fiscal 1995, the Company entered into a
$525,000 general office and computer equipment line of credit with a financial
institution which provides for financing up to 90% of the costs of such
acquisitions domestically. The amount available under the line of credit is
reduced by prior outstanding equipment loans from the financial institution,
which aggregated approximately $47,000 as of June 30, 1996. There are no
outstanding loans under the current agreement. Additional borrowings under this
arrangement, if any, will bear interest at the three year U.S. Treasury Bill
rate, plus 4.4 percentage points.
5. INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." SFAS
No. 109 requires the use of an asset and liability approach in accounting for
income taxes. Deferred tax assets and liabilities are recorded based on the
differences between the financial statement and tax bases of assets and
liabilities and the tax rates in effect when these differences are expected to
reverse. Upon adoption of SFAS No. 109, there was no cumulative effect of the
change in accounting principle.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $ 120 $ 1,184 $ 4,834
State............................................. 129 454 909
Foreign........................................... 54 275 2,057
Deferred............................................ (120) 322 (1,738)
Utilization of net operating loss and tax
credit carryforwards.............................. 2,295 1,464 --
Change in valuation allowance....................... (2,295) (1,856) --
------- ------- -------
Provision for income taxes.......................... $ 183 $ 1,843 $ 6,062
======= ======= =======
</TABLE>
For the year ended June 30, 1997, income tax benefits of $1,199,000 were
allocated to additional paid-in capital for tax benefits associated with the
exercise of nonqualified stock options and the disqualifying disposition of
incentive stock options.
F-13
<PAGE> 61
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
-----------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax liabilities:
Prepaid royalty................................................ $ 34 $ --
Accelerated tax depreciation................................... 94 89
Other.......................................................... 15 58
------ ------
Total.................................................. 143 147
------ ------
Deferred tax assets:
Foreign tax credits............................................ 168 1,485
Software development costs capitalized for tax................. 511 249
Bad debt reserve............................................... 117 304
Vacation accrual............................................... 146 193
Deferred revenue............................................... 42 28
Intangibles amortization....................................... -- 136
Other.......................................................... 122 224
------ ------
Total.................................................. 1,106 2,619
------ ------
Net deferred tax asset........................................... $ 963 $2,472
====== ======
</TABLE>
Management believes that it is more likely than not that the Company will
generate sufficient taxable income to realize the deferred tax assets and,
therefore, has eliminated the valuation allowance as of June 30, 1996. The
Company recognized a tax benefit as a result of the change in the valuation
allowance of $1,856,000 for the year ended June 30, 1996.
A reconciliation of the U.S. federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate......................................... 34% 34% 35%
Write-off of in-process R&D.................................... -- -- (89)
Effect of permanent differences................................ 1 2 (2)
Foreign taxes.................................................. 1 4 (2)
State taxes, net of federal benefit............................ 1 4 (6)
Tax credit carryforwards....................................... -- (14) 3
Benefit of net operating loss carryforwards.................... (34) (7) --
Other.......................................................... -- -- (4)
--- --- ---
3 % 23% (65)%
=== === ===
</TABLE>
The Company utilized its entire net operating loss carryforward during the
year ended June 30, 1996.
6. STOCK PLANS
1994 EQUITY INCENTIVE PLAN
The 1994 Equity Incentive Plan ("1994 Plan") was adopted by the Board of
Directors ("the Board") in August 1994, approved by the stockholders in November
1994, and became effective
F-14
<PAGE> 62
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 1, 1995. The 1994 Plan will terminate 10 years after the effective date.
The 1994 Plan authorizes awards of incentive stock options to employees and
non-qualified stock options, stock appreciation rights, performance units,
restricted stock and other common stock-based awards to officers, directors,
employees, and consultants of the Company and its subsidiaries. A total of
1,400,000 shares of common stock is reserved for issuance under the 1994 Plan.
The options currently issued under the 1994 Plan vest as to 25% of the shares
subject thereto on the first anniversary of the commencement of the offering and
will vest at the rate of 6.25% of such shares per quarter of continuous service
thereafter.
The 1994 Plan is administered by a committee appointed by the Board
consisting of at least two non-employee directors, who have the exclusive
authority to administer and interpret the 1994 Plan. The committee has the power
to, among other things, designate participants, determine types of awards to be
granted and the price, timing, terms and duration of awards.
EMPLOYEE STOCK OPTION PLAN
The Company has an approved stock option plan ("1986 Plan") for employees
and consultants covering 2,000,000 shares of Company common stock. Options
granted under the 1986 Plan may be either incentive stock options or
non-qualified stock options, at the discretion of the Board of Directors and as
reflected in the terms of the written option agreement. Options vest 20% per
year over five years and must be exercised within five to six years of the date
of grant. Effective March 8, 1995, no further share grants may be made pursuant
to this Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan ("Purchase Plan") became
effective at the time of the Company's initial public offering. The Company has
reserved 800,000 shares of common stock for issuance under the Purchase Plan,
and will allow eligible employees to purchase shares of common stock, at
semiannual intervals, through periodic payroll deductions. On May 1, 1997, the
Purchase Plan was expanded to include the international employees of the Company
and its subsidiaries. The purchase price per share is eighty-five percent (85%)
of the lower of (i) the fair market value of the common stock on the
participant's entry date into the offering period or (ii) the fair market value
on the semi-annual purchase date. The purchase price, amount of shares
purchased, and value of stock purchased are all subject to certain limitations
on an individual and aggregate basis, as defined in the Purchase Plan. The
Purchase Plan will terminate on the earlier of (i) the date on which all shares
available for issuance under the Plan have been issued or (ii) December 31,
2003, unless earlier terminated by the Committee designated by the Board in
accordance with the provisions of the Plan.
As of June 30, 1997, 285,642 shares remained available for purchase through
the Purchase Plan and there were 399 employees eligible to participate, of which
87%, or 347, participated. Employees purchased 299,636 shares during the year at
prices ranging from $3.40 to $36.13. Total cash received by the Company was
approximately $1,281,000. The Purchase Plan is non-compensatory, therefore, no
charges to income were recorded.
OUTSIDE DIRECTOR STOCK OPTION PLAN
The Company's Outside Director Stock Option Plan ("Director Plan") was
approved by the stockholders and became effective on November 15, 1995. The
Director Plan authorizes non-discretionary grants of nonstatutory stock options
to non-employee directors of the Company. A total of 400,000 shares of common
stock is reserved for issuance under the Director Plan. Each person who is
elected for the first time as an Outside Director shall be, upon the date of his
first
F-15
<PAGE> 63
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
election, automatically granted an option to purchase 20,000 shares at the fair
market value of the shares on the grant date. Each Outside Director shall
receive an option to purchase 10,000 shares at the fair market value established
on the grant date upon re-election to the Board of Directors. The shares begin
vesting one year after the date of grant in three equal annual installments and
expire five years after the date of grant. The Plan will terminate on the tenth
anniversary of the date it became effective. The Director Plan is administered
by a committee appointed by the Board.
401(K) PLAN
The Company has a contributory retirement plan (the 401(k) Plan) covering
eligible United States employees with at least 30 days of service and who are a
minimum of 21 years old. The 401(k) Plan is a calendar year plan. The 401(k)
Plan is designed to provide tax-deferred income to the Company's employees in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 15% of
his or her respective salary, not to exceed the statutory limit. The Company
elected to make discretionary matching contributions of $120,000 for each of the
1995 and 1996 plan years to all participants who were employed by the Company on
the effective date and who had made contributions to the 401(k) Plan during the
plan year. This match was allocated based upon the employees' contributions in
each plan year as a percentage of the total contributions of all eligible
employees. For the 1996 plan year, the Company elected to make a 20% matching
contribution of employee contributions of up to a maximum of $3,000 per
participant. The Company had made contributions of approximately $98,000 for the
1996 plan year.
Under the terms of the 401(k) Plan, the Company may also make discretionary
profit sharing contributions. Profit sharing contributions, if any, are
allocated among all active participants based upon the employee's contributions
for the plan year as a percentage of total employee contributions for the plan
year.
OTHER
The Board granted a total of 8,000 nonqualified stock options at $4.00 per
share to three employees on February 15, 1995. These options vest over a five
year period. During fiscal 1997, 5,000 of these options were exercised.
The Board granted 20,000 nonqualified stock options at $4.43 per share to
an outside investor relations consultant ("consultant") in April 1995. The
options vested 50% on November 1, 1995 and 50% on November 1, 1996. The options
have been fully exercised.
