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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-25472
VIASOFT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2892506
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3033 NORTH 44TH STREET, PHOENIX, ARIZONA 85018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 952-0050
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.001 par value per share
Preferred Share Purchase Rights
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At August 31, 1999, the aggregate market value of common stock held by
non-affiliates of the Registrant was approximately $153,696,259 based upon the
closing sale price of the common stock on such date, as reported on The Nasdaq
Stock Market.
At August 31, 1999, the number of shares of common stock outstanding was
17,948,880.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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VIASOFT, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1999
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business 1
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 19
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 19
Item 6. Selected Consolidated Financial Data 21
Item 7. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations 24
Item 8. Consolidated Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 34
PART III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and Management 47
Item 13. Certain Relationships and Related Transactions 49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 49
SIGNATURES 52
FINANCIAL STATEMENTS F-1
</TABLE>
Analytical Engine(TM), Application Knowledge Repository(TM), AutoChange(TM),
Bridge(TM), Enterprise Portfolio Manager(TM), EPM(TM), ESW(R), ESW 2000(TM),
Existing Systems Workbench(R), Fileconverter for Euro(TM), Independent
Verification and Validation(SM), IV&V(SM), OnMark(TM), OnMark 2000(TM),
Rochade(TM), Viasoft(R), Viasoft Alliance(TM), Viasoft Encore(TM), Viasoft
Enterprise 2000(R), Viasoft Estimate(TM), Viasoft FastPath 2000(SM), Viasoft
Insight(TM), Viasoft Insourcing(R), Viasoft Legacy Transitions(SM), Viasoft
Renaissance(TM), Viasoft SmartDoc(TM), Viasoft SmartEdit(TM), Viasoft
SmartQuest(TM), Viasoft SmartTest(TM), Viasoft ValidDate(TM), Visual Process(TM)
and Visual Recap(TM) are trademarks and service marks of the Company. This
report also includes trade names, trademarks and references to intellectual
property owned by other companies.
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PART I
ITEM 1. BUSINESS
Viasoft, Inc., a Delaware corporation ("Viasoft" or the "Company"), provides
business solutions that help organizations worldwide understand, manage, evolve,
reuse, transition and modernize mission-critical applications that support their
fundamental business processes. The Company provides these business solutions
through integrated software products and specialized professional consulting
services.
PROPOSED ACQUISITION OF VIASOFT BY COMPUWARE
On July 15, 1999, Viasoft and Compuware Corporation ("Compuware") announced
the execution of a merger agreement providing for Compuware to acquire Viasoft
through a cash tender offer followed by a merger ("Merger"). As contemplated by
the merger agreement, on July 22, 1999, a wholly-owned subsidiary of Compuware,
CV Acquisition, Inc., offered to purchase all outstanding shares of Viasoft's
Common Stock for $9.00 per share ("Offer Price") on the terms and conditions of
an Offer to Purchase submitted to the Viasoft shareholders. Following completion
of the tender offer and subject to satisfaction of certain conditions, CV
Acquisition, Inc. will be merged into Viasoft, with Viasoft surviving as a
wholly-owned subsidiary of Compuware. This offer had an original expiration date
of August 19, 1999, which subsequently was extended to September 20, 1999 and
has now been extended to October 12, 1999. The expiration date may be further
extended by CV Acquisition, Inc.
Consummation of the tender offer is subject to certain conditions,
including the condition that at least a majority of the shares of Viasoft Common
Stock outstanding on a fully diluted basis are tendered and not withdrawn.
Consummation of the tender offer is also subject to the expiration or
termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act. On August 3, 1999, both Viasoft and Compuware received
requests for additional information and documents from the Antitrust Division of
the Department of Justice ("DOJ") in connection with its review of the
companies' Hart-Scott-Rodino filings. As a result of these information requests,
Compuware has extended the tender offer twice - from August 19, 1999 to
September 20, 1999, and then from September 20, 1999 to October 12, 1999 - to
allow sufficient time to comply with the information requests and to allow the
Department of Justice time to complete its investigation.
Compuware announced on September 20, 1999, that approximately 13,839,981
shares, or 77%, of the outstanding Viasoft Common Stock had been validly
tendered and not withdrawn pursuant to the tender offer, based upon the latest
count of tendered shares. Subject to the satisfaction of certain conditions, the
acquisition of Viasoft by Compuware is expected to be completed during the
fourth calendar quarter of 1999. See "Factors That May Affect Future Results -
Risks Associated with Proposed Acquisition by Compuware," "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations" and Note 1 of the Consolidated Financial Statements.
OVERVIEW
Business and governmental organizations rely on large-scale computer
applications to help manage their businesses. These applications, many of which
are mission-critical, contain the core knowledge and processes required to run
the major operations of these organizations. Enormous investments have been made
in these applications and organizations need to modernize and extend their
existing applications to leverage that investment and address changing
information requirements, as well as migrate to new computer architectures and
languages and integrate into the Web.
Viasoft's overall strategy is to provide products and consulting services to
support the application modernization needs of large organizations worldwide.
Over the years, Viasoft has come to thoroughly understand mission-critical
applications: how they are put together, and how to extract the business value
from them. The Company's business solutions are designed to assist customers in
cost effectively leveraging their investment and business value within existing
systems by managing applications and data; adding proven, repeatable processes
to development and maintenance initiatives; improving the quality of the
applications and assisting in specialized and complex
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redevelopment initiatives. In April 1999, the Company announced a reorganization
of its operations to transition the business to a solutions-driven model focused
on e-business enablement and accordingly developed plans to grow its services
business. See "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations - Restructuring."
Viasoft was founded in 1983 under the name Software Renovation Technology as
a California corporation. In 1986, the Company changed its name to Viasoft, Inc.
and reincorporated in Delaware. The Company's executive offices are located at
3033 North 44th Street, Phoenix, Arizona 85018, and its telephone number is
(602) 952-0050.
VIASOFT PRODUCTS
Viasoft offers a range of products that support its application
modernization strategy. These products enable organizations to understand,
manage, evolve, reuse, transition and modernize their existing mission-critical
enterprise applications. The Company's primary product lines include the
Existing Systems Workbench ("ESW"), a comprehensive, integrated toolset that
enables the management of existing systems; OnMark 2000, a suite of tools for
the desktop and client/server year 2000 century date conversion; Rochade, an
enterprise repository environment and the Company is continuing to develop an
e-Business Solutions product line, a set of tools designed to simplify the
integration of new technologies with traditional systems.
THE EXISTING SYSTEMS WORKBENCH
The Existing Systems Workbench ("ESW") is an integrated suite of software
tools built around two core technologies, the Analytical Engine and the
Application Knowledge Repository. ESW products are available as a complete suite
or as individual products that address each phase of the existing applications
maintenance and redevelopment life-cycle.
The Analytical Engine extracts and builds comprehensive information on
programs and applications, including overall structure, logic, data and control
flow, data definitions and usage, cross references, interface information,
standards exceptions, system metrics and business functions. This information is
automatically stored in the Application Knowledge Repository, which makes the
information immediately available for use with all ESW products. The Analytical
Engine and Application Knowledge Repository support an integrated suite of
products with a common look and feel that enables management of multi-task
projects without interruption and eliminates the need to switch between
different vendors' products for separate tasks. The Analytical Engine and
Application Knowledge Repository technology was designed to promote integration
and extensibility.
Each component product of ESW is described briefly below:
VIASOFT ALLIANCE: APPLICATION UNDERSTANDING. Alliance is designed to
determine the scope of an application and the number of changes required to
deliver a specified enhancement by analyzing different components of an
application and revealing the interrelationships between these components.
Alliance is also used to plan and estimate maintenance, enhancement and
redevelopment projects and to facilitate projects involving file or database
conversions, enabling and populating repositories or integrating new
applications and packaged software.
VISUAL RECAP: PORTFOLIO ANALYSIS AND REPORTING. Visual Recap is the decision
support component of ESW. Visual Recap allows information systems managers to
measure and gauge objectively the quality, complexity and business value of
applications and programs by providing industry-accepted measurements and
standards, including automation of the counting of function points.
VIASOFT INSIGHT: PROGRAM UNDERSTANDING. Insight automates the process of
analyzing and understanding complex COBOL logic. Insight is designed to enable
users to automate routine maintenance tasks and allow programmers to assess the
impact of changes, estimate the time changes will take and determine the level
of difficulty involved in making proposed changes.
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VIASOFT SMARTEDIT: CODE CHANGE. SmartEdit is designed to provide automated,
COBOL-intelligent change facilities and automatic syntax checking in the MVS
operating system's editing environment. SmartEdit automatically identifies
program components directly and indirectly related to a proposed program change.
VIASOFT SMARTTEST: CODE TESTING. SmartTest is designed to promote speed and
accuracy in code testing and debugging. SmartTest is designed to analyze a
program's structure, data relationships and execution paths and reveal both the
locations and the underlying causes of bugs and structural problems in program
code. SmartTest is also designed to allow programmers to monitor and change
program logic, data values and memory interactively from within the test
session, and automatically apply COBOL changes to the source code without
recompiling.
VIASOFT SMARTDOC: PROGRAM DOCUMENTATION. SmartDoc is designed to synthesize
comprehensive program information directly from the source code and organize it
into convenient reports, graphical charts and listings. SmartDoc provides
advanced source listings, program structure charts, enhanced data
cross-reference reports, control flow and data flow information and a variety of
industry-accepted software metrics concerning complexity, architecture and
software quality.
VIASOFT RENAISSANCE: PROGRAM RE-ENGINEERING. Renaissance is designed to
isolate and extract specific business functions from a program, such as reports,
calculations, computational variables, input/output definitions and transactions
and generate compilable, executable programs or modules. The results provided by
Renaissance assist in reuse of existing COBOL code, enabling customers to build
libraries of reusable and shared code for new development, modularization or
redevelopment projects. In addition, re-engineered programs or modules can be
transferred to different platforms as part of a system conversion or
client/server implementation.
VIASOFT SMARTQUEST. The SmartQuest products are automated fault diagnosis
tools that intercept abends, pinpoint problems and present the failure
information to programmers in a readable format. Each of the SmartQuest
products, SmartQuest for CICS and SmartQuest for Batch, supports the COBOL,
Assembler and PL/I mainframe environments. SmartQuest does not currently share
the Analytical Engine and Application Knowledge Repository with the other
components of ESW. The Company currently plans to begin work in fiscal 2000 to
integrate SmartQuest into ESW.
Along with the component products of ESW, the Company has developed and
acquired complementary products to address the specialized redevelopment needs
of year 2000 and Euro conversions. These products can be purchased separately,
but are marketed by Viasoft with varying component products of ESW as ESW 2000
and ESW for Euro. These products are described briefly below:
BRIDGE PRODUCTS. Viasoft has bridging technology based on a windowing
technique to support large conversion projects. The primary benefits of bridging
include the protection of data integrity, speed in the conversion process and
preservation of historical data, among others. Viasoft markets customized
options of its Bridge product for both year 2000 and Euro conversions.
VIASOFT ESTIMATE. Estimate is a tool for analyzing and assessing the size of
the programming effort required for large-scale program conversions, such as
year 2000 date conversions that require location of date fields, currency fields
and specific numerical or other fields.
VIASOFT AUTOCHANGE. AutoChange is an interactive tool that guides the user
through the process of changing large quantities of source code on an automated
basis. AutoChange allows the user to assign a conversion strategy to each
impacted data item in the conversion set and automatically apply the desired
changes to the source code. It also provides audit and reporting capabilities so
the user may monitor the status of program changes that have been made. Viasoft
offers a separate Euro option that customizes the product for Euro conversion
projects.
VIASOFT VALIDDATE. ValidDate tests the manner in which programs will respond
to future dates without altering the operating system. ValidDate provides an
alternate, running clock that allows the user to monitor run times for programs
with simulated dates. ValidDate also provides a logging facility, which enables
the user to audit the programs run through the ValidDate testing.
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VIASOFT EUROCONVERTER AND FILECONVERTER FOR EURO. EuroConverter and
FileConverter for Euro are tools designed to automate and manage the Euro
conversion project on an enterprise-wide basis.
TESTING PRODUCTS FOR YEAR 2000 AND EURO CONVERSIONS. To extend its testing
capabilities for these specialized redevelopment initiatives, Viasoft entered
into remarketing and reseller agreements with Software Recording Corporation
d/b/a AutoTester, Inc., to market Viasoft AutoTest, a testing automation tool,
and with Serena Software International to resell several testing products,
including Comparex and StarTool. Sales of these products have never been
material. Both of these agreements were terminated in the last six months and
the Company no longer markets these products.
ONMARK 2000
OnMark 2000 is an end-to-end solution designed to address each phase of year
2000 conversion for desktop and client/server applications. The OnMark 2000
product suite delivers a solution to address hardware, application and
data-related year 2000 issues. The core product within the OnMark 2000 product
suite, OnMark 2000 Assess, was acquired by the Company through its acquisition
of EraSoft Technologies, Inc. ("EraSoft"). The Company also entered into license
agreements with five software companies for the rights to distribute certain
desktop software tools that complete the Company's OnMark 2000 product line. See
"Product Development - Acquisitions and Strategic Relationships" and Note 2 of
the Consolidated Financial Statements.
Although revenue from the OnMark product line was significant in fiscal 1998
and 1999, the demand for these products has begun to decline significantly as
the year 2000 approaches. See "Factors That May Affect Future Results -
Dependence on Year 2000 Market" and "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations."
The Company believes that the primary benefits of the OnMark 2000 product
suite are the reduction of time and resources an organization must dedicate to
its desktop and client/server year 2000 century date conversion through the
automated identification of hardware and software that is not year 2000
compliant and the leverage of information for reuse by creating an inventory
portfolio of all hardware and software in an organization. Each of the OnMark
2000 products is described briefly below:
ONMARK 2000 ASSESS. OnMark 2000 Assess is a desktop risk assessment tool
that determines the impact of the year 2000 change on PC hardware and software.
OnMark 2000 Assess is designed to analyze hardware, software, source code, data
files, databases and spreadsheets, including spreadsheets written in MS-Excel,
Lotus 1-2-3 and Quattro Pro. This product shows the data that may require change
for the year 2000 problem conversion and ranks areas of risk by severity level.
It comes in the standard and server editions to accommodate a variety of year
2000 project approaches.
ONMARK WEBCENTER. OnMark WebCenter is a web-based inventory, assessment,
deployment and correction platform for desktop year 2000 projects. It provides
all of the same functionality of OnMark 2000 Assess and allows end users to
access the application and run an automatic year 2000 scan on their own PCs
directly from a corporate intranet. The product provides education on the
desktop year 2000 issues, and allows end users to register for the
organization's desktop year 2000 project through an industry-standard browser.
ONMARK 2000 FOR NETWORKS. OnMark 2000 for Networks is a year 2000 inventory
and analysis tool for network devices such as routers, switches and hubs. The
tool probes a network for all SNMP-managed devices, inventories them, and
cross-matches the discovered devices with a year 2000 compliance database and
produces a report to provide the basis of a corrective plan.
ONMARK 2000 SURVEY. OnMark 2000 Survey performs an automated inventory of
all of the personal computers in an organization's enterprise throughout the
organization's corporate network. Customized year 2000 reports are generated to
assist in measuring year 2000 compliance.
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ONMARK 2000 WORKBENCHES. The OnMark 2000 Workbenches are interactive
workbenches that assist programmers in analyzing and remediating (i)
spreadsheets written in MS-Excel, (ii) databases, forms, tables, queries, macros
and embedded VBA code in MS-Assess, (iii) client/server applications written in
C/C++, Visual Basic, PowerBuilder and UNIX Shell Scripts and (iv) databases and
design templates in Lotus Notes.
ROCHADE
Rochade is based on an open, enterprise-wide repository software technology
that is designed to help businesses better capture, manage, monitor,
disseminate, reuse and change their information technology for both mainframe
computers and distributed computing environments. Rochade provides a unified,
open method for viewing and sharing information about systems, tools, techniques
and processes across platforms that is easily accessible to a broad range of
users, allowing users to search, query and report on business data as they need
it.
The Company believes that an enterprise-wide repository is necessary to
fully manage cross-application dependencies, plan and execute large-scale
conversion projects, and extend information models to accommodate new
application components, languages and execution environments. Rochade enhances
the Company's repository technology by permitting the storage of greater volumes
of information at the enterprise level. Rochade is designed to allow more
efficient access to, and understanding and management of, customers'
applications and data utilizing a variety of computer languages, operating
systems and non-Viasoft products.
The Company is currently developing several enhancements to the Rochade
repository technology that the Company believes increase the ease of use and
extend the openness of the repository. These enhancements include XML support,
and Model Designer, a new modeling tool that supports UML and the OIM.
E-BUSINESS SOLUTIONS
In fiscal 1999, Viasoft introduced the first product, Enterprise Portfolio
Manager ("EPM"), in its planned e-Business Solutions product line, a set of
products designed to simplify the integration of new technologies with
traditional applications for e-business advantage. The core technology
supporting this product line is the integration of the Analytical Engine and
Application Knowledge Repository of ESW with the Rochade enterprise repository.
ENTERPRISE PORTFOLIO MANAGER. EPM is an inventory product that collects,
consolidates and automatically identifies the relationships between different
application components. It does this across a variety of languages and
databases. EPM provides an integrated set of common facilities to query,
navigate and manage the portfolio from a single point of control. EPM became
generally available in January 1999.
VIASOFT ENCORE. Encore is an application modernization product with
facilities to enable customers to build reusable components from COBOL source
code libraries, automating the separation of business logic, interface logic and
database logic. Customers can use Encore with component-based development
strategies, integration with ERP systems, such as SAP, and as a first step
toward migrating to new technologies. This product is currently in development
and is expected to become generally available in the Company's fiscal third
quarter.
VIASOFT SERVICES
In late fiscal 1998 and throughout fiscal 1999, management began to refocus
its attention on professional services to move from providing only enablement
services to offering a broader range of solutions, including managing
large-scale enterprise application projects. The Company acquired the exclusive
rights to market, sell and enhance a knowledge-driven process management tool,
called Visual Process, and integrated the tool with all of its current service
solutions. The Company no longer actively markets Visual Process as a separate
product, but will continue to use it as a delivery vehicle for its services
solutions. See Note 2 of the Consolidated Financial Statements and "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."
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In April 1999, the Company announced its intention to move toward a more
solution-oriented business model focused on e-business enablement. The Company
made several significant changes to its services business in the ensuing
reorganization, including a restructuring of its sales force, discontinuing
unprofitable solution lines, and expanding its solution offerings. Management
believes it may experience weakness in professional services fee revenue and
margins as it transitions to this new business model. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."
The Company's current service solution offerings are briefly described
below:
YEAR 2000 REMEDIATION SERVICES
During the past year, the large majority of services revenue came from year
2000-related projects. The Company continues to assist customers in the
analysis, planning, conversion and testing required for a successful year 2000
conversion. Projects have included enterprise-wide conversions,
application-specific conversions and assistance in desktop planning and
remediation. The Company believes services revenue from year 2000-related
projects will continue to decrease and will decline significantly after the year
2000. See "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations."
INDEPENDENT VERIFICATION AND VALIDATION
The Independent Verification and Validation ("IV&V") service solution is
designed to assess the risk of failure of applications modified for year 2000.
IV&V includes a comprehensive evaluation of the conversion and testing
activities performed to date. This assessment includes application inventory,
impact analysis, code remediation, testing and production implementation
planning. The IV&V solution combines process and year 2000 software tools to
verify and validate year 2000 activities, document year 2000 readiness and
facilitate follow-up activities and management awareness.
EURO IMPLEMENTATION
Viasoft offers similar remediation services to customers dealing with Euro
conversion projects. Through use of Viasoft's ESW for Euro product line and
onsite professional services, Viasoft can assist customers addressing Euro
conversion issues such as (i) handling currency conversion and triangulation,
(ii) changing decimal formats, (iii) changing field sizes in databases and
files, (iv) rounding differences after currency conversions and (v) storing
historical national currency values. Viasoft Euro solutions are designed to help
enable IT organizations to manage dual-base currencies, move to a common
European currency, and take advantage of strategic business opportunities.
APPLICATION MAINTENANCE
Viasoft's core expertise is understanding complex applications. Viasoft can
assist customers in performing application maintenance in two specific ways:
insourcing and outsourcing. Viasoft Insourcing combines ESW technology with
onsite professional services to help customers enable their own personnel to
successfully implement enhanced, repeatable processes for maintenance and
redevelopment of existing applications. Similarly, the Company offers customers
the option to outsource this application maintenance work directly to Viasoft
instead of using its own internal resources. Revenue from Application
Maintenance projects was not material in fiscal 1999.
DATA WAREHOUSING MANAGEMENT
Viasoft offers data warehouse management services, built on the Rochade
repository environment, which are designed to make data more accessible to an
organization's decision-makers, and reduce the time and cost of obtaining that
data.
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SYSTEM MODERNIZATION
As customers adopt e-business strategies, Viasoft is designing service
solutions to assist them in this important transition. Viasoft can assist
customers through use of Viasoft technology and professional services, to
integrate their existing applications with the functionality of the internet.
Viasoft seeks to provide expertise to customers in legacy-to-Web integration,
application and data rehosting, component-based development and re-engineering.
CUSTOMER SUPPORT
The Company offers maintenance for each of its products, entitling the
customer to receive technical support and advice, including problem resolution
services, installation assistance, error corrections and any product
enhancements released during the maintenance period. Under the Company's
standard license agreements, maintenance is renewable on an annual basis, and is
generally priced at a percentage of the then-current list price. While
maintenance is provided without charge for the mainframe products during the
first year, maintenance fees for personal computer products are charged from the
outset of the contract. While most mainframe customers renew maintenance on an
annual basis, a significant number of PC product customers do not purchase
maintenance services from the Company. See "Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations." In the fiscal
years ended June 30, 1999, 1998 and 1997, maintenance fees represented
approximately 32%, 25% and 25%, respectively, of the Company's total revenues.
Maintenance and support services are provided primarily by telephone from the
Company's Phoenix, Arizona, headquarters and its Westford, Massachusetts,
office, as well as certain offices of the Company's international subsidiaries
and distributors.
SALES, MARKETING AND DISTRIBUTION
Viasoft markets its products and services principally to Global 5000 and
similarly sized business and governmental organizations worldwide. The Company's
sales efforts are implemented through its domestic and international direct
sales organizations; through a number of foreign independent distributors
located in Europe, the Far East, South Africa and Latin America; and through a
reseller channel established during fiscal 1998 primarily to sell the OnMark
2000 product line.
DIRECT SALES
The Company sells and supports its products and services in North America
and portions of South America from its Phoenix, Arizona, headquarters and two
primary field offices in the United States. As of June 30, 1999, the Company had
41 salespersons worldwide, including 12 located at the Company's headquarters
and the United States field or home offices. These offices cover the territories
of the United States and Canada. Internationally, the Company's subsidiary
offices sell directly to customers primarily in Australia, Austria, Belgium,
Canada, France, Germany, Luxembourg, the Netherlands, New Zealand, Switzerland
and the United Kingdom.
INTERNATIONAL DISTRIBUTORS
Viasoft markets its products to international customers both directly and
through independent distributors. Distributors are authorized by Viasoft to
license the Company's software products to end-users. In addition to its
subsidiary offices, the Company markets Rochade and/or the ESW product line
internationally in 28 countries through 12 independent distributors. To date,
the Company has not offered significant professional services through its
distributors.
ONMARK 2000 RESELLER CHANNEL
Along with the direct marketing of OnMark 2000 products through the
Company's domestic offices and international subsidiaries, the Company
indirectly markets the OnMark 2000 product line worldwide through a reseller
channel established during fiscal 1998, which includes master resellers,
integrators and dealers. Master resellers are authorized by Viasoft to license
the Company's OnMark 2000 products to dealers and end-users and, depending on
the nature of the reseller's business, some are limited to a specific geographic
area and some are
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worldwide. Integrators and dealers are authorized by Viasoft to license the
Company's OnMark 2000 products to end-users. Integrators are typically limited
to specific territories and dealers are typically assigned for administrative
purposes to a particular master reseller. As of June 30, 1999, the Company had
entered into agreements with 17 master resellers, 91 integrators and 78 dealers.
COMPETITION
PRODUCTS
The market for the Company's software products is intensely competitive and
is characterized by rapid change in technology and user needs and the frequent
introduction of new products and product enhancements. Most of the Company's
competitors and many potential competitors have substantially greater financial,
marketing and technology resources than the Company. Major competitors for
software product license sales include Allen Systems Group ("ASG"); Computer
Associates International, Inc. and its recently acquired Platinum Technology
unit ("CA"); Compuware; Crystal Systems Solutions ("Crystal Systems"); Cyrano,
Inc. ("Cyrano"); International Business Machines Corporation ("IBM"); Merant
Public Limited Company ("Merant"); Network Associates, Inc.; Sterling Software,
Inc. ("Sterling Software") and WRQ, Inc. The Company believes that the principal
factors affecting competition in its product markets include compatibility with
customers' platforms and languages, product functionality, quality of support,
product performance and reliability, ability to respond to changing customer
needs, ease of use and price.
CONSULTING SERVICES
The market for the types of professional services provided by the Company is
also highly competitive. Major competitors of the Company's services business
are primarily the consulting organizations of the Big Five accounting firms, as
well as CA; Computer Horizons Corp.; Data Dimensions, Inc.; Electronic Data
Systems Corporation; IBM's Global Services and Keane, Inc. Other system
integrators and application outsourcers also compete to perform professional
services competitive to Viasoft's solutions and position themselves as long-term
business partners, able to lower an organization's staff and maintenance costs
and improve control of information systems functions with well-established work
practices. Many smaller local or regional organizations also compete in the
services market, which is fragmented and characterized by low barriers to entry.
The Company's principal competitors and many potential competitors have
significantly greater financial, marketing, recruiting and technological
resources than the Company. The principal competitive factors affecting the
market for the Company's professional services include responsiveness to
customer needs, availability and productivity of personnel, the ability to
demonstrate achievement of results, depth of technical skills, price and
reputation.
THE YEAR 2000 MARKET
With the growth of the year 2000 market in the last several years,
significant competition has emerged and is expected to continue through the year
2000. The consulting services segment of the market is characterized by low
barriers to entry. The principal competitive factors affecting this market
include functionality, performance and reliability of technology and
methodology; availability and productivity of personnel; the ability to
demonstrate achievement of results; depth of experience in year 2000 projects;
price and reputation. There are generally four categories of competitors for
Viasoft in the year 2000 market, each focusing on a different market segment.
MAINFRAME SOFTWARE VENDORS. Software vendors provide tools targeted for the
year 2000 market. Many of these products focus on a particular phase of a year
2000 project, such as inventory and assessment, scanning, parsing, conversion,
testing and documentation. Competitive factors include the tool's compatibility
with customers' platforms and languages, the vendor's ability to deliver
training and ongoing support during the customers' implementation of the tools,
and the value of the tool to an organization beyond the year 2000. Primary
competitors in this category include ASG, CA, Compuware, Merant and Sterling
Software.
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CONSULTING ORGANIZATIONS. Competitors in this category range from large,
generalized consulting firms to small- to medium-sized consulting firms that
have become highly focused on the year 2000 problem. These companies provide
supplemental personnel and contract programming resources to customers and some
have licensed tools from software vendors to enhance their offerings. These
companies are often selected by customers based on the skills, experience and
process that each firm uses. Competitors in this category include Andersen
Consulting; CIBER, Inc.; Computer Horizons Corp.; Computer Task Group, Inc.;
Data Dimensions, Inc.; Ernst & Young LLP and Keane, Inc.
SYSTEMS INTEGRATORS AND APPLICATION OUTSOURCERS. Large systems integrators
and outsourcing firms have also entered the year 2000 market. These are
companies that may already have relationships with customers and are able to
include year 2000 conversion services with the maintenance and data processing
services they already provide. They provide a customer with an alternative to
managing the year 2000 conversion project themselves by outsourcing the whole
project to an organization with an established relationship and a working
knowledge of the customer's systems. Some integrators/outsourcers offer licensed
tools from software vendors. Competitors in this category include CapGemini,
Computer Sciences Corp., Electronic Data Systems Corporation, IBM's Global
Services and most Big Five accounting firms.
DESKTOP YEAR 2000 MARKET. Software vendors are focusing on desktop year 2000
problems as well as mainframe issues. Major competitors include Greenwich
MeanTime, Inc.; Network Associates, Inc.; CA's Platinum Technology unit and WRQ,
Inc.
PRODUCT DEVELOPMENT
As of June 30, 1999, the Company had 129 employees engaged in research,
development and support. Of the Company's research and development personnel, 62
were software and solutions developers with the balance divided between customer
support, documentation, administration and quality assurance. Substantially all
of these employees are located at either the Company's Phoenix, Arizona,
headquarters; the OnMark research and development facilities in Calgary, Canada;
the Rochade research and development facilities in Chemnitz, Germany or the
Visual Process research and development facilities in Toronto, Canada. In
addition to developing new products, the Company continually updates its
existing products through enhancements and new releases, develops new products
and technologies to facilitate its service solutions and integrates and develops
enhancements to acquired and licensed technologies and products.
During the fiscal years ended June 30, 1999 and 1998, research and
development expenditures were $13,968,000 and $16,392,000, respectively. In
fiscal 1999, this amount excludes a charge for in-process research and
development of $5.0 million in connection with the acquisition of SHL
Systemhouse Co. ("SHL"). In fiscal 1998, this amount excludes charges for
in-process research and development of $8.6 million in connection with the
acquisition of EraSoft and a fault diagnostic tool marketed as SmartQuest.
