<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
---------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
COMMISSION FILE NUMBER 0-25472
VIASOFT, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2892506
(State or other jurisdiction ) (I.R.S. Employer
of incorporation or organization Identification No.)
3033 NORTH 44TH STREET, PHOENIX, ARIZONA 85018 (Address
of principal executive offices) (Zip Code)
(602) 952-0050
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of January 31, 1998, there were 19,363,189 outstanding shares of Common
Stock, par value $.001 per share, of Viasoft, Inc.
<PAGE> 2
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997
and June 30, 1997 3
Consolidated Statements of Operations for the
three and six months ended December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the three and six
months ended December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE> 3
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
( in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
--------- --------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,690 $ 8,501
Investments, at amortized cost 74,571 12,697
Accounts receivable (less allowance for doubtful accounts
of $618 and $678, respectively) 29,836 21,240
Prepaid expenses and other 3,756 2,954
--------- --------
Total current assets 138,853 45,392
--------- --------
Furniture and equipment:
Computer equipment 5,753 4,789
Office furniture and equipment 3,730 2,986
Software 672 --
Capitalized leased equipment 379 279
--------- --------
Furniture and equipment: 10,534 8,054
Less: Accumulated depreciation (4,582) (3,775)
--------- --------
Furniture and equipment, net 5,952 4,279
--------- --------
Other assets:
Investments, at amortized cost 2,522 7,377
Intangible assets, net 4,704 4,675
Other 2,248 2,878
--------- --------
Total other assets 9,474 14,930
--------- --------
Total assets $ 154,279 $ 64,601
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,926 $ 2,016
Accrued compensation 3,327 3,309
Accrued income taxes payable 3,932 3,276
Other accrued expenses 8,746 8,709
Deferred revenue 18,613 18,227
--------- --------
Total current liabilities 36,544 35,537
--------- --------
Deferred revenue, recognized after one year 194 230
--------- --------
Other long term liabilities 162 138
--------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.001 par value, 48,000,000 shares authorized,
19,357,650 and 17,722,772 shares issued and outstanding at
December 31, 1997 and June 30, 1997, respectively 19 18
Capital in excess of par value 123,718 43,970
Common stock subscriptions receivable (31) (55)
Accumulated deficit (6,129) (14,930)
Cumulative translation adjustment (198) (307)
--------- --------
Total stockholders' equity 117,379 28,696
--------- --------
Total liabilities and stockholders' equity $ 154,279 $ 64,601
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 4
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 16,690 $ 8,381 $ 30,208 $ 13,095
Maintenance fees 7,103 4,853 13,987 8,900
Professional services fees 4,343 6,498 9,962 11,675
Other 38 51 79 89
-------- -------- -------- --------
Total revenues 28,174 19,783 54,236 33,759
-------- -------- -------- --------
Operating expenses:
Cost of software license and
maintenance fees 2,746 953 4,522 1,577
Cost of professional services fees 4,327 4,549 9,092 8,470
Sales and marketing 9,866 7,152 19,187 12,320
Research and development 3,285 1,725 6,103 2,852
Write off of in-process research and development -- 26,958 -- 26,958
General and administrative 1,864 1,505 3,902 2,620
-------- -------- -------- --------
Total operating expenses 22,088 42,842 42,806 54,797
-------- -------- -------- --------
Income (loss) from operations 6,086 (23,059) 11,430 (21,038)
-------- -------- -------- --------
Other income (expense):
Interest income 1,530 344 2,051 730
Interest expense (1) (52) (1) (53)
Other income (expense), net 42 (11) (80) (7)
-------- -------- -------- --------
Total other income (expense) 1,571 281 1,970 670
-------- -------- -------- --------
Income (loss) before income taxes 7,657 (22,778) 13,400 (20,368)
Provision for income taxes 2,622 1,406 4,599 2,260
-------- -------- -------- --------
Net income (loss) $ 5,035 ($24,184) $ 8,801 ($22,628)
======== ======== ======== ========
Basic earnings (loss) per common share $ 0.26 ($ 1.42) $ 0.47 ($ 1.34)
======== ======== ======== ========
Weighted average number of common
shares outstanding 19,342 17,045 18,632 16,938
======== ======== ======== ========
Diluted earnings (loss) per common and
common share equivalent $ 0.25 ($ 1.42) $ 0.45 ($ 1.34)
======== ======== ======== ========
Weighted average number of common and
common share equivalents outstanding 20,005 17,045 19,370 16,938
======== ======== ======== ========
</TABLE>
4
<PAGE> 5
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
( in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 8,801 ($22,628)
-------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Write off purchased in-process research and development (Note 2) -- 26,958
Depreciation and amortization 1,582 544
Loss on disposal of fixed assets -- 51
Changes in operating assets and liabilities, net of effect of business acquired
(Note 2):
Increase in accounts receivable (8,596) (7,562)
Increase in prepaid expenses and other (1,325) (1,654)
Decrease in other assets 679 --
Increase in accrued income taxes 3,353 973
Decrease in accounts payable and other accrued expenses (29) (1,736)
Decrease in accrued compensation 18 712
Decrease in deferred revenue 350 7,882
-------- --------
Total adjustments (3,968) 26,168
-------- --------
Net cash provided by operating activities 4,833 3,540
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (2,705) (763)
Cash paid for acquisition of customer list (530) --
Cash paid for business, net of cash acquired (Note 2) -- (10,225)
Purchase of investments (67,651) (15,170)
Investment maturities 11,057 29,948
-------- --------
Net cash provided by (used in) investing activities (59,829) 3,790
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 77,799 830
Payments of short term debt (Note 2) -- (4,099)
Payments for offering costs (747) --
Payments received on common stock subscriptions receivable 24 5
Principal payments under equipment lease obligations -- (12)
-------- --------
Net cash provided by (used in) financing activities 77,076 (3,276)
-------- --------
Effect of exchange rate changes on cash 109 11
-------- --------
Net increase in cash and cash equivalents 22,189 4,065
Cash and cash equivalents, beginning period 8,501 5,009
-------- --------
Cash and cash equivalents, end of period $ 30,690 $ 9,074
======== ========
Supplemental cash flow information:
Interest paid $ -- $ 3
Income taxes paid 1,245 1,342
Disqualifying dispositions 2,696 --
</TABLE>
5
<PAGE> 6
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Viasoft, Inc.
and its wholly-owned subsidiaries (the "Company") after elimination of all
significant intercompany balances and transactions. The accompanying unaudited
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
("GAAP") for complete financial statements. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the results for the interim periods presented have been
made. The results for the three or six month periods ended December 31, 1997 may
not necessarily be indicative of the results for the entire year. These
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended June 30, 1997.
Earnings per Common Share and Common Share Equivalent
In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which supersedes Accounting Principles Board Opinion
No. 15, the existing authoritative guidance. SFAS No. 128 is effective for
financial statements for periods ending after December 15, 1997 and 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 earnings
per share calculations for the three and six months ended December 31, 1997 and
1996, respectively, assume the Company had adopted SFAS No. 128 on July 1, 1995.
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.
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 developed, marketed and supported repository software tools through its
Rochade product line, together with related repository-based services and
solutions. R&O was founded in 1976, was headquartered in Munich, Germany and had
operations in Europe and the United States.
6
<PAGE> 7
The aggregate cost of the R&O acquisition consisted of the following (in
thousands):
<TABLE>
<S> <C>
Cash $10,800
Common stock 12,805
Assumption of liabilities and acquisition costs 13,200
Contingent consideration 2,000
-------
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. Additional consideration of $2.0 million was paid to the former
stockholders of R&O in February 1997 for meeting certain financial performance
criteria.
The acquisition was 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. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations." 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.
The following pro forma combined condensed statements of operations for the six
months ended December 31, 1996 give effect to the R&O acquisition as if it had
been consummated as of the beginning of the period:
7
<PAGE> 8
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996
-----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
Total revenues $39,712
Income before income taxes 6,249
Net income 4,110
Earnings per share $ 0.23
</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 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 date indicated, nor does it purport to project the
results of operations of the Company for the current year or for any future
period.
3. SUBSEQUENT EVENTS
On January 12, 1998, the Company acquired all of the outstanding shares of
capital stock of EraSoft Technologies, Inc. ("EraSoft") for cash and certain
contingent payments pursuant to a stock purchase agreement with the stockholders
of EraSoft. EraSoft developed, marketed and supported year 2000 assessment and
analysis software tools for desktop computing. EraSoft was founded in 1996 and
was headquartered in Calgary, Alberta, Canada.
The aggregate cost of the EraSoft acquisition consisted of the following (in
thousands):
<TABLE>
<S> <C>
Cash $7,795
Assumption of liabilities and acquisition costs 1,926
Additional consideration due 246
------
Total $9,967
======
</TABLE>
The terms of the agreement with EraSoft provide for additional consideration to
be paid if the revenue from licenses of EraSoft's products exceed certain
targeted levels between the date of the acquisition and June 30, 2000. In
addition, the former shareholders will also receive additional consideration
based on revenue from EraSoft products licensed during the period from the
acquisition date to June 30, 2000. Additional consideration will be paid in cash
and recorded as an adjustment to cost in excess of net assets acquired when
earned.
The acquisition was 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 $7.2 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
8
<PAGE> 9
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 will be charged to
expense by the Company in its quarter ended March 31, 1998. The Company
estimates that it will need to spend an additional $1.5 million on product
integration to bring the in-process software products to commercial
availability. The Company allocated the aggregate cost of the acquisition as
follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable $ 381
Other assets 540
In-process research and development 7,240
Purchased research and development 1,280
Other intangible assets 526
------
$9,967
======
</TABLE>
Other intangible assets consist of assembled workforce ($230,000) and cost in
excess of net assets acquired ($296,000). The assembled workforce and cost in
excess of net assets acquired are being amortized on a straight-line basis over
seven and five year periods, respectively.
As part of the Company's strategy to enter into the desktop arena, the Company
entered into license agreements in January 1998 with two software companies for
the rights to distribute additional desktop software tools. The Company made or
will make payments to these companies for development of the software tools in
accordance with the Company's requirements as set out in the agreements.
Payments will be made based on the effective date of the agreement and delivery
and acceptance of the different versions of the products, all of which are
anticipated to occur during the Company's fiscal third quarter ended March 31,
1998. The Company will expense these payments, approximately $2.1 million, as
research and development during the quarter ended March 31, 1998, the period in
which the expense will be incurred. In addition, the Company will pay royalties
to each software vendor based upon sales activity as set out in the agreements.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
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 Global 5000 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-sized organizations. The Company's products and services are marketed
through its United States sales force, both domestically and in Canada, 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 developed, marketed and supported 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 quarter ended December 31, 1996.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
REVENUES
Total revenues were $28,174,000 for the three months ended December 31, 1997, an
increase of 42.4% from $19,783,000 for the three months ended December 31, 1996.
Software license fees were $16,690,000 for the three months ended December 31,
1997, an increase of 99.1% from $8,381,000 for the three months ended December
31, 1996. Software license fees increased both domestically and internationally
as a result of the continued demand for the Company's tools to
10
<PAGE> 11
assist in addressing the year 2000 century date change problem as well as the
sale of the Rochade product line.
Maintenance fees were $7,103,000 in the three months ended December 31, 1997, an
increase of 46.4% from $4,853,000 in the three months ended December 31, 1996.
The increase was due in part to the R&O acquisition, with the remainder
attributable to new software licenses, customer system upgrades and increases in
the fees charged for annual maintenance.
Professional services fees were $4,343,000 for the three months ended December
31, 1997, a decrease of 33.2% from $6,498,000 for the three months ended
December 31, 1996. 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.
In November 1997, the Company introduced ChangeWorks, a solution designed to
assist customers in establishing an in-house "factory" for year 2000 conversion.
The Company continues to develop and implement additional enablement services,
which are services that assist customers in utilizing Viasoft products. This new
focus of the professional services business is consistent with the Company's
emphasis on reducing the labor resources required to drive license revenue.
However, the Company may see near-term decreases in professional services
revenues during the transition to enablement services as resources are devoted
to develop, train for and otherwise implement these new initiatives. In
addition, the Company re-evaluated a fixed-price services engagement in the
fourth quarter of fiscal 1997 and determined that the level of effort to
complete the engagement was more than originally estimated, requiring an
adjustment in the amount of revenue recognized for that contract resulting in a
decrease in monthly revenues. The Company continues to monitor the progress on
this contract. Management believes this project will be completed by the end of
the fiscal year. Compared to fiscal 1997, professional services fees in fiscal
1998 may continue to be affected by a decrease in the revenue being recognized
from this contract over the remaining term of the project as well as the
transition to enablement services.
OPERATING EXPENSES
Cost of software license and maintenance fees, which includes royalties, cost of
customer support and packaging and product documentation, was $2,746,000 for the
three months ended December 31, 1997, an increase of 188.1% from $953,000 during
the three months ended December 31, 1996. Gross margins on software license and
maintenance fees decreased to 88.5% compared to 92.8% for the three months ended
December 31, 1997 and 1996, respectively. The expense increase and margin
decrease are primarily due to additional royalty expenses related to licensing
of third-party software, as well as additional personnel and their related
costs, increased salaries and outside consultants in the customer support area,
and amortization of the purchased research and development from the R&O
acquisition. Management anticipates that this trend will continue as the
Company sells additional products requiring royalties to third parties.
11
<PAGE> 12
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 $4,327,000 for the three months ended
December 31, 1997, a decrease of 4.9% from $4,529,000 for the three months ended
December 31, 1996. The decrease in expenses is primarily a result of lower
subcontractor costs and bonuses in line with the decrease in revenues. The
overall gross margin on professional services fees for the three months ended
December 31, 1997 was 0.4% compared to 30.0% for the three months ended December
31, 1996. The decrease in margins is a result of several factors. The
introduction of FastPath 2000 and ChangeWorks required significant training of
consultants and salespersons, as well as changes in the skill set of the
consultants required for enablement-type projects. As a result, this transition
continued through the second quarter. An additional factor was the decrease in
revenue recognized from the fixed-price contract discussed above, while the
costs of performing the services continued. Finally, the addition of the R&O
professional services business has also contributed to a decrease in the overall
services margin for the Company as it is a lower margin service business, in
general.
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 $9,866,000 for the three
months ended December 31, 1997, an increase of 37.9% from $7,152,000 for the
three months ended December 31, 1996. This increase is attributable primarily to
an increase in personnel, including the R&O personnel, and the associated costs
of higher salaries, increased marketing and promotion costs, travel and bonuses,
and increased commissions as a result of revenue growth. Sales and marketing
expenses as a percentage of total revenues declined to 35.0% the three months
ended December 31, 1997, compared to 36.2% the three months ended December 31,
1996, due primarily to the increase in revenues.
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 $3,285,000 for the three months ended December 31, 1997, an increase of
90.0% from $1,725,000, excluding an approximate $27.0 million charge for
in-process research and development in connection with the R&O acquisition, for
the three months ended December 31, 1996. The increase in expenses is primarily
for additional personnel and the associated costs, including R&O's research and
development staff, as well as general salary increases, and the cost of
recruiting qualified personnel and external consultants. As a percentage of
total revenues, research and development costs were 11.7% for the three months
ended December 31, 1997 compared to 8.7% for the same period in fiscal 1996. The
increase in research and development cost as a percentage of revenue is
primarily due to the increase in personnel, including R&O personnel, and the
cost of recruiting qualified development professionals.
12
<PAGE> 13
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 $1,864,000
for the three months ended December 31, 1997, representing an increase of 23.9%
compared to $1,505,000 for the three months ended December 31, 1996. This
increase is a result of additional administrative personnel, including R&O
personnel, and their related costs, general salary increases, and amortization
of intangibles related to the R&O acquisition. As a percentage of total
revenues, general and administrative expenses decreased to 6.6% for the three
months ended December 31, 1997 compared to 7.6% for the three months ended
December 31, 1996 primarily as a result of the increase in revenues.
OTHER INCOME (EXPENSE)
Interest income in the three months ended December 31, 1997 was $1,530,000,
compared to $344,000 in the three months ended December 31, 1996. This was due
primarily to interest income generated from the cash raised from the Company's
secondary offering completed on September 22, 1997. Other income for the three
months ended December 31, 1997 was $42,000 as compared to a loss of $11,000 for
the three months ended December 31, 1996, primarily due to exchange gains on
transactions as a result of the slight gains of certain European currencies
against the US dollar during the quarter. See "Effects of Inflation and Foreign
Currency Exchange Fluctuations."
PROVISION FOR INCOME TAXES
The provision for income taxes was $2,622,000 and $1,406,000 for three months
ended December 31, 1997 and 1996, respectively. The Company's effective tax rate
was 34.2% for the three months ended December 31, 1997, compared to 34.5%,
excluding the effect of the nondeductible purchased in-process research and
development charge, for the same period in 1996.
COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
REVENUES
Total revenues were $54,236,000 for the six months ended December 31, 1997, an
increase of 60.7% from $33,759,000 for the six months ended December 31, 1996.
Software license fees were $30,208,000 for the six months ended December 31,
1997, an increase of 130.7% from $13,095,000 for the six months ended December
31, 1996. Software license fees increased both domestically and internationally
as a result of the continued demand for the Company's tools to assist in
addressing the year 2000 century date change problem as well as the sale of the
Rochade product line.
13
<PAGE> 14
Maintenance fees were $13,987,000 in the six months ended December 31, 1997, an
increase of 57.2% from $8,900,000 in the six months ended December 31, 1996. The
increase was due to the R&O acquisition, as well as to new software licenses,
customer system upgrades and increases in the fees charged for annual
maintenance.
Professional services fees were $9,962,000 for the six months ended December 31,
1997, a decrease of 14.7% from $11,675,000 for the six months ended December 31,
1996. Professional services fees have decreased year over year as a result of
several factors, including the transition to enablement services and the reduced
revenue from a fixed-price services engagement. See discussion of professional
services fees in Comparison of Three Months Ended December 31, 1997 to December
31, 1996.
OPERATING EXPENSES
Cost of software license and maintenance fees was $4,522,000 for the six months
ended December 31, 1997, an increase of 186.7% from $1,577,000 during the six
months ended December 31, 1996. Gross margins on software license and
maintenance fees decreased to 89.8% compared to 92.8% for the six months ended
December 31, 1997 and 1996, respectively. The expense increase and margin
decrease are primarily due to additional royalty expenses related to increased
sales of third party software, additional personnel and their related costs,
increased salaries and outside consultants in the customer support area,
amortization of the purchased research and development from the R&O acquisition
and increased costs of product documentation as a result of higher sales volumes
and new version releases of existing products.
Cost of professional services fees was $9,092,000 for the six months ended
December 31, 1997, an increase of 7.3% from $8,470,000 for the six months ended
December 31, 1996. The increase in expenses is primarily a result of additional
personnel and their related costs, higher salaries and travel expenses offset by
reduced subcontractor costs and bonuses due to decreased revenues. The overall
gross margin on professional services fees for the six months ended December 31,
1997 was 8.7% compared to 27.5% for the six months ended December 31, 1996. The
decrease in margins is a result of several factors. See discussion of cost of
professional services fees in Comparison of Three Months Ended December 31, 1997
to December 31, 1996.
Sales and marketing expenses were $19,187,000 for the six months ended December
31, 1997, an increase of 55.7% from $12,320,000 for the six months ended
December 31, 1996. This increase is attributable primarily to an increase in
personnel, including the R&O personnel, and the associated costs, higher
salaries, increased commissions as a result of revenue growth, and increased
travel, bonuses, and marketing and promotion costs. Sales and marketing expenses
as a percentage of total revenues declined to 35.4% for the six months ended
December 31, 1997, compared to 36.5% for the six months ended December 31, 1996,
due primarily to the increase in revenues.
14
<PAGE> 15
Research and development expenditures were $6,103,000 for six months ended
December 31, 1997, an increase of 114.0% from $2,852,000, excluding an
approximate $27.0 million charge for in-process research and development in
connection with the R&O acquisition, for the six months ended December 31, 1996.
The increase in expenses is primarily for additional personnel and the
associated costs, including R&O's research and development staff, as well as
general salary increases, and the cost of recruiting personnel and external
consultants. As a percentage of total revenues, research and development costs
were 11.3% for the six months ended December 31, 1997 compared to 8.4% for the
same period in fiscal 1996. The increase in research and development cost as a
percentage of revenue is primarily due to the increase in personnel, including
R&O personnel, and the cost of recruiting qualified development professionals.