F-16
<PAGE> 64
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the activity under the Company's stock option
plans as well as those issued outside the plans (see above):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
1995 1996 1997
----------------------- ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding,
beginning of
year............. 982,704 $0.58 1,381,214 $2.31 1,144,316 $4.59
Granted............ 687,404 3.95 446,800 9.57 611,150 29.18
Canceled/expired... (61,512) 0.48 (378,884) 5.05 (65,728) 28.51
Exercised.......... (227,362) 0.28 (305,348) 1.00 (279,466) 3.28
--------- --------- ---------
Options
outstanding, end
of year.......... 1,381,214 2.31 1,143,782 4.59 1,410,272 14.40
========= ========= =========
Options
exercisable, end
of year.......... 257,683 0.54 259,058 2.35 310,126 3.54
========= ========= =========
Options available
for grant........ 848,000 1,067,034 514,284
========= ========= =========
Weighted average
fair value of
options
granted.......... $9.57 $29.18
========= =========
</TABLE>
OPTIONS OUTSTANDING AND EXERCISABLE BY PRICE RANGE
AS OF JUNE 30,1997
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.38 - $ 3.38...... 236,272 2.35 $ 1.18 112,314 $ 0.73
$ 3.75 - $ 3.75...... 6,668 3.34 3.75 2,668 3.75
$ 4.00 - $ 4.00...... 347,973 3.66 4.00 150,243 4.00
$ 4.81 - $ 6.38...... 58,687 4.23 6.32 19,442 6.29
$11.06 - $17.00...... 447,672 4.93 14.02 25,459 11.12
$33.50 - $45.25...... 313,000 5.40 38.23 -- --
----------- ----- -------------- ----------- --------------
$ 0.38 - $45.25...... 1,410,272 4.25 $ 14.40 310,126 $ 3.54
========== ============ =========== ========= ===========
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which defines a fair value based method
of accounting for an employee
F-17
<PAGE> 65
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to
F-18
<PAGE> 66
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
continue to measure compensation cost related to stock options issued to
employees under these plans using the method of accounting prescribed by
Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock
Issued to Employees. Entities electing to continue accounting for stock-based
compensation under in APB No. 25 must make pro forma disclosures of net income
(loss) and earnings (loss) per share, as if the fair value based method of
accounting defined in SFAS No. 123 has been applied.
The Company has elected to account for its stock-based compensation plans
under APB No. 25; therefore, no compensation cost is recognized in the
accompanying financial statement for stock-based employee awards. However, the
Company has computed for pro forma disclosure purposes the value of all options
and Purchase Plan shares granted during 1996 and 1997, using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997
----------------------------- -----------------------------
OPTIONS PURCHASE PLAN OPTIONS PURCHASE PLAN
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Risk free interest rate 6.00% 5.30% 6.02% 5.47%
Expected dividend yield -- -- -- --
Expected lives 4.06 years .5 years 4.06years .5 years
Expected volatility 69.0 % 74.04% 80.0 % 76.8 %
</TABLE>
The total value of options and Purchase Plan shares granted was computed to
be the following approximate amounts, which would be amortized on the
straight-line basis over the vesting period:
<TABLE>
<CAPTION>
OPTION PLANS PURCHASE PLAN
------------ -------------
<S> <C> <C>
Year ended June 30, 1997................... $ 8,822,819 $ 870,119
Year ended June 30, 1996................... $ 1,955,126 $ 376,028
</TABLE>
If the Company had accounted for its stock-based compensation plans using a
fair value based method of accounting, the Company's net income (loss) and
earnings (loss) per common and common share equivalent would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997
------ --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net income (loss):
As reported.................................................. $6,217 $(15,436)
Pro forma.................................................... 5,910 (17,669)
Earnings (loss) per common and common share equivalent:
As reported.................................................. .36 (.90)
Pro forma.................................................... $ .35 $ (1.02)
</TABLE>
The effects of applying SFAS No. 123 for providing pro forma disclosures
for 1996 and 1997 are not likely to be representative of the effects on reported
net income (loss) and earnings (loss) per common and common share equivalent for
future years, because options vest over several years and additional awards
generally are made each year.
7. CAPITAL STOCK
Effective in connection with the Company's initial public offering in March
1995, each three shares of Series B preferred stock then outstanding, was
converted into one share of the Company's common stock. At that time, the Series
B preferred stock was retired.
F-18
<PAGE> 67
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended June 30, 1994, the Company entered into stock
purchase agreements with three officers and a director to sell an aggregate of
283,334 shares of common stock at the fair market value on the date of the
agreements ($.38 to $.75 per share) in exchange for full recourse promissory
notes aggregating $153,750. In addition, options for the purchase of 181,920
shares were exercised by an officer/director in exchange for a full recourse
promissory note in the amount of $27,015. The unpaid balance on the notes is
reflected in stockholders' equity as common stock subscriptions receivable at
June 30, 1997.
8. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
On August 27, 1996, the Company entered into an agreement with Tadiran
Information Systems, Ltd. ("Tadiran"), an Israeli company, to purchase a date
bridging product ("the Product"), as well as a patent application, copyrights,
and a covenant not to compete related to the Product and certain additional
enhancements to the product. The purchase price of the Product was $2,300,000
payable in installments based on delivery dates for different releases of the
Product which occurred between September, 1996 and March, 1997. The purchase
price of the enhancements was $695,000, payable in installments based upon
delivery which occurred between February and July, 1997. The Company has paid
the entire purchase price for all products and enhancements which had been
delivered. The purchase of the Product will be capitalized in accordance with
SFAS No. 86 and amortized over the greater of the useful life of the product,
which is estimated to be 36 months, or using the revenue ratio method, whichever
results in a greater amount of amortization in the applicable reporting period.
In addition to the purchase price, royalties on sales of software licenses
for the Product are due to Tadiran in the amount of 15% of the first $2,000,000
in sales, 12% for the next $8,000,000, and 10% for any additional sales.
Royalties due to Tadiran as of June 30, 1997 were $169,000. The Company also has
the right to commission a future version of the software for an agreed upon time
and materials rate.
During November 1993, the Company entered into a five-year agreement with
SEEC, Inc. ("Licensor") which granted the Company a license to use, market and
reproduce certain of Licensor's products under the Company's label. The Company
agreed to pay to the Licensor a royalty of 30% of any license or maintenance
fees related to the covered products up to a maximum of $2 million. Under this
agreement, the Company prepaid a minimum royalty of $40,000 per month for the
first nine months and $60,000 per month for the next nine months. Prepaid
royalties were generally nonrefundable, except in the case of certain defaults
by the Licensor. As of June 30, 1996, all prepaid royalties under the agreement
were fully amortized. As of June 1997, the agreement had been terminated.
The Company leases its corporate office facilities in two locations in
Phoenix, Arizona. On August 15, 1994, the Company extended the office lease at
one of its facilities, which will expire on December 31, 1999. On December 19,
1996, the Company entered into a lease at another location in Phoenix, Arizona
which will expire on May 31, 2001. Rental expense relating to these leases
amounted to approximately $487,000, $583,000 and $786,000 in the years ended
June 30, 1995, 1996, and 1997, respectively.
The Company has entered into several office leases for sales offices in
various cities and countries. These leases expire at various dates through 2000.
Rental expense relating to these leases amounted to approximately $415,000,
$575,000, and $684,000 in the years ended June 30, 1995, 1996, and 1997,
respectively.
F-19
<PAGE> 68
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is party to a data processing agreement under which it utilizes
certain computer equipment and software of an independent third party. The
eighteen month agreement expires in January 1999. Expenses under this agreement
were approximately $794,000, $673,000, and $860,000 in the years ended June 30,
1995, 1996, and 1997, respectively. The base monthly charge for usage is
approximately $59,000, subject to adjustment for excess usage as defined in the
agreement.
The Company is party to a facilities management agreement under which it
leases certain office equipment and utilizes personnel of an independent third
party to manage its corporate office and produce the Company's product
documentation. The agreement expires in October 1998. Payments under this
agreement were approximately $362,000 in the year ended June 30, 1997. The base
monthly charge is approximately $31,000 subject to an adjustment for usage as
defined in the agreement.
The future minimum rental payments under all noncancellable operating
leases for each of the years ending June 30 are as follows (in thousands):
<TABLE>
<S> <C>
Year ending June 30:
1998.................................................... $ 3,452
1999.................................................... 2,962
2000.................................................... 1,817
2001.................................................... 1,280
2002.................................................... 520
Thereafter.............................................. 408
-------
$10,439
=======
</TABLE>
9. FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION:
The Company operates in one industry segment which includes the
development, marketing and support of an integrated line of software products
for use by businesses worldwide to enhance the maintenance and redevelopment
process for existing applications, reduce maintenance costs and improve quality
in their existing applications. The Company also provides professional services
to large corporations and public entities to help them effectively manage and
automate the evolution of their existing applications.
Sales and marketing activities related to software license fees,
maintenance fees and professional services fees are conducted in North America
and certain foreign locations, principally the United Kingdom, Europe and
Australia. Revenue and income (loss) before provision for income taxes for each
of the years in the three year period ended June 30, 1997, and identifiable
assets at June 30, 1995, 1996, and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenue(1):
North America-domestic........................... $22,517 $32,878 $ 57,728
International-principally distributors:
Europe........................................ 2,744 3,097 2,581
All others.................................... 1,785 1,721 1,520
Foreign subsidiaries and branches................ 3,905 5,861 23,483
------- ------- --------
Total revenue............................ $30,951 $43,557 $ 85,312
======= ======= ========
</TABLE>
F-20
<PAGE> 69
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Income (Loss) Before Income Taxes(1):
North America.................................... $ 5,317 $ 8,517 $(17,860)
Foreign subsidiaries and branches................ 58 (457) 8,486
------- ------- --------
Income (loss) before income taxes........ $ 5,375 $ 8,060 $ (9,374)
======== ======== =========
Identifiable Assets(1):
North America.................................... $30,087 $43,370 $ 50,527
Foreign subsidiaries and branches................ 2,527 3,221 14,074
------- ------- --------
Total assets............................. $32,614 $46,591 $ 64,601
======== ======== =========
</TABLE>
- ---------------
(1) Includes VIASOFT, VIASOFT UK, and VIASOFT de Mexico, S.A. de C.V. for all
periods, VIASOFT Germany since its formation on October 1, 1994, VIASOFT
Netherlands since its formation on July 1, 1995, Viasoft Benelux since its
formation on July 1, 1996, and the operations of R&O since its acquisition
on December 5, 1996.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ------------ -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Fiscal 1997:
Revenue................................. $ 13,976 $ 19,783 $ 23,901 $27,652
Income (loss) from operations........... 2,021 (23,059) 4,973 5,973
Net income (loss)....................... 1,556 (24,184) 3,148 4,044
Earnings (loss) per common and common $ .09 $ (1.42) $ .17 $ .22
share equivalent.....................