Research and development expenses in fiscal 1998 include approximately $3.2
million in charges for third-party development of certain technologies included
in the OnMark 2000 product suite. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations" and Note 2 of the
Consolidated Financial Statements.
INTELLECTUAL PROPERTY
Viasoft relies on a combination of copyright, trade secret and trademark
laws, and contractual provisions to establish and protect its rights in its
software products and proprietary technology. The Company protects the source
code version of its products as a trade secret and as an unpublished copyrighted
work. Despite these precautions, it may be possible for unauthorized parties to
copy certain portions of the Company's products or reverse engineer or obtain
and use information that the Company regards as proprietary. The Company
presently has very limited patent rights, and existing copyright and trade
secret laws offer only limited protection. Certain provisions of the license and
distribution agreements generally used by the Company, including provisions
protecting against unauthorized use, copying, transfer and disclosure, may be
unenforceable under the laws of certain jurisdictions and the Company is
required to negotiate limits on these provisions from time to time. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. The
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Company has been and may be required from time to time to enter into source code
escrow agreements with certain customers and distributors, providing for release
of source code in the event the Company breaches its support and maintenance
obligations, files bankruptcy or ceases to continue doing business.
The Company's competitive position may be affected by its ability to protect
its proprietary information. However, because the software industry is
characterized by rapid technological change, the Company believes that patent,
trademark, copyright, trade secret and other legal protections are less
significant to the Company's success than other factors such as the knowledge,
ability and experience of the Company's personnel, new product and service
development, frequent product enhancements, customer service and ongoing product
support.
While the Company has no knowledge that it is infringing the proprietary
rights of any third party, there can be no assurance that such claims will not
be asserted in the future with respect to existing or future products. Any such
assertion by a third party could require the Company to pay royalties, to
participate in costly litigation and defend licensees in any such suit pursuant
to indemnification agreements, or to refrain from selling an alleged infringing
product or service. See "Factors that May Affect Future Results - Importance of
Proprietary Rights."
EMPLOYEES
The Company had 430 full-time employees as of June 30, 1999, including 165
in sales, sales support and marketing; 129 in research, development and support;
66 in professional services and 70 in domestic and international corporate
operations, administration and support. None of the Company's employees is
represented by a collective bargaining agreement. If the proposed acquisition of
the Company by Compuware is not completed in a timely manner, Viasoft believes
its relationships with employees would be materially adversely affected. Viasoft
has already experienced a significant loss in the number of employees since the
proposed acquisition was announced. As of September 20, 1999, the Company had
363 full-time employees, comprised of 142 in sales, sales support and marketing,
99 in research, development and support, 63 in professional services and 59 in
domestic and international corporate operations, administration and support. The
decrease in the number of employees included a reduction in force of
approximately 25 employees as part of the continued reorganization. See
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations", "Factors That May Affect Future Results Dependence on
Key Personnel," " - Risks Associated With Proposed Acquisition by Compuware,"
and "Business Proposed Acquisition of Viasoft by Compuware."
FACTORS THAT MAY AFFECT FUTURE RESULTS
RISKS ASSOCIATED WITH PROPOSED ACQUISITION BY COMPUWARE
Viasoft believes that its business, results of operations, financial
condition and liquidity have been materially adversely affected by the
announcement of the proposed transactions with Compuware. Relationships with
customers have been adversely affected and revenues from product licenses and
professional services have declined as customers have delayed or reconsidered
purchase decisions. In addition, the Company has experienced significant
employee attrition as a result of the announcement of the Compuware
transactions. The Company believes that its business, results of operations,
financial condition and liquidity would be further materially adversely affected
if these transactions are not timely completed. In particular, Viasoft believes
that its relationships with its customers and employees would be seriously
damaged. Consummation of the proposed acquisition of Viasoft by Compuware is
subject to certain conditions, including the condition that at least a majority
of the shares of Viasoft Common Stock outstanding on a fully diluted basis are
tendered and not withdrawn. Consummation of the acquisition is also subject to
the expiration or termination of applicable antitrust waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act. On September 20, 1999, Compuware
announced that it was extending the tender offer through October 12, 1999.
Compuware extended the offer to allow sufficient time to comply with the DOJ's
request for additional information and documents and to allow the DOJ to
complete its investigation pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act. The DOJ could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to enjoin
the purchase of shares pursuant to the tender offer or seeking divestiture of
the shares so acquired or divestiture of substantial assets of Compuware or the
Company. There can be no assurance that a challenge to the Merger on antitrust
grounds will not
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be made, or if such a challenge is made, what the result will be. See "Business
- - Proposed Acquisition of Viasoft by Compuware," "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations" and Note
1 of the Consolidated Financial Statements.
In addition, the merger agreement with Compuware imposes restrictions on
Viasoft's conduct of its business and its ability to take certain actions
without Compuware's consent. These restrictions could have a material adverse
effect on Viasoft's business.
DEPENDENCE ON YEAR 2000 MARKET
Throughout the Company's 16-year existence, Viasoft's growth has been
attributable to its ability to assist its customers in maintaining and
renovating their existing systems. However, the growth in the Company's revenue
during fiscal years 1998 and 1997 resulted primarily from increased demand for
the Company's year 2000 century date conversion products and solutions for
mainframe applications and desktop environments. The demand for the Company's
year 2000 products and solutions has begun to decline significantly as the year
2000 approaches and customers' needs for additional products and services
declines. The Company anticipates that remaining demand in the year 2000 market
will decline rapidly following the year 2000 and that the market for year 2000
products and services will be substantially over by mid-2000. These changes will
materially and adversely affect the Company's revenues. It is the Company's
strategy to leverage customer relationships and knowledge of customer
application systems derived from its year 2000 solutions to market other
products and services beyond the year 2000 market. As part of this strategy, the
Company announced a reorganization in April 1999 to transition its business to a
solutions-driven model focused on e-business enablement. Management believes
that the Company may experience weakness in professional services fee revenue
and margins as it transitions to this new model. Subsequent to the fiscal year
end, the proposed acquisition of the Company by Compuware was announced. As a
result of this announcement, the Company has not fully implemented the planned
transition to a solutions-based model. Should the Company be unable to market
other products and services as demand in the year 2000 market declines, the
Company's business, results of operations, financial condition and liquidity
will be materially adversely affected. See "Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations."
VOLATILITY OF COMMON STOCK PRICE
The Company's stock price has been highly volatile since its initial public
offering. The Company believes that factors such as developments in connection
with the proposed Compuware transactions, quarterly fluctuations in results of
operations, changing perceptions of the year 2000 problem, announcements of new
products and acquisitions by the Company or by its competitors, changes in the
mix of revenues from software licenses and professional services, changes in
revenue or earnings estimates by securities analysts, developments in litigation
affecting the Company, changes in accounting principles or their application and
other factors may cause the market price of the Company's stock to continue to
fluctuate, perhaps substantially. In addition, stock prices for many technology
companies fluctuate widely for reasons that may be unrelated to operating
results. Due to market and securities analysts' expectations of continued
growth, any shortfall in meeting such expectations may have a rapid and
significant adverse effect on the trading price of the Company's stock. These
fluctuations, as well as general economic, market and other conditions may
adversely affect the market price of the Company's stock in the future.
Fluctuations in the market price of the Company's stock may in turn adversely
affect the Company's ability to complete any targeted acquisitions, its access
to capital and financing and its ability to attract and retain qualified
personnel. See "Market for the Registrant's Common Stock and Related Stockholder
Matters."
FLUCTUATING QUARTERLY RESULTS
The Company has experienced significant quarterly and other fluctuations in
revenues and operating results and expects these fluctuations to continue in the
future. Most recently, management believes that the announcement of the proposed
Compuware transaction has contributed to such fluctuations. The Company believes
that these fluctuations also have been attributable to the budgeting and
purchasing practices of its customers; the length of the customer product
evaluation process for the Company's products; the timing of its customers'
system conversions;
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the timing and significance of releases by the Company or its competitors of new
enhancements, products and solutions and, to a lesser extent, the Company's
sales commission practices, which are based partly on quarterly incentives and
annual quotas; and other factors. The Company's revenues and results of
operations may also be affected by seasonal trends, which have resulted in
higher revenues in the Company's second and fourth fiscal quarters and lower
revenues in its first and third fiscal quarters. This seasonality is a result of
many customers' annual purchasing and budgetary practices, the Company's sales
commission practices, lower revenues in the summer months (particularly in
Europe) when many businesses make fewer purchases and other factors. The
Company's professional services revenues tend to fluctuate due to the completion
or commencement of significant projects, which may continue over multiple
quarters, the number of working days in a quarter and the utilization rate of
professional services personnel. Future revenues and operating results may
fluctuate as a result of these and other factors, including the demand for the
Company's products and services, the timing and cost of new product and service
introductions and product enhancements, changes in the mix of products and
services sold and in the mix of sales by distribution channels, timing of any
acquisitions and associated costs, the size and timing of customer orders,
changes in pricing policies by the Company or its competitors, the timing of
collection of accounts receivable and related reported days' sales outstanding,
changes in foreign currency exchange rates, competitive conditions in the
industry and general economic conditions. Furthermore, as a result of these and
other factors, it is likely that in some future quarter the Company's revenues
or operating results will be below the expectations of securities analysts or
investors, in which case the price of the Common Stock could likely be
materially and adversely affected, as was the case in the first and third
quarters of fiscal 1999. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations."
Historically, the Company has had little or no backlog. Quarterly revenues
and operating results therefore depend primarily on the volume and timing of
orders received during the quarter, which are difficult to forecast. The Company
has often recognized a substantial portion of its license fees in the last month
of each quarter, frequently in the last week. A significant portion of the
Company's operating expenses is relatively fixed, since personnel levels and
other expenses are based upon anticipated revenues. Because a substantial
portion of the Company's revenues may not be generated until the end of each
quarter, the Company may not be able to reduce spending in response to sales
shortfalls or delays. These factors, many of which are not within the Company's
control, can cause significant variations in operating results from quarter to
quarter. Accordingly, the Company believes that quarter to quarter comparisons
of its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.
RISKS ASSOCIATED WITH PROFESSIONAL SERVICES
The Company's services business had constituted 28% of total revenue in
fiscal 1997. The Company's services business decreased to 17% of total revenue
during fiscal 1998 but grew to 24% of revenues in fiscal 1999. In April 1999,
the Company announced its intention to move towards a more solution-oriented
business model. The Company made several significant changes to its services
business in the ensuing reorganization, including restructuring its sales force,
discontinuing unprofitable solution lines, and expanding its solution offerings.
Viasoft's strategy was to offer solutions focused on e-business enablement and
accordingly developed plans to grow its services business. Management believes
that the Company may experience weakness in professional services fee revenue
and margins as it transitions to this new business model. Subsequent to the
fiscal year end, the proposed acquisition of the Company by Compuware was
announced. As a result of this announcement, the Company has not fully
implemented the planned transition to a solutions-based model. The Company is
experiencing a significant slowdown in professional services fee income as a
result of customers delaying decisions regarding signing new services agreements
pending the outcome of the Merger. Should the proposed Merger not be completed,
however, there can be no assurance that this new strategy will be successful,
and should the Company be unable to market other products and services as demand
in the year 2000 market declines, the Company's business, results of operations,
financial condition and liquidity could be materially and adversely affected.
The Company will continue to be subject to the risks generally associated
with a services business, including volatility of workload; increased overhead
associated with services personnel, particularly because the Company will be
adding staff to grow its services business both domestically and
internationally; and the related difficulty in adjusting costs to respond to
fluctuations in revenue, dependence on the Company's ability to attract and
retain
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qualified technical personnel in a very competitive market, managing profit
margins in a lower margin business than software product licensing and intense
competition in an environment of rapidly changing customer needs and
expectations. In addition, customers may require fixed price contracts, where
profitability is more difficult to manage due to greater risk of cost overruns.
See "Business - Viasoft Services" and "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations."
RISKS FROM INTERNATIONAL OPERATIONS
Approximately 35%, 32% and 32% of the Company's total revenues in each of
the fiscal years ended June 30, 1999, 1998 and 1997, were attributable to
international sales. The Company believes that international business will
continue to account for a significant portion of its revenues, due in part to
the continued expansion of its Rochade and ESW product lines internationally and
the Euro conversion transition. International operations are subject to a number
of risks, including longer accounts receivable payment cycles, exchange rate
fluctuations, difficulty in enforcing agreements and collecting accounts
receivable, tariffs and other restrictions on foreign trade, U.S. export
requirements, withholding and other tax consequences, economic and political
instability, restrictions on repatriation of earnings and the burdens of
complying with a wide variety of foreign laws. The Company has experienced
longer payment cycles from some of its foreign distributors. Sales made through
the Company's foreign distributors are denominated in U.S. dollars except in
Italy 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 $595,000 from foreign currency fluctuations in the fiscal year
ended June 30, 1999. 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. The Company's foreign operations are also
affected by general economic conditions in its international markets. A
prolonged economic downturn in its foreign markets could have a material adverse
effect on the Company's business. In addition, the laws of certain countries do
not protect the Company's products and intellectual property rights to the same
extent as do the laws of the United States. There can be no assurance that the
factors described above will not have an adverse effect on the Company's future
international revenues and, consequently, on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations," "Business - Sales,
Marketing and Distribution" and Note 9 to Consolidated Financial Statements.
In addition, approximately 6%, 7% and 5% of the Company's total revenues and
16%, 21% and 15% of international revenues were realized through the sales and
marketing efforts of its international independent distributors in the fiscal
years ended June 30, 1999, 1998 and 1997, respectively. The efforts expended and
results achieved by independent distributors are less within the control of the
Company than its direct sales operations. A reduction in sales by the Company's
distributors or a termination of their relationships with the Company could have
a material adverse effect on the Company's international revenues, its business,
results of operations and financial condition.
PRODUCT CONCENTRATION; DEPENDENCE ON MAINFRAME SYSTEMS
Historically, most of the Company's software license fee revenues and
maintenance fee revenues have been derived from products in the Company's
primary product line, the Existing Systems Workbench. In addition, a substantial
portion of the Company's professional services fee revenues has been derived
from customers that also license ESW products. Although a greater percentage of
the Company's license revenue in fiscal 1999 was attributable to OnMark 2000
product offerings in comparison to fiscal 1998, the Company believes that a
substantial portion of its revenues will continue to be derived from ESW and
solutions that incorporate the ESW technology. If license sales, maintenance
renewals or pricing levels of ESW products were to decline materially, whether
as a result of technological change, competition or any other factors, the
Company's business, results of operations and financial condition would be
materially and adversely affected. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations." The Company's
principal software products and services are designed for users of IBM and
IBM-compatible mainframe computers utilizing IBM's MVS/XA or MVS/ESA operating
systems. Future revenues from sales of products and services and recurring
maintenance
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revenues are therefore dependent on continued use of such mainframe computers
and related operating system software. In addition, because Viasoft products
require the use of IBM's MVS operating systems, the Company will be required to
adapt its products to any changes made to these IBM operating systems in the
future. The Company's inability to adapt to future changes in the MVS operating
systems, or delays in doing so, could have a material adverse effect on the
Company's business, results of operations and financial condition. See " Ability
to Respond to Technological Change."
ABILITY TO MANAGE CHANGE
The Company has experienced changes in its operations and in the software
industry in the last several fiscal years that have placed increased demands on
its managerial, operational and financial resources. The Company expects its
business and the industry as a whole to continue to undergo rapid change. The
Company's transition to a solutions-driven model focused on e-business
enablement, together with ongoing required product development and future
acquisition activity in response to changes in the industry and customer needs,
will require Viasoft to manage effectively its operations in a rapidly changing
environment. The Company's future performance will depend in part on its ability
to manage change in both its domestic and international operations and will
require the Company to continue to hire additional management, technical and
professional services personnel with specialized expertise. The Company has
experienced difficulties in recruiting and retaining qualified personnel and
anticipates that these efforts will remain difficult, as industry sources
predict an insufficient supply of programmers and consultants to meet demand.
The failure of the Company's management team to manage changing technological
and business conditions as well as the growth of its own business, should it
occur, could have a material adverse impact on the Company's business, results
of operations and financial condition.
INTENSE COMPETITION
The market for the Company's software products is intensely competitive and
is characterized by rapid change in technology and user needs and the frequent
introduction of new products and product enhancements. The market for the type
of professional services provided by the Company is also highly competitive.
With the growth of the year 2000 market, significant competition has emerged and
is expected to increase through the year 2000. The professional services segment
of the market is characterized by low barriers to entry. The principal
competitive factors affecting the year 2000 market include functionality,
performance and reliability of technology and methodology, availability and
productivity of personnel, the ability to demonstrate achievement of results,
depth of experience in year 2000 projects, price and reputation. There are
generally four categories of competitors for Viasoft in the year 2000 market:
software vendors, consulting organizations, system integrators and application
outsourcers and desktop software vendors that provide tools targeted for the
year 2000 market. Competitive factors include tools' compatibility with
customers' platforms and languages, vendors' ability to deliver training and
ongoing support during customers' implementation of the tools, and the value of
the tools to an organization beyond the year 2000. Consulting organizations that
compete in the year 2000 market range from large, generalized consulting firms
to small- to medium-sized consulting firms that have become highly focused on
the year 2000 problem. These companies provide supplemental personnel and
contract programming resources to customers and some have licensed tools from
software vendors to enhance their offerings. Large systems integrators and
outsourcing firms have entered the year 2000 market to include year 2000
conversion services with the maintenance and data processing services they
already provide to their existing market and customer base. Some
integrators/outsourcers offer licensed tools from software vendors. Software
vendors are also beginning to focus on desktop year 2000 problems as well as
mainframe issues. The Company has seen increasing competition to its OnMark 2000
products from desktop software vendors.
Most of the Company's competitors and potential competitors have
substantially greater financial, marketing, recruiting and technology resources
than the Company. Major competitors for software product license sales include
ASG; CA; Compuware; Crystal Systems; Cyrano; IBM; Merant; Network Associates,
Inc.; Sterling Software and WRQ, Inc. The Company believes that the principal
factors affecting competition in its product markets include compatibility with
customers' platforms and languages, product functionality, quality of support,
product performance and reliability, ability to respond to changing customer
needs, ease of use and price. Major competitors of the Company's professional
services business are primarily the consulting organizations of the Big
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Five accounting firms. Other competitors of the Company's professional services
business include CA, Computer Horizons Corp., Data Dimensions, Inc.; Electronic
Data Systems Corporation; IBM Global Services and Keane, Inc. The principal
competitive factors affecting the market for the Company's professional services
include responsiveness to customer needs, availability and productivity of
personnel, the ability to demonstrate achievement of results, depth of technical
skills, price and reputation. Major competitors to the Company's desktop year
2000 products include CA; Greenwich MeanTime, Inc.; Network Associates, Inc. and
WRQ, Inc.
The Company's ability to compete successfully in the sale of both its
products and services will depend in large part upon its ability to implement
successfully its strategy of selling products and services as a total solution
as well as its ability to attract new customers, sell new products and services,
deliver and support product enhancements to its existing customers and respond
effectively to continuing technological change by developing and acquiring new
products and services. There can be no assurance that the Company will be able
to compete successfully in the future, nor that future competition for product
sales and professional services will not have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business - Competition."
ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE
The Company's future success will depend significantly on its ability to
enhance its current products and develop or acquire and market new products that
keep pace with technological developments and evolving industry standards as
well as respond to changes in customer needs. There can be no assurance that the
Company will be successful in developing or acquiring product enhancements or
new products to address changing technologies and customer requirements
adequately, that it can introduce such products on a timely basis, or that any
such products or enhancements will be successful in the marketplace. The
Company's delay or failure to develop or acquire technological improvements or
to adapt its products to technological change would have a material adverse
effect on the Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH PRODUCTS CURRENTLY UNDER DEVELOPMENT
The Company is currently developing and enhancing certain products that are
unfinished, untested and unproven in the marketplace. These products include,
but are not limited to enhancements to further integrate and complement the
Rochade line of products and e-Business solutions products designed to simplify
the integration of new technologies with traditional applications for e-business
advantage. There can be no assurance that these products will be completed and
commercially introduced at the times scheduled by the Company, or that if
completed and introduced, that these products will function in accordance with
the Company's and its customers' current expectations or be able to compete
successfully in the marketplace.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in part upon the retention of key senior
management and technical personnel. The Company does not have employment
agreements with most of its key personnel, nor does it maintain key man life
insurance on any of these persons. Several senior management personnel are
relatively new to the Company and the Company's success will depend in part on
the successful assimilation and performance of these individuals. The Company
believes that its future success will also depend upon its ability to attract
and retain additional highly skilled technical, professional services, sales
managers and product management personnel. The market for these individuals has
historically been, and the Company expects that it will continue to be,
intensely competitive. The Company has experienced difficulties in recruiting
and retaining qualified personnel and anticipates that these efforts will remain
difficult. In particular, the Company has experienced significant employee
attrition as a result of the announcement of the proposed Compuware
transactions. The loss of one or more of its key employees or the Company's
inability to attract and retain other qualified employees would have a material
adverse effect on the Company's business. See "Business - Employees,"
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" and "- Risks Associated with The Proposed Acquisition by
Compuware."
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PRODUCT LIABILITY
The Company provides business solutions that help large organizations
worldwide understand, manage, evolve, reuse, transition and modernize
mission-critical enterprise applications that support their fundamental business
processes. In addition, a large portion of the Company's business is devoted to
addressing the year 2000 problem, which affects the performance and reliability
of many mission-critical systems. The Company's agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product and service liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
The Company maintains errors and omissions insurance, but there is no guarantee
that the insurance policy would cover any or all claims made against the Company
or that the coverage provided would be adequate. Although the Company has not
experienced any material product or service liability claims to date, the sale
and support of its products and services may entail the risk of such claims,
particularly in the year 2000 market, which could be substantial in light of the
use of its products and services in mission-critical applications. A successful
product or service liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
IMPORTANCE OF PROPRIETARY RIGHTS
The Company regards its software products and some of the methodology and
processes it uses in connection with performing professional services as
proprietary and attempts to protect them under a combination of copyright, trade
secret and trademark laws and contractual restrictions on employees and third
parties. Despite these precautions, it may be possible for unauthorized parties
to copy the Company's software or to reverse engineer or obtain and use
information the Company regards as proprietary. The Company has very limited
patent rights and existing trade secret and copyright laws provide only limited
protection. Certain provisions of the license and distribution agreements
generally used by the Company, including provisions protecting against
unauthorized use, copying, transfer and disclosure, may be unenforceable under
the laws of certain jurisdictions and the Company is required to negotiate
limits on these provisions from time to time. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. To the extent that the Company
increases its international activities, its exposure to unauthorized copying and
use of its products and proprietary information may increase. Also, the Company
licenses a portion of its desktop software under "click-wrap" and "shrink-wrap"
licenses. Certain click-wrap or shrink-wrap license provisions protecting the
Company against unauthorized use, copying, transfer and disclosure of the
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. In addition, there is generally more software piracy and
copyright infringement in the PC software business, which the Company entered
when it introduced OnMark 2000. There can be no assurance that the protections
put in place by the Company will be adequate.
In 1996, the Company acquired the date bridging technology incorporated in
its Bridge 2000 product, together with a pending patent application. On March 2,
1999, U.S. patent #5,878,422 was issued for this bridging technology. The
Company is continuing to pursue international patent protection in certain
countries. In fiscal 1998, the Company acquired a pending patent application for
certain technology in the EraSoft acquisition. The Company is continuing to
prosecute patent applications for this technology. However, there can be no
assurance that a patent will issue as a result of this application, nor as to
the extent of the protection any such patent might afford.
Significant and protracted litigation may be necessary to protect the
Company's intellectual property rights, to determine the scope of the
proprietary rights of others or to defend against claims of infringement.
Although the Company is not currently involved in any litigation with respect to
intellectual property rights, infringement claims against software developers
are likely to increase as the number of functionally similar products in the
market increases. There can be no assurance that third-party claims, with or
without merit, alleging infringement will not be asserted against the Company in
the future. Such assertions can be time-consuming and expensive to defend and
could require the Company to discontinue the use of certain software or
processes; to cease the manufacture, use and sale of infringing products and
services; to incur significant litigation costs and expenses and to develop or
acquire noninfringing technology or to obtain licenses to the alleged infringing
technology. There can be no
16
<PAGE> 19
assurance that the Company would be able to develop or acquire alternative
technologies or to obtain such licenses or, if licenses were obtainable, that
the terms would be commercially acceptable to the Company. See "Business -
Intellectual Property."
ANTI-TAKEOVER EFFECT OF CHARTER, BYLAWS AND STOCKHOLDER RIGHTS PLAN
Certain provisions of the Company's Amended and Restated Bylaws impose
certain procedures and limitations applicable to stockholders' meetings,
proposals of business and nominations of directors that could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. These provisions
may limit the price that certain investors may be willing to pay in the future
for shares of the Company's common stock. These provisions may also reduce the
likelihood of an acquisition of the Company at a premium price by another person
or entity. In addition, under the Company's Restated Certificate of
Incorporation, the Board of Directors has the authority to fix the rights and
preferences of, and issue shares of, Preferred Stock without further action of
the stockholders. Therefore, Preferred Stock could be issued, without
stockholder approval, that could have voting, liquidation and dividend rights
superior to that of existing stockholders. The issuance of Preferred Stock could
adversely affect the voting power of holders of common stock and the likelihood
that such holders would receive dividend payments and payments on liquidation
and could have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
Preferred Stock. In addition, the Company adopted a stockholder rights plan in
fiscal 1998 that could delay or make more difficult a merger, tender offer or
proxy contest involving the Company that the Board of Directors has not
approved. The Company has agreed in its merger agreement with Compuware to hold
a meeting of Viasoft stockholders for the purpose of approving Compuware's
acquisition of Viasoft, if such approval is acquired by law. In addition, the
Company's board of directors recently amended the stockholder rights plan to
allow the proposed transaction with Compuware to proceed without triggering the
rights under the plan. See "Business - Proposed Acquisition of Viasoft by
Compuware."
YEAR 2000 CONSIDERATIONS
The Company has established and continues to evaluate and update its formal
program to address any potential year 2000 compliance issues relating to its (i)
internal operating systems, (ii) vendors, facilities and other third parties and
(iii) software products that it licenses to customers. The success of the
Company's compliance program will depend in large part on the efforts of third
parties with whom the Company does business and whose activities are not within
the Company's control. The Company continues to evaluate and updates its
assessment of the year 2000 readiness of those third parties. In addition, to
date, the Company has not completed its contingency plans in the event that its
internal operating systems, distributors, resellers, vendors, facilities or
products, or any other components of its business operations, fail to operate in
compliance with the year 2000 century date change. The Company expects to
finalize its contingency plans by the end of October 1999. The cost of the
Company's year 2000 compliance program has not had and is not expected to have a
material effect on the Company's results of operations or liquidity. However,
there can be no assurance that the Company will not experience material adverse
consequences in the event that the Company's year 2000 compliance program is not
successful or its distributors, resellers, vendors or landlords are unable to
resolve their year 2000 compliance issues in a timely manner. In addition, if
any of the Company's products are not year 2000 compliant in a timely manner,
the Company's sales may decline materially, customers and those with whom they
do business may assert product liability and other claims, and the Company's
business, results of operations and financial condition would be materially and
adversely affected. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations."
17
<PAGE> 20
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-K contains
express or implied 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. Additional written or oral forward-looking statements may be
made by the Company from time to time in filings with the Securities and
Exchange Commission ("SEC"), in its press releases, quarterly conference calls
or otherwise. The words "believes", "expects", "anticipates", "intends",
"forecasts", "projects", "plans", "estimates" and similar expressions identify
forward-looking statements. Such statements reflect the Company's current views
with respect to future events and financial performance or operations and speak
only as of the date the statements are made. Such forward-looking statements
involve risks and uncertainties and readers are cautioned not to place undue
reliance on forward-looking statements. The Company's actual results may differ
materially from such statements. Factors that cause or contribute to such
differences include, but are not limited to, those discussed above in "Factors
That May Affect Future Results," as well as those discussed elsewhere in this
Form 10-K including in the Notes to Consolidated Financial Statements and in
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" and the documents incorporated herein by reference.
Although the Company believes that the assumptions underlying its forward-
looking statements are reasonable, any of the assumptions could prove inaccurate
and, therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such forward-
looking information should not be regarded as a representation by the Company or
any other person that the future events, plans or expectations contemplated by
the Company will be achieved. The Company undertakes no obligation to publicly
update, review or revise any forward-looking statements to reflect any change in
the Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statements is based.
ITEM 2. PROPERTIES
The Company's principal administrative and marketing facilities are located
in approximately 34,000 square feet of space in Phoenix, Arizona. The Company
occupies these premises under a lease agreement expiring on December 31, 1999,
subject to certain renewal options. The Company's research and development and
customer support facilities are located in approximately 37,000 square feet of
space in Phoenix, Arizona (the "Londen Center"). The Company occupies these
premises under a lease agreement expiring on May 31, 2001. The Company currently
plans to move all Phoenix-based employees into its Londen Center space by the
end of the calendar year.
In addition, the Company maintains field offices and executive suite sales
offices within the United States located in leased space aggregating
approximately 19,000 square feet as of June 30, 1999. The Company also leased an
aggregate of approximately 47,000 square feet of space as of June 30, 1999, in
Australia, Belgium, Canada, France, Germany, the Netherlands and the United
Kingdom for operations of its international branch offices and subsidiaries.
The Company believes that its facilities are adequate for its current needs
and that suitable additional space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
Viasoft is subject to certain legal proceedings and claims that arise in the
conduct of its business. In the opinion of management, the amount of liability,
if any, as a result of these claims and proceedings is not likely to have a
material effect on the financial condition or results of operations of the
Company.