General and administrative expenses were $3,902,000 for the six months ended
December 31, 1997, representing an increase of 48.9% compared to $2,620,000 for
the six months ended December 31, 1996. This increase is a result of additional
administrative personnel, including R&O personnel, and their related costs,
general salary increases, additional legal fees and travel costs, and
amortization of intangibles related to the R&O acquisition. As a percentage of
total revenues, general and administrative expenses decreased to 7.2% for the
six months ended December 31, 1997 compared to 7.8% for the six months ended
December 31, 1996 primarily as a result of the increase in revenues.
OTHER INCOME (EXPENSE)
Interest income in the six months ended December 31, 1997 was $2,051,000,
compared to $730,000 in the six months ended December 31, 1996. This was due
primarily to interest income generated from the cash raised from the Company's
secondary offering completed on September 22, 1997. Other expense for the six
months ended December 31, 1997 was $80,000 as compared to an expense of $7,000
for the six months ended December 31, 1996, primarily due to exchange losses on
transactions as a result of the strengthening of the US dollar against certain
European currencies and the Australian dollar during the six month period ended
December 31, 1997, primarily in the first fiscal quarter of 1997. See "Effects
of Inflation and Foreign Currency Exchange Fluctuations."
PROVISION FOR INCOME TAXES
The provision for income taxes was $4,599,000 and $2,260,000 for six months
ended December 31, 1997 and 1996, respectively. The Company's effective tax rate
was 34.3% for the six months ended December 31, 1997, compared to 34.5%,
excluding the effect of the nondeductible purchased in-process research and
development charge, for same period in 1996.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997 the Company had cash and cash equivalents and investments
of $107,783,000, representing an increase of $79,208,000 from the total of
$28,575,000 at June 30, 1997. The increase is primarily a result of the
successful completion of the Company's secondary offering on September 22, 1997
which raised $76,180,000. The remaining increase is primarily a result of cash
flow from operations.
The Company's net cash provided by operating activities was $4,833,000 and
$3,540,000 for the six months ended December 31, 1997 and 1996, respectively.
Net cash provided from operations for the six months ended December 31, 1997 was
composed primarily of net income excluding non-cash charges for depreciation and
amortization offset by a net decrease in working capital, primarily from an
increase in accounts receivable of $8,596,000. Net cash provided by operations
for the six months ended December 31, 1996 was composed primarily of net loss
excluding non-cash charges for the write-off of the purchased in-process
research and development, depreciation and amortization, and a net increase in
working capital.
The Company's investing activities used cash of $59,829,000 and provided cash of
$3,790,000, in the six months ended December 31, 1997 and 1996, respectively. In
1997, cash was used for the purchase of investments in excess of investment
maturities, and to a lesser extent, the purchase of furniture, fixtures,
equipment and software as well as for the acquisition of a customer list for the
Company's new direct operation in France. In 1996, the primary source of cash
was from the maturity of investments in excess of investment purchases and the
cash used for the purchase of R&O and to a lesser extent, the purchase of
furniture, fixtures, and equipment.
The Company's financing activities provided cash of $77,076,000 and used cash of
$3,276,000 in the six months ended December 31, 1997 and 1996, respectively. In
1997, cash was primarily provided by the completion of the Company's secondary
offering net of payments for offering costs. In 1996, cash was used primarily
for payment of R&O debt acquired, offset in part by the sale of common stock
through the employee stock purchase plan and the exercise of stock options.
As of December 31, 1997, other than those items identified in Note 3 to the
Consolidated Financial Statements, the Company did not have any material
commitments. For the remainder of fiscal 1998, the Company anticipates capital
expenditures of approximately $2.6 million, primarily for computer hardware and
software, leasehold improvements for new offices, and to update the Company's
communications equipment and systems.
On September 22, 1997, the Company received proceeds in an aggregate amount of
$76,180,000 from a secondary offering of 1,465,000 shares of its common stock.
The Company expects that the proceeds of this offering and existing working
capital, together with cash from operations, will be sufficient for the
foreseeable future to meet its capital and liquidity needs for existing
operations and general corporate purposes, as well as the addition of direct
sales and research and
16
<PAGE> 17
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 (except as described below)
foreign currency fluctuations. Sales made through the Company's foreign
distributors are denominated in U.S. dollars except in Italy and Spain, where
they are denominated in lira and pesetas, respectively. 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
$49,000 from foreign currency fluctuations in the six months ended December 31,
1997. The Company's unhedged foreign currency exposure at December 31, 1997
consisted of the following (in thousands):
<TABLE>
<CAPTION>
UNITED
KINGDOM AUSTRALIA GERMANY NETHERLANDS FRANCE ITALY OTHER TOTAL
------- --------- ------- ----------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment in
foreign subsidiaries ($355) $ 107 $11,238 ($ 4) ($ 665) ($ 221) $10,100
Net short-term
receivables
(payables) with
foreign subsidiaries (494) (654) 5,275 131 (640) ( 437) 3,181
Net receivable from
foreign distributor 807 575 1,382
----- ----- ------- ----- ------- ----- -------- -------
Total ($849) ($547) $16,513 $ 127 ($1,305) $ 807 ($ 83) $14,663
===== ===== ======= ===== ======= ===== ======== =======
</TABLE>
The Company has not to date sought to hedge the risks associated with
fluctuations in foreign exchange rates. The Company continues to evaluate the
relative costs and benefits of hedging and may seek to hedge these risks in the
future, if appropriate. Gains and 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.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-Q 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 may cause or contribute to such differences include,
but are not limited to, the Company's dependence on the year 2000 century date
conversion market and dependence on its ESW primary product line, fluctuations
in revenues and operating results, risks associated with international
operations including longer payment cycles and exchange rate fluctuations, the
17
<PAGE> 18
Company's ability to manage changes in its professional services business, the
Company's ability to manage rapid change in its business and industry, the
Company's ability to enhance existing products and develop or acquire new
products and technology to keep pace with technological developments and
evolving industry standards and to respond to changes in customer needs, the
Company's ability to identify, complete, manage and integrate acquisitions of
businesses, products and technologies, charges, costs and uncertainties related
to acquisitions, intense competition in the Company's markets, the performance
of the Company's distributors and members of its Provider programs, the
Company's dependence on key management and technical personnel and increasing
competition to attract skilled personnel, and general economic and business
conditions, as well as factors discussed elsewhere in this Form 10-Q, in
"Factors That May Affect Future Results" in the Company's Form 10-K for the year
ended June 30, 1997 and other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
On November 14, 1997, the Company's stockholders approved an amendment
to the Company's Restated Certificate of Incorporation to increase the number of
shares of common stock, par value $.001 per share ("Common Stock"), that the
Company is authorized to issue from 24,000,000 to 48,000,000. The amendment was
filed with the Delaware Secretary of State and became effective on November 17,
1997. The Board of Directors will have the authority to issue authorized Common
Stock without seeking stockholder approval and the Company does not anticipate
that it would seek such approval, except as may be required by applicable law or
regulations or in accordance with the requirements of the Nasdaq National
Market.
Existing stockholders of the Company have no preemptive rights to
purchase any stock of the Company. Issuance of additional shares of Common Stock
may have a dilutive effect on earnings per share and on the equity ownership of
existing stockholders. The additional Common Stock authorized under the
amendment has rights identical to the currently outstanding Common Stock of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on November 14,
1997. The stockholders of the Company voted on and approved the following
proposals by the following votes:
1. To elect five directors, each to serve until the next Annual Meeting
of Stockholders and until his successor has been elected and
qualified.
18
<PAGE> 19
<TABLE>
<CAPTION>
NAME FOR AGAINST
---- --- -------
<S> <C> <C>
John J. Barry III 17,036,860 43,957
Alexander S. Kuli 17,039,710 41,107
David Parrish 14,621,193 2,459,624
Arthur C. Patterson 17,039,460 41,357
Steven D. Whiteman 17,039,710 41,107
</TABLE>
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company's Common Stock from 24,000,000 shares to 48,000,000 shares.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
--- ------- --------
<S> <C> <C>
16,562,593 515,818 2,406
</TABLE>
3. To approve the Viasoft, Inc. 1997 Equity Incentive Plan.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST WITHHELD NON-VOTE
--- ------- -------- --------
<S> <C> <C> <C>
12,940,265 4,110,724 11,739 18,089
</TABLE>
4. To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending June 30, 1998.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
--- ------- --------
<S> <C> <C>
17,027,346 38,478 14,993
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<S> <C>
2.1(1) Stock Purchase Agreement dated as of the
12th day of January, 1998, between Viasoft,
Inc., Michael Howatt Mabey, Nashirali
Samanani, and certain other sellers
3.1(a) Certificate of Amendment to the Restated Certificate of
Incorporation, filed November 17, 1997
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
3.1(b) Restated Certificate of Incorporation, as amended
through November 17, 1997
11 Computation of Earnings Per Share for the
three and six month periods ended December
31, 1997 and 1996
27 Financial Data Schedule
</TABLE>
(1) Portions omitted and filed separately with the Commission
pursuant to a Request for Confidential Treatment dated February
12, 1998.
(b) REPORTS ON FORM 8-K
None
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Viasoft, Inc.
Date: February 13, 1998 By /s/ Steven D. Whiteman
----------------------
Steven D. Whiteman
President
Date: February 13, 1998 By /s/ Mark R. Schonau
-------------------
Mark R. Schonau
Chief Financial Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<S> <C>
2.1(1) Stock Purchase Agreement dated as of the
12th day of January, 1998, between Viasoft,
Inc., Michael Howatt Mabey, Nashirali
Samanani, and certain other sellers
3.1(a) Certificate of Amendment to the Restated Certificate of
Incorporation, filed November 17, 1997
3.1(b) Restated Certificate of Incorporation, as amended
through November 17, 1997
11 Computation of Earnings Per Share for the
three and six month periods ended December
31, 1997 and 1996
27 Financial Data Schedule
</TABLE>
(1) Portions omitted and filed separately with the Commission
pursuant to a Request for Confidential Treatment dated February
12, 1998.
<PAGE> 1
Pages where confidential treatment has
been requested have the words
"Confidential Treatment Requested"
typed at the bottom of the page, and
the appropriate information has been
marked with asterisks.
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF COMPANY SHARES ............................. 1
Section 1.1 Basic Transaction ....................................... 1
Section 1.2 Purchase Price for Sellers' Company Shares .............. 2
Section 1.3 Additional Payments ..................................... 2
1.3.1 Individual Products ............................... 2
1.3.2 Bundled Products .................................. 2
1.3.3 Services .......................................... 3
1.3.4 Offsets Against Additional Payments ............... 3
1.3.4.1 In General ................................ 3
1.3.4.2 Teja Severance ............................ 3
1.3.5 Pricing and Discounts; Ordinary Course of Business 3
1.3.6 Competing Products ................................ 3
1.3.7 Payment of Additional Payments .................... 4
1.3.8 Earnout Rate Adjustments to be Negotiated ......... 4
Section 1.4 Target Payments ......................................... 4
1.4.1 First Target Payment .............................. 4
1.4.2 Second Target Payment ............................. 4
1.4.3 Payment of Target Payments ........................ 4
Section 1.5 No Additional Payments or Target Payments on Maintenance,
Evaluations or Other Products and Services .............. 5
Section 1.6 Customer Payments ....................................... 5
1.6.1 Measurement ....................................... 5
1.6.2 Offsets ........................................... 6
1.6.3 Ordinary Course of Business ....................... 6
Section 1.7 Terms of Payment ........................................ 6
Section 1.8 Alternative Dispute Resolution Procedure ................ 6
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE II CLOSING ................................................. 7
Section 2.1 Closing .......................................... 7
Section 2.2 Deliveries at the Closing ........................ 7
Section 2.3 Taxes and Fees ................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PRINCIPALS
CONCERNING THE COMPANY ................................. 7
Section 3.1 Organization, Qualification, and Corporate Power . 7
Section 3.2 Books and Records ................................ 8
Section 3.3 Capitalization ................................... 8
Section 3.4 Subsidiaries ..................................... 8
Section 3.5 Noncontravention ................................. 8
Section 3.6 Brokers' Fees .................................... 9
Section 3.7 Ownership of Assets; Sufficiency ................. 9
Section 3.8 Financial Statements ............................. 9
3.8.1 Schedules; Accuracy ........................ 9
3.8.2 Events Subsequent to June 30 Year End ...... 10
3.8.3 Undisclosed Liabilities .................... 12
Section 3.9 Equipment and Receivables ........................ 12
3.9.1 Equipment and Tangible Assets .............. 12
3.9.2 Receivables ................................ 12
Section 3.10 Software; Intellectual Property ................. 13
3.10.1 Identification; Title ..................... 13
3.10.2 The Software .............................. 13
3.10.2.1 Source Code ....................... 13
3.10.2.2 Software Authors .................. 13
3.10.2.3 Defects ........................... 14
3.10.2.4 No Third-Party Rights ............. 14
3.10.2.5 Documentation: Fixes; Maintenance;
Warranties ..................... 14
3.10.2.6 Embedded Products ................. 14
3.10.3 Intellectual Property Other Than Software . 15
3.10.4 Confidential Information .................. 15
3.10.5 Patent Applications ....................... 15
</TABLE>
iii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.10.6 No Infringement; No Third-Party Infringement 15
Section 3.11 Contracts; No Defaults ........................... 15
3.11.1 Contracts .................................. 15
3.11.2 Copies of Contracts; Full Force and Effect . 16
Section 3.12 Real Property; Leases ............................ 16
Section 3.13 Compliance with Laws ............................. 16
3.13.1 Legal Requirements ......................... 16
3.13.2 Governmental Authorizations ................ 17
Section 3.14 Tax Matters ...................................... 17
3.14.1 Tax Returns ................................ 17
3.14.2 Withholding ................................ 17
3.14.3 Tax Disputes ............................... 17
3.14.4 Waivers and Extensions ..................... 18
3.14.5 Tax Information ............................ 18
3.14.6 Unpaid Taxes ............................... 18
Section 3.15 Insurance ........................................ 18
Section 3.16 Litigation ....................................... 18
Section 3.17 Product Warranty ................................. 18
Section 3.18 Employees ........................................ 19
3.18.1 Labor Relations ............................ 19
3.18.2 Employment Terms ........................... 19
Section 3.19 Employee Benefits ................................ 19
Section 3.20 Certain Business Relationships with the Company .. 20
Section 3.21 Certain Payments ................................. 21
Section 3.22 Bank Accounts .................................... 21
Section 3.23 Guaranties ....................................... 21
Section 3.24 Change of Control Payments ....................... 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS
CONCERNING THE TRANSACTION .............................. 21
Section 4.1 Organization of Certain Sellers ................... 21
Section 4.2 Authorization of Transaction ...................... 21
Section 4.3 Noncontravention .................................. 22
Section 4.4 Citizenship and Tax Returns ....................... 22
</TABLE>
iv
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.5 Company Shares; Title ......................... 22
Section 4.6 Intellectual Property ......................... 22
Section 4.7 Brokers' Fees ................................. 23
Section 4.8 Certain Business Relationships with the Company 23
Section 4.9 Litigation .................................... 23
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER ............... 23
Section 5.1 Organization of Buyer ......................... 23
Section 5.2 Authorization of Transaction .................. 24
Section 5.3 Noncontravention .............................. 24
Section 5.4 Brokers' Fees ................................. 24
ARTICLE VI COVENANTS ............................................ 24
Section 6.1 Covenants to be Effective at Closing .......... 24
6.1.1 Termination of Shareholder Agreement .... 24
Section 6.2 Post-Closing Covenants ........................ 24
6.2.1 General ................................. 24
6.2.2 Litigation Support ...................... 25
6.2.3 Transition .............................. 25
6.2.4 Confidentiality ......................... 25
6.2.5 Audit Rights ............................ 26
6.2.6 Continuing Support ...................... 26
6.2.7 Recordkeeping ........................... 26
ARTICLE VII CONDITIONS PRECEDENT ................................ 27
Section 7.1 Conditions to the Obligations of Buyer ........ 27
7.1.1 Representations and Warranties .......... 27
7.1.2 No Material Adverse Change .............. 27
7.1.3 Disclosure Schedule Delivered ........... 27
7.1.4 Obtaining of Consents and Approvals ..... 27
7.1.5 Performance by Sellers .................. 27
7.1.6 Absence of Litigation ................... 27
7.1.7 Governmental Approvals .................. 28
7.1.8 Employment Agreements; Other Employees .. 28
7.1.9 Noncompetition Agreements ............... 28
7.1.10 Resignations ........................... 28
</TABLE>
v
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
7.1.11 Independent Accountants' Advice .............. 28
7.1.12 Opinion of Sellers' Counsel .................. 28
7.1.13 Delivery of Documents ........................ 28
7.1.14 Waiver ....................................... 29
Section 7.2 Conditions to Obligation of Sellers ................. 29
7.2.1 Representations and Warranties ................ 29
7.2.2 Performance by Buyer .......................... 29
7.2.3 Absence of Litigation ......................... 30
7.2.4 Stock Option Awards ........................... 30
7.2.5 Opinion of Buyer's Counsel .................... 30
7.2.6 Delivery of Documents ......................... 30
7.2.7 Waiver ........................................ 30
ARTICLE VIII JOINT ACTION BY SELLERS; SELLERS' REPRESENTATIVE;
REMEDIES FOR BREACHES OF THIS AGREEMENT ............. 30
Section 8.1 Majority Action by Sellers .......................... 30
Section 8.2 Sellers' Representative ............................. 31
Section 8.3 Survival of Representations, Warranties and Covenants 31
Section 8.4 Indemnification Provisions for Benefit of Buyer ..... 31
Section 8.5 Indemnification Provisions for Benefit of Sellers ... 32
8.5.1 In General .................................... 32
8.5.2 Procedure for Majority Action ................. 32
Section 8.6 Matters Involving Third Parties ..................... 32
8.6.1 Notice ........................................ 32
8.6.2 Defense of Claims ............................. 33
8.6.2.1 In General ............................ 33
8.6.2.2 Defense Costs for Infringement Claims . 33
8.6.3 Settlement .................................... 34
8.6.4 Cooperation ................................... 34
Section 8.7 Determination of Adverse Consequences ............... 34
Section 8.8 Limitations on Indemnification ...................... 34
8.8.1 Basket ........................................ 34
</TABLE>
vi
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8.8.2 Cap ......................................... 35
8.8.3 Contribution ................................ 35
Section 8.9 Waiver of Company Indemnification ................. 35
Section 8.10 Offset ........................................... 35
ARTICLE IX DEFINITIONS .............................................. 36
ARTICLE X MISCELLANEOUS ............................................. 47
Section 10.1 Press Releases and Public Announcements .......... 47
Section 10.2 No Third-Party Beneficiaries ..................... 47
Section 10.3 Entire Agreement ................................. 47
Section 10.4 Succession and Assignment ........................ 47
Section 10.5 Counterparts ..................................... 47
Section 10.6 Headings ......................................... 47
Section 10.7 Notices .......................................... 47
Section 10.8 Governing Law .................................... 49
Section 10.9 Amendments and Waivers ........................... 49
Section 10.10 Severability .................................... 49
Section 10.11 Expenses ........................................ 49
Section 10.12 Construction .................................... 49
Section 10.13 Incorporation of Exhibits and Disclosure Schedule 50
Section 10.14 Specific Performance ............................ 50
Section 10.15 Submission to Jurisdiction and Venue ............ 50
Section 10.16 Waiver of Jury Trial ............................ 50
Section 10.17 Interest on Amounts Past Due .................... 51
</TABLE>
vii
<PAGE> 8
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement") made as of the 12th day of January,
1998, between Viasoft, Inc., a Delaware corporation ("Buyer"), Michael Howatt
Mabey ("Mabey"), Nashirali Samanani ("Samanani") and the persons and entities
named as sellers on the signature page of this Agreement (each individually a
"Seller" and collectively "Sellers").
WITNESSETH:
WHEREAS, Sellers in the aggregate own all of the capital stock of EraSoft
Technologies Inc., a body corporate incorporated under the laws of the Province
of Alberta (the "Company").
WHEREAS, Mabey and Samanani are the principal shareholders of certain
corporations that are principal Sellers and are officers and directors of the
Company.