Fiscal 1996:
Revenue................................. $ 8,440 $ 10,257 $ 10,361 $14,499
Income from operations.................. 954 1,872 1,370 2,607
Net income.............................. 941 1,640 1,270 2,366
Earnings per common and common share $ .06 $ .10 $ .08 $ .14
equivalent...........................
Fiscal 1995:
Revenue................................. $ 6,317 $ 8,014 $ 7,605 $ 9,015
Income from operations.................. 624 1,462 1,015 1,784
Net income.............................. 576 1,325 1,047 2,244
Earnings per common and common share $ .05 $ .10 $ .07 $ .13
equivalent...........................
</TABLE>
F-21
<PAGE> 70
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, (the
"Underwriting Agreement"), the Company and the Selling Stockholders have agreed
to sell to each of the underwriters named below (the "U.S. Underwriters"), and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Wessels, Arnold &
Henderson, L.L.C., SoundView Financial Group, Inc. and Volpe Brown Whelan &
Company, LLC are acting as representatives, has severally agreed to purchase
from the Company and the Selling Stockholders, the respective number of shares
of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
-------------------------------------------------------------------- ----------------
<S> <C>
Goldman, Sachs & Co. ...............................................
Wessels, Arnold & Henderson, L.L.C. ................................
SoundView Financial Group, Inc. ....................................
Volpe Brown Whelan & Company, LLC...................................
---------
Total..................................................... 1,040,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the representatives.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the international offering (the "International Underwriters" and, collectively
with the U.S. Underwriters, the "Underwriters") providing for the concurrent
offer and sale of 260,000 shares of Common Stock in an offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the two offerings are identical. The closing of the
offering made hereby is a condition to the closing of the international
offering, and vice versa. The representatives of the International Underwriters
are Goldman, Sachs International, Wessels, Arnold & Henderson, L.L.C., SoundView
Financial Group, Inc. and Volpe Brown Whelan & Company, LLC.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell
U-1
<PAGE> 71
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or deliver shares of Common Stock (a) in the United States or to any U.S.
persons or (b) to any person who it believes intends to reoffer, resell or
deliver the shares in the United States or to any U.S. persons, and (ii) cause
any dealer to whom it may sell such shares at any concession to agree to observe
a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 156,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
1,300,000 shares of Common Stock offered. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
39,000 additional shares of Common Stock.
The Company and the Selling Stockholders have agreed that, during the
period beginning from the date of this Prospectus and continuing to and
including the date 90 days after the date of the Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus) which are substantially similar to the shares of
Common Stock or which are convertible into or exchangeable for securities which
are substantially similar to the shares of Common Stock without the prior
written consent of Goldman, Sachs & Co., except for the shares of Common Stock
offered in connection with the concurrent U.S. and international offerings.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Pursuant to regulations promulgated by the Commission, market makers in the
Common Stock who are Underwriters or prospective underwriters ("passive market
makers") may, subject to certain limitations, make bids for or purchases of
shares of Common Stock until the time, if any, at which a stabilizing bid for
such shares is made. In general, prior to the time, if any, at which a
stabilizing bid for such shares is made (1) such market maker's net daily
purchases of the Common Stock may not exceed 30% of the market maker's average
daily trading volume in such stock for the two full consecutive calendar months
immediately preceding the filing date of the Registration Statement of which
this Prospectus forms a part, (2) such market maker may not effect transactions
in, or display bids for, the Common Stock at a price that exceeds the highest
independent bid for the Common Stock by persons who are not passive market
makers and (3) bids made by passive market makers must be identified as such.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
This Prospectus may be used by Underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
international offering, to persons located in the United States.
U-2
<PAGE> 72
=======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IN CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference................................. 2
Prospectus Summary.......................... 3
Summary Consolidated Financial
Information............................... 5
Risk Factors................................ 6
Special Note on Forward-Looking
Statements................................ 15
The Company................................. 15
Use of Proceeds............................. 15
Dividend Policy............................. 15
Price Range of Common Stock................. 16
Capitalization.............................. 17
Pro Forma Combined Financial Data........... 18
Selected Consolidated Financial Data........ 20
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations..................... 21
Business.................................... 30
Management.................................. 43
Selling Stockholders........................ 45
Legal Matters............................... 46
Experts..................................... 46
Available Information....................... 46
Underwriting................................ U-1
Consolidated Financial Statements........... F-1
</TABLE>
=======================================================
=======================================================
1,300,000 SHARES
VIASOFT, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
------------------
[VIASOFT LOGO]
------------------
GOLDMAN, SACHS & CO.
WESSELS, ARNOLD &
HENDERSON
SOUNDVIEW FINANCIAL
GROUP, INC.
VOLPE BROWN WHELAN &
COMPANY
REPRESENTATIVES OF THE UNDERWRITERS
=======================================================
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses in
connection with the offering described in the Registration Statement, other than
underwriting commissions and discounts. All of such costs and expenses will be
borne by the Company.
<TABLE>
<S> <C>
Registration Fee....................................... $ 26,050
NASD Fee............................................... 9,097
Nasdaq National Market Listing Fee..................... 17,500
Accounting Fees and Expenses........................... 114,000
Legal Fees and Expenses................................ 200,000
Printing Expenses...................................... 230,000
Blue Sky Fees and Expenses............................. 10,000
Miscellaneous.......................................... 73,353
--------
Total........................................ $680,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IX of the Company's Restated Certificate of Incorporation provides
that the Company shall indemnify directors, officers, and their legal
representatives to the fullest extent permitted by the Delaware General
Corporate Law ("DGCL"). The DGCL contains an extensive indemnification provision
which permits a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. In
suits by or in the right of a corporation, only expenses and not judgments,
fines, and amounts paid in settlement may be indemnified against. In addition,
if the director or officer has been adjudged to be liable to the corporation in
such a suit, indemnification of expenses must be approved by a court. Article IX
of the Restated Certificate of Incorporation also provides that the Company may,
in its discretion, indemnify employees and agents in circumstances where
indemnification is not required by law.
Article VII of the Company's Restated Certificate of Incorporation provides
that directors of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty. However,
this provision does not eliminate or limit the liability of a director for
breach of the director's duty of loyalty to the Company or its stockholders, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for the payment of dividends or distributions or the
redemption or purchase of the Company's shares of stock in violation of the
DGCL, or for any transaction from which the director derives an improper
personal benefit. This provision does not affect any liability of a director or
officer under the federal securities laws.
The Company currently maintains and expects to continue to carry directors'
and officers' liability insurance ("D&O Insurance") with a policy limit of
$10,000,000. Under this policy, the Company pays a deductible amount of up to
$250,000 per claim. In addition, the Company has
II-1
<PAGE> 74
entered into an indemnification agreement with each of its non-employee
directors ("Indemnification Agreement") under which the Company has indemnified
each of them against expenses and losses incurred for claims brought against
them to the extent that either the Company does not have D&O Insurance in place
at the time or the claim is not covered by the Company's D&O Insurance policy.
Under the Indemnification Agreements, the Company is not obligated to indemnify
the director for expenses or losses in connection with claims ("Excluded
Claims") which have been determined by final adjudication to be: (i) based on
the director gaining any unentitled personal profit or advantage, (ii) for the
return of illegal remuneration, (iii) for an accounting of profits made from the
director's purchase or sale of the Company's securities within the meaning of
Section 16 of the Exchange Act or similar state laws, (iv) resulting from the
director's knowingly fraudulent, dishonest, or willful misconduct, (v) based on
a payment which is not permitted by applicable law, (vi) claims as to which the
director shall have been adjudged liable to the Company, unless the court
determines that the director is fairly and reasonably entitled to
indemnification, or (vii) claims, the payment of which would exceed the maximum
amount permitted by law to be paid as indemnification. Under the Indemnification
Agreements, the directors each agree to reimburse the Company for amounts paid
to them in the event that a final adjudication determines that the claim is
either an Excluded Claim or the director is not otherwise entitled to payment
under the Indemnification Agreement.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- --------------------------------------------------------------------------
<S> <C>
* 1 Form of Underwriting Agreement
* 5 Form of Opinion of Osborn Maledon, P.A.