The DOJ is currently pursuing an investigation of the proposed merger with
Compuware pursuant to the Hart-Scott-Rodino Antitrust Improvements Act. See
"Business - Proposed Acquisition of Viasoft by Compuware" and "Factors That May
Affect Future Results - Risks Associated with Proposed Acquisitions by
Compuware."
18
<PAGE> 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the fourth quarter of the fiscal year covered by this report. However, there is
presently pending a tender offer by Compuware to purchase all outstanding shares
of Viasoft's Common Stock for $9.00 per share. Viasoft has agreed that if,
following expiration, CV Acquisition, Inc. has received at least a majority of
the Shares of the Company on a fully diluted basis, but less than 90% of the
Shares, the Company will, as soon as practicable, call a meeting of its
shareholders for the purpose of obtaining shareholder approval of the Merger and
any other actions contemplated thereby which require the approval of the
Company's shareholders. If at least 90% of the outstanding shares are tendered
as of the close of business on the last business day before the tender offer
expires, it is expected that Compuware will cause the Merger to occur without a
shareholder vote (assuming the other conditions for the Merger have been met).
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been traded on The Nasdaq Stock Market under
the symbol VIAS since the Company's initial public offering in March 1995. Prior
to that offering, there was no public market for the common stock of the
Company. The Company has never paid cash dividends on its capital stock and
currently anticipates that it will retain future earnings, if any, to fund the
development and growth of its business.
The number of holders of record of the Company's common stock was
approximately 366 on August 31, 1999. In addition, there were approximately
5,700 beneficial owners of common stock on August 31, 1999.
The following table presents quarterly information on the price range of the
common stock for the last two fiscal years. This information indicates the high
and low reported sale prices on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1999:
First quarter.................................................... 16 1/2 6 1/4
Second quarter................................................... 9 2 3/4
Third quarter.................................................... 7 7/8 3 9/16
Fourth quarter................................................... 4 11/16 3 1/32
FISCAL 1998:
First quarter.................................................... 65 1/4 47
Second quarter................................................... 54 5/8 32 1/2
Third quarter.................................................... 43 7/8 25 3/4
Fourth quarter................................................... 29 3/8 12 3/8
</TABLE>
In April 1998 the Board of Directors adopted a Shareholder Rights Plan (the
"Rights Plan"). On July 14, 1999, prior to entering into an Agreement and Plan
of Merger (the "Merger Agreement") among Compuware, CV Acquisition, Inc., and
Viasoft, the Company's Board of Directors approved an Amendment to the Rights
Agreement between the Company and Harris Trust and Savings Bank, as rights agent
("Rights Plan Amendment") to permit the proposed Merger to proceed. The Rights
Agreement was filed as Exhibit 1 to the Company's Form 8-A dated April 22, 1998.
The Rights Plan Amendment was filed as Exhibit 9 to the Schedule 14D-9, dated
July 22, 1999. The following summary of the Rights Plan Amendment is qualified
in its entirety by reference to the Rights Plan Amendment itself.
The Rights Plan Amendment provides, among other things, that no person shall
be or become an Acquiring Person (as defined in the Rights Plan) by reason of
the execution and delivery of the Merger Agreement, the Shareholder Agreement
(as defined in the Rights Plan Amendment) or any amendment thereto, or any
purchase of Viasoft Common Stock pursuant to the Merger contemplated by the
Merger Agreement. The Rights Plan Amendment also provides that the time period
during which Rights (as defined in the Rights Plan) may be exercised
19
<PAGE> 22
by the registered holder thereof following the Distribution Date (as defined in
the Rights Plan) will expire on the earliest of (i) the earlier of (1) the
consummation of the offer or (2) the close of business on the Final Expiration
Date (as defined in the Rights Plan), or (ii) the time at which the right to
exercise the Rights otherwise terminates pursuant to the Rights Plan. The Rights
Plan Amendment further provides that a Shares Acquisition Date (as defined in
the Rights Plan) shall not be deemed to have occurred solely by reason of the
public announcement, public disclosure, execution and delivery or amendment of
the offer, the Merger, the Merger Agreement or the Shareholder Agreement and the
transactions contemplated thereby. See Note 6 of the Consolidated Financial
Statements.
RECENT SALES OF UNREGISTERED SECURITIES
Prior to its initial public offering in March 1995, the Company awarded
stock options to employees and directors under its broad-based 1986 Stock Option
Plan (the "Plan"), which Plan has not been registered under the Securities Act
of 1933, as amended. No further options were granted under this Plan after the
offering. The following issuances of Common Stock upon the exercise of options
outstanding under the Plan have taken place in the past three years:
<TABLE>
<CAPTION>
Number of Shares
Fiscal Year Issued Price Range
----------- ------------------ -----------
<S> <C> <C>
1999 49,388 $.38 - $0.93 per share
1998 70,923 $.38 - $4.00 per share
1997 148,688 $.38 - $4.00 per share
</TABLE>
In fiscal 1995, the Company awarded non-qualified stock options totaling
26,000 of Viasoft Common Stock to two international employees and to one
consultant. These options were not pursuant to any registered stock plan. The
following issuances of Common Stock upon the exercise of these options have
taken place in the last three years:
<TABLE>
<CAPTION>
Number of Shares
Fiscal Year Issued Price Range
----------- ---------------- -----------
<S> <C> <C>
1999 -- --
1998 1,400 $4.00 - $4.00 per share
1997 17,000 $4.00 - $4.43 per share
</TABLE>
The option prices were paid in cash, and there were no discounts or
commissions paid to or by the Company in connection with the exercises. The
funds received for the purchase of these shares was used for general corporate
purposes. The issuance of such shares was exempt from registration pursuant to
Section 4 (2) of the Securities Act of 1933, as amended, or rule 701 promulgated
thereunder. See Note 5 of the Consolidated Financial Statements.
In December 1996, the Company acquired all the outstanding shares of R&O
for cash, stock and assumption of liabilities. As part of the consideration for
the Company's acquisition of R&O, the Company issued 425,112 shares of its
Common Stock to the former stockholders of R&O, pursuant to Regulation S
promulgated under the Securities Act of 1933, as amended. See Note 2 of the
Consolidated Financial Statements.
20
<PAGE> 23
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" included elsewhere herein. The selected
consolidated financial data presented below has been derived from the Company's
consolidated financial statements which have been audited by Arthur Andersen
LLP, independent public accountants, whose report covering the financial
statements as of June 30, 1999 and 1998, and for each of the three years in the
period ended June 30, 1999, also is included elsewhere herein. The consolidated
statements of operations data for the years ended June 30, 1996 and 1995, and
the consolidated balance sheet data as of June 30, 1996 and 1995, are derived
from audited financial statements not included herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees ........................ $ 44,989 $ 65,122 $ 40,292 $ 17,824 $ 14,311
Maintenance fees ............................. 33,718 28,865 21,010 14,305 12,059
Professional services fees ................... 25,526 19,615 23,832 11,307 4,387
Other ........................................ 39 85 178 121 194
--------- --------- --------- --------- ---------
Total revenues ......................... 104,272 113,687 85,312 43,557 30,951
--------- --------- --------- --------- ---------
Operating expenses:
Cost of software license and maintenance fees 15,596 12,737 4,345 2,788 2,661
Cost of professional services fees ........... 22,312 18,537 18,316 8,025 4,052
Sales and marketing .......................... 41,031 42,131 31,573 18,137 13,517
Research and development ..................... 13,968 16,392 7,893 4,237 3,193
Write-off of purchased in-process
research and development (1) ............... 5,013 8,559 26,958 -- --
General and administrative ................... 11,362 7,849 6,319 3,567 2,643
Restructuring charge ......................... 12,291 -- -- -- --
--------- --------- --------- --------- ---------
Total operating expenses ............... 121,573 106,205 95,404 36,754 26,066
--------- --------- --------- --------- ---------
Income (loss) from operations .................. (17,301) 7,482 (10,092) 6,803 4,885
Total other income ............................. 3,619 4,595 718 1,257 490
--------- --------- --------- --------- ---------
Income (loss) before income taxes .............. (13,682) 12,077 (9,374) 8,060 5,375
Income tax (benefit)/provision ................. (5,192) 4,142 6,062 1,843 183
--------- --------- --------- --------- ---------
Net income (loss) .............................. $ (8,490) $ 7,935 $ (15,436) $ 6,217 $ 5,192
========= ========= ========= ========= =========
Basic earnings (loss) per common share (2) ..... $ (.46) $ .42 $ (.90) $ .38 $ .38
========= ========= ========= ========= =========
Weighted average number of common
shares outstanding (2) ..................... 18,308 18,999 17,212 16,390 13,660
========= ========= ========= ========= =========
Diluted earnings (loss) per common and
common share equivalent (2) ................ $ (.46) $ .40 $ (.90) $ .36 $ .36
========= ========= ========= ========= =========
Weighted average number of common
and common share equivalents outstanding (2) 18,308 19,799 17,212 17,391 14,584
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ........................... $ 25,609 $ 37,809 $ 8,501 $ 5,009 $ 7,680
Working capital..................................... 71,623 96,257 9,856 25,388 17,950
Total assets........................................ 134,169 162,377 64,601 46,591 32,614
Deferred revenue (current).......................... 19,541 20,843 18,227 9,985 8,482
Deferred revenue (long term)........................ 206 542 230 298 185
Total stockholders' equity.......................... 94,630 115,858 28,696 28,259 20,423
</TABLE>
21
<PAGE> 24
- ----------
(1) See Note 2 of the Consolidated Financial Statements and "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."
(2) Reflects the conversion of all issued and outstanding shares of preferred
stock into 8,847,814 shares of Common Stock upon the closing of the
Company's initial public offering on March 8, 1995. Also reflects the effect
of a two-for-one stock split effected in the form of a dividend, with a
record date of August 30, 1996. See Notes 1 and 6 of the Consolidated
Financial Statements.
PRO FORMA COMBINED FINANCIAL DATA
The following pro forma financial data of the Company presents the Company's
unaudited pro forma combined statements of operations for the fiscal year ended
June 30, 1997, adjusted to give effect to the R&O acquisition as if it had been
consummated as of the beginning of the period.
On December 5, 1996, the Company acquired all of the capital stock of R&O.
The Company initially paid $10.8 million in cash and issued approximately
425,000 shares of restricted Common Stock valued at $12.8 million to the selling
stockholders of R&O. Additional consideration of $2.0 million was paid on
February 28, 1997, based on the achievement of certain financial performance
criteria. The Company also assumed liabilities of approximately $9.4 million and
recorded other direct costs of approximately $3.8 million related to the
acquisition. The acquisition has been accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16. See "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations" and
Note 2 to Consolidated Financial Statements.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
----------------------------------------------------------------
BUSINESS PRO FORMA PRO FORMA
HISTORICAL ACQUIRED ADJUSTMENTS COMBINED
---------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software license fees .............. $ 40,292 $ 2,435 $ -- $ 42,727
Maintenance fees ................... 21,010 2,147 -- 23,157
Professional services fees ......... 23,832 1,249 -- 25,081
Other .............................. 178 122 -- 300
-------- -------- -------- --------
Total revenues ................... 85,312 5,953 -- 91,265
-------- -------- -------- --------
Operating expenses:
Cost of software license and ....... 4,345 959 167(1) 5,471
maintenance fees
Cost of professional services fees . 18,316 1,374 (161)(2) 19,529
Sales and marketing ................ 31,573 2,243 (623)(2,4) 33,193
Research and development ........... 7,893(5) 1,511 (269)(2,4) 9,135
General and administrative ......... 6,319 1,311 (828)(1,2,3,4) 6,802
-------- -------- -------- --------
Total operating expenses ......... 68,446 7,398 (1,714) 74,130
-------- -------- -------- --------
Income (loss) from operations ........ 16,866 (1,445) 1,714 17,135
-------- -------- -------- --------
Total other income (expense) ......... 718 (144) 138(6) 712
-------- -------- -------- --------
Income (loss) before income taxes .... 17,584 (1,589) 1,852 17,847
Provision for income taxes ........... 6,062 -- 93(7) 6,155
-------- -------- -------- --------
Net income (loss) .................... $ 11,522 $ (1,589) $ 1,759 $ 11,692
======== ======== ======== ========
Diluted earnings per common and common
Share equivalent ................... $ .64 $ .64
======== ========
Weighted average number of common
and common Share equivalents
outstanding ........................ 18,086(9) 184(8) 18,270
======== ======== ========
</TABLE>
- ----------
22
<PAGE> 25
(1) To adjust amortization expense to reflect amortization of the cost in excess
of the fair value of net assets acquired over a 5-year period and for
amortization of other identifiable intangible assets over the appropriate
periods.
(2) To adjust payroll and employee benefits related to the reduction of
duplicate or redundant positions identified by the Company as part of the
acquisition.
(3) To adjust other operating expenses to reflect expenditures which would not
have been incurred had the acquisition of R&O occurred at the beginning of
the respective periods.
(4) To reflect a reduction in expenses related to excess office space that would
not have been incurred by the Company had the acquisition occurred at the
beginning of the periods presented.
(5) Excludes a charge of approximately $27.0 million for write-off of purchased
in-process research and development.
(6) To adjust interest expense to reflect the payoff of R&O debt assumed in the
acquisition, as of the beginning of the periods presented.
(7) To adjust income taxes to reflect the tax effect of the adjustments
described above.
(8) To adjust weighted average number of common and common share equivalents
outstanding as if the Common Stock issued in connection with the acquisition
of R&O had been outstanding since the beginning of the periods presented.
(9) Adjusted to include additional common share equivalents as a result of
excluding a charge of approximately $27.0 million for write-off of purchased
in-process research and development. See Note (5) above.
The foregoing unaudited pro forma combined financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto. The
unaudited pro forma combined financial data is provided for illustrative
purposes only and is not necessarily indicative of the combined results of
operations that would have been reported had the R&O acquisition occurred on the
dates indicated, nor does it represent a forecast of the combined results of
operations for any future period. No pro forma adjustments have been included
herein which reflect the potential effect of (i) any efficiencies which may be
obtained by combining the Company and R&O operations or (ii) the costs of
restructuring, integrating or consolidating their operations. Certain statements
in this Form 10-K concerning the R&O acquisition, including descriptions of the
acquisition and pro forma financial information, are forward-looking statements
that involve risks and uncertainties. There can be no assurance that the R&O
acquisition will have the desired benefits or that it will not have an adverse
effect on the Company's business, financial condition or results of operations.
Actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, among others, those
discussed herein under "Factors That May Affect Future Results" and "Special
Note on Forward-Looking Statements," as well as those discussed elsewhere in
this Form 10-K and in the documents incorporated herein by reference.
23
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. Such
forward-looking statements include, but are not limited to, statements regarding
future events and the Company's plans and expectations. The Company's actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed above in "Factors That May Affect Future Results", as well as those
discussed elsewhere in this Form 10-K or incorporated herein by reference. See
"Special Note on Forward-Looking Statements."
OVERVIEW
On July 15, 1999, Viasoft and Compuware announced the execution of a merger
agreement providing for Compuware to acquire Viasoft through a cash tender
offer, subject to the satisfaction of certain conditions. The expiration date of
this offer has been extended to October 12, 1999. See "Business - Proposed
Acquisition of Viasoft by Compuware."
Viasoft believes that its business, results of operations, financial
condition and liquidity have been materially adversely affected by the
announcement of the proposed acquisition by Compuware. Relationships with
customers have been adversely affected and revenues from product licenses, and
professional services have declined as customers have delayed or reconsidered
purchase decisions. In addition, the Company has experienced significant
employee attrition as a result of the announcement of the Compuware
transactions. Completion of the proposed transactions is subject to certain
conditions, including termination or expiration of applicable antitrust waiting
periods, and the Company believes that its business, results of operations,
financial condition and liquidity would be further materially adversely affected
if these transactions are not completed. In particular, Viasoft believes that
its relationships with its customers and employees would be seriously damaged.
In addition, the merger agreement imposes restrictions on Viasoft's conduct of
its business and its ability to take certain actions without Compuware's
consent. These restrictions could have a material adverse affect on Viasoft's
business. See "Factors that May Affect Future Results - Risks Associated with
Proposed Acquisition by Compuware," " -- Volatility of Stock Price," " --
Fluctuating Quarterly Results" and " -- Dependence on Key Personnel."
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
large organizations. The Company's products and services are marketed through
its domestic and international direct sales organizations, through a number of
foreign independent distributors located in Europe, the Far East, South Africa
and Latin America, and through a reseller channel established during fiscal 1998
primarily to sell the OnMark 2000 product line.
Revenue is recognized in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition" and SOP 98-9 which modifies 97-2 with respect to
certain transactions involving multiple element arrangements. Accordingly,
revenue from software licensing is recognized when delivery of the software has
occurred, a signed non-cancelable license agreement has been received from the
customer or a purchase order from a reseller after receipt of an executed
reseller agreement and any remaining obligations under the license agreement are
insignificant. Revenue from software license fees related to the Company's
obligation to provide certain post-contract customer support without charge for
the first year of the license is unbundled from the license fee at its fair
value and is deferred and recognized straight-line over the contract support
period. Revenue from annual or other renewals of maintenance contracts
(including long-term contracts) is deferred and recognized straight-line over
the term of the contracts. Revenues from professional services fees are
recognized generally as related services are provided. Professional services do
not involve significant customization, modification or production of the
licensed software.
24
<PAGE> 27
RESTRUCTURING
In the first quarter of fiscal 1999, the Company established and began the
implementation of a cost reduction and restructuring plan for the purpose of
aligning expenses with a decrease in forecasted revenues, as the year 2000
market declined, and to allow the business to invest in other products and
service solutions. In April 1999, the Company announced a reorganization of its
operations to transition the business to a solutions-driven model focused on
e-business enablement, and accordingly developed plans to grow its services
business.
As part of the reorganization, the Company increased its investment in its
professional services organization by creating a dedicated sales force and
regionalizing delivery. The domestic sales organization was reorganized to
better support sales of e-business solutions and enhance support of existing
customers. The development organization was realigned to focus on two areas:
developing technology to support e-business enablement services and enhancing
the value of Viasoft core products for existing customers.
In the first quarter of fiscal 1999, the Company took a $4.8 million
pre-tax restructuring charge. This restructuring charge covered $3.1 million for
severance and related costs for a reduction in workforce of approximately 10% of
the Company's 550 employees worldwide; $800,000 for office consolidation costs
including leasehold termination payments and other facility exit costs for
certain offices worldwide which were unrelated to the Company's core business;
and $900,000 for the write down of intangible assets which had become impaired
as determined by a net realizable value test based on future forecasted revenues
The Company took a pre-tax charge of approximately $7.5 million in the
fourth quarter of fiscal 1999 in connection with its April reorganization and
transition to the new business model. This charge related to severance for a
reduction in workforce of approximately 20% of its 500 employees worldwide of
$2.8 million; a write down in accordance with SFAS No. 121 of certain long-lived
assets based on the net present value of future cash flows of $4.3 million; a
write down of certain capitalized software which was determined to be impaired
through a net realizable value test based on future forecasted revenues of
$300,000; and additional facility exit costs of $100,000.
As of June 30, 1999, approximately 153 employees were separated from the
Company and $3.5 million in severance and related costs had been paid out or
incurred. Approximately $47,000 had been used for office consolidation costs as
of June 30, 1999.
25
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain expense and income items:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Revenues:
Software license fees........................... 43% 57% 47%
Maintenance fees................................ 32 26 25
Professional services fees...................... 25 17 28
Other........................................... - - -
----- ----- -----
Total revenues.......................... 100 100 100
----- ----- -----
Operating expenses:
Cost of software license and maintenance fees... 15 11 5
Cost of professional services fees.............. 22 16 22
Sales and marketing............................. 39 37 37
Research and development........................ 13 14 9
Write-off of purchased in-process research and
development.................................. 5 8 32
General and administrative....................... 11 7 7
Restructuring charges 12 - -
------ ----- -----
Total operating expenses......................... 117 93 112
----- ----- -----
Income (loss) from operations..................... (17) 7 (12)
Total other income, net................. 4 4 1
----- ----- -----
Income (loss) before income taxes................. (13) 11 (11)
Income tax (benefit)/provision.................... (5) 4 7
------ ----- -----
Net income (loss)....................... (8)% 7% (18)%
====== ===== ======
</TABLE>
The discussion of results of operations for the twelve months ended June
30, 1999 and 1998, below excludes the effect of these restructuring charges and
purchased in-process research and development charges. See Notes 2 and 11 of the
Consolidated Financial Statements.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1999 AND JUNE 30, 1998
REVENUES
Total revenues were $104,272,000 for fiscal 1999 as compared to
$113,687,000 for fiscal 1998. Software license fees were $44,989,000 for fiscal
1999, a decrease of 31% from $65,122,000 in fiscal 1998. The decrease in
software license fees for the year related to the slowdown in the worldwide
demand for the Company's year 2000 mainframe software tools. Sales of the
Company's desktop product, OnMark 2000, which was released in the third quarter
of fiscal 1998, partially offset the 60% decline in revenues from mainframe
license sales and represent 57% of license revenues. Beginning in late fiscal
1999, OnMark 2000 license revenues began to decline significantly both
domestically and internationally. The Company anticipates that this will
accelerate as the year 2000 approaches and that the year 2000 market will be
substantially over by mid-2000. In addition, the Company anticipates decreases
in software license fee revenues as a result of customer decisions to postpone
or reconsider purchases due to delays in closing customer contracts due to the
proposed acquisition of the Company by Compuware. See " -- Overview," "Factors
That May Affect Future Results - Product Concentration; Dependence on Mainframe
Systems," " -- Risks Associated with Proposed Acquisition by Compuware" and " --
Dependence on Year 2000 Market."
Maintenance fees were $33,718,000 in fiscal 1999, an increase of 17% from
$28,865,000 in fiscal 1998. The increase was due to new software licenses,
increases in the fees charged for annual maintenance and customer system
upgrades. With the Company's entry into the desktop software market with the
OnMark 2000 product line,
26
<PAGE> 29
it has experienced that a large number of OnMark customers do not purchase
maintenance services. As a result, the Company expects erosion in maintenance
revenue growth to continue for the remaining period in which license sales of
OnMark 2000 continue to be a large percentage of revenues. In fiscal 1999, the
Company saw some instances of maintenance cancellations that management believes
were the result of customers canceling maintenance after completion of their
year 2000 remediation projects. If in the future customers discontinue use of
Viasoft products because they purchased them solely for year 2000 projects, it
could have a material adverse effect on the Company's revenues.
Professional services fees were $25,526,000 for fiscal 1999, an increase of
30% from $19,615,000 in fiscal 1998. Throughout fiscal 1999, management focused
its efforts on growing its professional services business to provide solutions
and expertise to customers in the areas of project management for large-scale
application conversions or re-engineering projects. These efforts, as well as
the completion of a large fixed-fee engagement in fiscal 1998, resulted in a
year-over-year increase in professional services fee income. In April 1999, the
Company announced a reorganization of its operations to transition to a
solutions-driven model focused on e-business enablement, and accordingly
developed plans to grow its services business. Management believes that the
Company may experience weakness in professional services fee revenue and margins
as it transitions to this new model. Subsequent to the fiscal year end, the
proposed acquisition of the Company by Compuware was announced. As a result of
this announcement, the Company has not fully implemented the planned transition
to a solutions-based model. The Company is experiencing a significant slowdown
in professional service fee income as a result of customers delaying decisions
regarding signing new services agreements pending the outcome of the Merger. See
" - Overview," "Business - Proposed Acquisition of Viasoft by Compuware," and
"Factors That May Affect Future Results - Risks Associated with Proposed
Acquisition by Compuware."
COST OF REVENUES
Cost of software license and maintenance fees, which includes royalties,
cost of customer support and packaging and product documentation, was
$15,596,000 in fiscal 1999, an increase of 22% from $12,737,000 in fiscal 1998.
Gross margins on software license and maintenance fees decreased to 80% in
fiscal 1999 compared to 86% in fiscal 1998. Royalty expenses in fiscal 1999
increased 20% over the same period in fiscal 1998 primarily due to the increase
in sales of the OnMark 2000 product line as a percentage of total license sales.
All products in the OnMark product line require royalty payments to third
parties. Other factors contributing to the increase in cost of software license
and maintenance fees and decline in margins included increased customer support
salaries and personnel and related costs, amortization of the purchased research
and development from the January 1998 EraSoft acquisition and the July 1998 SHL
product acquisition (See Note 2 of Notes to Consolidated Financial Statements)
and increased OnMark 2000 related costs, including outside consultants to
provide customer support.
Cost of professional services fees, which consists principally of personnel
costs, third-party subcontracting costs, and other costs related to the
professional services business, was $22,312,000 in fiscal 1999, an increase of
20% from $18,537,000 in fiscal 1998. The increase in expenses was primarily a
result of additional subcontractor costs to support the increase in revenues,
primarily from large consulting projects. Management expects that the use of
subcontractors will continue within the new business model in order to staff
large projects. The cost increase was offset in part by lower salaries and
related costs as internal services headcount declined year over year as a result
of the Company using more subcontractors on engagements in order to more
effectively control margins. The gross margin for professional services was 13%
in fiscal 1999 compared to 6% in fiscal 1998. The increase in margins is
primarily the result of the focus by management on profitability and the
completion of a large, non-profitable fixed-fee engagement contract completed
late in fiscal 1998.
SALES AND MARKETING
Sales and marketing expenses, which consist primarily of salaries,
commissions and related benefits and administrative costs allocated to the
Company's sales and marketing personnel, were $41,031,000 in fiscal 1999, a
decrease of 3% from $42,131,000 in fiscal 1998. This decrease is attributable
primarily to a decrease in bonuses and lower commissions due to the decline in
license revenues and overall decreases in marketing and promotional costs
resulting from the Company's cost cutting initiatives offset by a $1.0 million
increase in the bad debt provision.
27
<PAGE> 30
Sales and marketing expense as a percentage of total revenues was 39% in fiscal
1999 and 37% in fiscal 1998. This increase is due primarily to the decrease in
revenues.
RESEARCH AND DEVELOPMENT
Research and development expenditures consist primarily of personnel costs
of the research and development staff and the facilities, computing, benefits
and other administrative costs allocated to such personnel and third-party
development costs. Research and development expenditures were $13,968,000 in
fiscal 1999, compared to $16,392,000 in fiscal 1998. Research and development
expenses decreased 15% year over year. As a percentage of total revenues,
research and development costs were 13% in fiscal 1999 compared to 14% for
fiscal 1998. Purchased research and development charges for third-party
products, primarily related to the SHL acquisition and the OnMark product line,
were approximately $1.2 million in fiscal 1999. Similar charges related to the
OnMark product line in fiscal 1998 were $3.2 million. The decrease in these
third-party charges along with the decrease in development personnel as a result
of the Company's reorganization are the primary reasons for the decline in
actual research and development expenses and research and development expense as
a percentage of revenues in fiscal 1999. See " -- Restructuring."
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of finance and
accounting, legal, human resources, corporate information systems, and other
administrative functions of the Company. General and administrative expenses
were $11,362,000 in fiscal 1999, compared to $7,849,000 in fiscal 1998. General
and administrative expenses increased 45% year over year. This increase is a
result of additional administrative personnel and their related costs, general
salary increases, the costs incurred related to the Company's year 2000
readiness work and amortization of intangibles related to the EraSoft and SHL
acquisitions. As a percentage of total revenues, general and administrative
expenses were 11% in fiscal 1999 compared to 7% in fiscal 1998. This increase is
primarily due to the overall decrease in revenues year over year and the
additional personnel costs.
OTHER INCOME (EXPENSE)
Other income was $3,619,000 in fiscal 1999, compared to $4,595,000 in
fiscal 1998. The decrease is a result of the lower cash balances available for
investment due to expenditures for the Company's stock repurchase program and
increased foreign exchange losses incurred due to the dollar strengthening
against European currencies.
INCOME TAX BENEFIT/PROVISION
The Company's income tax benefit was $5,192,000 in fiscal 1999 compared to a
provision of $4,142,000 in fiscal 1998. The benefit was a direct result of
pre-tax losses resulting from the restructuring and in-process research and
development charges incurred in fiscal 1999. The Company's effective rate for
fiscal 1999 was a 38% benefit compared to 34% in fiscal 1998. The variance is a
result of certain federal and state tax credits allowed in fiscal 1998 when
income was generated, which could not be taken in fiscal year 1999 when the
Company operated at a taxable loss.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
REVENUES
Total revenues were $113,687,000 in fiscal 1998, an increase of 33% from
$85,312,000 in fiscal 1997. Software license fees were $65,122,000 in fiscal
1998, an increase of 62% from $40,292,000 in fiscal 1997. Software license fees
increased both domestically and internationally primarily as a result of the
continued demand for the Company's tools to assist in addressing the year 2000
century date change problem both for the mainframe and desktop environments.
Mainframe license revenue increased year over year and desktop license revenue
from OnMark 2000, introduced in the third quarter of fiscal 1998, accounted for
$16,586,000 of total license revenue in fiscal 1998.
28
<PAGE> 31
Maintenance fees were $28,865,000 in fiscal 1998, an increase of 37% from
$21,010,000 in fiscal 1997. The increase was due to the R&O acquisition, as well
as new software licenses, customer system upgrades and increases in the fees
charged for annual maintenance.
Professional services fees were $19,615,000 in fiscal 1998, a decrease of
18% from $23,832,000 in fiscal 1997. Historically, the Company's professional
services provided processes, technology and expertise to address complex,
large-scale maintenance and redevelopment requirements of large organizations.
Most of these projects were related to year 2000 conversion. During fiscal 1998,
the Company focused its efforts in the services business in two areas:
completion of a single, large, fixed-price engagement for converting
applications for year 2000 compliance, and performing smaller enablement
projects, designed to assist and train customers to perform the projects
in-house, with their own resources. Larger scale professional services projects
were referred to services companies and integrators that have strategic
relationships with the Company.