WHEREAS, this Agreement contemplates a transaction in which Buyer will
purchase from Sellers, and Sellers will sell to Buyer, all of the issued and
outstanding capital stock of the Company on the terms and conditions set forth
below.
WHEREAS, Buyer and Sellers are unable to agree on a sum certain for the
full amount of the consideration for the Company Shares as a result of their
inability to agree on the fair market value of the Company Shares other than by
reference to future performance of the Company as set forth herein.
WHEREAS, capitalized terms not otherwise defined herein shall have the
respective meanings specified in Article IX below.
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, and
each intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMPANY SHARES
Section 1.1 Basic Transaction. On and subject to the terms and conditions
of this Agreement, Buyer agrees to purchase from each Seller, and Sellers
jointly and severally agree to sell to Buyer, all of Sellers' Company Shares for
the consideration specified in this Article I.
1
<PAGE> 9
Section 1.2 Purchase Price for Sellers' Company Shares. For the purchase
of the Company Shares held by Sellers, Buyer agrees to (i) pay to Sellers at the
Closing an amount equal to Seven Million Seven Hundred Fifty Thousand US Dollars
(US $7,750,000), minus the amount of the Closing Debt (the "Closing Payment"),
(ii) pay to Sellers the Additional Payments, if any, specified in Section 1.3
below, (iii) pay to Sellers the Target Payments, if any, specified in Section
1.4 below, and (iv) pay to Sellers the Customer Payments, if any, specified in
Section 1.6 below.
Section 1.3 Additional Payments. Subject to Section 1.5, in addition to
the Closing Payment, Buyer agrees to pay to Sellers additional consideration
("Additional Payments") for the Company Shares with reference to each copy of an
Earnout Product (i) licensed, sublicensed, leased or sold to an End User
(collectively, "Licensed"), or (ii) used in connection with a services
engagement for an End User, in the case of (i) and (ii) anywhere in the world
during the Earnout Term by Buyer, an Affiliate of Buyer or a Third Party
Licensor, as follows:
1.3.1. Individual Products. The Additional Payment for the Company
Shares with reference to each copy of an Earnout Product Licensed by Buyer (or
an Affiliate of Buyer) as an individual product shall be an amount equal to the
License Revenue invoiced by Buyer (or any of its Affiliates) for such Earnout
Product, multiplied by the applicable Earnout Rate. The Additional Payment for
the Company Shares with reference to each copy of an Earnout Product Licensed by
a Third Party Licensor as an individual product shall be an amount equal to the
License Revenue invoiced by Buyer (or any of its Affiliates) to such Third Party
Licensor in connection with such transaction, multiplied by the applicable
Earnout Rate.
1.3.2. Bundled Products. The Additional Payment for the Company
Shares with reference to each transaction in which an Earnout Product is bundled
with one or more other Buyer products and/or Third Party Licensor products
Licensed by Buyer (or an Affiliate of Buyer) shall be an amount equal to the
then-current List Price of Buyer in the applicable territory for such Earnout
Product, multiplied by the applicable Earnout Rate, the product of which shall
be multiplied by a fraction, the numerator of which is (i) the Bundled Revenue
invoiced by Buyer (or any of its Affiliates) for such bundled suite of products,
and the denominator of which is (ii) the aggregate then-current unbundled List
Prices of Buyer and/or the Third Party Licensor in the applicable territory for
the individual component products of Buyer and/or the Third Party Licensor
bundled and Licensed in such transaction. The Additional Payment for the Company
Shares with reference to each transaction in which an Earnout Product is bundled
with one or more other Buyer products and/or Third Party Licensor products
Licensed by a Third Party Licensor shall be an amount equal to the Bundled
Revenue invoiced by Buyer (or any of its Affiliates) to such Third Party
Licensor for products of Buyer in connection with such transaction, multiplied
by the applicable Earnout Rate, the product of which shall be multiplied by a
fraction, the numerator of which is (i) the then-current List Price of Buyer in
the applicable territory for such Earnout Product, and the denominator of which
is (ii) the aggregate then-current unbundled List Prices of Buyer in the
applicable territory for the individual component products of Buyer bundled and
Licensed in such transaction.
2
<PAGE> 10
1.3.3. Services. The Additional Payment for the Company Shares with
reference to each services engagement performed by Buyer, an Affiliate of Buyer
or a Third Party Licensor for an End User using an Earnout Product shall be an
amount equal to five percent (5%) of the then-current List Price of Buyer for
such Earnout Product in the applicable territory (such List Price to be
determined as if the End User had directly Licensed the Earnout Product for the
use contemplated in such services engagement), multiplied by the number of whole
or fractional months such Earnout Product is so used ("Qualifying Service
Revenue"), the product of which shall be multiplied by the applicable Earnout
Rate; provided, that no Additional Payment shall be payable under this Section
1.3.3 with respect to such a services engagement if (i) the End User has
Licensed the Earnout Product used in the engagement or (ii) a Third Party
Licensor performing the engagement has Licensed the Earnout Product used in the
engagement under an agreement with Buyer or its Affiliates that permits such use
without a separate End User License (and in the case of (i) and (ii) an
Additional Payment is payable under Section 1.3.1 or 1.3.2 above).
1.3.4. Offsets Against Additional Payments.
1.3.4.1. In General. Additional Payments shall be reduced in
any quarter by the amount of any Additional Payment previously credited or paid
with respect to License Revenue or Qualifying Services Revenue from any Earnout
Product or services engagement that is returned, canceled or adjusted by Buyer,
or deemed uncollectible by Buyer in accordance with GAAP, in that quarter
("Canceled License Revenue") and Buyer may deduct and offset any Canceled
License Revenue from payments otherwise due to Sellers under this Agreement. Any
License Revenue or Qualifying Services Revenue deemed uncollectible by Buyer
that is subsequently collected shall be treated as invoiced again by Buyer in
the quarter it is collected.
1.3.4.2. Teja Severance. Buyer may deduct and offset against
any Additional Payments otherwise due to Sellers an amount equal to one-half
(1/2) of any severance compensation obligation payable to Karim Teja by the
Company after the Closing Date.
1.3.5. Pricing and Discounts; Ordinary Course of Business. Buyer and
its Affiliates and Third Party Licensors shall have sole discretion to establish
prices, discounts, commissions, returns, cancellations, adjustments, and
uncollectible accounts with respect to the Earnout Products Licensed by them and
Maintenance and services provided by them; provided, that such determinations
shall be made in good faith in the Ordinary Course of Business and not for the
purpose of using the Earnout Products as a "loss leader" for other products and
services. Without the written consent of Sellers by Majority Action, Buyer and
its Affiliates shall not market, nor permit any Third Party Licensor to market,
the Earnout Products in a manner to cause revenue to be received by Buyer or its
Affiliates with respect thereto other than pursuant to invoices by Buyer and its
Affiliates as contemplated in this Section 1.3.
1.3.6. Competing Products. Buyer and its Affiliates shall not,
without the written consent of Sellers by Majority Action, License any Competing
Products to End Users or Third Party Licensors during the Earnout Term;
provided, that Buyer and its Affiliates may
3
<PAGE> 11
License Competing Products if either Mabey or any two or more of the other
persons listed in Section 7.1.8 of this Agreement shall have resigned employment
with the Company on or before December 31, 1998.
1.3.7. Payment of Additional Payments. Buyer shall provide quarterly
reports of Additional Payments due under this Agreement within sixty (60) days
after the end of each calendar quarter during the Earnout Term. Each quarterly
report shall list the End User, Third Party Licensor (if applicable) and amount
of License Revenue, Qualifying Service Revenue and Bundled Revenue invoiced to
each End User and Third Party Licensor during the calendar quarter reported.
Each such quarterly report shall be accompanied by payment of any Additional
Payments due with respect to the quarter reported, net of any offsets permitted
by Section 1.3.4; provided that the final payment of Additional Payments payable
with respect to the last quarter of the Earnout Term shall be due within 150
days after the end of the Earnout Term.
1.3.8. Earnout Rate Adjustments to be Negotiated. If Buyer proposes
to develop or market a Derivation that would constitute an Earnout Product under
this Agreement and Buyer notifies Sellers that Buyer believes that such
Derivation ("Proposed Earnout Product") would not be economically feasible if
the Earnout Rate is applicable thereto, Buyer, Mabey and Samanani will negotiate
in good faith to consider an appropriate adjustment to the Earnout Rate for such
Proposed Earnout Product, taking into consideration the magnitude and
significance of the Company Intellectual Property to be included therein, the
scope and characteristics of the proposed customer market and other relevant
factors; provided, that any such adjustment shall be implemented only if it is
mutually approved in writing by Buyer and Sellers acting by Majority Action,
which approval shall not be unreasonably withheld.
Section 1.4 Target Payments. Subject to Section 1.5, in addition to the
Closing Payment and the Additional Payments, if any, Buyer agrees to pay to
Sellers additional consideration ("Target Payments") for the Company Shares on
the following terms and conditions:
1.4.1. First Target Payment. If Buyer and its Affiliates invoice
Target Revenue during the Earnout Term in excess of ******* US Dollars (US
$*******), then Buyer shall pay to Sellers Six Hundred and Twenty-five Thousand
US Dollars (US $625,000) (the "First Target Payment").
1.4.2. Second Target Payment. If Buyer and its Affiliates invoice
Target Revenue during the Earnout Term in excess of ******* US Dollars (US
$*******), then Buyer shall pay to Sellers Six Hundred and Twenty-five Thousand
US Dollars (US $625,000) (the "Second Target Payment").
1.4.3. Payment of Target Payments. The First Target Payment or
Second Target Payment, if any, shall be paid within sixty (60) days of the end
of the calendar quarter in which such Target Payment is earned; provided, that
if a Target Payment is due with respect to the last quarter of the Earnout Term,
then such Target Payment shall be due within 150 days after the end of the
Earnout Term.
4
CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 12
Section 1.5 No Additional Payments or Target Payments on Maintenance,
Evaluations or Other Products and Services. Notwithstanding any provision hereof
to the contrary, Additional Payments and Target Payments shall be payable under
this Agreement only with respect to Earnout Products and transactions expressly
described in Sections 1.3 and 1.4. Without limiting the generality of the
foregoing, no Additional Payment, Target Payments, compensation or other amount
shall be payable by Buyer in connection with any of the following:
1.5.1. Maintenance revenues received by Buyer, its Affiliates or any
Third Party Licensor with respect to Earnout Products or otherwise, except as
expressly contemplated by this Agreement;
1.5.2. Any product or service of Buyer, its Affiliates or any Third
Party Licensor other than Earnout Products either Licensed or used in connection
with a services engagement during the Earnout Term as expressly set forth in
Sections 1.3 and 1.4.
1.5.3. Any use by Buyer, its Affiliates or Third Party Licensors of
the Earnout Products for internal use, customer demonstrations and evaluations
or other similar non-revenue bearing marketing purposes. Without limiting the
generality of the foregoing, Buyer, its Affiliates and Third Party Licensors may
enter into payment-free demonstration and evaluation licenses in the Ordinary
Course of Business with potential End Users with respect to the Earnout Products
without incurring any obligation to pay Additional Payments or Target Payments
under this Agreement.
Section 1.6 Customer Payments. In addition to the Closing Payment, the
Additional payments, if any, and the Target Payments, if any, Buyer agrees to
pay to Sellers additional consideration for the Shares in an amount not to
exceed Seven Hundred Thousand US Dollars (US $700,000) ("Customer Payments") as
follows:
1.6.1. Measurement. Buyer shall pay to Sellers, within fifteen (15)
days of receipt thereof or on the Closing Date, whichever is later, an amount
equal to collections actually received by the Company or Buyer prior to or after
the Closing with respect to Software license revenue and combined Software
license and Maintenance revenue invoiced by the Company to End Users in
accordance with the Company's historical practice prior to the Closing Date
pursuant to each Selected End User License (the "Selected Company Revenue"),
minus (i) commissions payable to Company employees, value added relicensors and
other third parties thereon, (ii) returns, cancellations and adjustments agreed
to between the Company and the End User prior to or after the Closing, (iii)
sales, use and goods and services taxes owed thereon and not collected from the
End User, and (iv) an amount equal to the Company Maintenance Deduction. For
purposes of this Agreement, "Selected End User Licenses" means all End User
Licenses entered into by the Company and any End User on or after November 26,
1997 and prior to the Closing Date and set forth on Schedule 1.6.1 delivered
hereunder. An example of the foregoing calculations is set forth on Schedule
1.6.1.A delivered hereunder.
5
<PAGE> 13
1.6.2. Offsets. Each Customer Payment shall be reduced by the amount
of the Company Maintenance Deduction regardless of whether Maintenance is
provided under the initial Selected End User License or subsequently pursuant to
an option granted to the End User thereunder, in which case Buyer may offset the
Company Maintenance Deduction against other amounts payable to Sellers under
this Agreement. Buyer may also offset any amounts deductible from Selected
Company Revenue pursuant to Section 1.6.1(i), (ii) or (iii) above that arise
after payment of a Customer Payment against other amounts payable to Sellers
under this Agreement if they were not previously deducted for purposes of
determining Customer Payments.
1.6.3. Ordinary Course of Business. Sellers shall cause the Company
to enter into any Selected End User Licenses in good faith in the Ordinary
Course of Business on terms and conditions comparable to the Company's
historical practice, without any unusual or extraordinary discounts, incentives,
terms, conditions or commissions. Sellers shall further cause the Company to
operate in the Ordinary Course of Business so that the Company's efforts with
respect to Selected End User Licenses shall not detract from the Company's
"pipeline" of customer prospects.
Section 1.7 Terms of Payment. All payments owed by Buyer to Sellers under
this Agreement shall be paid in United States Dollars, net of any and all
applicable withholding Taxes and other levies and charges of Governmental
Bodies. Buyer shall timely remit such Taxes and other levies and charges to the
appropriate Governmental Body. Buyer's obligation to make each such payment
shall be conditioned on Sellers having provided to Buyer at its request in
writing at least ten (10) days in advance of any payment date all information
with respect to each Seller required by any Governmental Body from time to time
for Buyer to comply with such withholding and remittance obligations, including
without limitation delivery at the Closing of U.S. Internal Revenue Service
Forms 8233 or 1001, as applicable, with respect to each Seller (the "Withholding
Forms"). If any Governmental Body shall notify Buyer that withholding Taxes or
other levies or charges are payable with respect to any payment previously made
to Sellers by Buyer under this Agreement, Buyer shall remit the same to the
appropriate Governmental Body and Sellers shall promptly reimburse Buyer for the
amount of such payment. Additional Payments, Target Payments and Customer
Payments pursuant to Sections 1.3, 1.4 and 1.6 with respect to amounts payable
to Buyer or its Affiliates in foreign currencies shall be based on the foreign
currency exchange rates used by Buyer from time to time for financial reporting
purposes.
Section 1.8 Alternative Dispute Resolution Procedure. In the event of any
dispute among the Parties with respect to (i) the timing or amount of any
payment of Additional Payments, Target Payments or Customer Payments, (ii)
whether a product constitutes a Competing Product or Derivative or (iii) any
other matter set forth in this Article I, the Parties shall pursue the
alternative dispute resolution procedures set forth in Exhibit A as their
exclusive remedy for such dispute.
6
<PAGE> 14
ARTICLE II
CLOSING
Section 2.1 Closing. The Closing ("Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Macleod Dixon,
in Calgary, Alberta, at 10:00 a.m., local time on the date this Agreement is
executed and delivered by all Parties, or such other place and time as the
Parties shall mutually agree in writing (the "Closing Date").
Section 2.2 Deliveries at the Closing. At the Closing, (i) Sellers will
deliver to Buyer the various certificates, instruments, and documents referred
to in Section 7.1 below, (ii) Buyer will deliver to Sellers the various
certificates, instruments, and documents referred to in Section 7.2 below, (iii)
each Seller will deliver to Buyer a certificate or certificates representing the
number of Company Shares owned by such Seller as set forth in the Disclosure
Schedule, in form reasonably satisfactory to Buyer and its counsel and (iv)
Buyer will deliver to the Sellers' Representative the Closing Payment.
Section 2.3 Taxes and Fees. Sellers shall be responsible for any
applicable documentary, stamp, use, filing, recording, sales, transfer and other
Taxes or fees due or payable as a result of the conveyance, assignment, transfer
or delivery of the Company Shares by Sellers to Buyer under this Agreement.
Buyer represents and warrants that it has no Knowledge of any such Taxes or fees
generally applicable under United States federal laws and Arizona law to such
transactions, other than Taxes based on income and capital gains, if any.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PRINCIPALS CONCERNING THE COMPANY
The Principals jointly and severally represent and warrant to Buyer that
the statements contained in this Article III are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made as of the Closing Date), except as set forth in the disclosure
schedule delivered by Sellers to Buyer on the date hereof (the "Disclosure
Schedule"). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the exception with particularity and
describes the relevant facts in reasonable detail. The Disclosure Schedule will
be arranged in paragraphs corresponding to the numbered paragraphs contained in
this Article III.
Section 3.1 Organization, Qualification, and Corporate Power. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the Province of Alberta. The Company is a "private company" as that
term is defined in the Securities Act (Alberta). The Company is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required as set forth in the Disclosure Schedule.
The Company has full corporate power and authority and all public and private
concessions, licenses, permits, and authorizations necessary to carry on the
businesses in which it
7
<PAGE> 15
is engaged and in which it presently proposes to engage and to own and use the
properties owned and used by it. Section 3.1 of the Disclosure Schedule includes
a correct and complete copy of the Organizational Documents, and lists the
directors and officers, of the Company.
Section 3.2 Books and Records. The books of account, minute books, stock
record books and other records of the Company, all of which have been made
available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices. Without limiting the generality of the
foregoing, the minute books of the Company contain complete and accurate records
of all official meetings held of, and corporation action taken by, the
shareholders, the board of directors, and committees of the board of directors
of the Company, and no meeting of any such shareholders, board of directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of such books and records
will be in the possession of the Company.
Section 3.3 Capitalization. The authorized, issued and outstanding capital
stock of the Company are as set forth in Section 3.3 of the Disclosure Schedule.
No repayments of the stated capital have been made with respect to the Company
Shares. All of the Company Shares are issued and outstanding, have been duly
authorized and are validly issued, fully paid, and nonassessable. The Company
Shares are held of record and beneficially by the respective Sellers as set
forth in Section 3.3 of the Disclosure Schedule, except for the beneficial
ownership described therein of the beneficiaries of any Sellers that are trusts.
Except for the Company Shares set forth in such Section 3.3, there are no equity
securities of any class of the Company, or any security convertible or
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. Except as set forth in such Section 3.3, there are
no outstanding or authorized options, warrants, preemptive rights, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments of any character that could require the Company to
issue, deliver, sell, or otherwise cause to become outstanding, or to transfer,
any capital stock or other equity securities of the Company. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. Except as set
forth in such Section 3.3, there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting, transfer or disposition
of the capital stock of the Company. Certificates have been issued with respect
to the Company Shares in the form and denominations set forth in Section 3.3 of
the Disclosure Schedule and no legend or other reference to any purported
Security Interest appears upon any certificate representing Company Shares. None
of the Company Shares or other securities of the Company has been issued,
redeemed or repurchased in violation of any Legal Requirements.
Section 3.4 Subsidiaries. The Company has no Subsidiaries. The Company
does not own or control, directly or indirectly, or have any direct or indirect
equity or ownership interest or participation as sub-participation in, any
Person or have any similar arrangement.
Section 3.5 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated by this
Agreement, will (i) violate any Legal Requirement to which the Company is
subject or any provision of the Organizational Documents of the Company or (ii)
conflict with, result in a breach of, constitute a
8
<PAGE> 16
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, Contract, lease, license, instrument, or other arrangement to which
the Company is a party or by which it or any of its assets is bound (or result
in the imposition of any Security Interest upon any of its assets). The Company
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Governmental Body in order for
Sellers to consummate the transactions contemplated by this Agreement, except as
set forth in Section 3.5 to the Disclosure Schedule.
Section 3.6 Brokers' Fees. The Company has no Liability, contingent or
otherwise, to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, following the Closing the Company shall have no
Liability pursuant to or in connection with that certain Work Agreement dated
April 12, 1997 between the Company and Concord, except for any unpaid monthly
retainer and expense reimbursements payable pursuant thereto through the Closing
Date.