* 23(a) Consent of Arthur Andersen LLP
Consent of Osborn Maledon, P.A. (included in its opinion filed as Exhibit
* 23(b) 5)
* 24 Powers of Attorney
</TABLE>
- ---------------
* Filed herewith
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 75
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on the 15th day of August,
1997.
VIASOFT, Inc.
By: /s/ STEVEN D. WHITEMAN
------------------------------------
Steven D. Whiteman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- ----------------
<C> <S> <C>
/s/ STEVEN D. WHITEMAN Chief Executive Officer; August 15, 1997
- ------------------------------------- Director
Steven D. Whiteman
/s/ MARK R. SCHONAU Chief Financial Officer; August 15, 1997
- ------------------------------------- Chief Accounting Officer
Mark R. Schonau
/s/ JOHN J. BARRY, III* Director August 15, 1997
- -------------------------------------
John J. Barry, III
/s/ ALEXANDER S. KULI* Director August 15, 1997
- -------------------------------------
Alexander S. Kuli
/s/ J. DAVID PARRISH* Director August 15, 1997
- -------------------------------------
J. David Parrish
/s/ ARTHUR C. PATTERSON* Director August 15, 1997
- -------------------------------------
Arthur C. Patterson
*By: /s/ STEVEN D. WHITEMAN Attorney-in-fact
- -------------------------------------
Steven D. Whiteman
</TABLE>
II-4
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- --------------------------------------------------------------------------
<S> <C>
* 1 Form of Underwriting Agreement
* 5 Form of Opinion of Osborn Maledon, P.A.
*23(a) Consent of Arthur Andersen LLP
Consent of Osborn Maledon, P.A. (included in its opinion filed as Exhibit
*23(b) 5)
*24 Powers of Attorney
</TABLE>
- ---------------
* Filed herewith
II-5
<PAGE> 1
EXHIBIT 1
VIASOFT, INC.
COMMON STOCK
Underwriting Agreement
(U.S. Version)
______________, 1997
Goldman, Sachs & Co.
Wessels, Arnold & Henderson, L.L.C.
SoundView Financial Group, Inc.
Volpe Brown Whelan & Company, LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
VIASOFT, Inc. a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 936,000 shares
and, at the election of the Underwriters, up to 156,000 additional shares of
Common Stock ("Stock") of the Company and the stockholders of the Company named
in Schedule II hereto (the "Selling Stockholders") propose, subject to the terms
and conditions stated herein, to sell to the Underwriters an aggregate of
104,000 shares. The aggregate of 1,040,000 shares to be sold by the Company and
the Selling Stockholders is herein called the "Firm Shares" and the aggregate of
156,000 additional shares to be sold by the Company is herein called the
"Optional Shares". The Firm Shares and the Optional Shares that the Underwriters
elect to purchase pursuant to Section 2 hereof are herein collectively called
the "Shares".
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the Company
and the Selling Stockholders of up to a total of 299,000 shares of Stock (the
"International Shares"), including the overallotment option thereunder, through
arrangements with certain underwriters outside the United States (the
"International Underwriters"), for whom Goldman Sachs International is acting as
lead manager. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the International Underwriting
Agreement are hereby expressly made conditional on one another. The Underwriters
hereunder and the International Underwriters are simultaneously entering into an
Agreement between U.S. and International Underwriting Syndicates (the "Agreement
between Syndicates") which provides, among other things, for the transfer of
shares of Stock between the two syndicates. Two forms of prospectus are to be
used in connection with the offering and sale of shares of Stock contemplated by
the foregoing, one relating to the Shares hereunder and the other relating to
the International Shares. The latter form of prospectus will be identical to the
former except for certain substitute pages as included in the registration
statement and amendments thereto as mentioned below. Except as used in Sections
2, 3, 4, 9 and 11 herein, and except as the context may otherwise require,
references hereinafter to the Shares shall include all the shares of Stock which
may be sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both the U.S.
and the international versions thereof.
1.(a) The Company and certain Selling Stockholders named in Schedule
III hereto (the "Inside Selling Stockholders") represent and warrant to, and
agree with, each of the Underwriters that:
-1-
<PAGE> 2
(i) A registration statement on Form S-3 (File No. 333-21461)
in respect of the Shares has been filed with the Securities and
Exchange Commission (the "Commission"); such registration statement and
any post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto but including all
documents incorporated by reference in the prospectus contained
therein, in the form heretofore delivered to you for each of the other
Underwriters, have been declared effective by the Commission in such
form; no other document with respect to such registration statement or
document incorporated by reference therein has heretofore been filed
with the Commission; and no stop order suspending the effectiveness of
such registration statement has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission; (any
preliminary prospectus included in such registration statement or filed
with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Securities Act of 1933, as
amended (the "Act"), is hereinafter called a "Preliminary Prospectus";
the various parts of such registration statement, including all
exhibits thereto and including (i) the information contained in the
form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed
by virtue of Rule 430A under the Act to be part of the registration
statement at the time it was declared effective and (ii) the documents
incorporated by reference in the prospectus contained in the
registration statement at the time such part of the registration
statement became effective, each as amended at the time such part of
the registration statement became effective, are hereinafter
collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus"; and any reference herein
to any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Act, as of the date of such
Preliminary Prospectus or Prospectus, as the case may be; any reference
to any amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any documents filed
after the date of such Preliminary Prospectus or Prospectus, as the
case may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such Preliminary
Prospectus or Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Company filed pursuant to Section
13(a) or 15(d) of the Exchange Act after the effective date of the
Registration Statement that is incorporated by reference in the
Registration Statement;
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use
therein or by a Selling Stockholder expressly for use therein;
(iii) The documents incorporated by reference in the
Prospectus, when they became effective or were filed with the
Commission, as the case may be, conformed in all material respects to
the requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder,
-2-
<PAGE> 3
and none of such documents contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and any
further documents so filed and incorporated by reference in the
Prospectus or any further amendment or supplement thereto, when such
documents become effective or are filed with the Commission, as the
case may be, will conform in all material respects to the requirements
of the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein (A) in the case of the
Registration Statement, not misleading, or (B) in the case of the
Prospectus, in light of the circumstances under which they were made,
not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by an Underwriter through Goldman, Sachs & Co. expressly
for use therein or by a Selling Stockholder expressly for use in the
preparation of the answers therein to Item 7 of Form S-3;
(v) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock of the Company (other than upon exercise of options
disclosed in the Prospectus) or any material change in long-term debt
of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial
position, stock or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(vi) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be
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<PAGE> 4
made of such property and buildings by the Company and its
subsidiaries;
(vii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation;
(viii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, and
are fully paid and non-assessable and conform to the description of the
Stock contained or incorporated by reference in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(ix) The unissued Shares to be issued and sold by the Company
to the Underwriters hereunder and under the International Underwriting
Agreement have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to
the description of the Stock contained or incorporated by reference in
the Prospectus;
(x) The issue and sale of the Shares to be sold by the Company
hereunder and under the International Underwriting Agreement and the
compliance by the Company with all of the provisions of this Agreement
and the International Underwriting Agreement and the consummation of
the transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or
any of their properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as
may be required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained
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<PAGE> 5
in any indenture, mortgage, deed of trust, loan agreement lease or
other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(xii) The statements contained or incorporated by reference in
the Prospectus under the caption "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Stock, are accurate, complete and fair;
(xiii) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results
of operations of the Company and its subsidiaries; and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(xiv) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or
an entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(xv) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes; and
(xvi) Arthur Andersen LLP, who have certified certain
financial statements of the Company and its subsidiaries, are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder.