Professional services fees decreased in fiscal 1998 due to this limited
focus of the services business which, in hindsight, management believes was
unsuccessful in helping to establish a services business to complement sales of
its software products. As a result of the Company's focus on selling enablement
projects, the number and size of services engagements performed in fiscal 1998
declined, resulting in lower revenues, year over year. Also, the revenues
recognized from the single large year 2000 conversion project decreased compared
to the previous year. The Company re-evaluated this project in the fourth
quarter of fiscal 1997 and determined that the level of effort required to
complete the engagement was more than originally estimated, resulting in a
decrease in the amount of revenue recognized for that contract during fiscal
1998. The project was completed in June 1998.
COST OF REVENUES
Cost of software license and maintenance fees was $12,737,000 in fiscal
1998, an increase of 193% from $4,345,000 in fiscal 1997. Gross margins on
software license and maintenance fees decreased to 86% compared to 93% in fiscal
1998 and 1997, respectively. The expense increase and margin decrease were
primarily due to additional royalty expenses, which represented 49% of cost of
software license and maintenance fees in fiscal 1998, as compared to 12% in
fiscal 1997. The increase in royalty expense was due to sales of the OnMark 2000
product line, which require payments of royalties to third parties. Other
products require payment of royalties to third parties, but sales of these
products are not as significant as OnMark 2000. Increases in customer support
personnel and their related costs, increased salaries and outside consultants,
amortization of the purchased research and development from the R&O and EraSoft
acquisitions and increased costs of product documentation as a result of higher
sales volumes and new version releases of existing products contributed to the
increase in cost of software license and maintenance fees.
Cost of professional services fees was $18,537,000 in fiscal 1998, an
increase of 1% from $18,316,000 in fiscal 1997. The increase in expenses was
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 in fiscal 1998 was 6% compared to 23% in fiscal 1997. The decrease in
margins was a result of the decline in services revenue discussed above. Also,
the Company added resources to the fixed-price contract discussed above in order
to complete the project in time.
SALES AND MARKETING
Sales and marketing expenses were $42,131,000 in fiscal 1998, an increase
of 33% from $31,573,000 in fiscal 1997. This increase is attributable primarily
to an increase in personnel, including the R&O personnel, and the associated
costs, higher salaries, increased travel, marketing and promotion costs and the
cost of recruiting qualified sales and marketing personnel. Sales and marketing
expenses as a percentage of total revenues was 37% in both fiscal 1998 and 1997.
29
<PAGE> 32
RESEARCH AND DEVELOPMENT
Research and development expenditures were $16,392,000 in fiscal 1998, an
increase of 108% from $7,893,000 in fiscal 1997. These expenditures exclude
charges for in-process research and development of approximately $8.5 million in
connection with the acquisition of EraSoft and a fault diagnostic testing
technology license in fiscal 1998 and $27.0 million in connection with the
acquisition of R&O in fiscal 1997. See Note 2 to the Consolidated Financial
Statements. Research and development expenses also included approximately $3.2
million in charges for the development of certain technologies included in
OnMark 2000, see Note 2 to the Consolidated Financial Statements. As a
percentage of total revenues, research and development costs were 14% in fiscal
1998 compared to 9% for the same period in fiscal 1997. The increase in research
and development cost as a percentage of revenue was primarily due to the $3.2
million in charges noted previously and the costs associated with additional
personnel and the associated costs, including EraSoft and R&O research and
development staff, as well as general salary increases, external consulting
costs and the cost of recruiting personnel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $7,849,000 in fiscal 1998,
representing an increase of 24% compared to $6,319,000 in fiscal 1997. This
increase was a result of additional administrative personnel, including R&O
personnel, and their related costs, general salary increases, amortization of
intangibles related to the R&O and EraSoft acquisitions, additional legal and
consulting fees and travel costs. As a percentage of total revenues, general and
administrative expenses were 7% in both fiscal 1998 and 1997.
OTHER INCOME (EXPENSE)
Interest income in fiscal 1998 was $4,917,000, compared to $1,309,000 in
fiscal 1997. This increase was due primarily to interest income generated from
the $75,361,000 raised from the Company's public offering of common stock
completed on September 22, 1997. Other expense in fiscal 1998 was $317,000 as
compared to an expense of $546,000 in fiscal 1997, as foreign currency exchange
losses decreased in fiscal 1998. See "Effects of Inflation and Foreign Currency
Exchange Fluctuations."
PROVISION FOR INCOME TAXES
The provision for income taxes was $4,142,000 and $6,062,000 in fiscal 1998
and 1997, respectively. The Company's effective tax rate was 34% in fiscal 1998,
compared to 35%, excluding the effect of the nondeductible purchased in-process
research and development charge, for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had cash and cash equivalents and investments
of $86,050,000, representing a decrease of $17,555,000 from the total of
$103,605,000 at June 30, 1998. The decrease is primarily a result of the cash
expenditures to fund the Company's stock repurchase program and the purchase of
SHL in July 1998. See Note 2 to the Consolidated Financial Statements.
The Company's net cash provided by operating activities was $6,160,000 and
$13,842,000 for fiscal 1999 and 1998, respectively. Net cash provided by
operations for fiscal 1999 was composed primarily of non-cash restructuring
charges and the charge for the write-off of the purchased in-process research
and development related to the SHL acquisition and depreciation and amortization
offset by a net loss and a net decrease in working capital. See Note 2 to the
Consolidated Financial Statements. Net cash provided from operations for fiscal
1998 was composed primarily of net income excluding non-cash charges for the
write-offs of purchased in-process research and development for the EraSoft
acquisition and the license for the fault diagnostic technology (see Note 2 to
the Consolidated Financial Statements), depreciation and amortization, and
offset by an increase in working capital, primarily from an increase in accounts
receivable and prepaid assets.
30
<PAGE> 33
The Company's investing activities used cash of $5,597,000 and $60,263,000
in fiscal 1999 and 1998, respectively. In fiscal 1999, the primary use of cash
was for the purchase of an exclusive license to Visual Process from SHL and
contingent payments to EraSoft, and to a lesser extent, the purchase of
furniture, fixtures and equipment, offset by investment sales and maturities
exceeding purchases. In fiscal 1998, cash was used for the purchase of
investments in excess of investment maturities, and to a lesser extent, business
and technology acquisitions and 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. See Note 2 to the Consolidated
Financial Statements.
The Company's financing activities used cash of $12,504,000 and provided
cash of $76,002,000 in fiscal 1999 and 1998, respectively. In fiscal 1999, cash
was used primarily to purchase 1,704,500 shares of Viasoft Common Stock under
the Company's stock repurchase program. In fiscal 1998, cash was primarily
provided by the completion of the Company's public offering of its Common Stock,
net of offering costs. This was offset by $2,181,000 used to repurchase 135,000
shares under the Company's stock repurchase program announced in April 1998. See
Note 6 to the Consolidated Financial Statements.
As of June 30, 1999, the Company did not have any material commitments for
capital expenditures. In fiscal 2000, the Company anticipates capital
expenditures of approximately $4.3 million, primarily for computer hardware and
software to continue to update the Company's network infrastructure for year
2000 compliance and technological changes. See Note 1 to the Consolidated
Financial Statements.
The Company expects that 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.
YEAR 2000 CONSIDERATIONS
The following disclosure is a year 2000 readiness disclosure statement pursuant
to the Year 2000 Readiness and Disclosure Act of 1998.
The Company is aware of the problems associated with the year 2000 date
change and has established and continues to evaluate and update its program to
address any potential year 2000 compliance issues relating to its (i) internal
operating systems, (ii) vendors, facilities and other third parties and (iii)
software products that it licenses to customers.
INTERNAL OPERATING SYSTEMS
Viasoft has completed remediation of all major internal operating and
mission-critical systems and is continuing to assess any new additions to its
internal operating systems for year 2000 compliance. As a result of its initial
year 2000 assessment and because of changing business requirements, Viasoft has
installed new enterprise-wide systems relating to the Company's accounting and
customer relationship management needs, each of which has been warranted by the
vendor to be year 2000 compliant. Installation of both systems was completed by
July 31, 1999. Viasoft continues to remediate its desktop year 2000 issues,
which include software packages, PC hardware and data files. The Company is
utilizing its own product suite, OnMark 2000, to assess its desktop concerns.
Viasoft believes that the assessment and remediation of its desktop systems for
year 2000 compliance will be completed by October 31, 1999. Viasoft expects to
continue to receive updated year 2000 compliance information from its vendors
until the end of the calendar year, which may require installation of patches,
fixes or new releases of software and new equipment. If the Company receives a
significant number of new releases that are required to be installed for year
2000 compliance late in the calendar year, the year 2000 compliant status of its
major internal operating and mission-critical systems could be jeopardized. If
the Company's major internal operating systems are not year 2000 compliant in a
timely manner, the Company's business operations would be materially and
adversely affected and the Company may be required to incur unanticipated
expenses to remedy any problems not addressed by these compliance efforts.
31
<PAGE> 34
VENDORS, FACILITIES AND OTHER THIRD PARTIES
Viasoft continues to evaluate the year 2000 readiness of its material
vendors, facilities, distributors and resellers with respect to IT, as well as
non-IT, assets. Viasoft has forwarded questionnaires to many of its material
vendors, distributors and resellers and evaluates the responses on a
case-by-case basis, placing primary emphasis on its vendors providing critical
services. Viasoft has placed the emphasis of its vendor review on its primary
vendors, such as payroll services, computer services, telephone services,
financial services and principal office locations. Where necessary, the Company
has replaced all non-compliant payroll services vendors and telephone systems.
In the event that the Company's distributors and resellers are not year 2000
compliant in a timely manner, the Company could experience material adverse
consequences with respect to the marketing and sale of its products and, as a
result, the Company's business, results of operations and financial condition
would be materially and adversely affected. If the Company's major vendors or
facilities are not year 2000 compliant in a timely manner, the Company's
business operations would be materially and adversely affected and the Company
may be required to incur unanticipated expenses to remedy any problems.
PRODUCTS
The Company's development of products and technology is accomplished through
(i) in-house development and (ii) acquisition or license from third parties. The
Company continues to evaluate and update its assessment of all of its internally
developed and third-party developed products for year 2000 compliance, and
believes that all of such products have been designed to satisfy the Company's
year 2000 specifications. The Company now provides information on its website to
update customers and other interested parties on the year 2000 status of its
software products. In addition, Viasoft has completed a mailing to all customers
alerting them to the year 2000 problem and referring them to the Company's
website for additional information. As part of its ongoing evaluation, the
Company developed an internal project plan for the re-testing of its software
products pursuant to a methodology designed specifically for the purpose of
detecting year 2000 errors. Actual testing began in March and was completed in
August 1999 for the most current releases of Viasoft products. Management
believes the testing of products licensed by Viasoft from third parties for
resale to customer will be completed in October 1999. The Company will continue
to monitor and test newly developed or acquired products for year 2000
compliance. In the event that any of the Company's developed or acquired
products are not year 2000 compliant in a timely manner, the Company's sales may
decline materially, customers and those with whom they do business may assert
product liability and other claims, and the Company's business, results of
operations and financial condition would be materially and adversely affected.
CONTINGENCY PLANS
Throughout the past quarter, Viasoft has undertaken contingency planning in
the event that its internal operating systems, vendors, facilities,
distributors, resellers or products, or any other components of its business
operations, fail to operate as a consequence of the year 2000 century date
change. As part of this planning process, Viasoft currently plans to address
needs such as extra staffing for increased customer support calls, short term
use of backup equipment or software, developing manual workaround processes, use
of cell phones and temporary relocation of employees. Viasoft expects
contingency plans to be in a final form by approximately October 31, 1999, and
expects to begin implementation, if required, in November 1999.
BUDGET FOR YEAR 2000 READINESS PROJECT
The Company has budgeted approximately $6.5 million for its year 2000
compliance program and has incurred approximately $4.2 million of these expenses
to date. Costs incurred for year 2000 compliance include internal staff to the
extent they are dedicated to the project, a portion of which is expensed in the
Company's general and administrative expenses line item and the remainder is
expensed in its research and development expenses line item. The Company started
incurring these expenses in 1995, when the Company first began the assessment
and remediation of internally developed products, and expenses are expected to
continue through fiscal year 2000.
32
<PAGE> 35
The Company reviews its year 2000 compliance budget every quarter and
adjusts for changes in its implementation plan for its internal systems or for
product testing and remediation changes. The cost of designing and implementing
both the accounting and customer relationship management systems represents a
very large portion of the year 2000 compliance budget: $3.0 million of the $6.3
million budgeted. The Company decided to replace these systems several years ago
primarily because of business requirements, but the replacement also served the
purpose of eliminating two major systems that would otherwise have had to be
remediated and tested to become year 2000 compliant. As a result, the costs of
these new systems has been included in the year 2000 compliance budget for
purposes of this disclosure. Certain costs previously incurred to implement a
year 2000 compliant ERP system, approximately $1.6 million, were written off as
part of the fourth quarter restructuring due to the Company's reorganization and
change to a solutions-driven business model. It was determined that the ERP
solution would need to be reworked in order to meet the needs of this new
business model. Given the time required to rework the ERP system and the
necessity to become year 2000 compliant by its first fiscal 2000 quarter, the
Company elected to pursue the less time-consuming solution of upgrading its
accounting system to a year 2000 compliant version, discontinued work on the ERP
system and wrote-off all of the related costs incurred. These costs have been
deducted from the amounts spent to date. The budget was also revised to reflect
additional staffing for testing of its software products and the overall
management of the year 2000 compliance program. The net effect of the changes
made to the year 2000 budget in the fourth quarter was a decrease of $0.2
million. The Company will continue to adjust the budget on a quarterly basis as
its year 2000 compliance program progresses.
The estimated costs of the Company's year 2000 compliance program have not
had and are not expected to have a material effect on the Company's financial
position, results of operations or liquidity. However, there can be no assurance
that the Company will not experience material adverse consequences in the event
that the Company's year 2000 compliance program is not successful or its
vendors, facilities, distributors or resellers are unable to resolve their year
2000 compliance issues in a timely manner.
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 local currency. 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 $595,000
from foreign currency fluctuations in fiscal 1999 compared to $302,000 in fiscal
1998. The Company's unhedged foreign currency exposure at June 30, 1999,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
NET SHORT-TERM
RECEIVABLES
(PAYABLES) WITH NET INVESTMENT IN NET RECEIVABLES
FOREIGN FOREIGN FROM FOREIGN
SUBSIDIARIES SUBSIDIARIES DISTRIBUTORS TOTAL
------------ ------------ ------------ -----
<S> <C> <C> <C> <C>
Canada $ 1,171 $ 7,088 $ -- $ 8,259
United Kingdom 1,063 (1,293) -- (230)
Australia 816 280 -- 1,096
Germany (6,723) 17,232 -- 10,509
France 2,478 (917) -- 1,561
Belgium 1,255 (845) -- 410
Netherlands 428 (19) -- 409
Mexico 29 (26) -- 3
Spain -- -- 1,057 1,057
Italy -- -- 847 847
------- -------- ------ --------
TOTAL $ 517 $ 21,500 $1,904 $ 23,921
======= ======== ====== ========
</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
33
<PAGE> 36
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 and comprehensive income in the
Company's Consolidated Financial Statements. See "Factors That May Affect Future
Results Risks From International Operations."
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements, the Notes and
Schedule thereto and Report of Independent Public Accountants thereon commencing
at page F-1 of this Report, which Consolidated Financial Statements, Notes and
Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Each of the persons named below was elected by the stockholders at the last
annual meeting to serve as a member of the Company's Board of Directors until
the 1999 Annual Meeting of Stockholders and until his successor has been duly
elected and qualified. Some of the current directors may resign effective
immediately following the purchase of Shares of Viasoft's Common Stock by
Compuware pursuant to its tender offer. The names of the current directors and
certain information about them, as of August 31, 1999, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION SINCE
- --------------- --- -------- -----
<S> <C> <C> <C>
Steven D. Whiteman 48 President, Chairman of the Board of 1994
Directors, Chief Executive Officer
and Director
John J. Barry III(1)(2) 59 Director 1991
Alexander S. Kuli(2) 54 Director 1994
J. David Parrish(1) 57 Director 1994
Arthur C. Patterson(1) 55 Director 1984
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Member of Audit and Finance Committee
Steven D. Whiteman has served as President since November 1998, as Chief
Executive Officer and a director since January 1994 and as Chairman of the Board
of Directors since April 24, 1997. Mr. Whiteman previously served as President
of the Company from May 1993 to April 1998. Prior to that, he served as Vice
President of Sales and Marketing of the Company from December 1990. Mr. Whiteman
serves on the boards of directors of Unify Corporation and Actuate Corporation.
John J. Barry III has served as a director of the Company since August 1991.
Mr. Barry has served as the President and CEO of Pliant Technologies, Inc.
(formerly known as Work Process Systems, Inc.), a software company, since May
1999. Prior to that, Mr. Barry provided strategic and management consulting
services to senior management in the information technology and other industries
from January 1997 to May 1999. Mr. Barry was the Chairman, President and Chief
Executive Officer of Petroleum Information Corporation, an energy industry
information solutions company, in Houston, Texas, from May 1991 through December
1996. Mr. Barry serves on the boards of directors of several privately held
companies.
34
<PAGE> 37
Alexander S. Kuli has served as a director of the Company since April 1994.
In April 1998, Mr. Kuli became Advisor to Senior Staff for Tivoli Systems, Inc.,
a vendor of distributed software products. Prior to that, Mr. Kuli served as
Vice President, Worldwide Sales for Tivoli from January 1993 to October 1997 and
as Vice President from October 1997 until April 1998. Prior to joining Tivoli,
Mr. Kuli served as Vice President, Worldwide Sales for Candle Corporation, a
vendor of mainframe systems performance management software, from October 1985
through December 1992. Mr. Kuli serves on the board of directors of Oberon
Software, Inc.
J. David Parrish has served as a director of the Company since January 1994.
Mr. Parrish is an independent consultant in the software services industry. Mr.
Parrish served as the Senior Vice President of Walker Interactive Systems, Inc.,
a financial application software company, from November 1989 to August 1997.
Arthur C. Patterson has served as a director of the Company since September
1984. He served as President of the Company from October 1984 to June 1985. Mr.
Patterson is a founder and General Partner of Accel Partners, a venture capital
firm. Mr. Patterson also serves on the boards of directors of PageMart Wireless,
Inc., Unify Corporation, Actuate Corporation, and Portal Software, Inc. as well
as several other privately held software and telecommunication companies.
EXECUTIVE OFFICERS
The executive officers of the Company are elected to serve annual terms at
the first Board of Directors meeting following each annual meeting of
stockholders. Certain information concerning the Company's executive officers,
as of August 31, 1999, is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven D. Whiteman 48 President, Chairman of the Board of Directors
and Chief Executive Officer
Mark R. Schonau 43 Senior Vice President, Finance and Administration,
Chief Financial Officer and Treasurer
Catherine R. Hardwick 40 Vice President, General Counsel and Secretary
Colin J. Reardon 46 Senior Vice President, International Operations
David M. Lee 32 Senior Vice President, Products Division
Kevin J. Donoghue 39 Vice President, North American Sales Division
Timothy W. Brewer 40 Vice President, Services Division
</TABLE>
Information with respect to Mr. Whiteman is set forth above under
"Directors."
Mark R. Schonau has served as Senior Vice President, Finance and
Administration, since July 1997, and as Chief Financial Officer and Treasurer
since September 1996. Mr. Schonau also served as Vice President, Finance and
Administration, from September 1996 to July 1997. He consulted with the Company
for a short period of time prior to this employment. Before joining Viasoft, Mr.
Schonau served as Chief Financial Officer, Corporate Secretary and Treasurer of
CyCare Systems, Inc., a healthcare software company, from October 1989 to August
1996.
Catherine R. Hardwick has served as Vice President of the Company since July
1997 and as Secretary and General Counsel of the Company since January 1996.
Prior to holding these offices, Ms. Hardwick served as Corporate Counsel for the
Company from February 1995. Before joining the Company, Ms. Hardwick practiced
law with the law firm of Meyer, Hendricks, Victor, Osborn & Maledon, P.A. in the
areas of corporate and securities law and intellectual property licensing.
Colin J. Reardon has served as Senior Vice President, International
Operations of the Company since July 1997. Mr. Reardon served as Vice President,
International Operations of the Company from August 1994 to July 1997. Prior to
joining Viasoft, Mr. Reardon served as Vice President of International Marketing
of Sterling Software, Inc., a systems management software and services company,
from July 1993 through July 1994.
35
<PAGE> 38
David M. Lee has served as Senior Vice President, Products Division since
August 1999. He had previously served as Vice President, Products Division since
September 1997. Prior to joining the Company in September 1997, Mr. Lee was
employed by Tivoli Systems, Inc., a computer software and information services
company, where he served as Manager, Development from January 1993 through
September 1997.
Kevin J. Donoghue was named Vice President, North American Sales Division in
August 1998. Mr. Donoghue served as Vice President, Western Region, from January
1998 through August 1998, Western Region Sales Director, August 1996 through
January 1998 and Account Manager, Sales Representative from December 1993
through August 1996.
Timothy W. Brewer was named Vice President, Services Division, in April
1999. Mr. Brewer served as Executive Director, Global Services from November
1998 through April 1999, as Director of Consulting Services from May 1998 to
November 1998 and as Manager of Viasoft's Solution Provider Program from August
1996 through April 1998. Prior to joining the Company in August 1996, Mr. Brewer
was employed by CDI Corporation as Director of Strategic Planning and Technical
Development of CDI Managed Information Services from February 1996 to August
1996 and as Director of CDI Information Services-West from August 1994 to
February 1996 and Manager CDI System Integration division from August 1993 to
August 1994.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In accordance with Section 16(a) of the Securities Exchange Act of 1934 and
the regulations of the SEC, the Company's directors, executive officers and
certain other 10% stockholders are required to file reports of ownership and
changes in ownership with the Commission and The Nasdaq Stock Market and to
furnish the Company with copies of all such reports they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that during fiscal 1999 all filings required under Section 16(a)
applicable to its directors, executive officers and 10% stockholders were
satisfied.
ITEM 11. EXECUTIVE COMPENSATION
BOARD OF DIRECTORS COMPENSATION
Each non-employee director is paid an annual retainer of $7,500 upon
re-election to the Board of Directors at each annual meeting of stockholders.
The Chairman of each standing Committee is paid an annual retainer of $2,000
upon election as Chairman. In addition, in accordance with the Company's policy,
non-employee directors are paid a $1,000 fee for attendance, in person, at each
Board of Directors meeting and $500 for participation in each telephone Board
meeting. Non-employee directors receive a $500 fee for each standing Committee
meeting attended. Directors are reimbursed reasonable, out-of-pocket expenses
incurred in attending both Board and Committee meetings. Each non-employee
director also participates in the Company's Outside Director Stock Option Plan
(the "Director Plan"). Pursuant to the Director Plan, each non-employee director
who is re-elected to the Board of Directors is automatically granted an option
to purchase 10,000 shares of Common Stock. The exercise price for such options
is the closing price of Common Stock on that date. Each person who is elected
for the first time to be a non-employee director of the Company is automatically
granted an option to purchase 20,000 shares of Common Stock, at the closing
price of the Common Stock on the grant date, under the terms and conditions of
the Director Plan. In addition to the automatic grants awarded pursuant to the
Director Plan, on December 4, 1998, each non-employee director was awarded a
non-qualified stock option to purchase 6,000 shares of Common Stock at an
exercise price of $6.75 per share, under the terms and conditions set forth in
the resolutions of the Board and in a stock option agreement, the terms of which
are substantially similar to those of the Director Plan.
Directors who are also employees of the Company receive no additional
compensation for serving as a director or committee member.
36
<PAGE> 39
Pursuant to the terms of stock options held by non-employee directors, the
exercisability of certain options will accelerate upon a change of control as
defined in the applicable agreements. In addition, the merger agreement with
Compuware provides that the exercisability of all outstanding stock options will
accelerate at the time the merger is effective. See the footnotes to the table
set forth below under "Security Ownership of Certain Beneficial Owners and
Management."
EXECUTIVE COMPENSATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities during the fiscal years ended June 30,
1999, 1998 and 1997, by the Company's Chief Executive Officer and each of the
Company's four other most highly compensated executive officers, which ranking
is based on salary and bonus earned during the fiscal year ended June 30, 1999
(together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES ALL
FISCAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Steven D. Whiteman 1999 $230,000 $24,000 63,333 $2,076(1)
Chairman of the Board, 1998 $220,000 $48,595 50,000 $2,817(1)
President and 1997 $200,000 $181,980 --- $1,885(1)
Chief Executive Officer
Colin J. Reardon 1999 $192,430 $153,710(2) 105,000(4) $18,966(3)
Senior Vice President, 1998 $175,777 $121,363(2) 35,000 $14,630(3)
International Operations 1997 $163,256 $202,000(2) 40,000 $8,170(3)
Kevin J. Donoghue (5) 1999 $134,720 $114,452(2) 75,001(4) $2,076(1)
Vice President, North 1998 $91,775 $141,367(2) 26,667 $2,817(1)
American Sales Division 1997 $79,500 $232,809(2)(6) 10,000 $30,713(1)(7)
Mark R. Schonau 1999 $182,000 $14,000 160,333(4) $2,076(1)
Senior Vice President, 1998 $171,000 $25,020 35,000 $2,817(1)
F&A CFO & Treasurer 1997 $126,667 $74,821 140,000 $600(1)
David M. Lee (8) 1999 $165,000 $13,000 101,666(4) $2,076(1)
Vice President, 1998 $122,523 $39,400(9) 103,333 $32,046(1)(10)
Products Division
</TABLE>
- ----------
(1) Amounts represent Company matching and discretionary contributions under the
Viasoft, Inc. 401(k) Plan.
(2) Amounts represent bonus and commission payable.
(3) The Company provides a contribution to Mr. Reardon's private pension plan
that matches his private contributions, up to a maximum of 5% of his base
salary and, beginning in fiscal 1998, 2.5% of his on-target earnings per
year. The Company's matching contribution is paid directly to the pension
company administering Mr. Reardon's account, on a monthly basis.
(4) Certain of these options were issued pursuant to an option replacement
program adopted December 4, 1998. See "Report of the Compensation Committee"
and the 10-Year Option/SAR Repricings table below.
37
<PAGE> 40
(5) Mr. Donoghue became an executive officer during fiscal 1999. Information
provided includes all compensation paid to Mr. Donoghue in previous
positions held with the Company.
(6) Includes a relocation bonus of $15,000.
(7) Includes reimbursement of relocation expenses of $30,113, including related
gross-up payments for taxes, $2,750 of which is excludable from W-2 gross
income but reportable as a fringe benefit.
(8) Mr. Lee joined the Company in September 1997.
(9) Includes a signing bonus of $15,000.
(10) Includes reimbursement of relocation expenses of $29,388, including related
gross-up payments for taxes, $2,346 of which is excludable from W-2 gross
income but reportable as a fringe benefit.
OPTION GRANTS, EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information regarding stock option grants
to the Named Executive Officers during the fiscal year ended June 30, 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- ---------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(5)
- ---------------------------------------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED (1) YEAR(3) ($/SHARE)(4) DATE 5% 10%
- ---- ----------- ------- ----------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Steven D. Whiteman 30,000 3.8 8.875 8/27/2008 $167,443 $424,334
33,333 6.75 12/4/2008 $141,500 $358,588
Colin J. Reardon 30,000 6.4 8.875 8/27/2008 $167,443 $424,334
26,667(2) 6.75 12/4/2008 $113,202 $286,877
23,333 6.75 12/4/2008 $99,049 $251,011
25,000 4.00 3/9/2009 $62,889 $159,374
Kevin J. Donoghue 30,000 4.5 8.875 8/27/2008 $167,443 $424,334
18,001(2) 6.75 12/4/2008 $76,415 $193,680
2,000 6.75 12/4/2008 $8,490 $21,515
25,000 4.00 3/9/2009 $6,288 $159,374
Mark R. Schonau 30,000 9.7 8.875 8/27/2008 $167,443 $424,334
82,000(2) 6.75 12/4/2008 $348,093 $882,136
23,333 6.75 12/4/2008 $99,049 $251,011
25,000 4.00 3/9/2009 $62,889 $159,374
David M. Lee 30,000 6.2 8.875 8/27/2008 $167,443 $424,334
33,333(2) 6.75 12/4/2008 $141,500 $358,588
13,333 6.75 12/4/2008 $56,599 $143,433
25,000 4.00 3/9/2009 $62,889 $159,374
- ---------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
(1) The stock options were granted under the Company's 1997 Plan. Options with
respect to 25% of the total shares granted become exercisable on the first
anniversary of the date of grant and cumulatively thereafter 6.25% of the
total shares granted become exercisable at the end of each three-month
period, except for those options granted under the option replacement
program adopted December 4, 1998. With respect to options granted under the
option replacement program adopted December 4, 1998, options with respect to
33.33% of the total shares granted become exercisable on the first
anniversary of the date of grant and cumulatively thereafter 8.258% of the
total shares granted become exercisable at the end of each three-month
period. See "Report of the Compensation Committee - Stock Option
Replacement."
(2) These stock options were granted under the option replacement program
adopted December 4, 1998. See "Report of the Compensation Committee - Stock
Option Replacement."
(3) Based on an aggregate of 1,651,113 shares subject to options granted to
employees in the fiscal year ended June 30, 1999; 382,226 of these shares
were granted pursuant to the option replacement program adopted December 4,
1998. See "Report of the Compensation Committee - Stock Option Replacement."
(4) The exercise price per share under each option was equal to the fair market
value of the Common Stock on the date of grant.