Section 3.7 Ownership of Assets; Sufficiency. The Company has good and
marketable title to, or a valid leasehold interest in, the properties and assets
used by it, located on its premises, or shown on the December 31 Balance Sheet
or acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the December 31 Balance Sheet. Such properties and assets
constitute all of the properties and assets necessary for the conduct of the
business presently conducted by the Company. All tangible properties and assets
of the Company are located at the principal offices of the Company except as set
forth in Section 3.7 of the Disclosure Schedule. All of the properties and
assets purchased or otherwise acquired by the Company since the date of the
December 31 Balance Sheet (except for supplies, inventory, and personal property
acquired since the date of the December 31 Balance Sheet in the Ordinary Course
of Business) are listed in Section 3.7 of the Disclosure Schedule.
Section 3.8 Financial Statements.
3.8.1. Schedules; Accuracy. Attached hereto as Section 3.8.1 of the
Disclosure Schedule are the following financial statements (collectively the
"Financial Statements"): (i) audited balance sheets and statements of operations
and deficit and changes in financial position for the period from incorporation
on May 1, 1996 through June 30, 1996, and for the year ended June 30, 1997 (the
latter being "June 30 Year End"), and (ii) unaudited balance sheets and
statement of operations and deficit (the "December 31 Financial Statements") as
of and for the six months ended December 31, 1997 for the Company. The Financial
Statements (including the notes thereto), have been prepared by the Company in
accordance with GAAP, applied on a consistent basis throughout the periods
covered thereby, and present fairly the financial position of the Company as of
such dates and the results of operations of the Company for such periods, are
correct and complete, and are consistent with the books and records of the
Company; provided, however, that the December 31 Financial Statements are
subject to normal year-end
9
<PAGE> 17
adjustments (which will not be material individually or in the aggregate) and
lack footnotes and other presentation items.
3.8.2. Events Subsequent to June 30 Year End. Since the June 30 Year
End, there has not been any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company. Without limiting the generality of the foregoing, except as described
in Section 3.8.2 of the Disclosure Schedule since the June 30 Year End:
3.8.2.1. the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
3.8.2.2. the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) outside the Ordinary Course of Business;
3.8.2.3. no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) to which the
Company is a party or by which it is bound;
3.8.2.4. the Company has not imposed any Security Interest
upon any of its assets;
3.8.2.5. the Company has not made any capital expenditure (or
series of related capital expenditures) involving more than $5,000;
3.8.2.6. the Company has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any other Person
(or series of related capital investments, loans, and acquisitions);
3.8.2.7. the Company has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation;
3.8.2.8. the Company has not delayed or postponed the payment
of accounts payable and other Liabilities;
3.8.2.9. there has been no change made or authorized in the
Organizational Documents of the Company;
10
<PAGE> 18
3.8.2.10. the Company has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or exercise)
any of the capital stock of the Company;
3.8.2.11. the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind), or redeemed, purchased, or otherwise acquired any of its
capital stock;
3.8.2.12. the Company has not canceled, compromised, waived,
or released any right or claim (or series of related rights and claims);
3.8.2.13. the Company has not sold, leased or otherwise
disposed of, or granted any license or sublicense or other rights under or with
respect to, any Software or other Company Intellectual Property other than
pursuant to End-User Licenses, or received notice of termination of any license,
maintenance, distribution, dealer, sales representative, consulting, joint
venture, credit or similar agreement;
3.8.2.14. the Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its assets or
property;
3.8.2.15. the Company has not made any loan to or repaid any
loan from, any of Sellers or their respective Affiliates (including without
limitation any advances or payments with respect to the Closing Debt), or
entered into any other transaction with, or made any payments or other
distributions to, any of Sellers or their respective Affiliates, except for
compensation in the Ordinary Course of Business;
3.8.2.16. the Company has not made any loan to, entered into
any other transaction with, or made any payments or other distributions to, any
of its directors, officers and employees outside the Ordinary Course of
Business;
3.8.2.17. the Company has not entered into any employment
contract, collective bargaining agreement or other agreement or obligation with
any of its employees, written or oral, or modified the terms of any existing
such contract, agreement or obligation outside the Ordinary Course of Business;
3.8.2.18. the Company has not granted any increase in the
compensation of any of its employees outside the Ordinary Course of Business or
any increase in the compensation of its directors or officers;
3.8.2.19. the Company has not adopted, amended, modified, or
terminated any Employee Benefit Plan;
11
<PAGE> 19
3.8.2.20. the Company has not made any fundamental or material
changes in employment terms or any other change in employment terms outside
the Ordinary Course of Business for any of its directors, officers and
employees.
3.8.2.21. the Company has not made or pledged to make any
charitable contribution;
3.8.2.22. the Company has not changed its accounting
principles, methods, practices or assumptions;
3.8.2.23. there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company (other than any of the foregoing that
relates to the software industry generally); and
3.8.2.24. the Company has not agreed or otherwise committed to
any of the foregoing.
3.8.3. Undisclosed Liabilities. Except as disclosed in Section 3.8.2
of the Disclosure Schedule, the Company does not have any Liability of a
character required to be presented in financial statements prepared in
accordance with GAAP as of the Closing Date, except for (i) Liabilities set
forth on the face of the December 31 Balance Sheet (rather than in any notes
thereto), (ii) Liabilities which have arisen after December 31, 1997 in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of any Legal Requirement) and (iii)
those Liabilities which are described in Section 3.8.3 of the Disclosure
Schedule.
Section 3.9 Equipment and Receivables.
3.9.1. Equipment and Tangible Assets. Section 3.9.1 of the
Disclosure Schedule sets forth a complete list in reasonable detail of all
equipment and other tangible assets (the "Equipment") of the Company as of the
date of this Agreement and the Closing Date. Such Equipment and each such
tangible asset are, to the Knowledge of the Company, free from material defects
(patent and latent), have been maintained in accordance with normal industry
practice, are in good operating condition and repair (subject to normal wear and
tear), and are suitable for the purposes for which they presently are used.
3.9.2. Receivables. All Receivables of the Company represent or will
represent valid obligations arising from End-User Licenses actually granted and
services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing Date, the Receivables are or will be as of the Closing Date
current and collectible net of the respective reserves shown on the December 31
Balance Sheet or in Section 3.9.2 of the Disclosure Schedule as of the Closing
Date (which reserves are adequate and calculated consistent with the Ordinary
Course of Business of the Company). Except as set forth in Section 3.9.2 of the
Disclosure Schedule, there is no contest, claim, or asserted right of set-off
other than returns in the Ordinary
12
<PAGE> 20
Course of Business, or any agreement with any maker of a Receivable, relating to
the amount or validity of such Receivable. Section 3.9.2 of the Disclosure
Schedule contains a complete and accurate list and aging of all Receivables as
of December 31, 1997, which shall be updated by Seller in a supplement to
Section 3.9.2 of the Disclosure Schedule dated as of the Closing Date.
Section 3.10 Software; Intellectual Property.
3.10.1. Identification; Title. Section 3.10.1 of the Disclosure
Schedule contains a complete and accurate list of the Software, including but
not limited to all Intellectual Property relating to the Software; provided,
that with respect to Trade Secrets, Confidential Information and Know-How, such
list is intended only as a summary sufficient to identify the Software. Except
as set forth in Section 3.10.1 of the Disclosure Schedule, and subject to rights
of third parties in Embedded Products as disclosed in Section 3.10.2.6, the
Company has all of the worldwide right, title, and interest in and to all of the
Company Intellectual Property (including the Software), free and clear of any
and all Security Interests and claims and rights of third parties or any of
Sellers (except for Embedded Products and rights pursuant to End-User Licenses
listed in Section 3.10.1 of the Disclosure Schedule). All of the Company
Intellectual Property (other than patent applications) is valid, subsisting and
enforceable in the United States, Canada and the United Kingdom and in addition
with respect to Copyrights, all countries that are members of the Berne
Convention and recognize software as subject to Copyright protection. Sellers,
Mabey and Samanani have previously assigned all of their individual and
collective right, title and interest, if any, in and to the Company Intellectual
Property to the Company and waived any and all moral rights, if any, of Sellers,
Mabey and Samanani therein. The Company has not, by any of its acts or
omissions, or by acts or omissions of its Affiliates, directors, officers,
employees, agents, or representatives caused any of the Company Intellectual
Property rights to be transferred, diminished, abandoned, waived, extinguished,
or adversely affected to any material extent. The Company has not received any
notice, and the Company and Sellers have no Knowledge, of any complaint, claim,
assertion, challenge, threat or allegation by any third party or any Seller
relating to any of the Company Intellectual Property.
3.10.2. The Software.
3.10.2.1. Source Code. The Company is in actual and sole
possession of the complete source code of the Software and all related
Documentation except for any source code and related Documentation that are in
the possession of an escrow agent or the United States Patent and Trademark
Office, or any Software user documentation in the possession of an End User
under an End-User License, in each case as listed in Section 3.10.1 of the
Disclosure Schedule.
3.10.2.2. Software Authors. Section 3.10.2.2 of the Disclosure
Schedule lists all Software Authors. All of the right, title and interest, if
any, of each of the Software Authors in the Software and in all inventions or
other work product created or developed by the Software Authors within the scope
of employment with the Company, and in each contribution of the Software Authors
to the foregoing, and in all of the Company Intellectual Property in the
foregoing, is owned by the Company either by operation of law, by
13
<PAGE> 21
agreement, by transfer, or otherwise. Except as set forth in Section 3.10.2 of
the Disclosure Schedule, the Software (except for the Embedded Products) is
original with the Company or the Software Authors and does not contain any
material created by any parties other than the Software Authors.
3.10.2.3. Defects. Except as described in Section 3.10.2.3 of
the Disclosure Schedule, there are no defects or errors in the Software, which
would in any material respect impair the Company's or any End User's use of the
Software or the performance of the Software in accordance with the
specifications and all Documentation for the Software (excluding any defects or
errors arising or discovered in the Ordinary Course of Business which as a whole
are not material to the overall performance of the Software operating on the
platforms identified in Section 3.10.1 of the Disclosure Schedule); except as
described in Section 3.10.2.3 of the Disclosure Schedule, the Software has all
the material features and functionality and will perform substantially as
described in all Documentation and, to the Knowledge of the Company and Sellers,
the Software does not contain any "back door," "time bomb," "Trojan horse,"
"worm," "drop dead device," or "virus" (as these terms are commonly used in the
computer software industry), or other software routines or hardware components
designed to permit unauthorized access, to disable or erase the Software,
hardware or data, or to perform any other similar type of functions.
3.10.2.4. No Third-Party Rights. Except with respect to
Embedded Products and End-User Licenses, no Person other than the Company has
any right, interest or claim of any kind or nature in, or related to the
Software. No facilities or funding from any Governmental Body or university or
college were used in the development of the Software and the Software was not
developed pursuant to a contract with any Person (except for independent
contractors hired by the Company who have assigned all of their rights to the
Company).
3.10.2.5. Documentation: Fixes; Maintenance; Warranties. The
Documentation contains all written materials necessary for a person of ordinary
skill in the art of computer programming to readily understand and implement the
structure, sequence of instructions, organization and operation of the Software
such that the Software can be used, modified, and enhanced by such a person
without the aid of any other materials or assistance other than Embedded
Products. The Company has in its possession complete and accurate records of the
Company with respect to all Software fixes (including fixes currently in
progress), problem lists, maintenance of the Software, modifications and
enhancements, customer complaints, and all warranty claims ever received
(including any pending claims) relating to the Software which were in the
Company's possession or control. Except as set forth in Section 3.10.2.5 of the
Disclosure Schedule, the Company has made no oral or written representations or
warranties with respect to the Software.
3.10.2.6. Embedded Products. Section 3.10.2.6 of the Disclosure
Schedule contains a complete list of all third party software which is a
component of or incorporated in or specifically required to develop, use or
support the Software ("Embedded Products"), and a list of any restrictions on
the Company's right to use, incorporate or distribute
14
<PAGE> 22
the Embedded Products. The Company is not in violation of any license,
sublicense, or agreement with respect to an Embedded Product.
3.10.3. Intellectual Property Other Than Software. Section 3.10.3 of
the Disclosure Schedule lists all of the Copyrights, Patents, Trademarks and
other Intellectual Property, other than the Intellectual Property relating to
Software, which has been registered by or is the subject of an application for
registration by the Company, and all Intellectual Property other than
Intellectual Property relating to Software which has been licensed by the
Company.
3.10.4. Confidential Information. The Company has taken commercially
reasonable security measures to protect the secrecy, confidentiality, and value
of the Confidential Information of the Company including, when appropriate to
protect its rights in such Confidential Information, entering into agreements
that acknowledge that such Confidential Information is proprietary to the
Company and is not to be disclosed except as authorized by the Company nor
misused. No material portion of such Confidential Information is in the public
domain, nor has been used, disclosed, or appropriated for the benefit of any
Persons other than the Company (except pursuant to a contract listed in Section
3.11.1 of the Disclosure Schedule).
3.10.5. Patent Applications. With respect to the patent applications
included in the Company Intellectual Property, (i) the Company and its
representatives and attorneys have complied with their disclosure obligations to
patent authorities under applicable Legal Requirements for disclosure of the
best mode of practicing the invention known to the applicable inventors and for
disclosure of prior art and other material information to Governmental Bodies
(e.g., the "duty of candor"), and to the best of the Company's and such
inventors' Knowledge and belief, for a full written description of each
invention therein and its enablement, (ii) the Company and its representatives
and attorneys have disclosed to Buyer the complete file wrapper and
correspondence with Governmental Bodies relating thereto and (iii) the Company
and Sellers have no Knowledge or reason to believe that patents will not issue
therefrom.
3.10.6. No Infringement; No Third-Party Infringement. The Company
has not infringed or misappropriated, and none of the Company Intellectual
Property infringes or misappropriates, any Intellectual Property of another
Person or will infringe any Patent that issues from a patent application filed
on or before the Closing Date, and there is no claim pending or threatened
against the Company with respect to any alleged infringement of any Intellectual
Property of another Person. The Company and Sellers have no Knowledge that any
Person is infringing on any Company Intellectual Property.
Section 3.11 Contracts; No Defaults.
3.11.1. Contracts. Section 3.11.1 of the Disclosure Schedule
contains an accurate and complete list of all licenses and sublicenses of
Intellectual Property of the Company and others, End-User Licenses, insurance
policies, powers of attorney, agreements relating to indebtedness and other
Liabilities, agreements with any Seller, or any officer, director, employee or
independent contractor of the Company, leases of real and personal property,
purchase orders and commitments, sales orders and commitments and all other
material contracts, agreements,
15
<PAGE> 23
arrangements, proposals, bids and quotations of any kind, written or oral,
relating to the assets or the business of the Company, to which any of the
Company or Sellers is a party or by which the assets of the Company are bound
("Contracts") and identifies each of the foregoing by the parties, date, subject
matter and term thereof.
3.11.2. Copies of Contracts; Full Force and Effect. The Company has
delivered to Buyer a correct and complete copy of each written Contract (as
amended to date) (or forms thereof, where form agreements are used; provided,
that any and all deviations or changes to the forms in any individual case are
described in Section 3.11.1 of the Disclosure Schedule) and a written summary
setting forth the terms and conditions of each oral Contract. With respect to
each Contract, except as set forth in Section 3.11.1 of the Disclosure Schedule:
(i) the Contract is legal, valid, binding, enforceable and in full force and
effect, except to the extent that the enforceability of any such Contract may be
subject to or limited by rules of equity or by bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium or other similar
laws relating to or affecting the rights of creditors generally; (ii) there are
no oral amendments or modifications to the Contract and the written terms
thereof accurately set forth the agreement between the parties thereto; (iii)
the Contract will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms, without notice to or the consent of any
party thereto, following the consummation of the transactions contemplated by
this Agreement, including without limitation any effect of a change in control
of the Company; (iv) the Company is not, and to the Knowledge of the Company and
Sellers no other party is, in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the Contract; and (v) the
Company has not, and to the Knowledge of the Company and Sellers no other party
has, repudiated any provision of the Contract.
Section 3.12 Real Property; Leases. The Company does not own and has never
owned any real property. Section 3.11.1 of the Disclosure Schedule lists and
describes briefly all real property leases and the property leased or subleased
to the Company.
Section 3.13 Compliance with Laws.
3.13.1. Legal Requirements. Except as set forth in Section 3.13.1 of
the Disclosure Schedule, the Company, and its respective predecessors and
Affiliates, is in compliance in all material respects with each Legal
Requirement that is or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its assets, except where the
failure to be in compliance has not had and is not expected to have, a material
adverse effect on the Company's business or assets. Neither the Company nor any
Seller has received any notice or other communication (oral or written) from any
Governmental Body or any other Person regarding, and the Company and Sellers
have no Knowledge of, any actual, alleged, or potential violation of, or failure
to comply with, any Legal Requirement, or any obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.
16
<PAGE> 24
3.13.2. Governmental Authorizations. Section 3.13.2 of the
Disclosure Schedule contains a complete and accurate list of each authorization
of a Governmental Body that is material to the business of the Company. Each
such authorization (the "Company Governmental Authorizations") is valid and in
full force and effect and will remain in full force and effect following the
consummation of the transactions contemplated by this Agreement, without any
consent of, filing with, or notice to any Governmental Body. Neither the Company
nor any Seller has received any notice or other communication (oral or written)
from any Governmental Body or any other Person regarding, and the Company and
Sellers have no Knowledge of, any actual, alleged, or potential (i) violation of
or failure to comply with any term or requirement of any Company Governmental
Authorization, or (ii) any revocation, withdrawal, suspension, cancellation, or
modification of any Company Governmental Authorization.
Section 3.14 Tax Matters.
3.14.1. Tax Returns. Except as disclosed in Section 3.14.1 of the
Disclosure Schedule, the Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all respects. The
Company currently is not the beneficiary of any extension of time within which
to file any Tax Return. No claim has ever been received by the Company from any
Governmental Body in a jurisdiction where the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of any of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
3.14.2. Withholding. The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party.
3.14.3. Tax Disputes. Except as disclosed in Section 3.14.3 of the
Disclosure Schedule, no Principal Seller or director or officer (or employee
responsible for Tax matters) of the Company expects any Governmental Body to
assess any additional Taxes relating to the Company for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any Liability
for Taxes of the Company either (i) claimed or raised by any Governmental Body
in writing or (ii) as to which the Company or any Seller has Knowledge based
upon personal contact with any agent of such Governmental Body. Section 3.14.3
of the Disclosure Schedule lists all federal, provincial, state, local, and
foreign income Tax Returns filed and Taxes payable with respect to the Company
since the Company's inception, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. The Company has delivered to Buyer correct and complete copies of all
income Tax Returns, examination reports, correspondence between the Company and
any Governmental Body relating to Taxes, and statements of deficiencies assessed
against or agreed to by the Company since its inception.
17
<PAGE> 25
3.14.4. Waivers and Extensions. The Company has not waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency. The Company has not refiled any
Tax Return.
3.14.5. Tax Information. Section 3.14.5 of the Disclosure Schedule
sets forth the following information with respect to the Company as of June 30,
1997: (i) the Tax basis of the Company in its assets; and (ii) the amount of any
net operating loss, net capital loss, unused investment or other credit, unused
foreign Tax, or excess charitable contribution allocable to the Company.
3.14.6. Unpaid Taxes. All Taxes owed by the Company (whether or not
shown on any Tax Return) have been paid except Taxes owed but not yet payable.
All sales, use and goods and services Taxes owing with respect to transactions
by the Company prior to the Closing have been collected by the Company from the
customers in such transactions. The unpaid Taxes of the Company (i) did not, as
of December 31, 1997, exceed the reserve for Liability for Taxes (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the December 31 Balance Sheet
(rather than in any notes thereto) and (ii) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company in filing its Tax Returns.
Section 3.15 Insurance. Section 3.11.1 of the Disclosure Schedule sets
forth a list of each insurance policy to which the Company has been a party, a
named insured, or otherwise the beneficiary of coverage at any time since its
inception, copies of which have been delivered to Buyer. Section 3.15 of the
Disclosure Schedule describes any self-insurance arrangements, retroactive
premium adjustments or other loss-sharing arrangements affecting the Company.