(b) Each of the Selling Stockholders severally represents and warrants
to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Stockholder of
this Agreement, the International Underwriting Agreement, the Power of
Attorney and the Custody Agreement hereinafter referred to, and for the
sale and delivery of the Shares to be sold by such Selling Stockholder
hereunder and under the International Underwriting Agreement, have been
obtained; and such Selling Stockholder has full right, power and
authority to enter into this Agreement, the International Underwriting
Agreement, the Power of Attorney and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder and under the International Underwriting
Agreement;
(ii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and under the International Underwriting
Agreement and the compliance by such Selling Stockholder with all of
the provisions of this Agreement, the International Underwriting
Agreement, the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and
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<PAGE> 6
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any statute, indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound, or to which any of
the property or assets of such Selling Stockholder is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of such Selling Stockholder if
such Selling Stockholder is a corporation, the Partnership Agreement of
such Selling Stockholder if such Selling Stockholder is a partnership
or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to
each Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold by
such Selling Stockholder hereunder and under the International
Underwriting Agreement, free and clear of all liens, encumbrances,
equities or claims; and, upon delivery of such Shares and payment
therefor pursuant hereto and thereto, good and valid title to such
Shares, free and clear of all liens, encumbrances, equities or claims,
will pass to the several Underwriters or the International
Underwriters, as the case may be;
(iv) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the
Prospectus, such Selling Stockholder will not to offer, sell, contract
to sell or otherwise dispose of, except as provided hereunder or under
the International Underwriting Agreement, any securities of the Company
that are substantially similar to the Shares, including but not limited
to any securities that are convertible into or exchangeable for, or
that represent the right to receive, Stock or any such substantially
similar securities (other than pursuant to employee stock option and
employee stock purchase plans existing on, or upon the exercise,
conversion or exchange of options or convertible or exchangeable
securities outstanding as of, the date of this Agreement), without the
prior written consent of Goldman, Sachs & Co.; provided, however, that
the foregoing shall not apply to a bona fide gift or gifts, provided
that such Selling Stockholder provides prior written notice thereof to
Goldman, Sachs & Co. and the donee(s) agrees to be bound by the terms
of this subparagraph (iv);
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in
the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and
any further amendments or supplements to the Registration Statement and
the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will, conform in all material respects
to the requirements of the Act and the rules and regulations of the
Commission thereunder and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein (A) in the case of
the Registration Statement, not misleading or (B) in the case of the
Preliminary Prospectus or Prospectus, in light of the circumstances
under which they were made, not misleading; such Selling Stockholder is
not aware of any facts or circumstances that cause or would cause
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<PAGE> 7
any of the representations or warranties of the Company set forth in
Section 1 above to be untrue or inaccurate in any material respect;
(vii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or
at the First Time of Delivery (as hereinafter defined) a properly
completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department
regulations in lieu thereof);
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement (or irrevocable written elections
to exercise options with respect to all or part of such Shares) have
been placed in custody under a Custody Agreement, in the form
heretofore furnished to you (the "Custody Agreement"), duly executed
and delivered by such Selling Stockholder to Harris Trust and Savings
Bank, as custodian (the "Custodian"), and such Selling Stockholder has
duly executed and delivered a Power of Attorney, in the form heretofore
furnished to you (the "Power of Attorney"), appointing the persons
indicated in Schedule II hereto, and each of them, as such Selling
Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement and the International
Underwriting Agreement on behalf of such Selling Stockholder, to
determine the purchase price to be paid by the Underwriters and the
International Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
such Selling Stockholder hereunder and otherwise to act on behalf of
such Selling Stockholder in connection with the transactions
contemplated by this Agreement, the International Underwriting
Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in
custody for such Selling Stockholder under the Custody Agreement are
subject to the interests of the Underwriters hereunder and the
International Underwriters under the International Underwriting
Agreement; the arrangements made by such Selling Stockholder for such
custody, and the appointment by such Selling Stockholder of the
Attorneys-in-Fact by the Power of Attorney, are to that extent
irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee
or the termination of such estate or trust, or in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event; if any individual
Selling Stockholder or any such executor or trustee should die or
become incapacitated, or if any such estate or trust should be
terminated, or if any such partnership or corporation should be
dissolved, or if any other such event should occur, before the delivery
of the Shares hereunder, certificates representing the Shares shall be
delivered by or on behalf of the Selling Stockholders in accordance
with the terms and conditions of this Agreement, of the International
Underwriting Agreement and of the Custody Agreements; and actions taken
by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as
valid as if such death, incapacity, termination, dissolution or other
event had not occurred, regardless of whether or not the Custodian, the
Attorneys-in-Fact, or any of them, shall have received notice of such
death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company and each of
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<PAGE> 8
the Selling Stockholders agree, severally and not jointly, to sell to each of
the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and each of the Selling Stockholders, at a
purchase price per share of $__________________, the number of Firm Shares (to
be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares to be sold by the Company and
each of the Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company and all of the Selling Stockholders hereunder and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company and each of the Selling
Stockholders agree, severally and not jointly to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company and each of the Selling Stockholders, at the purchase
price per share set forth in clause (a) of this Section 2, that portion of the
number of Optional Shares as to which such election shall have been exercised
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Optional Shares by a fraction the numerator of which
is the maximum number of Optional Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of Optional Shares that all
of the Underwriters are entitled to purchase hereunder.
The Company and the Selling Stockholders, as and to the extent
indicated in Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to .......... Optional
Shares, at the purchase price per share set forth in the paragraph above, for
the sole purpose of covering overallotments in the sale of the Firm Shares. Any
such election to purchase Optional Shares shall be made in proportion to the
maximum number of Optional Shares to be sold by the Company and each Selling
Stockholder as set forth in Schedule II hereto initially with respect to the
Optional Shares to be sold by the Company and then among the Selling
Stockholders in proportion to the maximum number of Optional Shares to be sold
by each Selling Stockholder as set forth in Schedule II hereto. Any such
election to purchase Optional Shares may be exercised only by written notice
from you to the Company, given within a period of 30 calendar days after the
date of this Agreement and setting forth the aggregate number of Optional Shares
to be purchased and the date on which such Optional Shares are to be delivered,
as determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company and the
Attorneys-in-Fact otherwise agree in writing, earlier than two or later than
ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4.(a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of The Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by certified or official bank check or checks, payable
to the order of the Company and each of the Selling Stockholders, as their
interests may appear, in New York Clearing House (same day) funds. The Company
will cause the certificates representing the Shares to be made available for
checking and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of DTC or its designated
custodian) (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on _____________, 1997 or such other time and date as
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<PAGE> 9
Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York City
time, on the date specified by Goldman, Sachs & Co. in the written notice given
by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co., the Company and the
Selling Stockholders may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Pillsbury Madison & Sutro LLP, 2700 Sand Hill Road, Menlo Park, California
94025 (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at each Time of Delivery. A meeting will be held at the
Closing Location at ______ p.m., California time, on the California Business Day
next preceding each Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4,
"California Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in California are
generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus prior to the last Time of Delivery
which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you copies thereof; to
file promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or
sale of the Shares; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
Prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
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<PAGE> 10
corporation or to file a general consent to service of process in any
jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus
in such quantities as you may from time to time reasonably request,
and, if the delivery of a prospectus is required at any time prior to
the expiration of nine months after the time of issue of the Prospectus
in connection with the offering or sale of the Shares and if at such
time any events shall have occurred as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary during such period to
amend or supplement the Prospectus or to file under the Exchange Act
any document incorporated by reference in the Prospectus in order to
comply with the Act or the Exchange Act, to notify you and upon your
request to file such document and to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter,
to prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder and under the International
Underwriting Agreement, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than shares issuable to the former stockholders of
Rottger & Osterberg Software-Technik GmbH ("R&O") as described in the
Prospectus, and pursuant to employee stock option and employee stock
purchase plans existing on, or upon the conversion or exchange of
options convertible or exchangeable securities outstanding as of, the
date of this Agreement), without prior written consent of Goldman,
Sachs & Co.;
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance
sheet and statements of income, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries certified by independent
public accountants);
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) promptly as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
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<PAGE> 11
securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished
to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement and the International
Underwriting Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds"; and
(i) To use its best efforts to list for quotation the Shares
on the National Association of Securities Dealers Automated Quotations
National Market System
("NASDAQ").
6. The Company and each of the Selling Stockholders, jointly and
severally, covenant and agree with one another and with the several Underwriters
that (a) the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants and counsel
for the Selling Stockholders, in connection with the registration of the Shares
under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the
International Underwriting Agreement, the Agreement between Syndicates, the
Selling Agreements, the Blue Sky Memorandum, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Shares; (iii) all expenses in connection with
the qualification of the Shares for offering and sale under state securities
laws as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky surveys; (iv) all fees and expenses in connection
with listing the Shares on the NASDAQ; (v) the filing fees incident to, and the
fees and disbursements of counsel for the Underwriters in connection with,
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock
certificates; (vii) the cost and charges of any transfer agent or registrar; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section; and (b) such Selling Stockholder will pay or cause to be paid all costs
and expenses incident to the performance of such Selling Stockholder's
obligations hereunder which are not otherwise specifically provided for in this
Section, including all expenses and taxes incident to the sale and delivery of
the Shares to be sold by such Selling Stockholder to the Underwriters hereunder.