(5) In accordance with SEC regulations, amounts represent hypothetical gains
that could be achieved for the respective options if exercised at the end of
the option term. These gains are based on assumed rates of stock
appreciation of 5% and 10% compounded annually from the date the respective
options were granted to their expiration date and are not presented to
forecast possible future appreciation, if any, in the price of the Common
Stock. The gains shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the exercise
of the options or the sale of the underlying shares. The actual gains, if
any, on the stock option exercises will depend on the future performance of
the Common Stock, the optionee's continued employment through applicable
vesting periods and the date on which the options are exercised.
AGGREGATED OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES
ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME EXERCISE REALIZED(1) OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END ($)(2)
- ---- -------- ----------- -------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Steven D. Whiteman 10,000 $23,750 138,750/94,583 -0-/-0-
Colin J. Reardon -- -- 79,791/140,208 $3,333/$1,667
Mark R. Schonau -- -- 13,126/182,207 -0-/-0-
David M. Lee -- -- 6,250/115,416 -0-/-0-
Kevin J. Donoghue -- -- 3,025/77,376 $1,190/-0-
</TABLE>
- ----------
(1) The "Value Realized" reflects the appreciation on the date of exercise,
based on the excess of the fair market value of the shares on the date of
exercise over the exercise price. These amounts do not necessarily reflect cash
realized upon the sale of those shares, as an executive officer may keep the
shares exercised, or sell them at a different time and price.
39
<PAGE> 42
(2) In accordance with SEC regulations, the "Value" set forth in this column is
based on the difference between the fair market value at June 30, 1999 ($3.50
per share as quoted on The Nasdaq Stock Market), and the option exercise price,
multiplied by the number of shares underlying the option.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
On July 14, 1999, the Board adopted the Viasoft, Inc. Change in Control
Separation Plan ("Separation Plan"). The plan provides designated executive
officers and other key employees with certain separation benefits if a Change in
Control (as defined in the Separation Plan) occurs and (i) within nine months
thereafter (60 days in the case of the Chief Executive Officer, Chief Financial
Officer, Senior Vice-President, International Operations and Vice President and
General Counsel) (as applicable, the "Transition Period"), a participant's
employment with the Company is terminated either by action of the Company
without "Cause" or by the participant's resignation from employment for "Good
Reason" (as defined in the Separation Plan) or (ii) a participant elects to
resign at the end of the Transition Period. The separation benefits payable in
such circumstances include payment of the participant's base salary and
reimbursement for COBRA insurance premiums and certain life insurance premiums
for a period specified for each participant, ranging from 6 to 18 months, as
specified in the Separation Plan. The payment periods for the Named Executive
Officers are as follows: Messrs. Whiteman, Reardon and Schonau, 18 months;
Messrs. Donoghue and Lee, 12 months. If a participant is entitled to receive a
separate severance benefit pursuant to any employment or similar agreement, such
participant is entitled to receive benefits under the Separation Plan only if
such participant agrees to waive and terminate any right to receive such other
severance benefits within 15 days following a change in control.
Whether or not the Company's proposed merger with Compuware becomes
effective, pursuant to the terms of the Company's stock option plans and the
various purchase agreements between the Company and each of the executive
officers relating to stock options and restricted stock, the Company has agreed
to accelerate the vesting of certain options, or waive its right of repurchase,
in the case of restricted stock, in the event of a change of control of the
Company (as defined in the applicable agreement). Restricted stock agreements
and stock options granted to executive officers under the 1986 Stock Option Plan
provide that one half of the shares subject to the agreement will automatically
vest if the executive officer's employment is terminated or if he suffers a
material reduction in his level of responsibility and authority within six
months after a change of control of the Company. The 1994 Equity Incentive Plan
provides that all outstanding options and other awards granted thereunder vest
automatically upon a change in control. Award agreements under the 1997 Plan
generally provide for the vesting of options to accelerate to provide the
greater of one additional year of vesting or total vesting of one half of the
outstanding option upon a change in control of the Company, subject to certain
conditions and limitations. In addition, the merger agreement with Compuware
provides that all outstanding stock options of the Company will become fully
exercisable at the time the merger becomes effective, and that any options not
exercised within 30 days of that effective time will automatically expire. As a
result, the exercisability of certain options held by Named Executive Officers
will accelerate at the time the merger with Compuware is effective. See the
footnotes to the table set forth below under "Security Ownership of Certain
Beneficial Owners and Management."
Mr. Reardon was employed by the Company effective August 1, 1994. At that
time, the Company entered into an employment agreement with Mr. Reardon that
sets forth the basic terms of his employment, including salary, working hours
and holidays, vacation and sick time and a car allowance. In addition, the
agreement provides that it is terminable by either party upon six months written
notice and that the Company may pay Mr. Reardon his salary and contractual
benefits for the six-month period in lieu of notice. Alternatively, Mr. Reardon
can elect to waive these severance benefits and participate instead in the
Separation Plan described above.
Mr. Schonau has an employment agreement with the Company pursuant to which
he is entitled to certain benefits upon a change of control and upon termination
of his employment with the Company. If there is a change of control, as defined
in the agreement, Mr. Schonau is entitled to at least the same benefit as any
other senior vice president might receive. In the case of his termination,
without cause, Mr. Schonau is entitled to continue to receive his base salary
and certain insurance benefits for a period of six months. Alternatively, Mr.
Schonau can elect to waive these severance benefits and participate instead in
the Separation Plan described above.
40
<PAGE> 43
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is made up of three non-management directors. Working with the chief
executive officer, the Compensation Committee is responsible for developing and
implementing compensation policies and programs for the executive officers of
the Company. During fiscal 1999, the Compensation Committee also was responsible
for administering the 1997 Equity Incentive Plan, the 1994 Equity Incentive
Plan, the Deferred Compensation Plan and the Employee Stock Purchase Plan.
For fiscal 1999, the process utilized by the chief executive officer and the
Compensation Committee in determining executive officer compensation levels took
into account both qualitative and quantitative factors. Among the factors
considered was informal research into compensation levels at other similarly
sized companies. However, no formal study was conducted and the Compensation
Committee made the final compensation decisions.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The guiding principle behind the Compensation Committee's compensation
programs is to align compensation of executive officers of the Company with the
Company's business objectives, desired corporate performance, Company values and
stockholder interests. Supporting this philosophy, the objectives of the
compensation program are to (i) provide rewards that are closely linked to
Company and individual performance, (ii) provide incentives to achieve long-term
corporate goals and enhance stockholder value and (iii) ensure that executive
compensation is at levels which enable the Company to attract and retain the
highly qualified and productive people critical to the long-term success of the
Company.
The key elements of the Company's executive compensation program include a
base salary and certain employee benefits, short term performance incentives and
long-term equity incentives.
BASE SALARIES AND EMPLOYEE BENEFITS
Base salaries for executive officers are initially determined by evaluating
the responsibilities of the position, the experience and knowledge of the
individual and the competitive marketplace for executive talent. Annual salary
adjustments, if any, are determined primarily by evaluating the performance of
each executive officer, including the individual's contributions to corporate
goals, any increases in responsibilities and attainment of specific individual
objectives, as well as past performance and potential with the Company. Other
factors include growth in the Company's size and complexity, cost of living
increases, internal compensation equity considerations and overall Company
performance. In July 1998, the base salaries of the then-current executive
officers were increased at rates ranging from 4.5% to 6.5%. These specific
increases included merit increases for those in the 4.5% to 6% range, and
adjustments for market conditions and internal equity, as well as additional
responsibilities, for those receiving increases over 6.5%.
In addition, there were several personnel changes within the executive
officer group during fiscal 1999. Four executive officers left the Company
during the year and two new executive officers were added. The executive
officers that left were provided severance benefits comprised of base salary and
insurance benefits for periods ranging from three to six months. The two new
executive officers, Kevin J. Donoghue and Timothy W. Brewer, were promoted
during the year and received increases of 10% and 17% in base salary,
respectively, when promoted.
Certain employee benefits are also provided to executive officers, including
life and health insurance, long-term disability insurance and the right to
participate in the Company's Employee Stock Purchase Plan, and either (i) the
Company's 401(k) plan and the Deferred Compensation Plan in the United States,
or (ii) a private pension plan in the United Kingdom.
41
<PAGE> 44
SHORT TERM PERFORMANCE INCENTIVES
EXECUTIVE BONUS PLAN
Most of the Company's executive officers participated in the Viasoft
Executive Bonus Plan for fiscal 1999 (the "Bonus Plan"). The Bonus Plan is
designed to reward executive officers for the Company's financial performance
above certain set targets. The Compensation Committee uses annual "Net Income"
goals, which are based on the Company's internal budget. The Company missed both
its internal revenue and earnings target in the first fiscal quarter due to the
downturn in the year 2000 market, which occurred faster than expected. Because
of the reduced revenue expectations due to the market change, as well as the
related reduction in force early in the second quarter of fiscal 1999, the
Company restated its internal budget for the rest of the fiscal year. As a
result, both the quarterly and annual "Net Income" goals used by the
Compensation Committee were revised downward from the original goals set at the
beginning of the fiscal year. The annual target bonuses were also reduced
accordingly.
Under the Bonus Plan, the Compensation Committee sets annual target bonuses
for each executive officer, based primarily on the degree of responsibility of
the officer for the overall achievement of the Company's Net Income goals,
taking into consideration other incentive compensation. For example, the
potential annual bonus for the Senior Vice President, International Operations,
the Vice President, North American Sales Division and Vice President, Services
Division under the Bonus Plan was substantially lower than those of many of the
other executive officers in light of the potential commissions and quarterly
bonuses for such officers described below. The Bonus Plan provided that if the
Company achieved at least 85% but less than 90% of the annual goal, one-half of
the target bonus would have been paid. If the Company achieved 90% but less than
105% of the annual goal, target bonuses were based on the percent of the goal
achieved, with additional incentives if Net Income surpassed the annual goal by
five percent or more. Because the Company did not achieve the financial
objectives set for fiscal 1999, no annual bonuses were paid under the Bonus
Plan. See "Executive Compensation - Summary Compensation Table."
In addition to annual goals and target bonuses, the Committee also set
quarterly target bonuses. Similar to the annual target bonuses, the quarterly
target bonuses are based primarily on the degree of responsibility of the
officer for the overall achievement of the Company's quarterly "Net Income"
goals, which are based on the Company's internal budget, taking into
consideration other incentive compensation. For all executive officers other
than the Senior Vice President, International Operations, the Vice President,
North American Sales Division, and the Vice President, Services Division, the
Committee set a quarterly target bonus for achievement of the Company's "Net
Income" goal. If the Company did not achieve the quarterly Net Income goal, no
target bonus was payable for that quarter, and the target bonus would not be
recoverable in subsequent quarters. The quarterly Net Income goals were met in
the second and fourth quarters of fiscal 1999. As a result, quarterly bonuses
paid under the Bonus Plan totaled an aggregate of $30,500 per quarter for each
of the two quarters in which the Net Income goals were met, representing bonuses
paid to four officers. In summary, bonuses paid under the Executive Bonus Plan
in fiscal 1999 were significantly less than in prior years. No annual bonuses
were paid under the Bonus Plan. Of a possible $323,000 payable at 100%
performance of annual and quarterly financial targets under the Bonus Plan, the
Company paid bonuses in two quarters to four executive officers in an aggregate
amount of $61,000.
REVENUE COMMISSIONS AND BONUSES
A key component of compensation for executive officers responsible for the
sales of products and services of the Company is payment of commissions.
Commissions are set at a percentage of revenue derived from the officer's
territorial area of responsibility. During fiscal 1999, the Senior Vice
President, International Operations and the Vice President, North American Sales
Division had compensation plans in which they were assigned revenue quotas that
supported the Company's objectives and which provided a set percentage as a
commission for revenue received from the license of products and the provision
of professional services within their respective territories. The commission
rate increased for revenue generated over the assigned quotas. When the Company
restated its internal budget in the second quarter, the quotas and commission
rates were also adjusted. While the international operations generally met
assigned quotas after the second quarter adjustment, the North American Sales
operations did not, and the commissions paid under the incentive plans reflect
these results. The Vice President, Services Division, was also under a
compensation plan that provided for payment of incentive
42
<PAGE> 45
compensation based on revenue attainment. Under this plan, quarterly bonuses
were paid based on achievement of at least 80% of services revenue targets for
each quarter. Under this plan, Mr. Brewer was paid quarterly revenue bonuses in
the first, second and third quarters, aggregating $11,649. As a result of these
incentive plans, a significant portion of the compensation of the executive
officers who are directly responsible for sales of the Company's products and
services is dependent on achieving specified revenue goals. See "Executive
Compensation Summary Compensation Table."
PROFIT BONUSES
In addition to revenue commissions, the Senior Vice President, International
Operations and the Vice President, North American Sales Division were also paid
quarterly bonuses based on the achievement of budgeted profit objectives for
their assigned territories. The Compensation Committee uses quarterly
profitability goals for each territory based on the internal budget. If the
applicable territory did not achieve at least 75% of the set quarterly
profitability goal, no target bonus was paid for that quarter, and the target
bonus would not be recoverable in subsequent quarters. If the operations
achieved at least 75% but no more than 90% of the quarterly profitability goal,
one-half of the target bonus was paid. If the operations achieved over 90% of
the quarterly profitability goal, the target bonus was based on the percent of
the goal achieved, with additional incentives if operations surpassed the
quarterly profitability goal by 10% or more. This profitability component was
designed to provide significant incentives for the Senior Vice President,
International Operations and Vice President, North American Sales Division to
monitor profitability, as well as revenue. Mr. Reardon received profit bonuses
in the second, third and fourth quarters in fiscal 1999 totaling an aggregate of
$58,988. Mr. Donoghue received a profit bonus in the second quarter in fiscal
1999 of $10,472. In addition, the Vice President, Services Division was also
under a compensation plan that provided for payment of incentive compensation
based on profitability. Under this plan, performance targets were set to measure
the overall profitability margin achieved on services engagements. Quarterly
bonuses were paid based on achievement of at least 80% of the margin targets.
Under this plan, Mr. Brewer was paid quarterly margin bonuses in the first and
second quarter, aggregating approximately $9,570.
DISCRETIONARY BONUSES
Mr. Brewer, Vice President, Services Division, received a discretionary
bonus in the second fiscal quarter totaling $5,000, prior to the time he became
an executive officer. No executive officers received discretionary bonuses
during the year.
LONG TERM EQUITY INCENTIVES
Long-term incentive compensation, in the form of stock options or restricted
stock, vesting over a period of years, allows the executive officers to share in
any appreciation in value of the Company's Common Stock and directly aligns the
officers' interests with those of its stockholders. This strategy encourages
creation of stockholder value over the long term because the full benefit of the
compensation cannot be realized unless stock price appreciation occurs over
several years. The Compensation Committee awarded options to executive officers
several times during the past fiscal year, believing that equity compensation
was particularly important during the reorganization and transition the Company
was experiencing to drive the new strategy and retain key management personnel.
In granting these options, the Committee considered existing levels of stock
ownership, previous grants of stock options, job responsibilities and individual
performance. During fiscal 1999, new option grants representing 445,332 shares
were awarded to seven executive officers. Replacement options representing
160,001 shares were granted under the Company's stock option replacement program
described below, and corresponding options representing 220,000 shares were
canceled pursuant to that program. Options representing approximately 298,716
shares were cancelled in connection with the departure of four executive
officers. See "Executive Compensation - Option Grants in Last Fiscal Year" and
"Stock Option Replacement."
STOCK OPTION REPLACEMENT
At a meeting of the Board of Directors held December 4, 1998, the Board
reviewed the continued decline of the Company's stock price during calendar year
1998, and it considered the general morale of its employees and the
43
<PAGE> 46
need to retain key personnel, particularly in light of the reduction in force
implemented by the Company in October 1998. The Board approved a plan to replace
all outstanding options under the 1994 Equity Incentive Plan with an exercise
price of $10.00 or more and all outstanding options under the 1997 Equity
Incentive Plan with an exercise price of $10.00 or more but less than $30.00.
Under this replacement program, the employees could elect to continue to hold
the existing options or to have those options replaced with new options granted
under the 1997 Equity Incentive Plan. The replacement options were designed to
grant two shares of Common Stock for every three shares subject to the replaced
option, at an exercise price of $6.75 per share, with a three-year vesting
schedule commencing on the date of the new grant. Certain employees held options
received pursuant to an option replacement program adopted by the Company on May
5, 1998 (the "1998 Replacement Program") which was described in the Company's
Proxy Statement dated October 18, 1998. Under the replacement program approved
on December 4, 1998, the holder of an option that had been issued under the 1998
Replacement Program could elect to have that option replaced with a new grant
for the same number of shares at the lower price with a new vesting period
commencing on December 4, 1998.
Except for the option replacement program described above and the options
which were replaced under the 1998 Replacement Program, the Company has not
repriced stock options in the past 10 years. The following table sets forth
information with respect to the repricing of stock options held by any executive
officer of the Company during the last 10 years.
10-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
MARKET LENGTH OF
NUMBER OF PRICE OF EXERCISE ORIGINAL
SECURITIES STOCK AT PRICE AT OPTION TERM
UNDERLYING TIME OF TIME OF REMAINING AT
OPTIONS/SARS REPRICING REPRICING NEW DATE OF
REPRICED OR OR OR EXERCISE REPRICING OR
NAME AND POSITION DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- -------------------- ------- ------------ --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Colin J. Reardon 12-4-98 40,000 $6.75 $17.00 $6.75 3 Years, 7 Months
Senior Vice
President,
International
Operations
Kevin J. Donoghue(1) 5-5-98 10,000 $16.00 $49.00 $16.00 5 Years, 5 Months
Vice President, 12-4-98 7,000 $6.75 $13.63 $6.75 9 Years, 6 Months
North American 12-4-98 6,667 $6.75 $16.00 $6.75 9 Years, 5 Months
Sales Division 12-4-98 10,000 $6.75 $42.25 $6.75 3 Years, 11 Months
Mark R. Schonau 12-4-98 123,000 $6.75 $15.88 $6.75 3 Years, 7 Months
Senior VP, Finance
and Administration,
Chief Financial
Officer and
Treasurer
David M. Lee(2) 5-5-98 50,000 $16.00 $49.00 $16.00 5 Years, 5 Months
Senior Vice President, 12-4-98 33,333 $6.75 $16.00 $6.76 9 Years, 5 Months
Products Division
Jean-Luc G. 5-5-98 10,000 $16.00 $49.00 $16.00 5 Years, 5 Months
Valente(3)
Former Senior Vice
President, Marketing
Abbott H. Ezrilov(2) 5-5-98 15,000 $16.00 $49.00 $16.00 5 Years, 5 Months
Former Vice
President, Channel
Sales and Vendor
Relationships
</TABLE>
44
<PAGE> 47
(1) Mr. Donoghue was elected Vice President, North American Sales Division in
August 1998.
(2) Messrs. Ezrilov and Lee were elected executive officers of the Company in
April 1998. Mr. Ezrilov resigned from the Company on November 2, 1998.
(3) Mr. Valente resigned from his employment with the Company effective
September 30, 1998.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation for the Company's Chief Executive Officer, Steven D.
Whiteman, was determined based on the same policies and criteria as the
compensation of the other executive officers, as discussed above. During fiscal
1999, Mr. Whiteman's compensation included a base salary, cash bonuses and stock
options. Mr. Whiteman's salary for fiscal 1999 was set at $230,000, an increase
of $10,000, or 4.5% from the prior fiscal year. This increase was due to the
Compensation Committee's subjective evaluation of Mr. Whiteman's performance in
fiscal 1998. A significant portion of Mr. Whiteman's total compensation plan for
fiscal 1999 was in the form of cash bonuses under the Bonus Plan, which tied his
compensation to the achievement of financial performance objectives;
specifically, budgeted Net Income goals. For fiscal 1999, the Compensation
Committee increased the portion of variable compensation that was based on the
performance of the Company from approximately 33% in fiscal 1998 to over 50% of
Mr. Whiteman's total target compensation at 100% performance by the Company of
the Net Income goals set in the Bonus Plan. Because the Company did not achieve
the financial objectives set, Mr. Whiteman's performance bonuses under the Bonus
Plan during fiscal 1999 totaled $24,000, which was a decrease of $24,595, or
approximately 51%, from fiscal 1998 and a decrease of $157,980, or approximately
87%, from fiscal 1997. Mr. Whiteman's performance bonuses under the Bonus Plan
during fiscal 1999 accounted for approximately 9.4% of his total cash
compensation. The Compensation Committee believes that this mix of compensation
properly rewards and provides incentives to Mr. Whiteman for his overall
responsibility for the performance of the Company.
TAX CONSIDERATIONS
In August 1993, as part of the Omnibus Budget Reconciliation act of 1993,
Section 162(m) of the Internal Revenue Code was enacted, which provides for an
annual one million dollar limitation on the deduction that an employer may claim
for compensation of certain executives. While no one executive officer will
approach the one million dollar limitation in cash compensation, it is possible
that one or more executive officers will in the future have taxable compensation
in excess of one million dollars as a result of the exercise and sale of Viasoft
Common Stock received from stock options.
Section 162(m) of the Code provides certain exceptions to the one million
dollar deduction limitation, and it has been the policy of the Compensation
Committee to review the possible exceptions and exemptions and to implement them
when needed, to the extent feasible and in the best interests of the Company.
Consequently, the Compensation Committee recommended and the Company included
certain provisions in the 1997 Equity Incentive Plan that exempts stock options
and other grants of equity compensation under the 1997 Plan from the one million
dollar limitation. Certain previously granted stock options of the Company are
not exempt from the one million dollar limitation.
This report is submitted by the members of the Compensation Committee:
J. David Parrish John J. Barry III, Chairman Arthur C. Patterson
COMPANY STOCK PERFORMANCE GRAPH
The Company Stock Performance Graph below compares the cumulative total
stockholder return on the Common Stock of the Company, on a quarterly basis,
from March 1, 1995 (the date of its initial public offering) to
45
<PAGE> 48
June 30, 1999 (the last day of the Company's most recent fiscal year), with the
cumulative total return on The Nasdaq Stock Market for United States companies
("Nasdaq Stock Market Index") and the Nasdaq Computer and Data Processing Stocks
("Nasdaq Computer Index") over the same period. This graph assumes a $100
investment at March 1, 1995 in the Company's Common Stock and in each of the
indexes and reinvestment of all dividends, if any.
The graph displayed below is presented in accordance with SEC requirements.
Stockholders are cautioned against drawing any conclusions from the data
contained therein, as past results are not necessarily indicative of future
performance. This graph is not intended to reflect the Company's forecast of
future financial performance.
[Viasoft-Company Stock Performance Graph]
<TABLE>
<CAPTION>
VIASOFT NASDAQ US NASDAQ COMP&DP
------- --------- --------------
<S> <C> <C> <C>
'3/1/95' 100.00 100.00 100.00
'6/30/95' 164.06 118.07 126.19
'6/28/96' 807.81 151.59 167.60
'6/30/97' 1268.75 184.36 211.58
'6/30/98' 404.69 242.74 319.62
'6/30/99' 87.50 347.19 487.61
</TABLE>
46
<PAGE> 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of August 31, 1999, by (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each executive officer of the Company named in the Summary
Compensation Table below, (iii) each director of the Company and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT(1)
- ------------------------------------ ------------ ----------
<S> <C> <C>
T. Rowe Price Associates (2) 1,225,800 6.8
100 East Pratt Street
Baltimore, MD 21202
Steven D. Whiteman (3) 393,070 2.2
Colin J. Reardon (4) 112,855 *
Arthur C. Patterson (5) 84,581 *
Alexander S. Kuli (6) 39,668 *
John J. Barry III (7) 33,495 *
J. David Parrish (8) 24,336 *
Mark R. Schonau (9) 35,714 *
David M. Lee (10) 16,212 *
Kevin J. Donoghue (11) 13,422 *
All Executive Officers and Directors as a 797,906 4.4
Group (11 persons) (12)
</TABLE>
- ----------
* Represents beneficial ownership of less than 1%.
(1) Except as otherwise noted, and subject to community property laws where
applicable, each of the stockholders named in the table has sole voting and
investment power with respect to all shares shown as beneficially owned by
the stockholder. Applicable percentages are based on 17,948,880 shares of
Common Stock outstanding as of August 31, 1999, adjusted as required by
rules promulgated by the Commission.
(2) The 1,211,400 shares held are owned by various individual and institutional
investors, including T. Rowe Price Small-Cap Stock Fund, Inc. (which owns
968,000 shares representing 5.4% of the shares outstanding), for which T.
Rowe Price Associates, Inc. ("Price Associates") serves as investment
adviser with power to direct investments and/or power to vote the
securities. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of
such securities; however, Price Associates expressly disclaims that it is,
in fact, the beneficial owner of such securities; Price Associates has sole
dispositive power for the entire 1,225,800 shares and sole voting power for
210,500 shares.
47
<PAGE> 50
(3) Includes 38,000 shares held by a trust for the benefit of Steven D. and
Beverly C. Whiteman, of which Mr. Whiteman is trustee, and 149,377 shares
that Mr. Whiteman may acquire upon the exercise of options exercisable
within 60 days of August 31, 1999, 21,876 of which have an exercise price
that exceeds the Offer Price. An additional 83,956 shares may be acquired
upon the exercise of options that become exercisable at the time the Merger
is effective, 28,124 of which have an exercise price that exceeds $9.00.
See "Employment Contracts and Change-in-Control Arrangements" above
(4) Includes 102,812 shares that Mr. Reardon may acquire upon the exercise of
options exercisable within 60 days of August 31, 1999, 15,313 of which have
an exercise price that exceeds the Offer Price. An additional 117,187
shares may be acquired upon the exercise of options that become exercisable
at the time the Merger is effective, 19,687 of which have an exercise price
that exceeds the Offer Price. See "Employment Contracts and
Change-in-Control Arrangements" above.
(5) Includes 36,668 shares that Mr. Patterson may acquire upon the exercise of
options exercisable within 60 days of August 31, 1999, 10,000 of which have
an exercise price that exceeds the Offer Price. An additional 26,000 shares
may be acquired upon the exercise of options that become exercisable at the
time the Merger is effective, 10,000 of which have an exercise price that
exceeds the Offer Price. See "Employment Contracts and Change-in-Control
Arrangements" above.
(6) Includes 36,668 shares that Mr. Kuli may acquire upon the exercise of
options exercisable within 60 days of August 31, 1999, 10,000 of which have
an exercise price that exceeds the Offer Price. An additional 26,000 shares
may be acquired upon the exercise of options that become exercisable at the
time the Merger is effective, 10,000 of which have an exercise price that
exceeds the Offer Price. See "Employment Contracts and Change-in-Control
Arrangements" above.
(7) Includes 10,000 shares that Mr. Barry may acquire upon the exercise of
options exercisable within 60 days of August 31, 1999, all of which have an
exercise price that exceeds the Offer Price. An additional 26,000 shares
may be acquired upon the exercise of options that become exercisable at the
time the Merger is effective, 10,000 of which have an exercise price that
exceeds the Offer Price. See "Employment Contracts and Change-in-Control
Arrangements" above.
(8) Includes 23,668 shares that Mr. Parrish may acquire upon the exercise of
options exercisable within 60 days of August 31, 1999, 10,000 of which have
an exercise price that exceeds the Offer Price. An additional 26,000 shares
may be acquired upon the exercise of options that become exercisable at the
time the Merger is effective, 10,000 of which have an exercise price that
exceeds the Offer Price. See "Employment Contracts and Change-in-Control
Arrangements" above.
(9) Includes 22,814 shares that Mr. Schonau may acquire upon the exercise of
options exercisable within 60 days of August 31, 1999, 15,313 of which have
an exercise price that exceeds the Offer Price. An additional 172,519
shares may be acquired upon the exercise of options that become exercisable
at the time the Merger is effective, 19,687 of which have an exercise price
that exceeds the Offer Price. See "Employment Contracts and
Change-in-Control Arrangements" above.
(10) Includes 15,000 shares that Mr. Lee may acquire upon the exercise of
options exercisable within 60 days of August 31, 1999, 7,500 of which have
an exercise price that exceeds the Offer Price. An additional 106,666
shares may be acquired upon the exercise of options that become exercisable
at the time the Merger is effective, 12,500 of which have an exercise price
that exceeds the Offer Price. See "Employment Contracts and
Change-in-Control Arrangements" above.
(11) Includes 10,651 shares that Mr. Donoghue may acquire upon the exercise of
options exercisable within 60 days of August 31, 1999, 750 of which have an
exercise price that exceeds the Offer Price. An additional 69,750 shares
may be acquired upon the exercise of options that become exercisable at the
time the Merger is effective, 2,250 of which have an exercise price that
exceeds the Offer Price. See "Employment Contracts and Change-in-Control
Arrangements" above.
(12) Includes 441,472 shares that all current executive officers and directors
may acquire upon the exercise of options exercisable within 60 days of
August 31, 1999, 123,565 of which have an exercise price that exceeds the
Offer Price. An additional 765,764 shares may be acquired upon the exercise
of options that become
48
<PAGE> 51
exercisable at the time the Merger is effective, 136,935 of which have an
exercise price that exceeds the Offer Price. See "Employment Contracts and
Change-in-Control Arrangements" above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Executive Compensation - Employment Contracts and Change-in-Control
Arrangement."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS ANNUAL REPORT ON FORM
10-K:
(1) Consolidated Financial Statements.
See Index to Consolidated Financial Statements on page F-1 of this
report.
(2) Consolidated Financial Statement Schedules.
Report of Independent Public Accountants. See page F-2 of this report.