Section 3.16 Litigation. Section 3.16 of the Disclosure Schedule sets
forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or to
the Knowledge of the Company or any of Sellers is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any Governmental Body or
before any arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3.16 of the Disclosure Schedule could result
in any adverse change in the business, financial condition, operations, results
of operations, or future prospects of the Company. None of the Company or
Sellers has any Basis to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against the Company.
Section 3.17 Product Warranty. Each product manufactured, licensed, sold,
leased, or delivered by the Company has been in conformity with all applicable
contractual commitments, all express warranties made by the Company and any
implied warranties not effectively disclaimed by the Company. The Company has no
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
it giving rise to any Liability) (i) for replacement or repair thereof or other
damages in connection therewith, subject only to the reserve for product
warranty claims set
18
<PAGE> 26
forth on the face of the December 31 Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company, or (ii) arising out
of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, licensed, sold, leased, or
delivered by the Company. No product manufactured, licensed, sold, leased, or
delivered by the Company is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of license, sale
or lease, copies of which are set forth in Section 3.17 of the Disclosure
Schedule.
Section 3.18 Employees.
3.18.1. Labor Relations. To the Knowledge of the Company and
Sellers, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Company has not committed any unfair labor practice. The Company
and Sellers have no Knowledge of any organizational effort presently being made
or threatened by or on behalf of any labor union with respect to employees of
the Company.
3.18.2. Employment Terms. Section 3.18.2 of the Disclosure Schedule
contains a complete and accurate list of the following information for each
employee of the Company, including each employee on leave of absence or layoff
status: name; job title; and description of job responsibilities; tenure with
the Company; current compensation paid or payable; any change in compensation
since June 30, 1997; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under any employee plan. All current and
former employees of the Company are and were employed by the Company and reside
in Canada. To the Company's and Sellers' Knowledge, no current or former
employee or current or former officer or director of the Company is a party to,
or is otherwise bound by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights agreement, between such
employee or officer or director and any other Person that in any way materially
adversely affected or affects (i) the performance of his or her duties as an
employee or officer or director of the Company, or (ii) the ability of the
Company to conduct its business, or otherwise develop and distribute the
Software and other Company Intellectual Property.
Section 3.19 Employee Benefits.
3.19.1. Each Employee Benefit Plan (and each contract or arrangement
related to or underlying the Employee Benefit Plan) complies in form and in
operation in all respects with the applicable requirements of the Employment
Standards Code, S.A. 1996, c.E-10.3, the Employment Insurance Act, R.S.C. 1985,
c.U-1, the Workers' Compensation Act, S.A. 1981, c.W-16, the Alberta Health Care
Insurance Act, R.S.A. 1980, c.A-24, the Canada Pension Plan Act, R.S.C. 1985,
c.C-8, the Human Rights, Citizenship and Multiculturalism Act, R.S.A. 1980,
c.H-11.7 and the Alberta Income Tax Act, R.S.C. 1985, c.A-31, all regulations
made thereunder and all other applicable laws (collectively referred to as the
"Employment Related Legislation").
19
<PAGE> 27
3.19.1.1. All required reports and descriptions have been filed
and distributed appropriately with respect to each such Employee Benefit Plan
under the applicable Employment Related Legislation.
3.19.1.2. All premiums or other payments for all periods ending
on or before the Closing Date have been paid with respect to each such Employee
Benefit Plan. The Company has no unfunded Liabilities under any Employee Benefit
Plan.
3.19.1.3. The Company does not contribute to, has never
contributed to and has never been required to contribute to any Employee Pension
Benefit Plan. The Company does not have any Liability under any Employee Pension
Benefit Plan.
3.19.1.4. The Company delivered to Buyer correct and complete
copies of the plan documents, summary plan descriptions, insurance contracts and
agreements of any nature relating to any Employee Benefit Plan.
3.19.2. Except as set forth in Section 3.8.2 of the Disclosure
Schedule, the Company does not maintain and has never maintained any Employee
Benefit Plan providing medical, health or life insurance, or welfare type
benefits for current, future retired or terminated employees, their spouses or
their dependents. The Company does not contribute to, has never contributed to,
and has never been required to contribute to any Employee Benefit Plan providing
medical, health or life insurance, or welfare type benefits for current, future
retired or terminated employees, their spouses or their dependents.
Section 3.20 Certain Business Relationships with the Company. Except as
set forth in Section 3.20 of the Disclosure Schedule, the directors, officers,
and employees of the Company and their Affiliates do not have any ownership
interest in any of the assets of the Company and to the Company's and Sellers'
Knowledge, do not own, of record or as a beneficial owner, a substantial equity
interest or any other financial or profit interest in any Person that has
engaged in competition with the Company with respect to any line of products or
services of the Company, in any market presently served by the Company except
for ownership of less than five percent (5%) of the outstanding capital stock of
any Person that is publicly traded on any recognized stock exchange or in the
over-the-counter market in the United States or Canada. Except as set forth in
Section 3.20 of the Disclosure Schedule, no officer or director of the Company
and, to the Company's and Sellers' Knowledge, none of their Affiliates, is a
party to any contract with, or has any claim or right against the Company. All
money owed by the Company to the Company's officers or directors or any of their
Affiliates (other than for salary) is for bona fide debts and is set forth in
Section 3.20 of the Disclosure Schedule.
20
<PAGE> 28
Section 3.21 Certain Payments. Neither the Company, nor, to the Company's
or Sellers' Knowledge, any director, officer, agent, or employee of the Company
or any other Person associated with or acting for or on behalf of the Company,
has directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person, private or
public, regardless of form, whether in money, property, or services (i) to pay
for favorable treatment for business secured for the Company, (ii) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Company or any Affiliate of the Company, or (iii) in violation of
any Legal Requirements applicable to the Company, or (b) established or
maintained any fund or asset belonging to the Company that has not been recorded
in the books and records of the Company in accordance with GAAP.
Section 3.22 Bank Accounts. Section 3.22 of the Disclosure Schedule
contains a complete and accurate list of each bank at which the Company has an
account or safety deposit box, the number of each such account or box, and the
names of all persons authorized to draw on such accounts or to have access to
such boxes.
Section 3.23 Guaranties. The Company is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
Section 3.24 Change of Control Payments. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
herein will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director, officer or employee of the Company from the Company, (ii)
materially increase any benefits otherwise payable under any Employee Benefit
Plan, or (iii) result in the acceleration of the time of payment or vesting of
any benefits.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
CONCERNING THE TRANSACTION
Each Seller represents and warrants to Buyer that the statements contained
in this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made as of the
Closing Date) with respect to such Seller:
Section 4.1 Organization of Certain Sellers. If such Seller is a
corporation, such Seller is duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation set forth in
Section 4.1 of the Disclosure Schedule.
Section 4.2 Authorization of Transaction. Such Seller has full power and
authority (including, if such Seller is a corporation, full corporate power and
authority) to execute and deliver this Agreement and to perform such Seller's
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of such Seller, enforceable against such Seller
21
<PAGE> 29
in accordance with its terms and conditions, except to the extent that the
enforceability of this Agreement may be subject to or limited by rules of equity
or by bankruptcy, insolvency, reorganization, fraudulent conveyance,
arrangement, moratorium, or other similar laws relating to or affecting the
rights of creditors generally.
Section 4.3 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated by this
Agreement, will (i) violate any Legal Requirement to which such Seller is
subject or, if such Seller is other than a natural person, any provision of its
Organizational Documents or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which such Seller is a party or by which such Seller or any of such Seller's
assets is bound. Such Seller does not need to give any notice to, make any
filings with, or obtain any authorization, consent, or approval of any
Governmental Body in order for such Seller to consummate the transactions
contemplated by this Agreement, except as set forth in Section 4.3 to the
Disclosure Schedule.
Section 4.4 Citizenship and Tax Returns. Such Seller is a Canadian
resident, or if Seller is a corporation, trust or other legal entity, is
incorporated or formed under the laws of Canada.
Section 4.5 Company Shares; Title. Such Seller holds of record and owns
beneficially, and will convey to Buyer at the Closing, the number of shares of
the Company Shares set forth next to such Seller's name in Section 3.3 of the
Disclosure Schedule, free and clear of any restrictions on transfer (including
any restrictions under applicable security laws), Taxes, Security Interests,
liens, pledges, mortgages, charges, covenants, encumbrances, options, warrants,
purchase rights, contracts, commitments, equities, claims and demands. Such
Seller is not a party to any option, warrant, purchase right or other contract
or commitment that could require such Seller to sell, transfer or otherwise
dispose of any of the Company Shares owned by such Seller (other than this
Agreement). Such Seller is not a party to any voting trust, proxy or other
agreement or understanding with respect to the voting of any of the Company
Shares.
Section 4.6 Intellectual Property. Such Seller has previously assigned to
the Company all of such Seller's right, title and interest, if any, in and to
the Company Intellectual Property and waived any and all moral rights, if any,
of Seller therein. All of the right, title and interest, if any, of such Seller
in the Software and in all inventions or other work product created or developed
by such Seller within the scope of employment with the Company, and in each
contribution of such Seller to the foregoing, and in all of the Company
Intellectual Property in the foregoing, is owned by the Company either by
operation of law, by agreement, by transfer, or otherwise. Except as set forth
in Section 3.10.1 of the Disclosure Schedule, the Software (except for the
Embedded Products) is original with the Company or the Software Authors and does
not contain any material created by any parties other than the Software Authors.
Such Seller has no actual knowledge (without independent investigation) that any
of the Principals' representations and warranties in Section 3.10 of this
Agreement contain any untrue statement or omit to state a material fact
necessary to make the statements therein not misleading.
22
<PAGE> 30
Section 4.7 Brokers' Fees. Such Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Buyer or the Company is or
could become liable or obligated.
Section 4.8 Certain Business Relationships with the Company. Except as set
forth in Section 4.8 of the Disclosure Schedule, such Seller and its Affiliates
do not have any ownership interest in any of the assets of the Company and do
not own, of record or as a beneficial owner, a substantial equity interest or
any other financial or profit interest in any Person that has engaged in
competition with the Company with respect to any line of products or services of
the Company, in any market presently served by the Company except for ownership
of less than five percent (5%) of the outstanding capital stock of any Person
that is publicly traded on any recognized stock exchange or in the
over-the-counter market in the United States or Canada. Except as set forth in
Section 4.8 of the Disclosure Schedule, such Seller and its Affiliates are not a
party to any contract with nor have any claim or right against the Company. All
money owed by the Company to such Seller or any of its Affiliates (other than
for salary) is for bona fide debts and are set forth in Section 4.8 of the
Disclosure Schedule. Effective with the Closing, there shall be no legal
relationship between such Seller or its Affiliates, on the one hand, and the
Company on the other hand, except for employment agreements and relationships
expressly set forth in Section 4.8 or 3.18.2 of the Disclosure Schedule.
Section 4.9 Litigation. Such Seller is not (i) subject to any outstanding
injunction, judgment, order, decree, ruling or charge or (ii) a party, or to the
Knowledge of such Seller threatened to be made a party, to any action, suit,
proceeding, hearing or investigation of, in, or before any court or
quasi-judicial or administrative agency of any Governmental Body or before any
arbitrator, that would or might restrain, materially condition, prohibit
consummation of or rescind the transactions contemplated by this Agreement, or
impose any material limitations on any provision of this Agreement, or compel
Buyer or such Seller to dispose of or hold separate a material portion of the
assets of the Company, as a result of the transactions contemplated by this
Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers that the statements contained in
this Article V are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made as of the
Closing Date):
Section 5.1 Organization of Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
23
<PAGE> 31
Section 5.2 Authorization of Transaction. Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. The execution,
delivery, consummation and performance of this Agreement have been duly
authorized and approved by all necessary actions of Buyer's board of directors.
This Agreement constitutes the valid and legally binding obligation of Buyer,
enforceable in accordance with its terms and conditions except to the extent
that the enforceability of this Agreement may be subject to or limited by rules
of equity or by bankruptcy, insolvency, reorganization, fraudulent conveyance,
arrangement, moratorium, or other similar laws relating to or affecting the
rights of creditors generally.
Section 5.3 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated by this
Agreement, will (i) violate any Legal Requirements which Buyer is subject or any
provision of its Organizational Documents (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Buyer is a party or by which it or any of its assets is
bound. Buyer does not need to give any notice to, make any filing with, or
obtain any authorization, consent or approval of any Governmental Body in order
for the Buyer to consummate the transactions contemplated by this Agreement,
except as set forth in Section 5.3 of the Disclosure Schedule.
Section 5.4 Brokers' Fees. Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Sellers could become
liable or obligated.
ARTICLE VI
COVENANTS
Section 6.1 Covenants to be Effective at Closing. The Parties agree as
follows, effective at Closing:
6.1.1. Termination of Shareholder Agreement. Sellers hereby
terminate that certain Unanimous Shareholder Agreement dated June 28, 1996 among
Sellers, which shall be of no further force or effect.
Section 6.2 Post-Closing Covenants. The Parties agree as follows with
respect to the period following the Closing:
6.2.1. General. From time to time after the Closing, each Seller
will at his, her or its own expense, execute and deliver, or cause to be
executed and delivered, such documents to Buyer as Buyer may reasonably request,
and from time to time after the Closing, Buyer will, at its own expense, execute
and deliver such documents to Sellers as Sellers may reasonably request, in
order to more effectively consummate the transactions contemplated by this
Agreement.
24
<PAGE> 32
6.2.2. Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him, her or it and his, her or its counsel in the contest or
defense, make available their personnel, and provide such testimony and access
to their books and records as shall be reasonably necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Article VIII below).
6.2.3. Transition. Sellers will not take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining similar
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing. Sellers will refer all customer inquiries
relating to software products for the Year 2000 Market to Buyer from and after
the Closing.
6.2.4. Confidentiality. Each Seller will treat and hold as such all
of the Confidential Information of the Company or Buyer (which shall be deemed
to include the terms and conditions of this Agreement), refrain from using any
of such Confidential Information except in connection with this Agreement, and
deliver promptly to Buyer or destroy, at the request and option of Buyer, all
tangible embodiments (and all copies) of such Confidential Information which are
in his, her or its possession. Each Seller agrees to safeguard any such
Confidential Information using measures that are equal to the standard of
protection used by the Company to protect its own confidential information of
comparable value, but in no event less than reasonable care. In the event that
any Seller is requested or required to disclose any Confidential Information,
such Seller will notify Buyer promptly of the request or requirement so that
Buyer may seek an appropriate protective order or waive compliance with the
provisions of this Section 6.2.4. If, in the absence of a protective order or
the receipt of a waiver hereunder, any Seller is, on the advice of counsel,
compelled to disclose any such Confidential Information to any tribunal or else
stand liable for contempt, such Seller may disclose the Confidential Information
to the tribunal; provided, however, that the disclosing Seller shall use his,
her or its reasonable best efforts to obtain, at the reasonable request of
Buyer, an order or other assurance that confidential treatment will be accorded
to such portion of such Confidential Information required to be disclosed as
Buyer shall designate. If Buyer determines that not all of the Confidential
Information of the Company was fixed in a tangible medium or disclosed to Buyer
in full or at all prior to the Closing, each Seller agrees, upon reasonable
request from Buyer, to fix in a tangible medium any such Confidential
Information not previously so fixed of which such Seller has Knowledge, and to
provide Buyer with full disclosure of any such Confidential Information not
previously fully disclosed, including the providing of additional explanation
and documentation.
25
<PAGE> 33
6.2.5. Audit Rights. Commencing September 1, 1998, Sellers shall
have the right once during each six (6) month period thereafter (but not during
the months of July or August) acting by Majority Action, to have their
representatives reasonably approved by Buyer perform an inspection of the books
and records of Buyer for the immediately prior fiscal year of Buyer (of if
shorter, the period since Sellers' last inspection) as they relate to Additional
Payments, Target Payments and Customer Payments under this Agreement. Except for
the months of July and August, any such inspection shall be permitted by Buyer
within fifteen (15) days of receipt of Sellers' written request to inspect,
during normal business hours, at a time mutually agreed upon by Sellers and
Buyer. Sellers shall provide a copy of the report from such inspection to Buyer
promptly upon completion and Buyer shall within thirty (30) days pay to Sellers
the amount of any additional Additional Payments, Target Payments and Customer
Payments due. The cost of each such inspection will be borne by Sellers;
provided, however, that if such an inspection conducted at the expense of
Sellers shows that Buyer failed to pay when due to Sellers an amount greater
than ten percent (10%) of all Additional Payments, Target Payments and Customer
Payments determined to have been due to Sellers during the period inspected,
Buyer shall reimburse Sellers for the reasonable, documented out-of-pocket
expenses incurred in such inspection and Sellers shall have the right to conduct
future such inspections every three (3) months thereafter until an inspection
shows a discrepancy of less than five percent (5%) of all amounts due in the
inspected period. If at any time Buyer's books and records show Buyer has paid
to Sellers an amount of Additional Payments, Target Payments and Customer
Payments greater than that due to Sellers under this Agreement, Buyer shall so
notify Sellers in writing, providing reasonable documentation, and Sellers shall
pay to Buyer the amount of Additional Payments, Target Payments and Customer
Payments overpaid within thirty (30) days or, at Buyer's option, provide Buyer
with a credit in the same amount toward Buyer's future Additional Payment,
Target Payment and Customer Payment obligations.
6.2.6. Continuing Support. Each Seller will provide such support and
assistance, at the Company's expense, including the providing of documentation
and testimony, as is reasonably required by Buyer to prosecute applications for
registration of Company Intellectual Property, to finalize and record the
assignment of Company Intellectual Property to the Company or its successors and
assigns with the appropriate Governmental Bodies, and for otherwise perfecting
and enforcing Company Intellectual Property.
6.2.7. Recordkeeping. Buyer will keep such records as can enable the
Additional Payments, Target Payments and Customer Payments due hereunder to be
accurately determined and to verify any claim for indemnity pursuant to Article
VIII. These records will be retained by Buyer and will be made available for
inspection at the request of and at the expense of Sellers as provided in
Section 6.2.5. Particular documents from which the accounting is determined need
not be retained by Buyer more than two (2) years after completion of an
inspection thereof, if an inspection has been requested, and, in any event, no
more than three (3) years from their date of origin.
26
<PAGE> 34
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Obligations of Buyer. The obligations of
Buyer under this Agreement to consummate the transactions to be performed by it
in connection with the Closing shall be subject to the fulfillment, on or prior
to the Closing Date, of all of the following conditions precedent:
7.1.1. Representations and Warranties. All representations and
warranties of Principals and Sellers contained in this Agreement and in the
Disclosure Schedule and all certificates and other documents delivered by the
Company, Principals and Sellers to Buyer or its representatives pursuant to this
Agreement and or in connection with the transactions contemplated hereby shall
be true, complete and accurate in all material respects as of the date when made
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
7.1.2. No Material Adverse Change. During the period from the date
hereof to the Closing Date, the Company shall not have sustained any material
loss or damage to its assets, whether or not insured, nor shall there have been
any material adverse change in the assets or the business of the Company.
7.1.3. Disclosure Schedule Delivered. All amendments and supplements
to the Disclosure Schedule to be delivered prior to Closing to Buyer by
Principals or Sellers hereunder shall have been so delivered with time
sufficient for Buyer's review and in no event later than two (2) business days
prior to Closing, and each such amendment and supplement shall be satisfactory
in form, and content, to Buyer, such satisfaction to be determined in Buyer's
reasonable discretion. To the extent Principals or Sellers amend or supplement
the Disclosure Schedule immediately prior to Closing, each such amendment and
supplement shall be satisfactory in form, and content, to Buyer, such
satisfaction to be determined in Buyer's reasonable discretion.
7.1.4. Obtaining of Consents and Approvals. Except as otherwise
contemplated by this Agreement, Sellers and the Company shall have executed and
delivered to Buyer, or shall have caused to be executed and delivered, any
consents, waivers, approvals, permits, licenses or authorizations which, if not
obtained on or prior to the Closing Date, would have a material adverse effect
on the consummation of the transactions contemplated hereby or on the assets or
the business of the Company.
7.1.5. Performance by Sellers. Sellers shall have performed and
complied in all material respects with all agreements, covenants, obligations
and conditions required by this Agreement to be performed or complied with by
Sellers on or before the Closing Date.