In connection with Clause (b)(ii) of the preceding sentence, Goldman, Sachs &
Co. agrees to pay New York State stock transfer tax, and the Selling Stockholder
agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such
tax payment is not rebated on the day of payment and for any portion of such tax
payment not rebated. It is understood, however, that the Company shall bear, and
the Selling Stockholders shall not be required to pay or to reimburse the
Company for, the cost of any other matters not directly relating to the sale and
purchase of the Shares pursuant to this Agreement, and that, except as provided
in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to
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<PAGE> 12
be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Pillsbury Madison & Sutro LLP, counsel for the
Underwriters, shall have furnished to you such opinion or opinions,
dated such Time of Delivery, with respect to the matters covered in
paragraphs (i), (ii), (vii), (xi), (xiii) and (xiv) of subsection (c)
below as well as such other related matters as you may reasonably
request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon
such matters;
(c) Osborn Maledon, PA, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectus;
(ii) The Company has an authorized capitalization as
set forth or incorporated by reference in the Prospectus, and
all of the issued shares of capital stock of the Company
(including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and
are fully paid and non-assessable; and the Shares conform to
the description of the Stock contained or incorporated by
reference in the Prospectus;
(iii) The Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties or conducts any business so
as to require such qualification, or is subject to no material
liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact
upon certificates of officers of the Company, provided that
such counsel shall state that they believe that both you and
they are justified in relying upon such opinions and
certificates);
(iv) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation;
and all of the issued shares of capital stock of each such
subsidiary have been duly and validly authorized and issued,
are fully paid and non-assessable, and (except for directors'
qualifying shares and except as otherwise set forth in the
Prospectus) to the knowledge of such counsel are owned
directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims
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<PAGE> 13
(such counsel being entitled to rely in respect of the opinion
in this clause upon opinions of local counsel and in respect
of matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall
state that they believe that both you and they are justified
in relying upon such opinions and certificates);
(v) The Company and its subsidiaries have good and
marketable title in fee simple to all real property owned by
them, if any, in each case free and clear of all liens,
encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and
buildings by the Company and its subsidiaries (in giving the
opinion in this clause, such counsel may state that no
examination of record titles for the purpose of such opinion
has been made, and that they are relying upon a general review
of the titles of the Company and its subsidiaries, upon
opinions of local counsel and abstracts, reports and policies
of title companies rendered or issued at or subsequent to the
time of acquisition of such property by the Company or its
subsidiaries, upon opinions of counsel to the lessors of such
property and, in respect of matters of fact, upon certificates
of officers of the Company or its subsidiaries, provided that
such counsel shall state that they believe that both you and
they are justified in relying upon such opinions, abstracts,
reports, policies and certificates and such counsel may assume
that the laws of any jurisdiction other than Arizona
applicable to any such lease are identical to the laws of
Arizona);
(vi) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a
material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the
best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;
(vii) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being
delivered at such Time of Delivery to be sold by the Company
and the compliance by the Company with all of the provisions
of this Agreement and the International Underwriting Agreement
and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a material
breach or violation of any of the terms or provisions of, or
constitute a material default under, any indenture, mortgage,
deed of trust, loan agreement or other material agreement or
instrument known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is
subject, nor will such action result
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<PAGE> 14
in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any material
violation of any statute or any order, rule or regulation
known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(ix) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement and the
International Underwriting Agreement, except the registration
under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be
required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by
the Underwriters and the International Underwriters;
(x) Neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation or By-laws
or to such counsel's knowledge, in default in the performance
or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it or any of its properties
may be bound;
(xi) The statements contained or incorporated by
reference in the Prospectus under the caption "Description of
Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, are accurate, complete and
fair;
(xii) The Company is not an "investment company" or
an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act; and
(xiii) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made
by the Company prior to such Time of Delivery (other than the
financial statements, including the notes thereto, and other
financial and accounting data and schedules therein, as to
which such counsel need express no opinion), when they became
effective or were filed with the Commission, as the case may
be, complied as to form in all material respects with the
requirements of the Act or the Exchange Act, as applicable,
and the rules and regulations of the Commission thereunder;
and although they are not passing on, and do not assume any
responsibility for the accuracy, completeness or fairness of
the statements contained in such documents, except for those
referred to in the opinion in subsection (xi) of this Section
7(c), they have no reason to believe that any of such
documents, when such documents became effective or were so
filed, as the case may be, contained, in the case of a
registration statement which became effective under the Act,
an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading, or, in the case of
other documents which were filed under the Exchange Act with
the Commission, an untrue statement of a material fact or
omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made when such documents
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<PAGE> 15
were so filed, not misleading; and
(xiv) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the
financial statements and other financial and accounting data
and schedules therein, as to which such counsel need express
no opinion) comply as to form in all material respects with
the requirements of the Act and the rules and regulations
thereunder; although they are not passing on and do not assume
any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or
the Prospectus, except for those referred to in the opinion in
subsection (xi) of this Section 7(c), they have no reason to
believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and other financial and accounting data and
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or
that, as of its date, the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and other
financial, and accounting data and schedules therein, as to
which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and
other financial and accounting data and schedules therein, as
to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading; and they do not know of any amendment to the
Registration Statement required to be filed or of any
contracts or other documents of a character required to be
filed as an exhibit to the Registration Statement or required
to be incorporated by reference into the Prospectus or
required to be described in the Registration Statement or the
Prospectus which are not filed or incorporated by reference or
described as required.
(xv) The shares of Common Stock issued to the former
shareholders of R&O (the "R&O Shares") were issued in
compliance with Regulation S under the Securities Act of 1933,
as amended, and the appropriate legend required by Regulation
S was placed on certificates evidencing such shares of Common
Stock.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside the
United States and such counsel may rely on (i) an opinion or opinions
of other counsel retained by them or the Company as to the laws of any
jurisdiction other than the State of Arizona and the General
Corporation Law of the State of Delaware, provided that (A) each such
other counsel is reasonably acceptable to you, (B) such reliance and
reliance by you is expressly authorized by each opinion so relied upon
and (C) each such opinion is in form and substance reasonably
satisfactory to you and your counsel and (ii) as to matters of fact,
certificates of officers of the Company and of government officials and
the representations and warranties of the former shareholders of R&O to
the Company in connection with the issuance of the R&O
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<PAGE> 16
Shares. In each such case such counsel shall state that they are so
doing and that they believe that they and the Underwriters are
justified in relying on such opinions or certificates;
(d) The respective counsel for each of the Selling
Stockholders, as indicated in Schedule II hereto, each shall have
furnished to you their written opinion with respect to each of the
Selling Stockholders for whom they are acting as counsel, dated such
Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) A Power of Attorney and a Custody Agreement have
been duly executed and delivered by such Selling Stockholder
and constitute valid and binding agreements of such Selling
Stockholder in accordance with their terms;
(ii) This Agreement and the International
Underwriting Agreement have been duly executed and delivered
by or on behalf of such Selling Stockholder; and the sale of
the Shares to be sold by such Selling Stockholder hereunder
and thereunder and the compliance by such Selling Stockholder
with all of the provisions of this Agreement and the
International Underwriting Agreement, the Power of Attorney
and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict
with or result in a material breach or violation of any terms
or provisions of, or constitute a material default under, any
statute, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to which
such Selling Stockholder is a party or by which such Selling
Stockholder is bound, or to which any of the property or
assets of such Selling Stockholder is subject, nor will such
action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of such Selling
Stockholder if such Selling Stockholder is a corporation, the
Partnership Agreement of such Selling Stockholder if such
Selling Stockholder is a partnership or any material violation
of any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over
such Selling Stockholder or the property of such Selling
Stockholder;
(iii) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation of the transactions contemplated by this
Agreement and the International Underwriting Agreement in
connection with the Shares to be sold by such Selling
Stockholder hereunder or thereunder, except such as are in
full force and effect, such as have been obtained under the
Act and such as may be required under state or foreign
securities or Blue Sky laws in connection with the purchase
and distribution of such Shares by the Underwriters or the
International Underwriters;
(iv) Immediately prior to such Time of Delivery such
Selling Stockholder had good and valid title to the Shares to
be sold at such Time of Delivery by such Selling Stockholder
under this Agreement and the International Underwriting
Agreement, free and clear of all liens, encumbrances, equities
or claims known to such counsel, and full right, power and
authority to sell, assign, transfer and deliver the Shares to
be sold by such Selling Stockholder hereunder and thereunder;
and
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<PAGE> 17
(v) Good and valid title to such Shares, free and
clear of all liens, encumbrances, equities or claims known to
such counsel, has been transferred to each of the several
Underwriters or International Underwriters, as the case may
be, who have purchased such Shares in good faith and without
notice of any such lien, encumbrance, equity or claim or any
other adverse claim within the meaning of the Uniform
Commercial Code.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside the
United States and such counsel may rely on (i) an opinion or opinions
of other counsel retained by them or by a Selling Stockholder as to the
law of any jurisdiction other than the State of Arizona and the General
Corporation Law of the State of Delaware, or as to other matters
covered by such opinions, provided that (A) each such other counsel is
reasonably acceptable to you, (B) such reliance and reliance by you is
expressly authorized by each opinion so relied upon and (C) each such
opinion is in form and substance reasonably satisfactory to you and
your counsel and (ii) as to matters of fact, certificates of the
Selling Stockholders and of government officials. In each such case
such counsel shall state that they are so doing and that they believe
that they and the Underwriters are justified in relying upon such
opinions or certificates.
(e) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., San Francisco time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, Arthur Andersen LLP shall have furnished to you
a letter or letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, to the effect set forth in
Annex I hereto;
(f)(i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus
there shall not have been any change in the capital stock of the
Company (other than upon exercise of options disclosed in the
Prospectus) or long-term debt of the Company or any of its subsidiaries
or any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause
(i) or (ii), is in the judgment of the Representatives so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities, if any,
by any "nationally recognized statistical rating organization", as that
term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act, and (ii) no such organization shall have publicly announced
that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities, if
any;
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<PAGE> 18
(h) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange or on
NASDAQ; (ii) a suspension or material limitation in trading in the
Company's securities on NASDAQ; (iii) a general moratorium on
commercial banking activities declared by either Federal or New York or
California State authorities; or (iv) the outbreak or escalation of
hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such
event specified in this Clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in
the Prospectus;
(i) The Shares to be sold by the Company and the Selling
Stockholders at such Time of Delivery shall have been duly listed for
quotation on NASDAQ; and
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each officer and director of the
Company to the effect set forth in Subsection 1(b)(iv) hereof in form
and substance satisfactory to you; and
(k) The Company and the Selling Stockholders shall have
furnished or caused to be furnished to you at such Time of Delivery
certificates of officers of the Company and of the Selling
Stockholders, respectively, satisfactory to you as to the accuracy in
all material respects of the representations and warranties of the
Company and the Selling Stockholders, respectively, herein at and as of
such Time of Delivery, as to the performance in all material respects
by the Company and the Selling Stockholders, respectively, of all of
their respective obligations hereunder to be performed at or prior to
such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to
be furnished certificates as to the matters set forth in subsections
(a) and (f) of this Section, and as to such other matters as you may
reasonably request.