Schedule II, Valuation and Qualifying Accounts and Reserves. See page
F-29 of this report.
(3) Exhibits:
The following exhibits are filed herewith or incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
2.1 Stock Purchase Agreement among Viasoft, Inc., LfA-Gesellschaft
fur Vermogensverwaltung GmbH (LfA-GV), Werner Dreesbach, Elga
Dreesbach, Christoph Rottger, and Valerie Rottger, dated
November 11, 1996 (incorporated herein by reference to Exhibit
2.1 to the Company's Form 8-K dated December 20, 1996)
2.2(5) Stock Purchase Agreement dated as of the 12th day of January,
1998, between Viasoft, Inc., Michael Howatt Mabey, Nashirali
Samanani, and certain other sellers (incorporated herein by
reference to Exhibit 2.1 to the Company's Form 10-Q for the
quarter ended December 31, 1997)
3.1 Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 10.20 to the Company's Form 10-K for
fiscal year 1995)
3.2 Amended and Restated Bylaws of the Company (incorporated
herein by reference to Exhibit 3(e) to the Company's
Registration Statement on Form S-1 (Registration No.
33-88366))
3.3 Certificate of Amendment to the Restated Certificate of
Incorporation, filed November 17, 1997 (incorporated herein by
reference to Exhibit 3.1(a) to the Company's Form 10-Q for the
quarter ended December 31, 1997)
3.4 Restated Certificate of Incorporation, as amended through
November 17, 1997 (incorporated herein by reference to Exhibit
3.1(b) to the Company's Form 10-Q for the quarter ended
December 31, 1997)
4.1 Form of Certificate for Common Stock (incorporated herein by
reference to Exhibit 4(a) to the Company's Registration
Statement on Form S-1 (Registration No. 33-88366))
4.2 Form of Warrant to Purchase Common Stock (incorporated herein
by reference to Exhibit 4(b) to the Company's Registration
Statement on Form S-1 (Registration
</TABLE>
49
<PAGE> 52
<TABLE>
<S> <C>
No. 33-88366))
4.3 Rights Agreement, dated as of April 20, 1998, between the
Company and Harris Trust and Savings Bank (incorporated herein
by reference to Exhibit 1 to the Company's Form 8-A dated
April 22, 1998)
4.4 Certificate of Designation of Series A Junior Participating
Preferred Stock (incorporated herein by reference to the
Company's Form 10-K for fiscal year 1998)
4.5 Agreement and Plan of Merger dated July 14, 1999, among
Compuware Company, CV Acquisition, Inc., a wholly owned
subsidiary of Compuware and the Company (incorporated herein
by reference to Exhibit 4 to the Company's Form 14D-9 filed on
July 22, 1999)
4.6 Rights Plan Amendment (incorporated herein by reference to
Exhibit 9 to Schedule 14D-9, dated July 22, 1999)
10.1 Office Lease dated June 5, 1992 between the Company and the
Mutual Life Insurance Company of New York, as amended
(incorporated herein by reference to Exhibit 10(e) to the
Company's Registration Statement on Form S-1 (Registration No.
33-88366))
10.2(2) Form of Indemnification Agreement between the Company and each
of its directors (incorporated herein by reference to Exhibit
10(f) to the Company's Registration Statement on Form S-1
(Registration No. 33- 88366))
10.3(2) Viasoft, Inc. 1986 Stock Option Plan (incorporated herein by
reference to Exhibit 10(g) to the Company's Registration
Statement on Form S-1 (Registration No. 33-88366))
10.4(2) 1994 Equity Incentive Plan (incorporated herein by reference
to Exhibit 10(l) to the Company's Registration Statement on
Form S-1 (Registration No. 33-88366))
10.5(2) Employee Stock Purchase Plan, as amended (incorporated herein
by reference to Exhibit 10(m) to Amendment No. 2 to the
Company's Registration Statement on Form S-1 (Registration No.
33-88366))
10.6(2) Employment Agreement dated July 28, 1994 between the Company
and Colin J. Reardon (incorporated herein by reference to
Exhibit 10(o) to the Company's Registration Statement on Form,
S-1 (Registration No. 33-88366))
10.7(2)(3) Viasoft FY97 Executive Bonus Plan (incorporated herein by
reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1996)
10.8(2)(3) FY 97 Incentive Plan for Senior Vice President, Americas
(incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended September 30, 1996)
10.9(2)(3) FY 97 Incentive Plan for Vice President, International
Operations (incorporated herein by reference to Exhibit 10.3
to the Company's Form 10-Q for the quarter ended September 30,
1996)
10.10(2)(3) Consulting and Employment Agreement between the Company and
Mark R. Schonau (incorporated herein by reference to Exhibit
10.4 to the Company's Form 10-Q for the quarter ended
September 30, 1996)
10.11 Outside Director Stock Option Plan (incorporated herein by
reference to Exhibit A of the Company's Definitive Schedule
14A Proxy Statement for the 1995 Annual Meeting of
Stockholders)
10.12(2) Employee Stock Purchase Plan (as amended and restated as of
April 24, 1997) (incorporated herein by reference to the
Company's Form 10-K for fiscal year 1997)
10.13 Assignment, Assumption and Novation Agreement dated September
12, 1997 and Assignment, Assumption and Novation Agreement
dated December 19, 1996, relating to Londen Center Lease
Agreement (incorporated herein by reference to the Company's
Form 10-K for fiscal year 1997)
10.14(2)(4) Viasoft FY98 Executive Bonus Plan (incorporated herein by
reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1997)
10.15(2)(4) FY98 Incentive Plan for Executive Vice President (incorporated
herein by reference to Exhibit 10.2 to the Company's Form 10-Q
for the quarter ended September 30, 1997)
10.16(2)(4) FY98 Incentive Plan for Senior Vice President, International
Operations (incorporated
</TABLE>
50
<PAGE> 53
<TABLE>
<S> <C>
herein by reference to Exhibit 10.3 to the Company's Form 10-Q
for the quarter ended September 30, 1997)
10.17(2) Consulting Agreement between the Company and Michael A. Wolf
dated August 1, 1997 (incorporated herein by reference to
Exhibit 10.4 to the Company's Form 10-Q for the quarter ended
September 30, 1997)
10.18(2) Viasoft, Inc. Deferred Compensation Plan (incorporated herein
by reference to Exhibit 10.5 to the Company's Form 10-Q for
the quarter ended September 30, 1997)
10.19(2) Amendment No. 1 to the Viasoft, Inc. Deferred Compensation
Plan, dated as of June 30, 1998 (incorporated herein by
reference to the Company's Form 10-K for fiscal year 1998)
10.20(2) Viasoft, Inc. 1997 Equity Incentive Plan (incorporated herein
by reference to Appendix B of the Company's Definitive
Schedule 14A Proxy Statement for the 1997 Annual Meeting of
Stockholders)
10.21(2) Viasoft, Inc. 1997 Equity Incentive Plan, amended and restated
as of January 21, 1998 (incorporated herein by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-8 (Registration No. 333-47571))
10.22(1)(2) Viasoft, Inc. Deferred Compensation Plan, as Amended and
Restated, dated as of July 1, 1999
11(1) Computation of Earnings per Share
21(1) Subsidiaries of the Company
23(1) Consent of Arthur Andersen LLP
24(1) Powers of Attorney
27(1) Financial Data Schedules
</TABLE>
- ----------
(1) Filed herewith.
(2) Management contract or compensation plan or arrangement.
(3) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated January 6, 1997.
(4) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by the Commission dated November 25, 1997.
(5) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated February 27, 1998.
(B) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K with the SEC on July 15, 1999,
with respect to Compuware's tender offer to purchase all shares of Viasoft
stock.
(C)EXHIBITS.
The list of Exhibits required by Item 601 of Regulation S-K is included in
Item 14(a)(3) above.
(D) FINANCIAL STATEMENT SCHEDULES.
See Item 14(a)(2) above.
51
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, this day of
September 27, 1999.
Viasoft, Inc.
By: /s/ STEVEN D. WHITEMAN
-------------------------------
Steven D. Whiteman
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEVEN D. WHITEMAN
- --------------------------------------
Steven D. Whiteman Chief Executive September 27, 1999
Officer, Director
/s/ MARK R. SCHONAU
- --------------------------------------
Mark R. Schonau Chief Financial September 27, 1999
Officer, Chief
Accounting Officer
* JOHN J. BARRY III
- --------------------------------------
John J. Barry III Director September 27, 1999
* ALEXANDER S. KULI
- --------------------------------------
Alexander S. Kuli Director September 27, 1999
* J. DAVID PARRISH
- --------------------------------------
J. David Parrish Director September 27, 1999
* ARTHUR C. PATTERSON
- --------------------------------------
Arthur C. Patterson Director September 27, 1999
* By: /s/ STEVEN D. WHITEMAN
- --------------------------------------
Attorney-in-Fact
</TABLE>
52
<PAGE> 55
VIASOFT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants ............................. F-2
Consolidated Balance Sheets .......................................... F-3
Consolidated Statements of Operations ................................ F-4
Consolidated Statements of Stockholders' Equity ...................... F-5
Consolidated Statements of Comprehensive Income ...................... F-6
Consolidated Statements of Cash Flows ................................ F-7
Notes to Consolidated Financial Statements ........................... F-8
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended June 30, 1999, 1998 and 1997 .......................... F-29
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Viasoft, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Viasoft, Inc. (a
Delaware corporation) and Subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of operations, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1999. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Viasoft, Inc. and
Subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II of Part IV, Item 14 herein
is presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
September 20, 1999
F-2
<PAGE> 57
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) ................................... $ 25,609 $ 37,809
Investments, at amortized cost (Note 3) .............................. 55,650 63,294
Accounts receivable (less allowance for doubtful accounts of $829
and $815, at June 30, 1999 and 1998 respectively) .................. 23,632 33,227
Prepaid expenses and other (Notes 4 and 8) ........................... 5,966 7,774
--------- ---------
Total current assets .......................................... 110,857 142,104
--------- ---------
Furniture and equipment, net (Note 1) .................................. 6,349 7,609
--------- ---------
Other assets (Notes 2):
Investments, at amortized cost (Note 3) .............................. 4,791 2,502
Intangible assets, net (Note 1) ...................................... 4,232 6,751
Long-term deferred tax asset ......................................... 7,527 689
Other ................................................................ 413 2,722
--------- ---------
Total other assets ............................................ 16,963 12,664
--------- ---------
Total assets .................................................. $ 134,169 $ 162,377
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................... $ 1,012 $ 1,733
Accrued compensation ................................................. 2,488 4,390
Accrued income taxes payable ......................................... 2,966 5,113
Restructuring reserves ............................................... 3,278 --
Other accrued expenses ............................................... 9,949 13,768
Deferred revenue (Note 1) ............................................ 19,541 20,843
--------- ---------
Total current liabilities ..................................... 39,234 45,847
--------- ---------
Deferred revenue, recognized after one year (Note 1) ................... 206 542
--------- ---------
Other long term liabilities ............................................ 99 130
--------- ---------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares authorized,
no shares issued and outstanding ................................... -- --
Common stock, $.001 par value, 48,000,000 shares authorized;
19,456,133 shares issued at June 30, 1999 and 1998,
respectively (Notes 5 and 6) ....................................... 19 19
Capital in excess of par value ....................................... 122,989 125,626
Common stock subscriptions receivable (Note 6) ....................... -- (31)
Accumulated deficit .................................................. (15,485) (6,995)
Cumulative translation adjustment (Note 1) ........................... (814) (580)
Treasury stock, at cost, 1,550,296 and 135,000 shares at June 30, 1999
and 1998, respectively (Note 6) .................................... (12,079) (2,181)
--------- ---------
Total stockholders' equity .................................... 94,630 115,858
--------- ---------
Total liabilities and stockholders' equity .................... $ 134,169 $ 162,377
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 58
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software license fees .............................. $ 44,989 $ 65,122 $ 40,292
Maintenance fees ................................... 33,718 28,865 21,010
Professional services fees ......................... 25,526 19,615 23,832
Other .............................................. 39 85 178
--------- --------- ---------
Total revenues ............................. 104,272 113,687 85,312
--------- --------- ---------
Operating expenses:
Cost of software license and maintenance fees ...... 15,596 12,737 4,345
Cost of professional services fees ................. 22,312 18,537 18,316
Sales and marketing ................................ 41,031 42,131 31,573
Research and development ........................... 13,968 16,392 7,893
Write-off of purchased in-process research and
development ..................................... 5,013 8,559 26,958
General and administrative ......................... 11,362 7,849 6,319
Restructuring charges .............................. 12,291 -- --
--------- --------- ---------
Total operating expenses ................... 121,573 106,205 95,404
--------- --------- ---------
Income (loss) from operations ........................ (17,301) 7,482 (10,092)
--------- --------- ---------
Other income (expense):
Interest income .................................... 4,300 4,917 1,309
Interest expense ................................... (3) (5) (45)
Other income (expense), net ........................ (678) (317) (546)
--------- --------- ---------
Total other income ......................... 3,619 4,595 718
--------- --------- ---------
Income (loss) before income taxes .................... (13,682) 12,077 (9,374)
Income tax (benefit)/provision ..................... (5,192) 4,142 6,062
--------- --------- ---------
Net income (loss) .................................... $ (8,490) $ 7,935 $ (15,436)
========= ========= =========
Basic earnings (loss) per common share (Notes 1 and 7) $ (.46) $ .42 $ (.90)
========= ========= =========
Weighted average number of common shares
outstanding (Notes 1 and 7) ........................ 18,308 18,999 17,212
========= ========= =========
Diluted earnings (loss) per common and common
share equivalent (Notes 1 and 7) ................... $ (.46) $ .40 $ (.90)
========= ========= =========
Weighted average number of common and common
share equivalents outstanding (Notes 1 and 7) ...... 18,308 19,799 17,212
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 59
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON
----------------------- CAPITAL IN STOCK ACCUMULATED CUMULATIVE
NUMBER EXCESS OF SUBSCRIPTIONS EARNINGS TRANSLATION
AMOUNT OF SHARES PAR VALUE RECEIVABLE (DEFICIT) ADJUSTMENT
---------- ---------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 ....................... $ 17 16,718,556 $ 27,771 $ (59) $ 506 $ 24
Sale of common stock, net .................... -- 299,636 1,281 -- -- --
Exercise of options, net ..................... -- 279,468 914 -- -- --
Shares issued in connection with
acquisition of R&O Software-Technik (Note 2) 1 425,112 12,805 -- -- --
Income tax benefit relating to stock
plans (Note 4) ............................. -- -- 1,199 -- -- --
Payments on common stock subscriptions
receivable (Note 6) ........................ -- -- -- 4 -- --
Net loss ..................................... -- -- -- -- (15,436) --
Translation adjustment ....................... -- -- -- -- -- (331)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 ....................... 18 17,722,772 43,970 (55) (14,930) (307)
Sale of common stock, net .................... -- 90,239 980 -- -- --
Secondary offering, net (Note 6) ............. 1 1,465,000 75,360 -- -- --
Treasury stock purchased (Note 6) ............ -- -- -- -- -- --
Exercise of options, net ..................... -- 178,122 1,818 -- -- --
Income tax benefit relating to stock plans
(Note 4) ................................... -- -- 3,498 -- -- --
Payments on common stock subscriptions
receivable (Note 6) ........................ -- -- -- 24 -- --
Net income ................................... -- -- -- -- 7,935 --
Translation adjustment ....................... -- -- -- -- -- (273)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1998 ....................... 19 19,456,133 125,626 (31) (6,995) (580)
Sale of common stock, net .................... -- -- (1,406) -- -- --
Treasury stock purchased (Note 6) ............ -- -- -- -- -- --
Exercise of options, net ..................... -- -- (1,283) -- -- --
Income tax benefit relating to stock plans
(Note 4) ................................... -- -- 52 -- -- --
Payments on common stock subscriptions
receivable (Note 6) ........................ -- -- -- 31 -- --
Net loss ..................................... -- -- -- -- (8,490) --
Translation adjustment ....................... -- -- -- -- -- (234)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1999 ....................... $ 19 19,456,133 $ 122,989 $ -- $ (15,485) $ (814)
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
------------------------
NUMBER
AMOUNT OF SHARES TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance at June 30, 1996 ....................... -- -- $ 28,259
Sale of common stock, net .................... -- -- 1,281
Exercise of options, net ..................... -- -- 914
Shares issued in connection with
acquisition of R&O Software-Technik (Note 2) -- -- 12,806
Income tax benefit relating to stock
plans (Note 4) ............................. -- -- 1,199
Payments on common stock subscriptions
receivable (Note 6) ........................ -- -- 4
Net loss ..................................... -- -- (15,436)
Translation adjustment ....................... -- -- (331)
---------- ---------- ----------
Balance at June 30, 1997 ....................... -- -- 28,696
Sale of common stock, net .................... -- -- 980
Secondary offering, net (Note 6) ............. -- -- 75,361
Treasury stock purchased (Note 6) ............ (2,181) 135,000 (2,181)
Exercise of options, net ..................... -- -- 1,818
Income tax benefit relating to stock plans
(Note 4) ................................... -- -- 3,498
Payments on common stock subscriptions
receivable (Note 6) ........................ -- -- 24
Net income ................................... -- -- 7,935
Translation adjustment ....................... -- -- (273)
---------- ---------- ----------
Balance at June 30, 1998 ....................... (2,181) 135,000 115,858
Sale of common stock, net .................... 2,186 (170,801) 780
Treasury stock purchased (Note 6) ............ (13,689) 1,704,500 (13,689)
Exercise of options, net ..................... 1,605 (118,403) 322
Income tax benefit relating to stock plans
(Note 4) ................................... -- -- 52
Payments on common stock subscriptions
receivable (Note 6) ........................ -- -- 31
Net loss ..................................... -- -- (8,490)
Translation adjustment ....................... -- -- (234)
---------- ---------- ----------
Balance at June 30, 1999 ....................... $ (12,079) 1,550,296 $ 94,630
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 60
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net (loss) income ........................... $ (8,490) $ 7,935 $(15,436)
Other comprehensive income, net of tax
Foreign currency translation adjustments .. (145) (180) (215)
-------- -------- --------
Comprehensive (loss) income ................. $ (8,635) $ 7,755 $(15,651)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 61
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .................................... $ (8,490) $ 7,935 $ (15,436)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Restructuring charges ............................ 5,902 -- --
Write-off of purchased in-process research and
development ..................................... 5,013 8,559 26,958
Depreciation and amortization ..................... 5,703 3,698 1,826
Provision for bad debts ........................... 1,265 280 525
Loss on disposal of fixed assets .................. 31 -- 26
Changes in operating assets and liabilities net
of effect of businesses acquired:
(Increase) decrease in accounts receivable ...... 8,330 (12,132) (3,713)
Increase in prepaid expenses and other assets ... (3,728) (5,983) (3,180)
Increase (decrease) in accounts payable and other
accrued expenses ............................... (2,148) 2,269 (2,343)
Increase (decrease) in accrued compensation ..... (1,902) 1,081 1,818
Increase (decrease) in accrued income taxes
payable ........................................ (2,147) 5,335 2,651
Increase (decrease) in deferred revenue ......... (1,669) 2,800 6,004
--------- --------- ---------
Total adjustments ............................ 14,650 5,907 30,572
--------- --------- ---------
Net cash provided by operating activities ....... 6,160 13,842 15,136
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures ................................. (4,078) (5,655) (2,747)
Cash paid for businesses acquired, net of cash
acquired (Note 2) ................................. (6,625) (8,958) (10,225)
Cash paid for acquisition of customer list ........... -- (530) --
Sale or maturity of investments ...................... 88,911 66,482 36,098
Purchase of investments .............................. (83,805) (111,602) (32,497)
--------- --------- ---------
Net cash used in investing activities ........ (5,597) (60,263) (9,371)
--------- --------- ---------
FINANCING ACTIVITIES:
Purchase of treasury stock, net ...................... (12,535) (2,181) --
Proceeds from issuance of common stock ............... -- 78,978 2,196
Payments of short term debt (Note 2) ................. -- -- (4,099)
Principal payments on obligations under capital
leases ............................................ -- -- (43)
Payments for offering costs .......................... -- (819) --
Payments received on common stock subscriptions
receivable ........................................ 31 24 4
--------- --------- ---------
Net cash provided by (used in) financing
activities ................................. (12,504) 76,002 (1,942)
--------- --------- ---------
Effect of exchange rate changes on cash ................ (259) (273) (331)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ... (12,200) 29,308 3,492
Cash and cash equivalents, beginning of year ........... 37,809 8,501 5,009
--------- --------- ---------
Cash and cash equivalents, end of year ................. $ 25,609 $ 37,809 $ 8,501
========= ========= =========
Supplemental cash flow information:
Income taxes paid .................................... $ 3,825 $ 2,444 $ 2,934
Income tax benefit related to stock plans ............ $ 52 $ 3,498 $ 1,199
Interest paid ........................................ $ 3 $ -- $ 46
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 62
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Viasoft, Inc. and its subsidiaries (the "Company") provide business
solutions that help enable organizations worldwide to understand, manage,
evolve, reuse, transition and modernize mission-critical enterprise applications
that support their fundamental business processes. The Company also provides
professional services to large corporations and public entities to help them
effectively manage and automate the evolution of their existing applications.
The Company markets its products and services through its United States sales
force, both domestically and in Canada, and through a network of resellers for
its desktop solutions. The Company operates through its wholly-owned
subsidiaries in Australia, the United Kingdom, Germany, France, Belgium, the
Netherlands, Canada and Mexico and an established network of semi-exclusive
distributors and a network of resellers for its desktop solutions in other
international markets.
PROPOSED ACQUISITION OF THE COMPANY
On July 15, 1999, Viasoft and Compuware announced the execution of a merger
agreement providing for Compuware to acquire Viasoft through a cash tender offer
followed by a merger ("Merger"). As contemplated by the merger agreement, on
July 22, 1999, a wholly-owned subsidiary of Compuware, CV Acquisition, Inc.,
offered to purchase all outstanding shares of Viasoft's Common Stock for $9.00
per share on the terms and conditions of an offer to purchase submitted to the
Viasoft shareholders. Following completion of the tender offer and subject to
satisfaction of certain conditions, CV Acquisition, Inc. will be merged into
Viasoft, with Viasoft surviving as a wholly-owned subsidiary of Compuware. This
offer had an original expiration date of August 19, 1999, which subsequently was
extended to September 20, 1999, and has now been extended to October 12, 1999.
The expiration date may be further extended by CV Acquisition, Inc.
Viasoft believes that its business, results of operation, financial
condition and liquidity have been materially adversely affected by the
announcement of the proposed acquisition by Compuware. Relationships with
customers have been adversely affected and revenues from product licenses and
professional services have declined as customers have delayed or reconsidered
purchase decisions. In addition, the Company has experienced some employee
attrition as a result of the announcement of the Compuware transactions. The
Company believes that its business, results of operations, financial condition
and liquidity would be further materially adversely affected if these
transactions are not completed within the next 30-60 days. In particular,
Viasoft believes that its relationships with its customers and employees would
be seriously damaged. Consummation of the proposed acquisition of Viasoft by
Compuware is subject to certain conditions, including the condition that at
least a majority of the shares of Viasoft Common Stock outstanding on a
fully-diluted basis are tendered and not withdrawn. Consummation of the
acquisition is also subject to the expiration or termination of applicable
antitrust waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act. On September 20, 1999, Compuware announced that it was extending the tender
offer through October 12, 1999. Compuware extended the offer to allow sufficient
time to comply with the DOJ's request for additional information and to allow
the Antitrust Division of the U.S. Department of Justice to complete its
investigation pursuant to the Hart-Scott-Rodino Antitrust Improvements Act. The
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
purchase of shares pursuant to the tender offer or seeking divestiture of the
shares so acquired or divestiture of substantial assets of Compuware or the
Company. There can be no assurance that a challenge to the Offer on antitrust
grounds will not be made, or if such a challenge is made, what the result will
be.
F-8
<PAGE> 63
In addition, the merger agreement with Compuware imposes restrictions on
Viasoft's conduct of its business and its ability to take certain actions
without Compuware's consent. These restrictions could have a material adverse
affect on Viasoft's business.
SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Viasoft, Inc. and its subsidiaries Viasoft International, Inc.; Viasoft Pty.
Ltd. (Viasoft Pty); Viasoft U.K. Limited (Viasoft UK); Viasoft International
GmbH (Viasoft Germany); Viasoft Software Development & Co., KG; Viasoft Software
Development Geschaftsfuhrungs GmbH; Viasoft France, S.A.S. (Viasoft France);
Viasoft de Mexico, S.A. de C.V.; Viasoft Belgium, S.A.; Viasoft Netherlands,
B.V. and Viasoft Canada Company. The subsidiary books are prepared in local
currency and converted at time of consolidation to U.S. dollars using the
exchange rate at the balance sheet date for balance sheet items and an average
exchange rate during the period presented for income and expense items. All
significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
Revenue is recognized in accordance with SOP 97-2, "Software Revenue
Recognition" and SOP 98-9, "Software Revenue Recognition, with Respect to
Certain Transactions." Accordingly, revenue from software licensing is
recognized when delivery of the software has occurred, a signed non-cancelable
license agreement has been received from the customer or a purchase order from a
reseller after receipt of an executed reseller agreement and any remaining
obligations under the license agreement are insignificant. Revenue from software
license fees related to the Company's obligation to provide certain
post-contract customer support without charge for the first year of the license
is unbundled from the license fee at its fair value and is deferred and
recognized straight-line over the contract support period. Revenue from annual
or other renewals of maintenance contracts (including long-term contracts) is
deferred and recognized straight-line over the term of the contracts. Revenues
from professional services fees are recognized generally as related services are
provided. Professional services do not involve significant customization,
modification or production of the licensed software.
Revenue generated by domestic operations from sales to unaffiliated foreign
customers was 6%, 7% and 5% of total revenues in the years ended June 30, 1999,
1998 and 1997, respectively. See Note 9 to the Consolidated Financial
Statements.
CASH AND CASH EQUIVALENTS
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. The Company's investments include commercial
paper, corporate bonds, and U.S. Treasury bills, all of which are classified as
held-to-maturity and stated at amortized cost, which approximates fair market
value. For purposes of the statements of cash flows, the Company considers all
investments with a maturity of three months or less when purchased to be cash
equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk, as defined by Statement of Financial Accounting Standards
("SFAS") No. 105, consist primarily of trade accounts receivable. The Company's
customer base is primarily Global 5000 and similarly sized organizations
worldwide, and the Company's reseller and international distributor network. The
Company does not require collateral upon delivery of its products.
F-9
<PAGE> 64
FURNITURE, EQUIPMENT AND SOFTWARE
Furniture, equipment and software is stated at cost. Depreciation is
computed using the straight-line method based upon the estimated useful lives of
two to five years. In March 1998, the American Institute of Certified Public
Accountants released SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which establishes guidance on
accounting for the costs of computer software developed or obtained for internal
use. The Company adopted this statement in fiscal 1998 and there was no
cumulative catch up upon adoption. The Company amortizes its software on a
straight-line basis over its estimated useful life of five years. Depreciation
and amortization expense was approximately $3,349,000, $2,414,000 and $1,266,000
in the years ended June 30, 1999, 1998 and 1997, respectively. Furniture,
equipment and software consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Computer equipment ................................. $ 5,522 $ 7,169
Office furniture and equipment ..................... 4,222 4,068
Capitalized software for internal use .............. 2,468 1,926
Capitalized leased equipment ....................... 328 380
-------- --------
Total ............................................ 12,540 13,543
Less: Accumulated depreciation and amortization ... (6,191) (5,934)
-------- --------
Net furniture, equipment and software .............. $ 6,349 $ 7,609
======== ========
</TABLE>
INTANGIBLE ASSETS
The Company has recorded certain intangible assets in connection with the
acquisition of various businesses or licensing of software (see Note 2 to the
Consolidated Financial Statements). Intangible assets consist of the following
(in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 1998
------- -------
<S> <C> <C>
Purchased software ................................... $ 3,357 $ 3,680
Cost in excess of fair value of net assets acquired
("goodwill") ...................................... 2,420 2,441
Assembled workforce .................................. 1,039 1,130
Customer lists ....................................... 1,330 1,330
------- -------
Total .............................................. 8,146 8,581
Less: Accumulated amortization ...................... (3,914) (1,830)
------- -------
Net intangible assets ................................ $ 4,232 $ 6,751
======= =======
</TABLE>
Total amortization expense was approximately $2,354,000, $1,286,000 and
$544,000 in fiscal 1999, 1998 and 1997, respectively, of which amortization of
purchased software which is included in the cost of software license and
maintenance fees was $1,167,000, $611,000 and $233,000 in fiscal 1999, 1998 and
1997, respectively. All other amortization is shown in general and
administrative expense.
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," all noncurrent
assets both tangible and intangible that are to be held and used are reviewed
for impairment whenever events or changes in circumstances indicates that the
carrying amount of the asset in question may not be recoverable. As part of the
first and fourth quarter 1999 restructuring charges, certain assets were
considered to be impaired and approximately $5.2 million of these assets were
written off or down to their net realizable value. See Note 11 to the
Consolidated Financial Statements.
F-10
<PAGE> 65
PRODUCT DEVELOPMENT
Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," capitalization of
software development costs begins upon the establishment of technological
feasibility of the product. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
product lives and changes in software and hardware technology. In addition, the
Company has and plans to continue to purchase software from third parties.
Purchased software is also accounted for in accordance with SFAS No. 86. Amounts
that could have been capitalized under this statement after consideration of the
above factors were immaterial, and therefore no internal software development
costs have been capitalized by the Company to date.