7.1.6. Absence of Litigation. There shall not be in effect any order
enjoining or restraining the transactions contemplated by this Agreement, and
there shall not be instituted or pending any action or proceeding before any
Governmental Body (i) challenging the acquisition
27
<PAGE> 35
by Buyer of the Company Shares or otherwise seeking to restrain, materially
condition, prohibit consummation of or rescind the transactions contemplated by
this Agreement, or seeking to impose any material limitations on any provision
of this Agreement, (ii) seeking to compel Buyer or Sellers to dispose of or hold
separate a material portion of the assets of the Company as a result of the
transactions contemplated by this Agreement, (iii) that might affect adversely
the right of Buyer to own the Company Shares or control the Company, or (iv)
that might affect adversely the right of any of the Company to own its assets
and operate its businesses as heretofore owned and operated.
7.1.7. Governmental Approvals. The Parties shall have received all
authorizations, consents, and approvals of Governmental Bodies which, if not
obtained on or prior to the Closing Date, would have a material adverse affect
on the consummation of the transactions contemplated hereby or on the assets or
the business of the Company.
7.1.8. Employment Agreements; Other Employees. Each of Samanani,
Mabey, Ward Anderson, Harold Hoover, Thomas Oke and Dean Elhard shall have
entered into a written employment agreement with Buyer or the Company in form
reasonably satisfactory to Buyer and the same shall be in full force and effect.
All of the other employees of the Company designated by Buyer, shall have
entered into employment arrangements with Buyer or the Company on terms and
conditions satisfactory to Buyer.
7.1.9. Noncompetition Agreements. Each Seller shall execute and
deliver a noncompetition agreement in form reasonably satisfactory to Buyer and
the same shall be in full force and effect.
7.1.10. Resignations. Buyer shall have received the resignations,
effective as of the Closing, of each director and officer of the Company.
7.1.11. Independent Accountants' Advice. Buyer's independent
accountants shall have advised Buyer regarding the accounting treatment of the
transactions contemplated by this Agreement, which shall be satisfactory to
Buyer in its discretion.
7.1.12. Opinion of Sellers' Counsel. Sellers shall have furnished
Buyer with a favorable opinion of Macleod Dixon, counsel for Sellers, dated the
Closing Date, in form reasonably acceptable to Buyer and its counsel.
7.1.13. Delivery of Documents. The execution and delivery to Buyer
by Sellers of the following, all dated as of the Closing Date:
7.1.13.1. certificates representing the Company Shares, in form
reasonably satisfactory to Buyer, a duly executed transfer of share
certificates, and all other documents required by the terms of this Agreement to
be executed and delivered by Sellers;
28
<PAGE> 36
7.1.13.2. certified resolutions of the board of directors and
(if required by any applicable Legal Requirement) of the stockholders of any
Seller that is a corporation, duly authorizing the execution and delivery of
this Agreement and the performance by such Seller of its obligations hereunder;
7.1.13.3. a true and complete copy of the Documentation in
electronic form;
7.1.13.4. the Withholding Forms;
7.1.13.5. a guarantee acknowledgment certificate from each of
Mabey and Samanani with respect to their obligations under Article VIII of this
Agreement; provided, that the Parties hereby agree that the obligations of Mabey
and Samanani under this Agreement are intended by the Parties to be primary
obligations and not obligations of suretyship, guaranty or indemnity and such
certificates are executed, delivered and intended to be effective only in case
any court of competent jurisdiction determines that such certificates are
required in order for such obligations to be enforced under applicable Legal
Requirements;
7.1.13.6. the original promissory notes representing the
Closing Debt, together with releases in form satisfactory to Buyer of the
obligations of the Company thereunder; and
7.1.13.7. such other documents, instruments and certificates as
may be reasonably requested by Buyer or its counsel to effectuate the
transactions contemplated by this Agreement.
7.1.14. Waiver. Buyer may, in its sole discretion, waive in writing
fulfillment of any or all of the conditions set forth in Section 7.1 of this
Agreement, provided that any such waiver granted by Buyer shall have no effect
upon or as against any of the other conditions not so waived.
Section 7.2 Conditions to Obligation of Sellers. The obligations of each
Seller under this Agreement to consummate the transactions to be performed by it
in connection with the Closing shall be subject to the fulfillment, on or prior
to the Closing Date, of all of the following conditions precedent:
7.2.1. Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date.
7.2.2. Performance by Buyer. Buyer shall have performed and complied
in all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by Buyer
on or before the Closing Date. Without
29
<PAGE> 37
limiting the generality of the foregoing, Buyer shall have made arrangements
reasonably satisfactory to Sellers to pay or cause the Company to pay the
Closing Debt at the Closing.
7.2.3. Absence of Litigation. There shall not be in effect any order
of any Governmental Body enjoining or restraining the transactions contemplated
by this Agreement.
7.2.4. Stock Option Awards. The board of directors of Buyer shall
have authorized stock options under the Buyer's 1997 Equity Incentive Plan to
the individuals and in the amounts listed on Schedule 7.2.4. The exercise price
of such options shall be the closing price of Buyer's common stock on The NASDAQ
National Market on the Closing Date. Such options shall be evidenced by separate
stock option agreements on terms and conditions consistent with Buyer's practice
with respect to its other employees.
7.2.5. Opinion of Buyer's Counsel. Buyer shall have furnished
Sellers with the favorable opinion of Catherine R. Hardwick, General Counsel for
Buyer dated as of the Closing Date, in form reasonably acceptable to Sellers and
their counsel.
7.2.6. Delivery of Documents. The execution and delivery to Sellers
by Buyer of the following, all dated as of the Closing Date:
7.2.6.1. certified resolutions of the board of directors of
Buyer duly authorizing the execution and delivery of this Agreement and the
performance by Buyer of its obligations hereunder; and
7.2.6.2. such other documents, instruments and certificates as
may be reasonably requested by Sellers or their counsel to effectuate the
transactions contemplated by this Agreement.
7.2.7. Waiver. Sellers may, in their sole discretion, waive in
writing fulfillment of any or all of the conditions set forth in Section 7.2 of
this Agreement, provided that any such waiver granted shall not constitute a
waiver by Sellers of any other conditions not so waived.
ARTICLE VIII
JOINT ACTION BY SELLERS; SELLERS' REPRESENTATIVE;REMEDIES FOR
BREACHES OF THIS AGREEMENT
Section 8.1 Majority Action by Sellers. Following the execution and
delivery of this Agreement by Sellers and Buyer, any action required or
permitted to be taken by Sellers or any of them under this Agreement shall be
taken by Sellers only pursuant to the vote or written consent of Sellers holding
a majority of the Company Shares as specified in Section 3.3 of the Disclosure
Schedule and communicated in writing by such Sellers to Buyer ("Majority
Action"), except as expressly set forth in Section 8.5.2 below. Any action taken
by Sellers in accordance with this Section 8.1 shall be binding on all of
Sellers and any action purported to be taken by any Seller in contravention of
this Section 8.1 shall be null, void and of no effect. Buyer shall be
30
<PAGE> 38
entitled to rely on the written Majority Action that any action of Sellers
therein is so authorized, Buyer shall have no obligation to examine or pass upon
the validity, effectiveness or genuineness of any such Majority Action and
Sellers shall jointly and severally indemnify and hold Buyer harmless in
connection therewith.
Section 8.2 Sellers' Representative. Each Seller hereby irrevocably
appoints and authorizes Sellers' Representative to receive all payments due from
Buyer to such Seller pursuant to this Agreement, including without limitation
the Closing Payment and any Additional Payments, Target Payments and Customer
Payments, and hereby irrevocably instructs Buyer to make all such payments due
and payable to such Seller pursuant to this Agreement to Sellers' Representative
at the office set forth in Section 10.7. Buyer shall have no further obligation
to any Seller with respect to any payments required under this Agreement that
Buyer makes directly to Sellers' Representative and Sellers shall jointly and
severally indemnify and hold Buyer harmless with respect to any such payments.
Acting jointly by Majority Action, Sellers shall be entitled to designate a
replacement Sellers' Representative in writing to Buyer from time to time,
provided, that each Sellers' Representative shall at all times be a Person
authorized by the applicable Legal Requirements to receive and remit such
payments. In the event Sellers' Representative resigns or Sellers designate a
replacement and no successor Sellers' Representative appointed by Sellers shall
have accepted such appointment within thirty (30) days after Buyer receives
written notice of such resignation or replacement, then Buyer may, on behalf of
Sellers, appoint a successor Sellers' Representative meeting the foregoing
qualifications that is a trust company, law firm or firm of chartered
accountants entitled to do business or practice in Alberta.
Section 8.3 Survival of Representations, Warranties and Covenants. All
representations and warranties contained in this Agreement, the Disclosure
Schedule and any other certificates or documents delivered pursuant hereto shall
not be deemed to be waived or otherwise affected by any Knowledge of, or any
investigation made by or on behalf of, any Party and shall survive as provided
below notwithstanding any such Knowledge or investigation. Except as otherwise
provided in this Section 8.3, all of the representations and warranties of the
Parties contained in this Agreement shall survive the Closing hereunder and
continue in full force and effect for a period of two (2) years thereafter. All
of the representations and warranties of Sellers contained in Section 3.14 (Tax
Matters) and Section 4.5 (Company Shares; Title) above shall survive the Closing
and continue in full force and effect forever thereafter (subject to any
applicable statutes of limitations). Each covenant and indemnification provision
contained in this Agreement and any other certificates or documents delivered
pursuant hereto shall survive the Closing hereunder and continue in full force
and effect until the obligations arising thereunder have been fully performed
and discharged.
Section 8.4 Indemnification Provisions for Benefit of Buyer. Subject to
Section 8.8, the Principals and Sellers jointly and severally agree to indemnify
and hold Buyer harmless on demand for, from and against the entirety of any
Adverse Consequences Buyer may suffer (including any Adverse Consequences Buyer
may suffer after the end of any applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by any inaccuracy or
misrepresentation in, or breach or nonfulfillment of, any representation or
warranty of the
31
<PAGE> 39
Principals and Sellers, or any breach or nonfulfillment of any covenant of any
Seller, contained in this Agreement, in the Disclosure Schedule or in any
certificates or documents delivered by Sellers pursuant to this Agreement
(including third party allegations of the foregoing); provided, that Buyer makes
a written claim for such indemnification within any applicable survival period.
Without limiting the generality of the foregoing, the foregoing indemnity
obligations of the Principals and all Sellers (including Sellers other than the
Principals) shall apply to the representations and warranties of the Principals
set forth in Article III of this Agreement.
Section 8.5 Indemnification Provisions for Benefit of Sellers.
8.5.1. In General. Subject to Section 8.8, Buyer agrees to indemnify
and hold Sellers harmless on demand for, from and against the entirety of any
Adverse Consequences Sellers may suffer (including any Adverse Consequences
Sellers may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by any inaccuracy
or misrepresentation in, or breach or nonfulfillment of, any representation or
warranty of Buyer, or any breach or nonfulfillment of any covenant of Buyer,
contained in this Agreement, in the Disclosure Schedule or in any certificates
or documents delivered by Buyer pursuant to this Agreement (including third
party allegations of the foregoing); provided, that Sellers, acting jointly by
Majority Action, make a written claim for such indemnification within any
applicable survival period.
8.5.2. Procedure for Majority Action. Sellers shall collectively be
treated as one Party for purposes of action as an Indemnified Party and shall
take all action in such capacity by Majority Action. No Seller may make a claim
for indemnification hereunder except by Majority Action. Notwithstanding any
provision of Section 8.1 above to the contrary, the Principals and Sellers shall
be entitled to act individually, and shall not be required to act by Majority
Action, for purposes of action by any of them as an Indemnifying Party.
Section 8.6 Matters Involving Third Parties.
8.6.1. Notice. If any third party shall notify any Indemnified Party
with respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against any Indemnifying Party under this Article
VIII, then the Indemnified Party shall promptly give the Indemnifying Party a
written notice (a "Claim Notice") describing in reasonable detail the facts
giving rise to the Third Party Claim and the amount or a good faith estimate (if
known) of the Adverse Consequences arising therefrom, and enclosing a copy of
any papers served upon the Indemnified Party; provided, however, that no delay
on the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation under this Agreement unless
(and then solely to the extent) the Indemnifying Party is prejudiced by such
delay. If Sellers are the Indemnified Party, the Claim Notice shall be made by
Majority Action. If Buyer is the Indemnified Party, the Claim Notice shall be
delivered to Sellers in the manner provided for notices under Article X.
32
<PAGE> 40
8.6.2. Defense of Claims.
8.6.2.1. In General. Upon receipt by the Indemnifying Party of
a Claim Notice, the Indemnifying Party may participate in, and at the request of
the Indemnified Party shall assume, the administration and defense of the claim
described therein. The Indemnified Party shall have the right to approve the
Indemnifying Party's selection of counsel with respect to any such Third Party
Claim, such approval not to be withheld unreasonably. The fees and expenses of
the Indemnifying Party's counsel as well as the fees and expenses of the
Indemnified Party shall be borne by the Indemnifying Party, except as expressly
set forth in Section 8.6.2.2 below. Notwithstanding the foregoing, in the event
of any Third Party Claim of Intellectual Property infringement or
misappropriation arising from the use or exploitation by the Company, its
successors and assigns or End Users of the Software or other Company
Intellectual Property ("Infringement Claim"), Buyer shall have sole right to
choose counsel and to control the defense of the Third Party Claim, all at the
expense of the Indemnifying Party, except as expressly set forth in Section
8.6.2.2 below. Without limiting the generality of the foregoing, the
Indemnifying Party shall have the obligation in the case of an Infringement
Claim, at the Indemnifying Party's expense, and within a time which will not
cause a materially adverse effect on the Company's or its successors' and
assigns' ability to use and exploit the Software or other Company Intellectual
Property, either to replace or modify the Software or other Company Intellectual
Property affected so as to avoid infringement, or to procure the right and
license for the Company, its successors and assigns to continue use and
exploitation of the Software or other Company Intellectual Property. In
furtherance of the foregoing, Buyer shall provide reasonable access to the
source code of any allegedly infringing Software (subject to reasonable
undertakings to maintain confidentiality) to any properly qualified Principal or
Seller for the sole purpose of assisting such individual's efforts to timely
effect such modifications to the Software. If any such Principal or Seller is
then an employee of the Company or Buyer, the Buyer shall permit such individual
to effect any such timely modifications in the course of his employment.
8.6.2.2. Defense Costs for Infringement Claims. In the case of
each Infringement Claim, Buyer shall advance the fees and expenses of counsel
selected by Buyer in an amount not to exceed Two Hundred Thousand US Dollars (US
$200,000) per Infringement Claim. The Indemnifying Party shall bear all such
fees and expenses in excess of US $200,000 without regard to the limitations set
forth in Section 8.8.1 below but subject to the limitations in Section 8.8.2
below. For purposes of Buyer's obligation to advance such fees and expenses, all
claims and allegations of a third party or group of third parties making an
Infringement Claim in connection with a proceeding or group of related
proceedings shall be treated as a single Infringement Claim. In the event that
the third party or group of third parties asserting an Infringement Claim shall
prevail with respect to a substantial portion of the claims or allegations
included in the Infringement Claim (by final judgment, settlement or otherwise),
then the amounts advanced by Buyer for fees and expenses pursuant to this
paragraph shall be included in the Adverse Consequences with respect to which
the Indemnifying Party shall indemnify Buyer pursuant to this Agreement, subject
to the limitations in Sections 8.8.1 and 8.8.2 below. In the event such third
party or group of third parties shall not prevail as set forth in the preceding
sentence, Buyer shall bear any fees and expenses previously advanced by Buyer
pursuant to this paragraph.
33
<PAGE> 41
8.6.3. Settlement. Any Indemnifying Party shall give written notice
to the Indemnified Party of any proposed settlement of any Third Party Claim.
The Indemnifying Party shall have the right to settle with money any Third Party
Claim for which indemnification has been sought hereunder. Notwithstanding the
foregoing, however, in the case where Buyer is the Indemnified Party, the
Indemnifying Party shall have no right to settle any such Third Party Claim by
agreeing to, or committing to agree on behalf of the Indemnified Party, any
injunction or other equitable relief or any settlement of, or an adverse
judgment with respect to, the Third Party Claim that, in the good faith judgment
of the Indemnified Party, will likely impose any limitation on the Software or
other assets or business activities of the Indemnified Party or establish a
precedential custom or practice adverse to the continuing business interests of
the Indemnified Party. An Indemnified Party may refuse to accept a settlement
proposed by the Indemnifying Party, but in such event (other than a proposed
settlement described in the foregoing sentence) the Indemnifying Party shall not
be obligated to pay more than the amount for which the Indemnifying Party was
willing to settle the Third Party Claim, and the Indemnified Party shall be
responsible for all Adverse Consequences greater than such amount. Except in
circumstances where an Indemnified Party has refused to accept a settlement
proposed by the Indemnifying Party and has become responsible for Adverse
Consequences greater than the proposed settlement amount as set forth in the
preceding sentence, no Indemnified Party may settle a claim for which
indemnification has been sought hereunder. If any Indemnified Party seeks to
question the manner in which any Indemnifying Party defended such Third Party
Claim or the amount or nature of any such settlement, such Indemnified Party
shall have the burden to prove by a preponderance of evidence that the
Indemnifying Party did not defend or settle such Third Party Claim in a
reasonably prudent manner.
8.6.4. Cooperation. Any Indemnified Party shall make available to
any Indemnifying Party and its attorneys and accountants, all books, records and
documents relating to any Third Party Claim hereunder and the Parties shall
render to each other reasonable assistance in the defense of any claim hereunder
which arises as the result of claims made by persons not a Party to this
Agreement.
Section 8.7 Determination of Adverse Consequences. The Parties shall take
into account the time cost of money (using the Applicable Rate as the interest
discount rate) in determining Adverse Consequences for purposes of this Article
VIII. All indemnification payments under this Article VIII shall be deemed
adjustments to the purchase price of the Company Shares.
Section 8.8 Limitations on Indemnification.
8.8.1. Basket. No Indemnifying Party shall have any obligation to
indemnify any Indemnified Party for, from and against any Adverse Consequences
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or alleged breach) of any representation or warranty under this
Agreement (except for the representations and warranties contained in Section
3.14 and Section 4.5, and except as provided in Section 8.6.2.2 and except in
the case of fraud and intentional misrepresentation) until the Indemnified Party
has suffered
34
<PAGE> 42
Adverse Consequences by reason of all such breaches (or alleged breaches) in
excess of a One Hundred Fifty Thousand US Dollar (US $150,000) aggregate
threshold, at which point the Indemnifying Party will be obligated to indemnify
the Indemnified Party from and against all such Adverse Consequences relating
back to the first dollar.
8.8.2. Cap. Notwithstanding any provision of this Agreement to the
contrary, the obligation of each Principal and each Seller to indemnify Buyer
pursuant to this Article VIII (except in the case of fraud and intentional
misrepresentation) shall not exceed Adverse Consequences in an amount equal to
such Party's Pro Rata Share of an amount equal to (i) Four Million US Dollars
(US $4,000,000), plus (ii) the Additional Payments, plus (iii) the Target
Payments, plus (iv) the Customer Payments; provided, that such Pro Rata Share
shall not exceed an amount equal to such Party's Pro Rata Share of the Total
Consideration, reduced by such Party's Pro Rata Share of (x) any payments made
by Sellers to Concord on account of the Total Consideration (other than payments
on account of the Closing Payment) and (y) any payments made to present or
former employees of the Company pursuant to the Agency Agreement on account of
the Total Consideration. The provisions of this Section 8.8.2 shall not limit
the rights and remedies of Buyer pursuant to Section 10.14 of this Agreement
(Specific Performance).
8.8.3. Contribution. Each of the Principals and Sellers agrees that
to the extent that such Party has paid more than its Pro Rata Share of Adverse
Consequences, such Party shall be entitled to seek and receive contribution from
and against any other Principal or Seller who has not paid its Pro Rata Share of
such Adverse Consequences, so determined ; provided that the inability of any
Principal or Seller to recover such contribution shall not affect such Party's
obligations to indemnify Buyer to the full extent set forth in this Article
VIII.
Section 8.9 Waiver of Company Indemnification. Each Principal and each
Seller hereby agrees that he, she or it will not make any claim for
indemnification against the Company by reason of the fact that he, she or it was
a director, officer, employee, or agent of the Company or was serving at the
request of the Company as a partner, trustee, director, officer, employee, or
agent of another entity (whether such claim is pursuant to any statute,
Organizational Document, bylaw, agreement, or otherwise) with respect to any
claim for indemnification or other remedy brought by Buyer against such
Principal or such Seller pursuant to this Agreement, applicable law, or
otherwise.