8.(a) The Company and each of the Inside Selling Stockholders, jointly
and severally, will indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact or a breach of the representations and warranties of the Company
or Inside Selling Stockholders contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company and the Inside
Selling Stockholders shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein; and provided further, however, that an Inside
Selling Stockholder's liability pursuant to this Section 8(a) shall be limited
to such Inside Selling Stockholder's net proceeds received (after deducting
Underwriters' commissions and discounts) from the sale of the Shares being sold
by such Inside Selling Stockholder.
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<PAGE> 19
(b) Each Selling Stockholder who is not an Inside Selling Stockholder
(the "Outside Selling Stockholders"), severally and not jointly, will indemnify
and hold harmless each Underwriter, to the same extent as the foregoing
indemnity from the Company and the Inside Selling Stockholders to each
Underwriter, but only insofar as losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance on and in conformity with information relating to such Selling
Stockholder furnished in writing to the Company by or on behalf of such Selling
Stockholder specifically for use in the preparation of the documents referred to
in the foregoing indemnity or (ii) a breach of any representation and warranty
of such Outside Selling Stockholder in any of the documents referred to in the
foregoing indemnity. Notwithstanding anything to the contrary contained in this
Section 8, the liability of each Outside Selling Stockholder to the Underwriters
shall not exceed an amount equal to the net proceeds received (after deducting
Underwriters' commissions and discounts) from the sale of the Shares being sold
by such Selling Stockholder. The Company and the Outside Selling Stockholders
may otherwise agree, as among themselves and without limiting the rights of the
Underwriters under this Agreement, as to respective amounts of such liability
for which they each shall be responsible. Each of the Underwriters acknowledges
that the statements set forth under the heading "Selling Stockholders" in any
Preliminary Prospectus and the Prospectus constitute the only information
relating to any Outside Selling Stockholder furnished in writing to the Company
by such Outside Selling Stockholder expressly for inclusion in the Registration
Statement, the Prospectus or Preliminary Prospectus.
(c) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (which shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
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<PAGE> 20
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (after deducting Underwriters' commissions and discounts
and before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased under this Agreement,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Stockholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, each
of the Selling Stockholders and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (e) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission and no Selling Stockholder shall be required to contribute in excess of
the amount of the net proceeds received (after deducting Underwriters' discounts
and commissions) by such Selling Stockholder from the sale of Shares being sold
by such Selling Stockholder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint. The Selling Stockholders' obligations in this
subsection (e) to contribute are several in proportion to their net proceeds
received hereunder (after deducting Underwriters' commissions and discounts).
(f) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may
-20-
<PAGE> 21
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the meaning of the Act;
provided, that the Underwriters hereby agree that any such liability which each
Selling Stockholder may otherwise have to the Underwriters and such persons
shall not exceed an amount equal to the net proceeds received (after deducting
Underwriters' commissions and discounts) by such Selling Stockholder from the
sale of Shares being sold by such Selling Stockholder and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and any Selling Stockholder and to
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of the Act.
9.(a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all of the Shares to be purchased at such Time of
Delivery, then the Company and the Selling Stockholders shall have the right to
require each non-defaulting Underwriter to purchase the number of Shares which
such Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company and the Selling Stockholders to sell
the Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
-21-
<PAGE> 22
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
Anything herein to the contrary notwithstanding, the indemnity
agreement of the Company in subsection (a) of Section 8 hereof, the
representations and warranties in subsections (a)(ii), (a)(iii) and (a)(iv) of
Section 1 hereof and any representation or warranty as to the accuracy of the
Registration Statement or the Prospectus contained in any certificate furnished
by the Company pursuant to Section 7 hereof, insofar as they may constitute a
basis for indemnification for liabilities (other than payment by the Company of
expenses incurred or paid in the successful defense of any action, suit or
proceeding) arising under the Act, shall not extend to the extent of any
interest therein of a controlling person or partner of an Underwriter who is a
director, officer or controlling person of the Company when the Registration
Statement has become effective or who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company, except in
each case to the extent that an interest of such character shall have been
determined by a court of appropriate jurisdiction as not against public policy
as expressed in the Act. Unless in the opinion of counsel for the Company the
matter has been settled by controlling precedent, the Company will, if a claim
for such indemnification is asserted, submit to a court of appropriate
jurisdiction the question of whether such interest is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company and each of
the Selling Stockholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Stockholder hereunder) will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Stockholders shall then
be under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(d) hereof
-22-
<PAGE> 23
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and any Selling Stockholder and each person who controls the
Company, any Selling Stockholder or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and for each of the Representatives plus
one for each counsel and the Custodian, if any counterparts hereof, and upon the
acceptance hereof by you, on behalf of each of the Underwriters, this letter and
such acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and each of the Selling Stockholders. It is understood
that your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in a form of Agreement among Underwriters
(U.S. Version), the form of which shall be submitted to the Company and the
Selling Stockholders for examination upon request, but without warranty on your
part as to the authority of the signers thereof.
-23-
<PAGE> 24
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
VIASOFT, INC.
By ________________________________
Steven D. Whiteman
President
[Names of Selling Stockholders]
By ________________________________
Name:
Title:
As Attorney-in-Fact acting on
behalf of each of the Selling
Stockholders named in Schedule II
to this Agreement.
Accepted as of the date hereof
By: _______________________________
(Goldman, Sachs & Co.)
ON BEHALF OF EACH OF THE UNDERWRITERS
-24-
<PAGE> 25
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
<S> <C> <C>
Goldman, Sachs & Co________________________
Wessels, Arnold & Henderson, L.L.C.________
SoundView Financial Group, Inc.____________
Volpe Brown Whelan & Company, LLC
[Names of other Underwriters]______________
Total____________________________
</TABLE>
-25-
<PAGE> 26
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Sold if
Firm Shares Maximum Option
to be Sold Exercised
<S> <C> <C>
The Company........................................
The Selling Stockholder(s):........................
[Name of Selling Stockholder](a)...........
[Name of Selling Stockholder](a)...........
[Name of Selling Stockholder](a)...........
[Name of Selling Stockholder](a)...........
[Name of Selling Stockholder](a)...........
Total......................................
</TABLE>
(a) This Selling Stockholder is represented by [Osborn Maledon] and has
appointed Steven D. Whiteman, Michael A. Wolf, Mark A. Schonau and Catherine R.
Hardwick, and each of them, as the Attorneys-in-Fact for such Selling
Stockholder.
-26-
<PAGE> 27
SCHEDULE III
INSIDE SELLING STOCKHOLDERS
-27-
<PAGE> 28
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters and the Company to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included or incorporated by reference in the Registration
Statement or the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act or the Exchange
Act, as applicable, and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified
Public Accountants of the consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have
been separately furnished to the representatives of the Underwriters
(the "Representatives") and are attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included in the Company's Quarterly
Report on Form 10-Q incorporated by reference into the Prospectus as
indicated in their reports thereon copies of which are attached hereto;
and on the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and
accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i)
below comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Exchange
Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus and included or incorporated by reference in Item 6 of the
Company's Annual Report on Form 10-K for the most recent fiscal year
agrees with the corresponding amounts (after restatement where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information included or
incorporated by reference in the Prospectus under selected captions
with the disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
-28-
<PAGE> 29
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, inquiries of officials of
the Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused
them to believe that:
(a)i) the unaudited condensed consolidated statements
of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus and/or
included or incorporated by reference in the Company's
Quarterly Reports on Form 10-Q incorporated by reference in
the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
Exchange Act and the related published rules and regulations,
or ii) any material modifications should be made to the
unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus or included in the
Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus, for them to be in conformity with
generally accepted accounting principles;
(b) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included or incorporated by reference in
the Company's Annual Report on Form 10-K for the most recent
fiscal year;
(c) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited financial statements included or
incorporated by reference in the Company's Annual Report on
Form 10-K for the most recent fiscal year;
(d) any unaudited pro forma consolidated condensed
financial statements included or incorporated by reference in
the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(e) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the consolidated capital stock (other than issuances of
capital stock upon exercise of options and stock appreciation
rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest balance sheet included
or incorporated by reference in the Prospectus) or any
increase in the consolidated long-term debt of the Company and
its subsidiaries, or any
-29-
<PAGE> 30
decreases in consolidated net current assets or stockholders'
equity or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in
each case as compared with amounts shown in the latest balance
sheet included or incorporated by reference in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(f) for the period from the date of the latest
financial statements included or incorporated by reference in
the Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with the
comparable period of the preceding year and with any other
period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included or incorporated by reference in the Prospectus and
the limited procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (vi) above, they have
carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Representatives which are derived from the general
accounting records of the Company and its subsidiaries, which appear in
the Prospectus (excluding documents incorporated by reference) or in
Part II of, or in exhibits and schedules to, the Registration Statement
specified by the Representatives or in documents incorporated by
reference in the Prospectus specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and
have found them to be in agreement.