FOREIGN CURRENCY TRANSLATION
Financial information relating to the Company's foreign subsidiaries is
reported in accordance with SFAS No. 52, "Foreign Currency Translation." The net
foreign currency transaction loss in the years ended June 30, 1999, 1998 and
1997, was approximately $595,000, $302,000 and $704,000, respectively. The gains
or losses resulting from the translation of the financial statements of the
Company's foreign subsidiaries have been included as a separate component of
stockholders' equity.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which superseded Accounting Principles Board
Opinion No. 15. SFAS No. 128 was effective for financial statements for fiscal
years ending after December 15, 1997, and required 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 Consolidated Statements of
Operations sets forth the restated basic and diluted earnings (loss) per share
for all periods presented. 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.
On August 19, 1996, the Company's Board of Directors approved a two-for-one
stock split of its outstanding common stock, to be effected in the form of a
stock dividend. Each holder of shares of the Company's common stock on August
30, 1996, received one additional share of common stock for every one share of
stock held. All share and per share information presented in these financial
statements reflects the effect of this event.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange. The carrying amounts of cash, receivables and accounts
payable approximate fair values.
F-11
<PAGE> 66
BUSINESS SEGMENTS
Effective March 31, 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The adoption of SFAS No. 131 did not affect the results of operations
or financial position, but did affect the disclosure of segment information.
Segment information for all periods has been presented to conform to SFAS No.
131 requirements. See Note 9 to the Consolidated Financial Statements.
COMPREHENSIVE INCOME
During fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
presenting comprehensive income and its components in consolidated financial
statements. Comprehensive income is defined as net income plus the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources.
RECENTLY ISSUED ACCOUNTING STATEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company is required to adopt this
statement for the year ending June 30, 2000. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. The Company has not
determined the effect, if any, that adoption will have on its financial position
or results of operations.
DEPENDENCE ON YEAR 2000
Throughout the Company's 16-year existence, Viasoft's growth has been
attributable to its ability to assist its customers in maintaining and
renovating their existing systems. However, the growth in the Company's revenue
during fiscal years 1998 and 1997 resulted primarily from increased demand for
the Company's year 2000 century date conversion products and solutions for
mainframe applications and desktop environments. The demand for the Company's
year 2000 products and solutions has begun to decline significantly as the year
2000 approaches and customers' needs for additional products and services
declines. The Company anticipates that remaining demand in the year 2000 market
will decline rapidly following the year 2000 and that the market for year 2000
products and services will be substantially over by mid-2000. These changes will
materially and adversely affect the Company's revenues. It is the Company's
strategy to leverage customer relationships and knowledge of customer
application systems derived from its year 2000 solutions to market other
products and services beyond the year 2000 market. As part of this strategy, the
Company announced a reorganization in April 1999 to transition its business to a
solutions-driven model focused on e-business enablement. Management believes
that the Company may experience weakness in professional services fee revenue
and margins as it transitions to this new model. Subsequent to the fiscal year
end, the proposed acquisition of the Company by Compuware was announced. As a
result of this announcement, the Company has not fully implemented the planned
transition to a solutions-based model. Should the Company be unable to market
other products and services as demand in the year 2000 market declines, the
Company's business, results of operations, financial condition and liquidity
will be materially adversely affected. See "Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations."
F-12
<PAGE> 67
PRODUCT LIABILITY
The Company provides business solutions that help large organizations
worldwide understand, manage, evolve, reuse, transition and modernize
mission-critical enterprise applications that support their fundamental business
processes. In addition, a large portion of the Company's business is devoted to
addressing the year 2000 problem, which affects the performance and reliability
of many mission-critical systems. The Company's agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product and service liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
The Company maintains errors and omissions insurance, but there is no guarantee
that the insurance policy would cover any or all claims made against the Company
or that the coverage provided would be adequate. Although the Company has not
experienced any material product or service liability claims to date, the sale
and support of its products and services may entail the risk of such claims,
particularly in the year 2000 market, which could be substantial in light of the
use of its products and services in mission-critical applications. A successful
product or service liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
2. ACQUISITIONS AND LICENSING AGREEMENTS
SHL SYSTEMHOUSE CO. ("SHL")
In July 1998, the Company acquired exclusive worldwide marketing and
development rights to SHL TRANSFORM, a knowledge-driven process management and
productivity software toolset and its integrated process management
methodologies, from the Online Knowledge Group (OKG) of Canadian-based SHL. As
part of the agreement, the Company had the option to hire certain employees of
SHL in October 1998, had the option to purchase certain furniture and equipment
used by the SHL development employees and has the exclusive right to remarket
the licensed software to SHL's existing customers. As a result, the agreement
was accounted for as a purchase in accordance with Accounting Principles Board
Opinion Nos. 16 and 17.
The aggregate cost of the SHL acquisition consisted of the following (in
thousands):
<TABLE>
<S> <C>
Cash......................................... $ 6,000
Acquisition costs............................ 886
-------
Total........................................ $ 6,886
=======
</TABLE>
The transaction was structured as a worldwide perpetual source code license
and is exclusive, subject to SHL's retained right to use the technology for its
own internal use and in its consulting business. Viasoft will also pay certain
royalties to SHL based on sales of methodology and training components.
In connection with the acquisition of SHL, the Company received an
independent appraisal of the assets acquired which indicated that approximately
$5.0 million of the acquired intangible assets was in-process research and
development projects that had not yet reached technological feasibility. Other
intangible assets consist of $1.2 million of purchased software and $365,000 of
cost in excess of net assets acquired and $334,000 of assembled workforce. This
allocation to in-process research and development represents the estimated fair
value based on risk-adjusted cash flows related to incomplete projects. A
discount range of 37.5% to 42.5% was used for valuing the in-process research
and development projects. The purchased software, assembled workforce and cost
in excess of net assets acquired are being amortized on a straight-line basis
over five, six and five years, respectively.
F-13
<PAGE> 68
The Company originally planned to integrate the technology and methodology
into its entire product and service lines to deliver repeatable, defined
business solutions to its customers. The first of two projects was to migrate
all of the Company's existing business solution processes to the process
management toolset. This project was estimated to cost $500,000. The integration
of the Company's existing business solution processes was substantially complete
as of December 31, 1998, and did cost approximately $500,000. The second project
was the re-design, development and testing necessary to migrate the underlying
process management tool from 16-bit architecture to 32-bit architecture in order
to integrate the tool with the Company's existing and planned products. This
project was estimated to cost approximately $2.6 million and to be complete at
the end of calendar 1999.
In connection with the Company's reorganization and change in business
model, the plans for this product, Visual Process, were significantly altered.
During the fourth quarter of fiscal 1999, the Company decided to sell the
license to the technology and to discontinue future development on the product.
The Company hired an investment banker to provide an estimated market value of
the product and to market the product to potential buyers. In addition, the
Company wrote the intangible assets related to the SHL purchase down to their
estimated fair market value, resulting in a charge of approximately $130,000,
and reclassified the assets to current assets. Viasoft plans to shut down the
Toronto development lab and move the remaining support of Visual Process to its
Phoenix office in the second quarter of fiscal 2000.
ERASOFT TECHNOLOGIES, INC.
On January 12, 1998, the Company acquired all of the outstanding shares of
capital stock of 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 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 exceeds certain
targeted levels between the date of the acquisition and June 30, 2000. In
addition, the former stockholders of EraSoft 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 and will be amortized using the straight-line method
through December 31, 1999. The first and second installments of such additional
consideration were paid in fiscal 1999 totaling $1,250,000.
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 independent 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 was no assurance that the
Company would 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 had any alternative future use, the acquired
in-process research and development was charged to expense by the Company in its
quarter ended March 31, 1998. The Company intends to use the purchased
technology for enhancements to OnMark 2000 and in other product lines as well,
and has now added new initiatives to fully exploit the value of the purchased
technology. The Company allocated the aggregate cost of the acquisition as
follows (in thousands):
F-14
<PAGE> 69
<TABLE>
<S> <C>
Accounts receivable....................... $ 381
Other assets.............................. 540
In-process research and development....... 7,240
Purchased software........................ 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 were being amortized on a straight-line basis over
seven and five year periods, respectively.
In the fourth quarter of fiscal 1999, in connection the Company's
reorganization and new strategic direction, the Company wrote down the
intangible assets and capitalized software related to the Erasoft acquisition.
The write-downs were in accordance with SFAS No. 121 and SFAS No. 86 based on
the net realizable value of the underlying assets. The total write down related
to these assets was approximately $1.0 million. The remaining intangible assets
and purchase software are being amortized through December 31, 1999, the
remaining estimated useful lives of these assets.
LICENSING AGREEMENTS
In May 1998, the Company entered into an agreement to license fault
diagnostic testing software. The license has a bargain purchase option after
five years to purchase the software for one dollar. The Company made payments to
the owners of the technology per the terms of the agreement for the exclusive
rights to the software, a portion of which was considered to be in-process when
delivered. 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 June 30,
1998. The Company paid approximately $1.7 million for the license of the
software and related costs, of which $1.3 million was written off as purchased
in-process research and development. The remaining amount of $400,000 was
capitalized as purchased software and is being amortized over five years. In
addition, the Company will pay royalties to each of the former owners of the
software based upon revenue from the future licensing of the software as set out
in the agreement. See Note 8 to the Consolidated Financial Statements.
As part of the Company's strategy to enter into the desktop and
client/server arena, the Company entered into license agreements with several
software companies in the second and third quarter of fiscal 1998 for the rights
to distribute additional desktop software tools. The Company made payments to
these companies for development of the software tools in accordance with the
Company's requirements as set out in the agreements. Payments were made based on
the effective date of each agreement and delivery and acceptance of the
different versions of the products, all of which occurred during the Company's
fiscal third quarter ended March 31, 1998. The Company expensed these payments,
approximately $3.2 million, as research and development during the quarter ended
March 31, 1998. In addition, the Company will pay royalties to each software
vendor based upon sales activity as set out in the agreements. See Note 8 to the
Consolidated Financial Statements.
F-15
<PAGE> 70
ROTTGER & OSTERBERG SOFTWARE-TECHNIK GMBH
On December 5, 1996, the Company acquired all of the outstanding shares of
capital stock of R&O for cash, common stock and the assumption of certain
liabilities pursuant to a stock purchase agreement with the stockholders of R&O.
R&O develops, markets and supports repository software tools through its Rochade
product line, together with related repository-based services and solutions. R&O
was founded in 1976, is headquartered in Munich, Germany, and has operations in
Europe and the United States. The aggregate cost of the R&O acquisition
consisted of the following (in thousands):
<TABLE>
<S> <C>
Cash $ 12,800
Common stock 12,805
Assumption of liabilities and acquisition costs 13,200
---------
Total $ 38,805
=========
</TABLE>
The Company issued 425,112 unregistered shares of its Common Stock pursuant
to Regulation S in connection with this transaction, subject to certain
restrictions imposed under the stock purchase agreement and applicable
securities laws. Included in the cost of the acquisition was a payment of $2.0
million made to the former stockholders of R&O in February 1997, for meeting
certain performance criteria. The Company also committed to pay additional cash
consideration of $2.0 million (or, at each former R&O stockholder's election,
additional shares of Common Stock with an equivalent market value) if certain
financial performance criteria were met for the period from January 1, 1997,
through June 30, 1997. This contingent earnout was not achieved and no further
payments are due under the purchase agreement.
The R&O acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion Nos. 16 and 17 and, accordingly, the
purchased assets and assumed liabilities were recorded at their estimated fair
values at the acquisition date. The Company received an appraisal of the
intangible assets which indicated that approximately $27.0 million of the
acquired intangible assets was in-process research and development that had not
yet reached technological feasibility. Because there was no assurance that the
Company would 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 had 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. 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 software 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 unaudited pro forma combined condensed statements of
operations for the fiscal year ended June 30, 1997, give effect to the R&O
acquisition as if it had been consummated as of the beginning of each respective
year (unaudited) (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997
--------
<S> <C>
Total revenues $ 91,265
Income before income taxes 17,847
Net income 11,692
Earnings per share $ .64
</TABLE>
F-16
<PAGE> 71
The unaudited pro forma combined financial data is provided for illustrative
purposes only and is not necessarily indicative of the combined results of
operations that would have been reported had the R&O acquisition occurred on the
dates indicated, nor does it purport to project the results of operations of the
Company for the year or for any future period.
3. INVESTMENTS
The Company's investments are all classified as held-to-maturity and consist
of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ....... $ 1,977 $ -- $ -- $ 1,977
Government-backed securities ... 52,437 1 (66) 52,372
Corporate bonds ................ 6,027 -- (5) 6,022
------- ------- ------- -------
Total ................ $60,441 $ 1 $ (71) $60,371
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ...... $10,478 $ 20 $ -- $10,498
Government-backed securities .. 54,318 29 (11) 54,336
Corporate bonds ............... 1,000 -- -- 1,000
------- ------- ------- -------
Total ............... $65,796 $ 49 $ (11) $65,834
======= ======= ======= =======
</TABLE>
The following table reflects the investment maturities (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------
1999 1998
------------------------ ------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Under one year ................................... $55,650 $55,586 $63,294 $63,332
Greater than one year and less than five years ... 4,791 4,785 2,502 2,502
------- ------- ------- -------
$60,441 $60,371 $65,796 $65,834
======= ======= ======= =======
</TABLE>
4. INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the use of an asset and liability approach
in accounting for income taxes. Deferred tax assets and liabilities are recorded
based on the differences between the financial statement and tax bases of assets
and liabilities and the tax rates in effect when these differences are expected
to reverse. Upon adoption of SFAS No. 109, there was no cumulative effect of the
change in accounting principle.
F-17
<PAGE> 72
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal ............................. $ (559) $ 3,634 $ 4,834
State ............................... (73) 829 909
Foreign ............................. 208 3,408 2,057
Deferred .............................. (4,768) (3,729) (1,738)
------- ------- -------
(Benefit) provision for income taxes .. $(5,192) $ 4,142 $ 6,062
======= ======= =======
</TABLE>
For the year ended June 30, 1999, 1998 and 1997, income tax benefits of
$52,000, $3,498,000 and $1,199,000, respectively, were allocated to additional
paid-in capital for tax benefits associated with the exercise of nonqualified
stock options and the disqualifying disposition of incentive stock options and
shares purchased under the employee stock purchase plan.
The components of deferred taxes are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 1998
------ ------
<S> <C> <C>
Deferred tax liabilities:
Other ........................................... $ -- $ 16
------ ------
Total ................................... -- 16
------ ------
Deferred tax assets:
Purchased software .............................. 6,209 3,326
Restructuring charge ............................ 1,506 --
Intangibles amortization ........................ 932 619
Bad debt reserve ................................ 363 200
Deferred revenue ................................ 338 --
Vacation accrual ................................ 317 289
Software development costs capitalized for tax .. -- 106
Other ........................................... 294 222
------ ------
Total ................................... 9,959 4,762
------ ------
Net deferred tax asset ............................ $9,959 $4,746
====== ======
</TABLE>
A reconciliation of the U.S. federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate ................................ (34%) 35% (35)%
Write-off of in-process R&D ........................... -- -- 89
Write-off of foreign intangibles capitalized for tax .. -- (12) --
Effect of permanent differences ....................... -- 1 2
State taxes, net of federal benefit ................... (6) 4 6
Foreign taxes ......................................... 2 3 2
Tax credits ........................................... -- (2) (3)
Foreign losses not benefited .......................... -- 5 --
Other ................................................. -- -- 4
---- ---- ----
(38%) 34% 65%
==== ==== ====
</TABLE>
The Company utilized its entire net operating loss carryforward during the
year ended June 30, 1996.
F-18
<PAGE> 73
5. STOCK PLANS
1997 EQUITY INCENTIVE PLAN
The 1997 Equity Incentive Plan ("1997 Plan"), which replaced the 1994 Equity
Incentive Plan ("1994 Plan"), was adopted by the Company's Board of Directors
(the "Board") in September 1997, and was approved by the Company's stockholders
and became effective in November 1997. The 1997 Plan was amended and restated by
the Board in January 1998 and will terminate 10 years after the effective date.
The 1997 Plan authorizes awards of incentive stock options to employees and
non-qualified stock options, restricted stock and other common stock-based
awards to officers, directors, employees, consultants and independent
contractors or advisers of the Company and its subsidiaries. Under the terms of
the 1997 Plan, the option price may not be less than 100% (subject to certain
restrictions) of the fair market value of the Company's stock on the date of
grant for incentive stock options and non-qualified stock options, respectively.
A total of 1,700,000 shares, plus certain shares of the Company's common stock
that (i) were available for future awards under the 1994 Plan on the effective
date of the 1997 Plan and (ii) are subject to awards under the 1994 Plan but are
forfeited, terminate, expire or lapse for any reason, are reserved for issuance
under the 1997 Plan. Substantially all of the options currently issued under the
1997 Plan vest over the following schedule: (a) 25% of the total number of
shares subject to an option become exercisable on the first anniversary of the
date of grant and thereafter (b) 6.25% of the total number of shares subject to
an option become exercisable at the end of each three-month period until all
shares subject to an option are exercisable on the fourth anniversary of the
date of grant.
The 1997 Plan is administered by a committee appointed by the Board
consisting of at least two non-employee directors, who have the exclusive
authority to administer and interpret the 1997 Plan. The committee has the power
to, among other things, designate participants, determine types of awards to be
granted and the price, timing, terms and duration of awards.
1994 EQUITY INCENTIVE PLAN
The 1994 Plan was adopted by the Board in August 1994, approved by the
stockholders in November 1994, and became effective March 1, 1995. The 1994 Plan
will terminate 10 years after the effective date. The 1994 Plan authorizes
awards of incentive stock options to employees and non-qualified stock options,
stock appreciation rights, performance units, restricted stock and other common
stock-based awards to officers, directors, employees, and consultants of the
Company and its subsidiaries. A total of 1,400,000 shares of common stock was
reserved for issuance under the 1994 Plan. The options currently issued under
the 1994 Plan vest as to 25% of the shares subject thereto on the first
anniversary of the date of grant and vest at the rate of 6.25% of such shares
per quarter of continuous service thereafter.
The 1994 Plan is administered by a committee appointed by the Board
consisting of at least two non-employee directors, who have the exclusive
authority to administer and interpret the 1994 Plan. The committee has the power
to, among other things, designate participants, determine types of awards to be
granted and the price, timing, terms and duration of awards. Effective November
14, 1997, no further share grants may be made pursuant to this Plan.
EMPLOYEE STOCK OPTION PLAN
The Company has an approved stock option plan ("1986 Plan") for employees
and consultants covering 2,000,000 shares of Company common stock. Options
granted under the 1986 Plan may be either incentive stock options or
non-qualified stock options, at the discretion of the Board of Directors and as
reflected in the terms of the written option agreement. Options vest 20% per
year over five years and must be exercised within five to six years of the date
of grant. Effective March 8, 1995, no further share grants may be made pursuant
to this Plan.
F-19
<PAGE> 74
OUTSIDE DIRECTOR STOCK OPTION PLAN
The Company's Outside Director Stock Option Plan ("Director Plan") was
approved by the stockholders and became effective on November 15, 1995. The
Director Plan authorizes non-discretionary grants of non-qualified stock options
to non-employee directors of the Company. A total of 400,000 shares of common
stock is reserved for issuance under the Director Plan. Each person who is
elected for the first time as an Outside Director shall be, upon the date of his
first election, automatically granted an option to purchase 20,000 shares at the
fair market value of the shares on the grant date. Each Outside Director shall
receive an option to purchase 10,000 shares at the fair market value established
on the grant date upon re-election to the Board of Directors. The shares begin
vesting one year after the date of grant in three equal annual installments and
expire five years after the date of grant. The Plan will terminate on the tenth
anniversary of the date it became effective. The Directors Plan is administered
by a committee appointed by the Board.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan ("Purchase Plan") became
effective at the time of the Company's initial public offering. The Company
originally reserved 800,000 shares of common stock for issuance under the
Purchase Plan, and an additional 400,000 were approved by shareholders in
November 1998 for a total reserve of 1,200,000 shares. Eligible employees are
allowed to purchase shares of common stock, at semi-annual intervals, through
periodic payroll deductions. On May 1, 1997, the Purchase Plan was expanded to
include the international employees of the Company and its subsidiaries. The
purchase price per share is eighty-five percent (85%) of the lower of (i) the
fair market value of the common stock on the participant's entry date into the
offering period or (ii) the fair market value on the semi-annual purchase date.
The purchase price, amount of shares purchased, and value of stock purchased are
all subject to certain limitations on an individual and aggregate basis, as
defined in the Purchase Plan. The Purchase Plan will terminate on the earlier of
(i) the date on which all shares available for issuance under the Plan have been
issued or (ii) December 31, 2003, unless earlier terminated by the Committee
designated by the Board in accordance with the provisions of the Plan.
As of June 30, 1999, 424,602 shares remained available for purchase through
the Purchase Plan and there were 568 employees eligible to participate, of which
326 participated. Employees purchased 170,801 shares during the year at prices
ranging from $3.67 to $5.21. Total cash received by the Company was
approximately $780,000. The Purchase Plan is non-compensatory, therefore, no
charges to income were recorded.
401(K) PLAN
The Company has a contributory retirement plan (the "401(k) Plan") covering
eligible United States employees with at least 30 days of service and who are a
minimum of 21 years old. The 401(k) Plan is a calendar year plan. The 401(k)
Plan is designed to provide tax-deferred income to the Company's employees in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 15% of
his or her respective salary, not to exceed the statutory limit. Under the terms
of the 401(k) Plan, the Company may also make discretionary profit sharing
contributions. Profit sharing contributions, if any, are allocated among all
active participants based upon the employee's contributions for the plan year as
a percentage of total employee contributions for the plan year. The Company
elected to make discretionary profit sharing contributions of $80,000, $180,000
and $120,000 in the 1998, 1997 and 1996 plan years, respectively, to all
participants who were employed by the Company on the effective date. The Company
makes a 50% matching contribution of employee contributions of up to a maximum
of $3,000 per participant. The Company had made contributions of approximately
$544,000, $271,000 and $98,000 for the 1998, 1997 and 1996 plan years.
F-20
<PAGE> 75
The following summarizes the activity under the Company's stock option
plans:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
1999 1998 1997
----------------------- ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding,
beginning of
year............... 2,026,339 $ 20.03 1,410,272 $ 14.40 1,144,316 $ 4.59
Granted.............. 1,715,113 6.24 1,139,218 31.36 611,150 29.18
Canceled/expired..... (1,174,836) 18.76 (345,029) 42.05 (65,728) 28.51
Exercised............ (118,403) 2.76 (178,122) 5.08 (279,466) 3.28
----------- ----------- -----------
Options
outstanding, end
of year............ 2,448,213 11.82 2,026,339 20.03 1,410,272 14.40
=========== =========== ===========
Options
exercisable, end
of year............ 589,037 15.18 563,714 10.55 310,126 3.54
=========== =========== ===========
Options available
for grant.......... 891,934 568,100 514,284
=========== =========== ===========
Weighted average
fair value of
options
granted............ $ 6.24 $ 31.36 $ 29.18
========= ========= =========
</TABLE>
In December 1998, the Board of Directors authorized the Option Replacement
Program. The Company offered all employees with outstanding options under the
1994 Plan with an exercise price of $10.00 or more and with outstanding options
under the 1997 Plan with an exercise price of greater than $10.00 but less than
$30.00 the opportunity to replace these options for new options on a two for
three basis. Each new option was granted under the 1997 Plan at the market price
on the effective date of the exchange and vests over the following schedule: (a)
33% of the total number of shares subject to an option become exercisable on the
first anniversary date of the grant and thereafter (b) 8.3375% of the total
number of shares subject to an option become exercisable at the end of each
three month period until all shares subject to an option are exercisable on the
third anniversary of the date of the grant. Certain employees who held options
in the 1997 Plan with an exercise price over $30.00 were granted a new option
for two-thirds of the number of shares under the specific option grant at the
market price on the date of the option. As a result of the Option Replacement
Program, 522,401 options were cancelled and 360,678 options were granted.
In May 1998, the Board of Directors authorized the Company to offer all
employees with outstanding options at an exercise price of $49.00 per share the
opportunity to exchange these options for new options on a three for two basis.
Each new option was issued under the 1997 Plan at the market price on the
effective date of exchange. As a result, options covering 190,450 shares were
canceled and 126,968 options were granted on May 5, 1998.
F-21
<PAGE> 76
OPTIONS OUTSTANDING AND EXERCISABLE BY PRICE RANGE
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.53 - $4.00 826,730 6.38 $ 3.59 314,031 $ 3.15
$4.81 - $7.75 855,748 8.83 $ 6.79 24,814 $ 6.32
$8.88 - $45.25 765,735 7.68 $ 26.32 250,192 $ 31.15
--------- ---- --------- ------- ---------
$0.53 - $45.25 2,448,213 7.64 $ 11.82 589,037 $ 15.18
========= ==== ========= ======= =========
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost related to stock options issued to employees under these plans using the
method of accounting prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees." Entities electing to
continue accounting for stock-based compensation under APB No. 25 must make pro
forma disclosures of net income (loss) and earnings (loss) per share, as if the
fair value based method of accounting defined in SFAS No. 123 has been applied.
The Company has elected to account for its stock-based compensation plans
under APB No. 25; therefore, no compensation cost is recognized in the
accompanying financial statement for stock-based employee awards. However, the
Company has computed for pro forma disclosure purposes the value of all options
and Purchase Plan shares granted during 1999 and 1998, using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
PURCHASE PURCHASE PURCHASE
OPTIONS PLAN OPTIONS PLAN OPTIONS PLAN
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Risk free interest rate......... 4.87% 4.79% 5.49% 5.37% 6.02% 5.47%
Expected dividend yield......... -- -- -- -- -- --
Expected lives.................. 2.48 years .5 years 4.11 years .5 years 4.06 years .5 years
Expected volatility............. 84.22% 83.65% 78.53% 79.53% 80.00% 76.80%
</TABLE>
The total value and compensation expense which would have been recorded of
options and Purchase Plan shares granted was computed to be the following
approximate amounts, which would be amortized on the straight-line basis over
the vesting period (in thousands):
<TABLE>
<CAPTION>
FAIR VALUE COMPENSATION EXPENSE
--------------------------- ---------------------------
OPTION PLANS PURCHASE PLAN OPTION PLANS PURCHASE PLAN
------------ ------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 30, 1999 .. $ 4,965 $ 170 $ 4,678 $ 276
Year ended June 30, 1998 .. 17,570 789 4,750 750
Year ended June 30, 1997 .. 8,823 870 2,745 664
</TABLE>
F-22
<PAGE> 77
If the Company had accounted for its stock-based compensation plans using a
fair value based method of accounting, the Company's net income (loss) and basic
and diluted earnings (loss) per common and common share equivalent would have
been as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1999 1998 1997
-------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss):
As reported ........................................... $ (8,490) $ 7,935 $(15,436)
Pro forma ............................................. (11,710) 4,321 (17,669)
Earnings (loss) per common and common share equivalent:
As reported - basic ................................... (.46) .42 (.90)
As reported - diluted ................................. (.46) .40 (.90)
Pro forma - basic ..................................... (.64) .23 (.90)
Pro forma - diluted ................................... (.64) .21 (1.02)
</TABLE>
The effects of applying SFAS No. 123 for providing pro forma disclosures for
1999, 1998 and 1997 are not likely to be representative of the effects on
reported net income (loss) and earnings (loss) per common and common share
equivalent for future years, because options vest over several years and
additional awards generally are made each year.
6. CAPITAL STOCK
In April 1998, the Board of Directors authorized the repurchase of the
Company's common stock up to 1,000,000 shares. The Board authorized the
repurchase of an additional 500,000 and 1,000,000 shares in August 1998 and
January 1999, respectively. As of June 30, 1999, the Company had repurchased
1,839,500 shares for approximately $15,869,000. The Company has used and will
continue to use treasury stock for option exercises and stock purchases under
the ESPP.
In April 1998, the Board of Directors adopted a Shareholder Rights Plan (the
"Rights Plan") and declared a non-taxable dividend of one Right on each
outstanding share of the Company's common stock to stockholders of record on May
8, 1998. The Rights Plan is designed to enable all stockholders to receive fair
and equal treatment in any proposed takeover of the Company. Each Right
initially will entitle the holder to purchase one one-thousandth of a share of a
new series of junior participating preferred stock of the Company at an exercise
price of $180.00. The Rights will become exercisable if a person or group
acquires 15% or more of the Company's outstanding common stock or commences or
announces a tender offer or exchange offer for 15% or more of the common stock,
unless in the case of a tender or exchange offer the Board of Directors delays
exercisability. If a person or group acquires 15% or more of the outstanding
common stock, all holders of Rights other than the acquirer will be entitled to
purchase, at the then-current exercise price of the Rights, a number of Viasoft
common shares having a market value of twice the exercise price. In addition,
after such a 15% stock acquisition, if the Company is acquired in a merger or
other business combination transaction, or sells 50% or more of its assets or
earning power, each Right will entitle its holder (other than the acquirer) to
purchase, at the then-current exercise price of the Rights, a number of the
acquiring company's common shares having a market value of twice the exercise
price. Until the Rights become exercisable, the Rights will trade as a unit with
the common stock. At any time before a person or group has acquired beneficial
ownership of 15% or more of the Company's outstanding common stock, the Rights
are redeemable for one cent per Right at the option of the Board of Directors.
The terms of the Rights may be amended at any time by the Board of Directors
without the consent of the holders, with certain exceptions.
On July 14, 1999, the Board of Directors approved an amendment to the Rights
Plan which allows for the Merger to proceed without triggering the rights under
the Rights Plan.
The Rights will expire on April 20, 2008, unless otherwise extended or
terminated by the Board of Directors.