Section 8.10 Offset. Buyer shall be entitled to offset any amounts payable
by Sellers pursuant to this Article VIII against amounts otherwise due to
Sellers pursuant to this Agreement or otherwise. Buyer shall exercise such
offset rights against any amounts currently due to Sellers at the time any
payment obligation of Sellers shall arise, before pursuing any other remedies
against Sellers.
35
<PAGE> 43
ARTICLE IX
DEFINITIONS
"ADDITIONAL PAYMENTS" has the meaning set forth in Section 1.3 above.
"ADVERSE CONSEQUENCES" means all Liabilities resulting from, arising out
of, relating to, in the nature of or caused by all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Taxes, liens, losses, expenses, and fees, including
court costs and reasonable attorneys' fees and expenses.
"AFFILIATE" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with the Person specified; provided, that for purposes of Section 1.3 of this
Agreement, "Affiliate" shall always include the Company even if the Company
ceases to be within the scope of the foregoing definition.
"AGENCY AGREEMENT" means the Agency Agreement of even date herewith among
the Sellers obligating such Sellers to make certain incentive payments to
certain employees of the Company.
"AGREEMENT" means this Stock Purchase Agreement.
"APPLICABLE RATE" means ten percent (10%) per annum.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUNDLED REVENUE" means, for any period of measurement, an amount equal to
all amounts invoiced by Buyer and its Affiliates to an End User or a Third Party
Licensor as the case may be, as License fees, in connection with a transaction
in which an Earnout Product is bundled with one or more other Buyer products
and/or Third Party Licensor products Licensed during such period, excluding any
amounts charged for Maintenance pursuant to a separate invoice or as a separate
item on an invoice; provided, that if a License obligates Buyer or its
Affiliates to provide Maintenance for any period without any separate charge for
such Maintenance, the Bundled Revenue for such License means an amount
calculated as follows:
Bundled Revenue = Bundled License Fee x [1 - ( y/ 365 x .15 )]
Where "Bundled License Fee" is an amount equal to the fees invoiced by Buyer or
its Affiliates to an End User or a Third Party Licensor, as the case may be, as
License fees in connection with such transaction, without any separate charge
for Maintenance; and
36
<PAGE> 44
Where y is the number of days (which may not be greater than 365) for which
Buyer has agreed to provide such Maintenance without any separate charge.
"BUYER" has the meaning set forth in the preface above.
"CANCELED LICENSE REVENUE" has the meaning set forth in Section 1.3.4
above.
"CLAIM NOTICE" has the meaning set forth in Section 8.6.1 above.
"CLOSING" has the meaning set forth in Section 2.1 above.
"CLOSING DATE" has the meaning set forth in Section 2.1 above.
"CLOSING DEBT" means the long term indebtedness of the Company in the
aggregate principal amount of Seven Hundred Thousand Canadian Dollars (Canadian
$700,000), plus accrued interest thereon at the rate of twenty-five percent
(25%) per annum through the Closing Date, translated into US Dollars at the
exchange rate reported by Wells Fargo Bank, Phoenix, Arizona, for the business
day immediately preceding the Closing Date, to Roshan Jaffer, Noorali Jaffer,
Farhad Dhanji, Anis Dhanji, Naseem Talakshi, Salim Sumar, The K. Jivraj Family
Trust and 667813 Alberta Ltd., pursuant to the Promissory Notes of the Company
dated June 28, 1996.
"CLOSING PAYMENT" has the meaning set forth in Section 1.2 above.
"COMPANY" has the meaning set forth in the preface above.
"COMPANY GOVERNMENTAL AUTHORIZATIONS" have the meaning set forth in
Section 3.13.2 above.
"COMPANY INTELLECTUAL PROPERTY" means all Intellectual Property used,
developed, marketed, distributed or licensed by the Company, including the
Software but excluding Embedded Products.
"COMPANY MAINTENANCE DEDUCTION" means, for purposes of calculating
Customer Payments with respect to a Selected End User License under this
Agreement, an amount calculated as follows:
Company Maintenance Deduction = y/365 x .10 x Selected Company Revenue
from such Selected End User License
Where y is the number of days (which may be equal to, greater than or less than
365) for which the Company has agreed to provide Maintenance pursuant to the
Selected End User License or an option granted to an End User thereunder.
37
<PAGE> 45
"COMPANY SHARES" means the common stock of the Company, no par value per
share.
"COMPETING PRODUCT" means any computer software product (other than a
Derivation) that is designed to perform substantially the same functions as an
Earnout Product for the Year 2000 Market; provided, that Competing Product shall
not include (i) any such product that performs substantially the same functions
as an Earnout Product for a different platform (including without limitation the
UNIX platform), database, application or programming language than the
platforms, databases, applications or programming languages addressed by the
Earnout Products, (ii) any such product that is marketed or Licensed to a class
of customers in the Year 2000 Market to whom the Buyer, its Affiliates and Third
Party Licensors have not granted significant Licenses after reasonable marketing
efforts commensurate with their marketing efforts to customers in the Year 2000
Market generally, or (iii) any computer software product of a third party that
Buyer or its Affiliates has any right to market or License as of the Closing
Date, as disclosed in Schedule 1.3.6 delivered hereunder.
"CONCORD" means Concord Corporation.
"CONFIDENTIAL INFORMATION" means all information of any kind which is or
has been treated by a Person as confidential or which otherwise is subject
matter protected by operation of law as "confidential" or "proprietary," and all
media in which such information is contained, including without limitation all:
Trade Secrets and Know-How, and all of the following if not otherwise a Trade
Secret or Know-How: business and product ideas and concepts; databases;
customer, licensee, End User and supplier lists and information; pricing and
cost information; customer and sales information; business, product and
marketing plans, studies and proposals; source code and source documentation
whether completed or in development; user documentation whether completed or in
development; research and development projects and plans; product development
proposals and plans and prototypes; employee information, profit and loss
information, and competitive analyses.
"CONTRACTS" has the meaning set forth in Section 3.11.1 above.
"COPYRIGHTS" means all unregistered and registered works of authorship
and/or rights under copyright laws, and all registrations and applications for
registration thereof, and all rights to enforce rights under copyright laws, and
all of the works (or portions of works) to which such rights attach.
"CUSTOMER PAYMENTS" has the meaning set forth in Section 1.6 above.
"DECEMBER 31 BALANCE SHEET" means the balance sheet contained within the
December Financial Statements.
"DECEMBER 31 FINANCIAL STATEMENTS" has the meaning set forth in Section
3.8.1 above.
"DERIVATION" means any computer software product or portion thereof (i)
that constitutes a "derivative work" with respect to EraScan PC, EraTest PC or
EraFix PC (as more particularly
38
<PAGE> 46
described in Section 3.10.1 of the Disclosure Schedule) under the United States
Copyright Act or (ii) which is covered by at least one claim of the Patents of
the Company and/or any patent application included in such Patents, which claim
is fully and legally supported by the specification for that application as to
written description of the invention, best mode, and enablement within the
meaning of 35 U.S.C. ss. 112, which is novel within the meaning of 35 U.S.C. ss.
102 and which is non-obvious within the meaning of 35 U.S.C. ss. 103 (or similar
provisions of local law for Patents and applications outside the United States).
Without limiting the generality of the foregoing, Derivation shall not include
(x) any improvement to EraScan PC, EraTest PC or EraFix PC based on Confidential
Information of the Company or other Company Intellectual Property, which
improvement is not described in (i) or (ii) of the preceding sentence and (y)
derivative works with respect to EraScan PC, EraTest PC and EraFix PC described
in (i) of the preceding sentence and improvements covered by at least one claim
of the Patents of the Company and/or any patent applications included in such
Patents as described in (ii) of the preceding sentence, which derivative works
or improvements are made a part of or are utilized in connection with product(s)
of Buyer, an Affiliate of Buyer or a Third Party Licensor, for the purpose of
integrating the operation of such other product(s) with an Earnout Product.
"DISCLOSURE SCHEDULE" has the meaning set forth in Article III above.
"DOCUMENTATION" means, as used in respect of software or the Software, all
current related source documentation (including all drafts of source and object
code, and all designs, diagrams, flow charts, specifications, explanations and
commentary), and all current user documentation (including all user manuals),
which are presently completed or in development.
"EARNOUT PRODUCT" means EraScan PC, EraTest PC and EraFix PC as more
particularly described in Section 3.10.1 of the Disclosure Schedule and all
Derivations thereof for the Year 2000 Market; provided, however, that Earnout
Product does not include any other product or service of Buyer, any Affiliate of
Buyer or any Third Party Licensor, including but not limited to any Derivations
of EraScan PC, EraTest PC or EraFix PC that are developed or marketed for
applications other than the Year 2000 Market, including without limitation
applications relating to Euro conversion.
"EARNOUT RATE" means the following percentage rates to apply to the
following levels of aggregate License Revenue (net of Canceled License Revenue)
and Qualifying Service Revenue during the Earnout Term:
<TABLE>
<CAPTION>
Aggregate of License Revenue and Earnout
Qualifying Service Revenue (US $) Rate
--------------------------------- ----
<S> <C>
$0 through $******* *****%
Over $******* through $******* *****%
Over $******* *****%
</TABLE>
39
CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 47
"EARNOUT TERM" means the period of time commencing on the Closing Date and
ending at the close of business of Buyer on June 30, 2000.
"EMBEDDED PRODUCTS" has the meaning set forth in Section 3.10.2.6 above.
"EMPLOYEE BENEFIT PLAN" means any plan, contract, arrangement or
agreement, singularly or collectively, entered into by the Company or sponsored,
maintained, contributed to or arranged by the Company providing any non-salary
benefits to employees of the Company.
"EMPLOYEE PENSION BENEFIT PLAN" means any (a) non-qualified deferred
compensation or retirement plan or arrangement involving the Company and any
employees, (b) qualified defined contribution retirement plan or arrangement
involving the Company and any employees, (c) qualified defined benefit
retirement plan or arrangement involving the Company and any employees, and (d)
plan or arrangement involving contributions by the Company to or for any
employee's Retirement Savings Plan.
"EMPLOYEE RELATED LEGISLATION" has the meaning set forth in Section 3.19.1
above.
"END USER" means (i) a party to an End-User License or (ii) a Person for
which Buyer, an Affiliate of Buyer or a Third Party Licensor performs a services
engagement using an Earnout Product for internal business purposes of such
Person.
"END-USER LICENSES" means end-user licenses granted by the Company, an
Affiliate of the Company or a Third Party Licensor to End-Users.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Environmental
Protection and Enhancement Act, S.A. 1992, c.E-13.3, the Canadian Environmental
Protection Act, R.S.C. 1985, c.16, the Occupational Health and Safety Act,
R.S.A., c.O-2, the Workers' Compensation Act, R.S.A. 1980 c.W-16, each as
amended, together all other laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, circulars and charges
thereunder) of federal, provincial, state, municipal and foreign governments
(and all agencies thereof) concerning pollution or protection of the
environment, public health and safety, or employee health and safety, including
laws relating to emissions, discharges, releases, or threatened releases and
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.
"EQUIPMENT" has the meaning specified in Section 3.9.1 above.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3.8.1 above.
"FIRST TARGET PAYMENT" has the meaning set forth in Section 1.4.1 above.
40
<PAGE> 48
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"GOVERNMENTAL BODY" means any (i) supranational body (including the
European Union), nation, state, province, county, city, town, village, district,
or other jurisdiction of any nature; (ii) federal, state, provincial, local,
municipal, foreign, or other government; (iii) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or other entity and any court or other tribunal);
(iv) multi-national organization or body; or (v) body exercising, or entitled or
purporting to exercise, any administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of any nature.
"INDEMNIFIED PARTY" means any Party entitled to indemnification pursuant
to Article VIII above; provided that in the case of the Sellers, Indemnified
Party means the Sellers collectively, acting by Majority Action.
"INDEMNIFYING PARTY" means any Party obligated to indemnify an Indemnified
Party pursuant to Article VIII above.
"INFRINGEMENT CLAIM" has the meaning set forth in Section 8.6.2.1 above.
"INTELLECTUAL PROPERTY" means all subject matter and rights of any kind or
nature wherever located which are protected as "intellectual property" or
"industrial property," including all (i) inventions, discoveries and designs
(whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all Patents and utility models, (ii) all Trademarks,
(iii) all Copyrights, (iv) all unregistered and registered mask works and
designs thereof and all registrations (including renewals) and applications for
registration thereof, (v) all Confidential Information, (vi) all licenses and
other permissions granted to third parties with respect to any of the foregoing,
(vii) all rights to enforce infringements or other violations of any of the
foregoing, (viii) all rights granted by third parties to use or otherwise own or
exercise rights in intellectual property of the third party, and (ix) all media
in which any of the foregoing are contained.
"JUNE 30 YEAR END" has the meaning set forth in Section 3.8.1 above.
"KNOW-HOW" means all methods, processes, techniques and systems used, or
developed by a Person which are subject matter protected by operation of law as
"know-how," and all media in which any of the foregoing is contained or
explained, including without limitation all methods, processes, techniques and
systems relating to: software design and development; software tool and
utilities development and use; product engineering, manufacturing and
production; marketing and sales; and quality control testing.
"KNOWLEDGE" means, with respect to any matter, actual knowledge after
reasonable investigation, and in the case of an entity, such actual knowledge of
the personnel responsible for
41
<PAGE> 49
such matter. Knowledge of the Company means such actual Knowledge of each
Principal and the Company personnel responsible for such matter.
"LEGAL REQUIREMENT" means any federal, provincial, state, local,
municipal, foreign or other constitution, ordinance, regulation, rule, statute,
treaty, or other law adopted, enacted, implemented, or promulgated by or under
the authority of any Governmental Body (including without limitation
Environmental, Health and Safety Laws) or by the eligible voters of any
jurisdiction, and any agreement, approval, authorization, consent, injunction,
judgment, license, order or permit by or with any Governmental Body or to which
the Company or Buyer or any Seller, as applicable, is a party or by which the
Company or Buyer or any Seller, as applicable, is bound.
"LIABILITY" means any liability or obligation (whether known or unknown,
asserted or unasserted, absolute, executory or contingent, accrued or unaccrued,
liquidated or unliquidated, or due or to become due), including any liability
for Taxes.
"LICENSE REVENUE" means, for any period of measurement, an amount equal to
all amounts invoiced by Buyer and its Affiliates to an End User or Third Party
Licensor as License fees, excluding any amounts charged for Maintenance pursuant
to a separate invoice or as a separate item on an invoice; provided, that if a
License obligates Buyer or its Affiliates to provide Maintenance for any period
without any separate charge for such Maintenance, then License Revenue for such
License means an amount calculated as follows:
License Revenue = License Fee x [1 - ( y/365 x .15 )]
Where "License Fee" is the fee invoiced by Buyer and its Affiliates to an End
User or Third Party Licensor as a License fee for an Earnout Product Licensed
during such period, without any separate charge for Maintenance; and
Where y is the number of days (which may not be greater than 365) for which
Buyer has agreed to provide such Maintenance without any separate charge.
"LICENSED" has the meaning set forth in Section 1.3 above. "License,"
"Licenses" and similar derivations shall have correlative meanings.
"LIST PRICE" means, with respect to any software product, an amount equal
to the suggested list price established by the licensor of the product in its
discretion from time to time, for its customers under similar circumstances but
subject to Section 1.3.5, as a license fee for such product, excluding any
amounts charged for Maintenance pursuant to a separate invoice or as a separate
item on an invoice; provided, that if it is such licensor's standard practice to
provide Maintenance for any period without any separate charge pursuant to
licenses at such suggested list price, then List Price for such licenses means
an amount calculated as follows:
42
<PAGE> 50
List Price = Gross List x [1 - ( y/365 x .15 )]
Where "Gross List" is such suggested list price without any separate charge for
Maintenance; and
Where y is the number of days (which may not be greater than 365) for which the
licensor agrees to provide such Maintenance without any separate charge.
"MABEY" has the meaning set forth in the preface above.
"MAINTENANCE" means, with respect to any software product, customer
support, including for example telephone support and fixes of errors, defects
and "bugs."
"MAJORITY ACTION" has the meaning set forth in Section 8.1 above.
"MIKECO" means 693897 Alberta Ltd.
"NASHCO" means 693899 Alberta Ltd.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency) or in the case where the applicable Person has no past custom or
practice with respect to a matter, consistent with good business practice in the
software industry generally.
"ORGANIZATIONAL DOCUMENTS" means, with respect to a corporation, the
certificate and articles of incorporation, articles of amendment, articles of
amalgamation (or similar governing document) and bylaws of the corporation, with
respect to a limited liability company, the articles of organization (or similar
governing document) and the operating agreement (or similar agreement) of the
limited liability company, with respect to a partnership, the certificate or
partnership (or similar governing document), if any, and the partnership or
similar agreement of the partnership, and with respect to any other entity, the
similar governing documents of such entity.
"PARTY" or "PARTIES" means Buyer, any Seller and/or any Principal.
"PATENTS" means all patents of any kind, patent applications, docketed
inventions, utility models, and patent or invention disclosures and all
reissues, continuations, continuations in part, revisions, extensions and
reexaminations thereof, worldwide.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or any other type of legal
entity.
43
<PAGE> 51
"PRINCIPALS" means Mabey, Samanani and Karim Teja.
"PROCESS AGENT" has the meaning set forth in Section 10.16 below.
"PRO RATA SHARE" means, with respect to each Seller (other than Mikeco and
Nashco), a percentage share equal to such Seller's percentage ownership of
Company Shares set forth in Section 3.3 of the Disclosure Schedule. Pro Rata
Share means, with respect to Mabey and Mikeco, jointly, a percentage share equal
to the percentage ownership of Company Shares of Mikeco set forth in Section 3.3
of the Disclosure Schedule. Pro Rata Share means, with respect to Samanani and
Nashco, jointly, a percentage share equal to the percentage ownership of Company
shares of Nashco set forth in Section 3.3 of the Disclosure Schedule.
"QUALIFYING SERVICE REVENUE" has the meaning set forth in Section 1.3.3
above.
"RECEIVABLES" means all rights of the Company as of the Closing Date to
receive payment (whether by cash or by trade) for goods sold or services
rendered by the Company to its customers whether or not such customers have been
presented with an invoice or statement for such payment prior to the Closing
Date.
"RETIREMENT SAVINGS PLAN" means:
(a) a contract between an individual and a Person licensed or
otherwise authorized under the laws of Canada or a province to carry
on in Canada an annuities business, under which, in consideration of
payment by the individual or the individual's spouse of any periodic
or other amount a consideration under the contract, a retirement
income commencing at maturity is to be provided for the individual,
or
(b) an arrangement under which payment is made by an individual or
the individual's spouse
(i) in trust to a corporation licensed or otherwise authorized
under the laws of Canada or a province to carry on in Canada
the business of offering to the public its services as
trustee, of any periodic or other amount as a contribution
under the trust.
(ii) as a deposit with a branch or office, in Canada, of
(A) a Person who is, or is eligible to become, a member
of the Canadian Payments Association, or
(B) a credit union that is a shareholder or member of a
body corporate referred to as a "central" for the
purposes of the Canadian Payments Association Act,
44
<PAGE> 52
(in this section referred to as a "depositary")
to be used, invested or otherwise applied by that corporation or
that depositary, as the case may be, for the purpose of providing
for the individual, commencing at maturity, a retirement income.
"SAMANANI" has the meaning set forth in the preface above.
"SECOND TARGET PAYMENT" has the meaning set forth in Section 1.4.2 above.
"SECURITY INTEREST" means any mortgage, pledge, hypothecation, assignment,
claim, easement, transfer restriction, lien (statutory or otherwise),
encumbrance, charge, license, or other security interest or restriction on use
of any kind or nature, other than (i) mechanic's, materialmen's, and similar
liens disclosed in writing to Buyer, (ii) liens for Taxes not yet due and
payable, (iii) purchase money liens and liens securing rental payments under
capital lease arrangements in each case disclosed in the Financial Statements,
and (iv) other liens arising in the Ordinary Course of Business not incurred in
connection with the borrowing of money and disclosed in writing to Buyer.