-30-
<PAGE> 1
EXHIBIT 5
______________, 1997
VIASOFT, INC.
3033 North 44th Street
Suite 101
Phoenix, Arizona 85018
Re: VIASOFT, Inc.
Form S-3 Registration Statement, No. ______________
Ladies and Gentlemen:
We have acted as counsel to VIASOFT, Inc., a Delaware corporation (the
"Company"), in connection with its Registration Statement on Form S-3, No.
__________, under the Securities Act of 1933 (the "Registration Statement"),
relating to the registration of 1,495,000 shares of its Common Stock, $.001 par
value (the "Shares"). In connection with this representation, we have examined
such documents, corporate records and other instruments as we have deemed
necessary or appropriate for purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when
issued by the Company, will be duly and validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement.
Very truly yours,
OSBORN MALEDON, P.A.
By: _______________________________
William M. Hardin
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated July 29, 1997, included in or made a part of this registration
statement, and to the incorporation by reference in this registration statement
of our report dated August 1, 1996 (except with respect to the stock split
discussed in Note 1 and the agreement with Tadiran Information Systems Ltd.
discussed in Note 8 as to which the date is August 30, 1996) included in
VIASOFT, Inc.'s Form 10-K for the year ended June 30, 1996 and our report dated
December 5, 1996 on the consolidated financial statements of Rottger & Osterberg
Software-Technik GmbH and Subsidiaries for the years ended December 31, 1994 and
1995, and the nine months ended September 30, 1996, included in VIASOFT, Inc.'s
Current Report on Form 8-K/A dated February 12, 1997, and to all references to
our firm included in this registration statement.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
August 14, 1997.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven D. Whiteman, Mark R. Schonau and
Catherine R. Hardwick, and each of them individually, his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to (1) sign
a Registration Statement on Form S-3, under the Securities Act of 1933, as
amended (the "Securities Act"), which VIASOFT, Inc., a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") on or before September 30, 1997 in connection with a secondary
public offering of up to 2,000,000 shares of common stock of the Company on
behalf of the Company and certain selling shareholders ("Common Stock") and to
file the same with the Commission; (2) to sign and file any and all amendments
thereto; (3) to sign and file any and all registration statements and amendments
thereto for the same offering that is to be effective upon a filing pursuant to
Rule 462(b) under the Securities Act; (4) effect the registration or
qualification of the Common Stock for offer and sale under the securities or
Blue Sky laws of any of the states of the United States of America, and to
effect the registration of the Company as a dealer or broker in any such state
or states wherein such registration is required or advisable for the purpose of
offering or selling therein the Common Stock, and to execute and file such
irrevocable written consents on the part of the undersigned to be used in such
state or states as may be requisite under the securities laws thereof in
connection with said registration or qualification of the Common Stock or in
connection with said registration of the Company as a dealer or broker, and to
appoint the appropriate state official agent of the undersigned for the purpose
of receiving and accepting process; and (5) effect the listing of additional
shares of the Common Stock on the Nasdaq National Market; granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her other
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
This Power of Authority and all authority conferred hereby shall
terminate on December 31, 1997 unless revoked in writing prior to such date.
IN WITNESS WHEREOF, the undersigned has subscribed these presents in
the capacities indicated on the date set forth opposite his signature.
/s/ John J. Barry III
-----------------------------------
John J. Barry III
-----------------------------------
Print Name
Witnessed: /s/ Catherine R. Hardwick
Catherine R. Hardwick
-----------------------------------
Print Name
<PAGE> 2
STATE OF Arizona )
) ss.
County of Maricopa )
On this, the 17th day of July, 1997, before me, the undersigned Notary
Public, personally appeared John J. Barry III, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposed therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Valada E. Bolster
------------------------------------
Notary Public
My Commission Expires:
December 3, 1998
- ----------------------
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven D. Whiteman, Mark R. Schonau and
Catherine R. Hardwick, and each of them individually, his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to (1) sign
a Registration Statement on Form S-3, under the Securities Act of 1933, as
amended (the "Securities Act"), which VIASOFT, Inc., a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") on or before September 30, 1997 in connection with a secondary
public offering of up to 2,000,000 shares of common stock of the Company on
behalf of the Company and certain selling shareholders ("Common Stock") and to
file the same with the Commission; (2) to sign and file any and all amendments
thereto; (3) to sign and file any and all registration statements and amendments
thereto for the same offering that is to be effective upon a filing pursuant to
Rule 462(b) under the Securities Act; (4) effect the registration or
qualification of the Common Stock for offer and sale under the securities or
Blue Sky laws of any of the states of the United States of America, and to
effect the registration of the Company as a dealer or broker in any such state
or states wherein such registration is required or advisable for the purpose of
offering or selling therein the Common Stock, and to execute and file such
irrevocable written consents on the part of the undersigned to be used in such
state or states as may be requisite under the securities laws thereof in
connection with said registration or qualification of the Common Stock or in
connection with said registration of the Company as a dealer or broker, and to
appoint the appropriate state official agent of the undersigned for the purpose
of receiving and accepting process; and (5) effect the listing of additional
shares of the Common Stock on the Nasdaq National Market; granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her other
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
This Power of Authority and all authority conferred hereby shall
terminate on December 31, 1997 unless revoked in writing prior to such date.
IN WITNESS WHEREOF, the undersigned has subscribed these presents in
the capacities indicated on the date set forth opposite his signature.
/s/ Alexander S. Kuli
-----------------------------------
Alexander S. Kuli
-----------------------------------
Print Name
Witnessed: /s/ Catherine R. Hardwick
-----------------------------------
Catherine R. Hardwick
-----------------------------------
Print Name
<PAGE> 4
STATE OF Arizona )
) ss.
County of Maricopa )
On this, the 17th day of July, 1997, before me, the undersigned Notary
Public, personally appeared Alexander S. Kuli, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposed therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Valada E. Bolster
-----------------------------------
Notary Public
My Commission Expires:
December 3, 1998
- ----------------------
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven D. Whiteman, Mark R. Schonau and
Catherine R. Hardwick, and each of them individually, his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to (1) sign
a Registration Statement on Form S-3, under the Securities Act of 1933, as
amended (the "Securities Act"), which VIASOFT, Inc., a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") on or before September 30, 1997 in connection with a secondary
public offering of up to 2,000,000 shares of common stock of the Company on
behalf of the Company and certain selling shareholders ("Common Stock") and to
file the same with the Commission; (2) to sign and file any and all amendments
thereto; (3) to sign and file any and all registration statements and amendments
thereto for the same offering that is to be effective upon a filing pursuant to
Rule 462(b) under the Securities Act; (4) effect the registration or
qualification of the Common Stock for offer and sale under the securities or
Blue Sky laws of any of the states of the United States of America, and to
effect the registration of the Company as a dealer or broker in any such state
or states wherein such registration is required or advisable for the purpose of
offering or selling therein the Common Stock, and to execute and file such
irrevocable written consents on the part of the undersigned to be used in such
state or states as may be requisite under the securities laws thereof in
connection with said registration or qualification of the Common Stock or in
connection with said registration of the Company as a dealer or broker, and to
appoint the appropriate state official agent of the undersigned for the purpose
of receiving and accepting process; and (5) effect the listing of additional
shares of the Common Stock on the Nasdaq National Market; granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her other
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
This Power of Authority and all authority conferred hereby shall
terminate on December 31, 1997 unless revoked in writing prior to such date.
IN WITNESS WHEREOF, the undersigned has subscribed these presents in
the capacities indicated on the date set forth opposite his signature.
/s/ J. David Parrish
-----------------------------------
J. David Parrish
-----------------------------------
Print Name
Witnessed: /s/ Catherine R. Hardwick
-----------------------------------
Catherine R. Hardwick
-----------------------------------
Print Name
<PAGE> 6
STATE OF Arizona )
) ss.
County of Maricopa )
On this, the 17th day of July, 1997, before me, the
undersigned Notary Public, personally appeared J. David
Parrish, known to me to be the person whose name is subscribed
to the within instrument and acknowledged that he executed the same for the
purposed therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Valada E. Bolster
-----------------------------------
Notary Public
My Commission Expires:
December 3, 1998
- ----------------------
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<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1997
<PERIOD-START> JUL-01-1995 JUL-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 5,009 8,501
<SECURITIES> 23,795 12,697
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<ALLOWANCES> 279 678
<INVENTORY> 0 0
<CURRENT-ASSETS> 43,269 45,392
<PP&E> 4,861 8,054
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0 0
0 0
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<TOTAL-LIABILITY-AND-EQUITY> 46,591 64,601
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<CGS> 10,813 22,661
<TOTAL-COSTS> 36,754 95,404
<OTHER-EXPENSES> 82 546
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,339) (1,264)
<INCOME-PRETAX> 8,060 (9,374)
<INCOME-TAX> 1,843 6,062
<INCOME-CONTINUING> 6,217 (15,436)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,217 (15,436)
<EPS-PRIMARY> 0.36 (0.90)
<EPS-DILUTED> 0.36 (0.90)
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