"SELECTED COMPANY REVENUE" has the meaning set forth in Section 1.6.1
above.
"SELECTED END USER LICENSES" has the meaning set forth in Section 1.6.1
above.
"SELLER" and "SELLERS" has the meanings set forth in the preface above.
"SELLERS' REPRESENTATIVE" means Macleod Dixon, Barristers & Solicitors,
and any successor to such Sellers' Representative duly appointed by Sellers or
Buyer in accordance with Section 8.2 above.
"SOFTWARE" means all of the computer software programs, and all components
thereof, and all related source and object code, and related Documentation, and
all derivatives and versions thereof, including all those in development, used,
developed, marketed, distributed or licensed by the Company, and all
Intellectual Property rights therein, other than Embedded Products.
"SOFTWARE AUTHOR" means a Person who has authored, designed or invented,
or any other Person or entity who participated in the development of the
Software or any portion thereof, or performed any design, or other development
work related to the Software.
"SUBSIDIARY" means any corporation or other legal entity with respect to
which a specified Person (or an Affiliate thereof) owns a majority of the common
stock or other equity interest or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors or similar governing
body.
45
<PAGE> 53
"TARGET REVENUE" means License Revenue plus Qualifying Service Revenue,
net of Canceled License Revenue.
"TARGET PAYMENTS" has the meaning set forth in Section 1.4 above.
"TAX" and "TAXES" means any federal, state, provincial, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and including any liability for any
of the foregoing relating to a predecessor entity.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8.6.1 above.
"THIRD PARTY LICENSOR" means all original equipment manufacturers,
independent software vendors, system houses, system integrators, outsourcers,
value added relicensors, distributors, dealers, solution providers, and other
entities engaged in doing business with Buyer or its Affiliates for the purposes
of directly or indirectly Licensing Earnout Products to End Users or using
Earnout Products in service engagements for End Users. Third Party Licensor does
not include any Affiliate of Buyer.
"TOTAL CONSIDERATION" means the aggregate of (i) the Closing Payment, plus
(ii) the Additional Payments, plus (iii) the Target Payments, plus (iv) the
Customer Payments.
"TRADE SECRETS" means all Confidential Information which provides a Person
with a competitive advantage and which otherwise is subject matter protected as
a "trade secret" by operation of law, including subject matter treated as "trade
secrets" under the Uniform Trade Secrets Act and the Restatement of Torts, as
revised.
"WITHHOLDING FORMS" has the meaning set forth in Section 1.7 above.
"TRADEMARKS" means all registered and unregistered trademarks, service
marks, Internet domain names, trade dress, logos and design designations, trade
identity, trade names, corporate names, and corporate fictitious names, and all
translations, adaptations, and combinations thereof, and all registrations
(including renewals) and applications for registration thereof, and all of the
goodwill associated therewith.
"YEAR 2000 MARKET" means the worldwide market for computer software
products and services designed to address problems and tasks related to
requirements to identify, modify and otherwise address twentieth century and
twenty-first century date designations in computer
46
<PAGE> 54
programs and data in the personal computer and distributed processing
environments (but not the mainframe environment) to accommodate the year 2000
date change.
ARTICLE X
MISCELLANEOUS
Section 10.1 Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement prior to the Closing without the prior written approval of
Buyer and Sellers; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or Nasdaq agreement or rules concerning its publicly-traded securities
(in which case the disclosing Party will use its reasonable best efforts to
advise the other Parties prior to making the disclosure).
Section 10.2 No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
Section 10.3 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
Section 10.4 Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his, her or its rights, interests, or obligations hereunder without the
prior written approval of Buyer and Sellers; provided, however, that Buyer may
(i) assign any or all of its rights and interests hereunder to one or more of
its Affiliates and (ii) designate one or more of its Affiliates to perform any
or all of its obligations under this Agreement (in any or all of which cases
Buyer nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
Section 10.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
Section 10.6 Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then seven
(7) business days after)
47
<PAGE> 55
it is sent by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:
If to Principals and/or Sellers Copy to: Macleod Dixon
(on behalf of all Sellers): Canterra Tower
3700 400 Third Avenue, S.W.
Michael Howatt Mabey Calgary, Alberta, Canada T2P 4H2
9117 21st S.E. Attn: John T. Ramsay, Q.C.
Calgary, Alberta, Canada T2C 3Z4
and
Nashirali Samanani
80 Edenwold Crescent N.W.
Calgary, Alberta, Canada T3A 3T6
If to Buyer: Copy to: Osborn Maledon
Suite 2100
Viasoft, Inc. 2929 North Central Avenue
3033 North 44th Street Phoenix, Arizona 85012
Suite 101 Attn: William M. Hardin, Esq.
Phoenix, AZ 85018
Attn: General Counsel
If to the Sellers' Representative: Macleod Dixon
Canterra Tower
3700 400 Third Avenue, S.W.
Calgary, Alberta, Canada T2P 4H2
Attn: John T. Ramsay, Q.C.
If to the Process Agent: Macleod Dixon
Canterra Tower
3700 400 Third Avenue, S.W.
Calgary, Alberta, Canada T2P 4H2
Attn: John T. Ramsay, Q.C.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. No
notice or communication by mail sent during a mail distribution disruption or
postal strike shall be effective. Any Party may change the address to which
notices, requests, demands, claims, and
48
<PAGE> 56
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
Section 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Arizona and the
United States without giving effect to any choice or conflict of law provision
or rule (whether of the State of Arizona or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Arizona and the United States.
Section 10.9 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Sellers. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
Section 10.10 Severability. If any term, provision, condition or covenant
of this Agreement or the application thereof to any party or circumstances shall
be held to be invalid or unenforceable to any extent in any jurisdiction, then
the remainder of this Agreement and the application of such term, provision,
condition or covenant in any other jurisdiction or to persons or circumstances
other than those as to whom or which it is held to be invalid or unenforceable,
shall not be affected thereby, and each term, provision, condition and covenant
of this Agreement shall be valid and enforceable to the fullest extent permitted
by law.
Section 10.11 Expenses. Except as expressly provided in Section 10.11 of
the Disclosure Statement, each of the Parties will bear his, her or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. Sellers agree that
the Company has not borne or will not bear any of Sellers' costs and expenses
(including any of their legal and investment banking fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
Sellers further agree that the Company has not borne and will not bear any fees
or expenses associated with the preparation of the Company's Financial
Statements in connection with this Agreement or the transactions contemplated
hereby (including without limitation any fees or expenses relating to any audit)
and Sellers agree to indemnify and hold Buyer harmless in connection therewith.
Section 10.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any Legal Requirement shall
be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The word "including" shall mean including
without limitation. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained
49
<PAGE> 57
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
Section 10.13 Incorporation of Exhibits and Disclosure Schedule. The
Exhibits, Schedules, and the Disclosure Schedule identified in this Agreement
are incorporated herein by reference and made a part hereof.
Section 10.14 Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof without proving
irreparable harm in any action instituted in any court of the United States or
any state thereof having jurisdiction over the Parties and the matter (subject
to the provisions set forth in Section 10.15 below), in addition to any other
remedy to which they may be entitled, at law or in equity.
Section 10.15 Submission to Jurisdiction and Venue. Each of the Parties
submits to the non- exclusive jurisdiction of any state or federal court sitting
in Maricopa County, Arizona, and any provincial or national court sitting in
Calgary, Alberta, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court, except as provided in Section 1.8.
Each of the Parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Each
Seller and each Principal appoints Macleod Dixon (the "Process Agent") as such
Party's agent to receive on his, her or its behalf service of copies of the
summons and complaint and any other process that might be served in the action
or proceeding. Any Party may make service on any other Party by sending or
delivering a copy of the process (i) to the Party to be served at the address
and in the manner provided for the giving of notices in Section 10.7 above or
(ii) to the Party to be served in care of the Process Agent at the address and
in the manner provided for the giving of notices in Section 10.7 above. Nothing
in this Section 10.15, however, shall affect the right of any Party to serve
legal process in any other manner permitted by law or at equity.
Section 10.16 Waiver of Jury Trial. DUE TO THE COMPLEXITY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE PARTIES HEREBY ACKNOWLEDGE AND
AGREE THAT A TRIAL BEFORE A JUDGE IS MORE APPROPRIATE THAN A TRIAL BEFORE A JURY
AND HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY AND AGREE NOT TO
SEEK A TRIAL BY JURY IN ANY SUIT INVOLVING THE ENFORCEMENT OF THE PROVISIONS OF
THIS AGREEMENT OR ANY OF THE DOCUMENTS CONTEMPLATED HEREBY, AND GRANT THE JUDGE
PRESIDING OVER ANY SUCH SUIT FULL POWER AND AUTHORITY TO DETERMINE ALL QUESTIONS
OF FACT.
50
<PAGE> 58
Section 10.17 Interest on Amounts Past Due. All amounts payable under this
Agreement not paid when due shall bear interest at the Applicable Rate until
such amounts are paid in full.
* * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
BUYER:
VIASOFT, INC., a Delaware corporation
By: /s/ Mark R. Schonau
----------------------------------
Title: CFO
--------------------------------
MABEY:
/s/ Michael Mabey
--------------------------------------
Michael Howatt Mabey
SAMANANI:
/s/ Nashirali Samanani
--------------------------------------
Nashirali Samanani
SELLERS:
693899 ALBERTA LTD., a body corporate
incorporated under the laws of the Province
of Alberta
By: /s/ Nashirali Samanani
----------------------------------
Nashirali Samanani, President
51
<PAGE> 59
693897 ALBERTA LTD., a body corporate
incorporated under the laws of the Province
of Alberta
By: /s/ Michael Mabey
----------------------------------
Michael Howatt Mabey, President
667813 ALBERTA LTD., a body corporate
incorporated under the laws of the Province
of Alberta
By: /s/ Karbir T. Jivraj
--------------------------------
Its: Director
--------------------------------
/s/ Noorali Jaffer
-------------------------------------
Noorali Jaffer
/s/ Roshan Jaffer
-------------------------------------
Roshan Jaffer
/s/ Farhad Dhanji
-------------------------------------
Farhad Dhanji
/s/ Anis Dhanji
-------------------------------------
Anis Dhanji
/s/ Salim Sumar
-------------------------------------
Salim Sumar
N. Talakshi in Trust
By: /s/ Naseem Talakshi
----------------------------------
Its: Trustee
---------------------------------
52
<PAGE> 60
The K. Jivraj Family Trust
By: /s/ Karbir T. Jivraj
----------------------------------
Its: Trustee
----------------------------------
729608 ALBERTA LTD., a body corporate
incorporated under the laws of the Province
of Alberta
By: /s/ A. Ziml
----------------------------------
Its: Director
----------------------------------
/s/ Ward Anderson
--------------------------------------
Ward Anderson
/s/ Harold Hoover
--------------------------------------
Harold Hoover
/s/ Thomas Oke
--------------------------------------
Thomas Oke
/s/ Dean Elhard
--------------------------------------
Dean Elhard
/s/ Douglas Bird
--------------------------------------
Douglas Bird
/s/ Karim Teja
--------------------------------------
Karim Teja
/s/ Harvey Brovald
--------------------------------------
Harvey Brovald
53
<PAGE> 61
/s/ Derek Miao
--------------------------------------
Derek Miao
/s/ Fengying Zhang
--------------------------------------
Fengying Zhang
/s/ Daniel Rickard
--------------------------------------
Daniel Rickard
/s/ Wade Graham
--------------------------------------
Wade Graham
54
<PAGE> 1
EXHIBIT 3.1(a)
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
VIASOFT, INC.
Viasoft, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the first paragraph of ARTICLE IV of the Restated
Certificate of Incorporation be, and it hereby is, amended to read in its
entirety as follow:
"The total number of shares of capital stock which the Corporation shall
have authority to issue is fifty million (50,000,000) shares, of which
forty-eight million (48,000,000) shares, of the par value of $0.001 per share,
shall be Common Stock ("Common Stock"); and two million (2,000,000) shares, of
the par value of $0.001 per share, shall be Preferred Stock ("Preferred Stock");
and"
SECOND: That the foregoing amendment to Article IV of the Restated
Certificate of Incorporation and resolution pertaining thereto were duly adopted
by the Board of Directors on September 19, 1997, subject to stockholder
approval, in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
THIRD: That the foregoing amendment to Article IV of the Restated
Certificate of Incorporation was duly adopted and approved by a majority of the
stockholders of the Corporation entitled to vote thereon at the annual meeting
of stockholders held November 14, 1997, in accordance with the provisions of
Sections 242 and 222 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this instrument has been executed for, on behalf of,
and in the name of the Corporation by its duly authorized officers on this 14th
day of November 1997.
VIASOFT, INC.
By: /s/ Steven D. Whiteman
-----------------------------
Steven D. Whiteman,
President
ATTEST:
/s/ Catherine R. Hardwick
- -------------------------------
Catherine R. Hardwick,
Secretary
<PAGE> 1
EXHIBIT 3.1(b)
RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED
VIASOFT, INC.
ARTICLE I
The name of the Corporation is VIASOFT, INC.
ARTICLE II
The location of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
ARTICLE III
The general nature of the business the Corporation proposes to transact,
and its objects, purposes and powers shall be to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
The total number of shares of capital stock which the Corporation shall
have authority to issue is fifty million (50,000,000) shares, of which
forty-eight million (48,000,000) shares, of the par value of $0.001 per share,
shall be Common Stock ("Common Stock"); and two million (2,000,000) shares, of
the par value of $0.001 per share, shall be Preferred Stock ("Preferred Stock").
A. Common Stock. Subject to the provisions of applicable law and Section B
below, the exclusive voting power of the shareholders of this Corporation shall
for all purposes be vested in the holders of its Common Stock, and each share
thereof shall entitle its holder to one vote at any meeting of stockholders.
Subject to the provisions of applicable law and Section B below, any
dividends paid or distributed on or with respect to the Common Stock of the
Corporation shall be paid or distributed ratably to the holders of its Common
Stock. In the event of any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation and any amounts to
which the holders of any Preferred Stock shall be entitled, as hereinafter
provided, the holders of the Common Stock shall be entitled to share ratably in
the remaining assets of the Corporation.
<PAGE> 2
B. Preferred Stock. The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the certificate or certificates establishing the series of
Preferred Stock.
ARTICLE V
Election of directors need not be by written ballot unless the Bylaws so
provide.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors of the Corporation is expressly authorized:
(a) To make, alter, amend or repeal the Bylaws of the corporation.
(b) To direct and determine the use and disposition of net profits
or net assets in excess of capital; to set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any proper
purpose; and to abolish any such reserve in the manner in which it was created.
(c) To establish bonus, profit sharing, stock option, retirement or
other types of incentive or compensation plans for the employees (including
officers and directors) of the Corporation and its subsidiaries and to fix the
amount of the profits to be distributed or shared and to determine the persons
to participate in any such plans and the amounts of their respective
participations.
(d) From time to time to determine whether and to what extent, and
at what time and places and under what conditions and regulations, the accounts
and books of the Corporation (other than the stock ledger), or any of them,
shall be open to the inspection of the stockholders; and no stockholder shall
have any right to inspect any account or book or document of the corporation,
except as conferred by statute or authorized by the Board of Directors or by a
resolution of the stockholders.
2
<PAGE> 3
(e) To authorize, and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
ARTICLE VII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate of Incorporation in the manner
now or hereafter prescribed by law, and all rights and powers conferred herein
on stockholders and directors are subject to this reserved power.
ARTICLE VIII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after approval by the stockholders of this article to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE IX
Every person who was or is a party or is threatened to be made a party to
or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
which he is the legal representative is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust or other enterprise, shall be indemnified and held harmless
to the fullest extent permitted or authorized by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended, against
all expenses, liability and loss (including attorneys' fees, judgments, fines
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
him in connection therewith; provided, however, that, except as provided in the
following paragraph with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such person in connection
with a
3
<PAGE> 4
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors. Such
right of indemnification shall be a contract right and shall include the right
to be paid by the Corporation expenses incurred by him in defending any action,
suit or proceeding in advance of its final disposition upon delivery to the
Corporation of an undertaking by or on behalf of such person to repay all
amounts so advanced if it should ultimately be determined that he is not
entitled to be indemnified under this Article or otherwise.
If a claim to indemnification under this Article should not be paid in
full by the Corporation within ninety days after a written claim has been
received by the Corporation at its principal office, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of his claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any action, suit
or proceeding in advance of its final disposition where the required undertaking
has been tendered to the Corporation, the burden of proving which shall be on
the Corporation), that the claimant has not met the standards of conduct which
would make it legally permissible under the General Corporation Law of the State
of Delaware for the Corporation to indemnify the claimant for the amount
claimed. Neither the failure of the Corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the action that indemnification of the claimant is proper
in the circumstances because he has met the applicable standard of conduct set
forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its board of directors, independent
legal counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct shall be a defense to the action nor create a
presumption that claimant had not met the applicable standard of conduct.
Such right of indemnification shall not be exclusive of any other right
which such directors, officers or representatives may have or hereafter acquire
under any provision of the Restated Certificate of Incorporation, as amended,
statute, Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their respective official capacities and as to
action in another capacity while serving as a director, officer or
representative.
The Corporation may maintain insurance, at its expense, to protect itself
and any such director, officer or representative against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify him against such expense, liability or loss under the General
Corporation Law of the State of Delaware.
The Corporation may, to the extent authorized from time to time by the
board of directors, grant rights to indemnification, and to the advancement of
expenses to any employee or agent of the Corporation or any person serving at
the request of the Corporation as an employee or agent of another corporation,
or as an employee or agent in a partnership, joint venture, trust or other
enterprise, to the fullest extent of the provisions of this Article with respect
to the indemnification and advancement of expenses of directors and officers of
the Corporation.
4
<PAGE> 5
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
executed for, on behalf of, and in the name of the Corporation by its officers
thereunto duly authorized on this 23rd day of February, 1995.
VIASOFT, INC.
/s/ Steven D. Whiteman
---------------------------------
Steven D. Whiteman, President
ATTEST:
/s/ Albert J. Boos
- -----------------------------
Albert J. Boos, Secretary
5
<PAGE> 1
VIASOFT, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
EXHIBIT 11
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- ------------------------
1997 1996 1997 1996
------- -------- ------- --------
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 19,318 16,812 17,723 16,719
Effect of Weighting of Shares:
Shares issued in secondary offering -- -- 804 --
Shares issued related to R&O acquisition -- 120 -- 60
Shares purchased 5 95 9 47
Employee stock options exercised 19 18 96 112
------- -------- ------- --------
Weighted average number of common shares outstanding 19,342 17,045 18,632 16,938
======= ======== ======= ========
Net income (loss) $ 5,035 $(24,184) $ 8,801 $(22,628)
======= ======== ======= ========
Earnings (loss) per common share $ 0.26 $ (1.42) $ 0.47 $ (1.34)
======= ======== ======= ========
DILUTED EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 19,318 16,812 17,723 16,719
Effect of Weighting of Shares:
Warrants and employee stock options outstanding 663 -- 738 --
Shares issued in secondary offering -- -- 804 --
Shares issued related to R&O acquisition -- 120 -- 60
Shares purchased 5 95 9 47
Employee stock options exercised 19 18 96 112
------- -------- ------- --------
Weighted average number of common and common
share equivalents outstanding 20,005 17,045 19,370 16,938
======= ======== ======= ========
Net income (loss) $ 5,035 $(24,184) $ 8,801 $(22,628)
======= ======== ======= ========
Earnings (loss) per common and common share equivalent $ 0.25 $ (1.42) $ 0.45 $ (1.34)
======= ======== ======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 30,690
<SECURITIES> 77,093
<RECEIVABLES> 30,454
<ALLOWANCES> 618
<INVENTORY> 0
<CURRENT-ASSETS> 138,853
<PP&E> 10,534
<DEPRECIATION> 4,582
<TOTAL-ASSETS> 154,279
<CURRENT-LIABILITIES> 36,544
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 117,360
<TOTAL-LIABILITY-AND-EQUITY> 154,279
<SALES> 54,157
<TOTAL-REVENUES> 54,236
<CGS> 13,614
<TOTAL-COSTS> 42,806
<OTHER-EXPENSES> 80
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,050)
<INCOME-PRETAX> 13,400
<INCOME-TAX> 4,599
<INCOME-CONTINUING> 8,801
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,801
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.45
</TABLE>