F-23
<PAGE> 78
On September 22, 1997, the Company received net proceeds in an amount of
$75,361,000 from an offering of 1,465,000 shares of its common stock.
At the shareholder meeting in November 1997, the shareholders authorized an
additional 24,000,000 shares of common stock. Total shares authorized at June
30, 1999 are 48,000,000.
During the year ended June 30, 1994, the Company entered into stock purchase
agreements with three officers and a director to sell an aggregate of 283,334
shares of common stock at the fair market value on the date of the agreements
($.38 to $.75 per share) in exchange for full recourse promissory notes
aggregating $153,750. In addition, options for the purchase of 181,920 shares
were exercised by an officer/director in exchange for a full recourse promissory
note in the amount of $27,015. All of these notes were paid in full as of June
30, 1999.
7. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share ("EPS") data were computed as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
BASIC EPS:
Numerator: Net Income (loss) $ (8,490) $ 7,935 $(15,436)
Denominator:
Weighted average common shares outstanding 18,308 18,999 17,212
-------- -------- --------
Basic EPS $ (.46) $ .42 $ (.90)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
DILUTED EPS:
Numerator: Net Income (loss) $ (8,490) $ 7,935 $(15,436)
Denominator:
Weighted average common shares outstanding 18,308 18,999 17,212
Dilutive effect of stock options -- 800 --
-------- -------- --------
Total shares 18,308 19,799 17,212
-------- -------- --------
Diluted EPS $ (.46) $ .40 $ (.90)
======== ======== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into various license agreements with several
software companies for the rights to distribute additional software tools. The
Company will pay royalties to the software vendors based upon sales activity as
set out in each of the agreements. (See Note 2 to the Consolidated Financial
Statements.) In some cases, the Company prepaid certain of the royalties and is
amortizing the balance of the prepaid based on sales activity as set out in the
agreements. Total royalties accrued and due to third parties at June 30, 1999
and 1998 were $1,636,000 and $3,117,000, respectively.
The Company leases its corporate office facilities in two locations in
Phoenix, Arizona. On August 15, 1994, the Company extended the office lease at
one of its facilities, which will expire on December 31, 1999. On December 19,
1996, the Company entered into a lease at another location in Phoenix, Arizona,
which will expire on May 31, 2001. Rental expense relating to these leases
amounted to approximately $1,151,000, $1,288,000 and $786,000 in the years ended
June 30, 1999, 1998 and 1997, respectively.
The Company has entered into several office leases for sales offices in
various cities and countries. These leases expire at various dates through 2011.
Rental expense relating to these leases amounted to approximately $1,349,000,
$1,389,000 and $684,000, in the years ended June 30, 1999, 1998 and 1997,
respectively.
F-24
<PAGE> 79
The Company is party to a data processing agreement under which it utilizes
certain computer equipment and software of an independent third party. The
24-month agreement expires in January 2001. Expenses under this agreement were
approximately $677,000, $876,000 and $860,000 in the years ended June 30, 1999,
1998 and 1997, respectively. The base monthly charge for usage is approximately
$63,000, subject to adjustment for excess usage as defined in the agreement.
The Company was party to a facilities management agreement under which it
leases certain office equipment and utilized personnel of an independent third
party to manage its corporate office and produce the Company's product
documentation. The agreement was terminated in October 1998. Payments under this
agreement were approximately $198,000, $628,000 and $362,000 in the years ended
June 30, 1999, 1998 and 1997, respectively. The base monthly charge was
approximately $49,000 subject to an adjustment for usage as defined in the
agreement. In October 1998, the agreement was amended to continue only the
leases on certain office equipment. The base monthly charge for this equipment
is $5,900. The agreement will expire in December 1999.
The future minimum rental payments under all noncancellable operating leases
for each of the years ending June 30 are as follows (in thousands):
<TABLE>
<S> <C>
Year ending June 30:
2000..................... $ 3,774
2001..................... 1,902
2002..................... 1,273
2003..................... 467
2004..................... 245
Thereafter............... 621
--------
$ 8,282
========
</TABLE>
Viasoft is subject to certain legal proceedings and claims that arise in the
conduct of its business. In the opinion of management, the amount of liability,
if any, as a result of these claims and proceedings is not likely to have a
material effect on the financial condition or results of operations of the
Company.
9. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
Viasoft operates primarily in three business segments in the software
industry: domestic products, domestic professional services and international
products and professional services. For purposes of these segments, all of the
Americas operations are reported as part of the domestic segment. The Company
evaluates each business segment based upon operating profit. Each business
segment's operating profits do not include an allocation of the cost of license
and maintenance, research and development costs, corporate overhead costs,
write-offs of purchase in-process research and development charges,
restructuring charges and other income. The Company does not evaluate assets and
capital expenditures on a segment basis.
F-25
<PAGE> 80
Segment information for the three years ended June 30, 1999, 1998 and 1997, is
as follows (in thousands):
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
REVENUES:
Domestic products ............................................. $ 48,076 $ 65,695 $ 39,778
Domestic professional services ................................ 20,562 13,918 18,387
International products and professional services .............. 35,634 34,074 27,147
-------- -------- --------
Total revenues .............................................. 104,272 113,687 85,312
Operating expenses:
Domestic products ............................................. 17,276 20,439 18,951
Domestic professional services ................................ 18,199 14,245 15,657
International products and professional services .............. 21,181 18,911 10,642
Cost of license and maintenance ............................... 15,571 12,339 4,339
Research and development ...................................... 13,968 16,393 7,892
Corporate overhead ............................................ 18,074 15,319 10,965
-------- -------- --------
Total operating expenses ...................................... 104,269 97,646 68,446
INCOME FROM OPERATIONS, BEFORE WRITE-OFF OF PURCHASED
IN-PROCESS RESEARCH AND DEVELOPMENT, RESTRUCTURING
CHARGES, OR OTHER INCOME
Domestic products ............................................. 30,800 45,256 20,827
Domestic professional services ................................ 2,363 (327) 2,730
International products and professional services .............. 14,453 15,163 16,505
Cost of license and maintenance ............................... (15,571) (12,339) (4,339)
Research and development ...................................... (13,968) (16,393) (7,892)
Corporate overhead ............................................ (18,074) (15,319) (10,965)
-------- -------- --------
INCOME FROM OPERATIONS, BEFORE WRITE-OFF OF
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT,
RESTRUCTURING CHARGES, OR OTHER INCOME ...................... 3 16,041 16,866
Write-off of purchased in-process research and development .... (5,013) (8,559) (26,958)
Restructuring charges ......................................... (12,291) -- --
Other income .................................................. 3,619 4,595 718
-------- -------- --------
Income (loss) before income taxes ............................. $(13,682) $ 12,077 $ (9,374)
======== ======== ========
</TABLE>
The Company operates in one industry segment which includes the development,
marketing and support of business solutions that enable large organizations
worldwide to understand, manage, evolve, reuse, transition and modernize
mission-critical applications that support their fundamental business processes.
These business solutions are provided through integrated software products and
specialized professional consulting services.
Sales and marketing activities related to software license fees, maintenance
fees and professional services fees are conducted in North America and certain
foreign locations, principally the United Kingdom, Europe and Australia. Revenue
and income (loss) before provision for income taxes for each of the years in the
three-year period ended June 30, 1999, and identifiable assets at June 30, 1999,
1998 and 1997, are as follows (in thousands):
F-26
<PAGE> 81
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenue(1):
North America-domestic ..................... $ 67,338 $ 77,178 $ 57,728
International-principally distributors:
Europe .................................. 3,763 3,551 2,581
All others .............................. 2,214 4,269 1,520
Foreign subsidiaries and branches .......... 30,957 28,689 23,483
--------- --------- ---------
Total revenue ...................... $ 104,272 $ 113,687 $ 85,312
========= ========= =========
Income (Loss) Before Income Taxes(1):
North America .............................. $ (20,104) $ 5,923 $ (17,860)
Foreign subsidiaries and branches .......... 6,422 6,154 8,486
--------- --------- ---------
Income (loss) before income taxes .. $ (13,682) $ 12,077 $ (9,374)
========= ========= =========
Identifiable Assets(1):
North America .............................. $ 109,234 $ 137,727 $ 50,527
Foreign subsidiaries and branches .......... 24,935 24,650 14,074
--------- --------- ---------
Total assets ....................... $ 134,169 $ 162,377 $ 64,601
========= ========= =========
</TABLE>
(1) Includes Viasoft, Inc., Viasoft Pty., Viasoft UK, Viasoft Germany, Viasoft
Netherlands and Viasoft de Mexico, S.A. de C.V. for all periods; Viasoft
Benelux since its formation on July 1, 1996: the operations of R&O since its
acquisition on December 5, 1996: Viasoft France, since its formation on
September 1, 1997: and Viasoft Canada Company since January 1998.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Fiscal 1999:
Revenue .................................. $ 25,323 $ 29,687 $ 25,808 $ 23,454
Income (loss) from operations ............ (12,442) 1,490 315 $ (6,664)
Net income (loss) ........................ (7,067) 1,447 487 $ (3,357)
Basic earnings (loss) per common share ... $ (.37) $ .08 $ .03 $ (.19)
Diluted earnings (loss) per common and
common share equivalent ............... $ (.37) $ .08 $ .03 $ (.19)
Fiscal 1998:
Revenue .................................. $ 26,062 $ 28,174 $ 26,805 $ 32,646
Income (loss) from operations ............ 5,343 6,086 (7,628) 3,681
Net income (loss) ........................ 3,765 5,035 (4,136) 3,271
Basic earnings (loss) per common share ... $ .21 $ .26 $ (.21) $ .17
Diluted earnings (loss) per common and
common share equivalent ............... $ .20 $ .25 $ (.21) $ .16
Fiscal 1997:
Revenue .................................. $ 13,976 $ 19,783 $ 23,901 $ 27,652
Income (loss) from operations ............ 2,021 (23,059) 4,973 5,973
Net income (loss) ........................ 1,556 (24,184) 3,148 4,044
Basic earnings (loss) per common share ... $ .09 $ (1.42) $ .18 $ .23
Diluted earnings (loss) per common and
common share equivalent ............... $ .09 $ (1.42) $ .17 $ .22
</TABLE>
F-27
<PAGE> 82
11. RESTRUCTURING
In the first quarter of fiscal 1999, the Company established and began the
implementation of a cost reduction and restructuring plan for the purpose of
aligning expenses with a decrease in forecasted revenues, as the year 2000
market declined, and to allow the business to invest in other products and
service solutions. In April 1999, the Company announced a reorganization of its
operations to transition the business to a solutions-driven model focused on
e-business enablement and accordingly developed plans to grow its services
business.
As part of the reorganization, the Company increased its investment in its
professional services organization by creating a dedicated sales force and
regionalizing delivery. The domestic sales organization was reorganized to
better support sales of e-business solutions and enhance support of existing
customers. The development organization was realigned to focus on two areas:
developing technology to support e-business enablement services and enhancing
the value of Viasoft core products for existing customers.
In the first quarter of fiscal 1999, the Company took a $4.8 million pre-tax
restructuring charge. This restructuring charge covered $3.1 million for
severance and related costs for a reduction in workforce of approximately 10% of
the Company's 550 employees worldwide; $800,000 for office consolidation costs
including leasehold termination payments and other facility exit costs for
certain offices worldwide which were unrelated to the Company's core business;
and $900,000 for the write down of intangible assets had become impaired as
determined by a net realizable value test based on future forecasted revenues.
See Note 2 to Consolidated Financial Statements.
The Company took a pre-tax charge of approximately $7.5 million in the
fourth quarter of fiscal 1999 in connection with its April reorganization and
transition to the new business model. This charge related to severance for a
reduction in workforce of approximately 20% of its 500 employees worldwide of
$2.8 million, a writedown, in accordance with SFAS No. 121, of certain
long-lived assets based on the net present value of future cash flows of $4.3
million; a writedown of certain capitalized software which was determined to be
impaired through a net realizable value test based on future forecasted revenues
of $300,000; and additional facility exit costs of $100,000. See Note 2 to
Consolidated Financial Statements.
As of June 30, 1999, approximately 153 employees were separated from the
Company and $3.5 million in severance and related costs had been paid out or
incurred. Approximately $47,000 had been used for office consolidation costs as
of June 30, 1999.
F-28
<PAGE> 83
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------
CHARGED
TO COSTS ACQUIRED CHARGED BALANCE
BEGINNING AND FROM TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES R&O ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------- --------- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year Ended June 30, 1999 $ 815 $ 1,265 $ -- $ 171 $ 1,422 (1) $ 829
Year Ended June 30, 1998 678 280 -- -- 143 (1) 815
Year Ended June 30, 1997 279 525 128 174 428 (1) 678
Restructuring reserves
Year Ended June 30, 1999 $ -- $ 6,777 $ -- $ -- $ 3,499 (2) $ 3,278
</TABLE>
(1) Write-off of uncollectable amounts.
(2) Use of restructuring reserves.
F-29
<PAGE> 84
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2.1 Stock Purchase Agreement among Viasoft, Inc.,
LfA-Gesellschaft fur Vermogensverwaltung GmbH
(LfA-GV), Werner Dreesbach, Elga Dreesbach, Christoph
Rottger, and Valerie Rottger, dated November 11, 1996
(incorporated herein by reference to Exhibit 2.1 to
the Company's Form 8-K dated December 20, 1996)
2.2 (5) Stock Purchase Agreement dated as of the 12th day of
January, 1998, between Viasoft, Inc., Michael Howatt
Mabey, Nashirali Samanani, and certain other sellers
(incorporated herein by reference to Exhibit 2.1 to
the Company's Form 10-Q for the quarter ended
December 31, 1997)
3.1 Restated Certificate of Incorporation (incorporated
herein by reference to Exhibit 10.20 to the Company's
Form 10-K for fiscal year 1995)
3.2 Amended and Restated Bylaws of the Company
(incorporated herein by reference to Exhibit 3(e) to
the Company's Registration Statement on Form S-1
(Registration No. 33-88366))
3.3 Certificate of Amendment to the Restated Certificate
of Incorporation, filed November 17, 1997
(incorporated herein by reference to Exhibit 3.1(a)
to the Company's Form 10-Q for the quarter ended
December 31, 1997)
3.4 Restated Certificate of Incorporation, as amended
through November 17, 1997 (incorporated herein by
reference to Exhibit 3.1(b) to the Company's Form
10-Q for the quarter ended December 31, 1997)
4.1 Form of Certificate for Common Stock (incorporated
herein by reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-1 (Registration No.
33-88366))
4.2 Form of Warrant to Purchase Common Stock
(incorporated herein by reference to Exhibit 4(b) to
the Company's Registration Statement on Form S-1
(Registration
<PAGE> 85
No. 33-88366))
4.3 Rights Agreement, dated as of April 20, 1998, between
the Company and Harris Trust and Savings Bank
(incorporated herein by reference to Exhibit 1 to the
Company's Form 8-A dated April 22, 1998)
4.4 Certificate of Designation of Series A Junior
Participating Preferred Stock (incorporated herein by
reference to the Company's Form 10-K for fiscal year
1998)
4.5 Agreement and Plan of Merger dated July 14, 1999,
among Compuware Company, CV Acquisition, Inc., a
wholly owned subsidiary of Compuware and the Company
(incorporated herein by reference to Exhibit 4 to the
Company's Form 14D-9 filed on July 22, 1999)
4.6 Rights Plan Amendment (incorporated herein by
reference to Exhibit 9 to Schedule 14D-9, dated July
22, 1999)
10.1 Office Lease dated June 5, 1992 between the Company
and the Mutual Life Insurance Company of New York, as
amended (incorporated herein by reference to Exhibit
10(e) to the Company's Registration Statement on Form
S-1 (Registration No. 33-88366))
10.2 (2) Form of Indemnification Agreement between the Company
and each of its directors (incorporated herein by
reference to Exhibit 10(f) to the Company's
Registration Statement on Form S-1 (Registration No.
33- 88366))
10.3 (2) Viasoft, Inc. 1986 Stock Option Plan (incorporated
herein by reference to Exhibit 10(g) to the Company's
Registration Statement on Form S-1 (Registration No.
33-88366))
10.4 (2) 1994 Equity Incentive Plan (incorporated herein by
reference to Exhibit 10(l) to the Company's
Registration Statement on Form S-1 (Registration No.
33-88366))
10.5 (2) Employee Stock Purchase Plan, as amended
(incorporated herein by reference to Exhibit 10(m) to
Amendment No. 2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-88366))
10.6 (2) Employment Agreement dated July 28, 1994 between the
Company and Colin J. Reardon (incorporated herein by
reference to Exhibit 10(o) to the Company's
Registration Statement on Form, S-1 (Registration No.
33-88366))
10.7 (2)(3) Viasoft FY97 Executive Bonus Plan (incorporated
herein by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended September 30, 1996)
10.8 (2)(3) FY 97 Incentive Plan for Senior Vice President,
Americas (incorporated herein by reference to Exhibit
10.2 to the Company's Form 10-Q for the quarter ended
September 30, 1996)
10.9 (2)(3) FY 97 Incentive Plan for Vice President,
International Operations (incorporated herein by
reference to Exhibit 10.3 to the Company's Form 10-Q
for the quarter ended September 30, 1996)
10.10 (2)(3) Consulting and Employment Agreement between the
Company and Mark R. Schonau (incorporated herein by
reference to Exhibit 10.4 to the Company's Form 10-Q
for the quarter ended September 30, 1996)
10.11 Outside Director Stock Option Plan (incorporated
herein by reference to Exhibit A of the Company's
Definitive Schedule 14A Proxy Statement for the 1995
Annual Meeting of Stockholders)
10.12 (2) Employee Stock Purchase Plan (as amended and restated
as of April 24, 1997) (incorporated herein by
reference to the Company's Form 10-K for fiscal year
1997)
10.13 Assignment, Assumption and Novation Agreement dated
September 12, 1997 and Assignment, Assumption and
Novation Agreement dated December 19, 1996, relating
to Londen Center Lease Agreement (incorporated herein
by reference to the Company's Form 10-K for fiscal
year 1997)
10.14 (2)(4) Viasoft FY98 Executive Bonus Plan (incorporated
herein by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended September 30, 1997)
10.15 (2)(4) FY98 Incentive Plan for Executive Vice President
(incorporated herein by reference to Exhibit 10.2 to
the Company's Form 10-Q for the quarter ended
September 30, 1997)
10.16 (2)(4) FY98 Incentive Plan for Senior Vice President,
International Operations
<PAGE> 86
(incorporated herein by reference to Exhibit 10.3 to
the Company's Form 10-Q for the quarter ended
September 30, 1997)
10.17 (2) Consulting Agreement between the Company and Michael
A. Wolf dated August 1, 1997 (incorporated herein by
reference to Exhibit 10.4 to the Company's Form 10-Q
for the quarter ended September 30, 1997)
10.18 (2) Viasoft, Inc. Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10.5 to
the Company's Form 10-Q for the quarter ended
September 30, 1997)
10.19 (2) Amendment No. 1 to the Viasoft, Inc. Deferred
Compensation Plan, dated as of June 30, 1998
(incorporated herein by reference to the Company's
Form 10-K for fiscal year 1998)
10.20 (2) Viasoft, Inc. 1997 Equity Incentive Plan
(incorporated herein by reference to Appendix B of
the Company's Definitive Schedule 14A Proxy Statement
for the 1997 Annual Meeting of Stockholders)
10.21 (2) Viasoft, Inc. 1997 Equity Incentive Plan, amended and
restated as of January 21, 1998 (incorporated herein
by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No.
333-47571))
10.22 (1)(2) Viasoft, Inc. Deferred Compensation Plan, as Amended
and Restated, dated as of July 1, 1999
11 (1) Computation of Earnings per Share
21 (1) Subsidiaries of the Company
23 (1) Consent of Arthur Andersen LLP
24 (1) Powers of Attorney
27 (1) Financial Data Schedules
(1) Filed herewith.
(2) Management contract or compensation plan or arrangement.
(3) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated January 6, 1997.
(4) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by the Commission dated November 25,
1997.
(5) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated February 27, 1998.
<PAGE> 1
Exhibit 10.22
VIASOFT, INC.
DEFERRED COMPENSATION PLAN
AS AMENDED AND RESTATED
JULY 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I TITLE AND DEFINITIONS.......................................................................1
1.1 Title...................................................................................1
1.2 Definitions.............................................................................1
ARTICLE II PARTICIPATION...............................................................................4
ARTICLE III DEFERRAL ELECTIONS..........................................................................5
3.1 Elections to Defer Compensation.........................................................5
3.2 Investment Elections....................................................................6
ARTICLE IV DEFERRAL ACCOUNTS AND TRUST FUNDING.........................................................6
4.1 Deferral Accounts.......................................................................6
4.2 Company Discretionary Contribution Account..............................................8
4.3 Trust Funding...........................................................................8
ARTICLE V VESTING.....................................................................................8
5.1 Deferral Account........................................................................8
5.2 Company Discretionary Contribution Account..............................................8
ARTICLE VI DISTRIBUTIONS...............................................................................9
6.1 Distribution of Deferred Compensation and Discretionary Company
Contributions.........................................................................9
6.2 Early Distributions....................................................................12
6.3 Inability to Locate Participant........................................................12
6.4 Payment of Policy Premiums.............................................................12
ARTICLE VII ADMINISTRATION.............................................................................13
7.1 Committee..............................................................................13
7.2 Committee Action.......................................................................13
7.3 Powers and Duties of the Committee.....................................................13
7.4 Construction and Interpretation........................................................14
7.5 Information............................................................................14
7.6 Compensation, Expenses and Indemnity...................................................14
7.7 Quarterly Statements...................................................................15
7.8 Disputes...............................................................................15
ARTICLE VIII MISCELLANEOUS..............................................................................15
8.1 Unsecured General Creditor.............................................................15
8.2 Restriction Against Assignment.........................................................15
8.3 Withholding............................................................................15
8.4 Amendment, Modification, Suspension or Termination.....................................15
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
8.5 Governing Law..........................................................................15
8.6 Receipt or Release.....................................................................15
8.7 Payments on Behalf of Persons Under Incapacity.........................................15
8.8 Limitation of Rights and Employment Relationship.......................................15
8.9 Headings...............................................................................15
</TABLE>
iii
<PAGE> 4
VIASOFT, INC.
DEFERRED COMPENSATION PLAN
WHEREAS, Viasoft, Inc. (the "Company") desires to establish
the Viasoft Deferred Compensation Plan to provide supplemental retirement income
benefits for a select group of management and highly compensated employees
through deferrals of salary and incentive compensation effective as of July 1,
1997; and
WHEREAS, the Company adopted Amendment No. 1 to the Plan
effective June 30, 1998 and now wishes to amend and restate the Plan effective
July 1, 1999;
NOW, THEREFORE, effective as of July 1, 1999, the Plan is
hereby amended and restated to read as follows:
ARTICLE I
TITLE AND DEFINITIONS
1.1 Title.
This Plan shall be known as the Viasoft, Inc. Deferred
Compensation Plan.
1.2 Definitions.
Whenever the following words and phrases are used in this
Plan, with the first letter capitalized, they shall have the meanings specified
below.
(a) "Account" or "Accounts" shall mean a Participant's
Deferral Account and/or Company Discretionary Contribution Account.
(b) "Base Salary" shall mean a Participant's annual base
salary, excluding bonus, incentive and all other remuneration for services
rendered to Company and prior to reduction for any salary contributions to a
plan established pursuant to Section 125 of the Code or qualified pursuant to
Section 401(k) of the Code.
(c) "Beneficiary" or "Beneficiaries" shall mean the
person or persons, including a trustee, personal representative or other
fiduciary, last designated in writing by a Participant in accordance with
procedures established by the Committee to receive the benefits specified
hereunder in the event of the Participant's death (other than the death benefits
described in Section 6.1(b)(1) unless such person is designated as a beneficiary
under the Policy described therein). No beneficiary designation shall become
effective until it is filed with the Committee. Any designation shall be
revocable at any time through a written instrument filed by the Participant with
the Committee with or without the consent of the previous Beneficiary. If there
is no Beneficiary designation in effect, then the person designated to receive
the death benefit specified in Section 6.1(b)(1) shall be the Beneficiary.
However, no designation of a Beneficiary other than the Participant's spouse
shall be valid unless consented to in writing by such spouse. If there is no
<PAGE> 5
such designation or if there is no surviving designated Beneficiary, then the
Participant's surviving spouse shall be the Beneficiary. If there is no
surviving spouse to receive any benefits payable in accordance with the
preceding sentence, the duly appointed and currently acting personal
representative of the Participant's estate (which shall include either the
Participant's probate estate or living trust) shall be the Beneficiary. In any
case where there is no such personal representative of the Participant's estate
duly appointed and acting in that capacity within 90 days after the
Participant's death (or such extended period as the Committee determines is
reasonably necessary to allow such personal representative to be appointed, but
not to exceed 180 days after the Participant's death), then Beneficiary shall
mean the person or persons who can verify by affidavit or court order to the
satisfaction of the Committee that they are legally entitled to receive the
benefits specified hereunder. In the event any amount is payable under the Plan
to a minor, payment shall not be made to the minor, but instead be paid (a) to
that person's living parent(s) to act as custodian, (b) if that person's parents
are then divorced, and one parent is the sole custodial parent, to such
custodial parent, or (c) if no parent of that person is then living, to a
custodian selected by the Committee to hold the funds for the minor under the
Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which
the minor resides. If no parent is living and the Committee decides not to
select another custodian to hold the funds for the minor, then payment shall be
made to the duly appointed and currently acting guardian of the estate for the
minor or, if no guardian of the estate for the minor is duly appointed and
currently acting within 60 days after the date the amount becomes payable,
payment shall be deposited with the court having jurisdiction over the estate of
the minor. Payment by Company pursuant to any unrevoked Beneficiary designation,
or to the Participant's estate if no such designation exists, of all benefits
owed hereunder shall terminate any and all liability of Company.
(d) "Board of Directors" or "Board" shall mean the Board
of Directors of Viasoft, Inc.
(e) "Change in Control" shall mean and include each of
the following:
(1) Any transaction or series of transactions,
whereby any person (as that term is used in Section 13 and 14(d)(2) of
the Securities and Exchange Act of 1934), excluding affiliates of the
Company as of the Effective Date, is or becomes the beneficial owner
(as that term is used in Section 13(d) of the Securities and Exchange
Act of 1934) directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities;
(2) Any merger, consolidation, or liquidation of the
Company in which the Company is not the continuing or surviving
corporation or pursuant to which common stock of company with par value
of $.001 would be converted into cash, securities, or other property,
other than a merger or consolidation with a wholly owned subsidiary, a
reincorporation of the Company in a different jurisdiction, or other
transaction in which there is no substantial change in the shareholders
of the Company.
(3) The sale, transfer, or other disposition of all
or substantially all of the assets of the Company.
2
<PAGE> 6
(f) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(g) "Committee" shall mean the Committee appointed by the
Board to administer the Plan in accordance with Article VII.
(h) "Commissions" shall mean a Participant's remuneration
earned from Company which is dependent on sales activity and is not related to
Base Salary or Performance Bonuses.
(i) "Company" shall mean Viasoft, Inc. and any successor
corporations. Company shall include each corporation which is a member of a
controlled group of corporations (within the meaning of Section 414(b) of the
Code) of which Viasoft, Inc. is a component member, if the Board provides that
such corporation shall participate in the Plan.
(j) "Company Discretionary Contribution Account" shall
mean the bookkeeping account maintained by Company for each Participant that is
credited with an amount equal to the Company Discretionary Contribution Amount,
if any, and earnings and losses pursuant to Section 4.2.
(k) "Company Discretionary Contribution Amount" shall
mean, for each Participant for a Plan Year, an additional discretionary amount
allocated to a Participant under this Plan as determined by the Committee. Such
amount may differ from Participant to Participant both in amount, including no
contribution, and as a percentage of Compensation.
(l) "Compensation" shall mean Base Salary, Commissions
and Performance Bonuses that the Participant is entitled to receive for services
rendered to the Company.
(m) "Deferral Account" shall mean the bookkeeping account
maintained by the Committee for each Participant that is credited with amounts
equal to (1) the portion of the Participant's Compensation that he or she elects
to defer, and (2) interest pursuant to Section 4.1.
(n) "Distributable Amount" shall mean the sum of (1) the
amounts credited to a Participant's Deferral Account and (2) the vested portion
of the amount credited to his or her Company Discretionary Contribution Account.
(o) "Early Distribution" shall mean an election by a
Participant in accordance with Section 6.2 to receive a withdrawal of amounts
from his or her Deferral Account and Company Discretionary Contribution Account
prior to the time in which such Participant would otherwise be entitled to such
amounts.
(p) "Effective Date" shall mean July 1, 1997.
(q) "Eligible Employee" shall mean such management and
highly compensated employees as are designated by the Committee for
participation in this Plan.
(r) "Fund" or "Funds" shall mean one or more of the
investment funds selected by the Committee pursuant to Section 3.2(b).
3
<PAGE> 7
(s) "Initial Election Period" for an Eligible Employee
shall mean the 30-day period following July 1, 1997 or the 30-day period
following the date on which he or she becomes an Eligible Employee.
(t) "Interest Rate" shall mean, for each Fund, an amount
equal to the net rate of gain or loss on the assets of such Fund during each
month.
(u) "Participant" shall mean any Eligible Employee who
becomes a Participant in accordance with Section 2.1.
(v) "Payment Date" shall mean the time as soon as
practicable after (1) the first day of the month following the end of the
calendar quarter in which the Participant's employment terminates for any
reason, or (2) the Scheduled Withdrawal Date..
(w) "Performance Bonuses" shall mean the quarterly
performance bonus and annual performance bonus earned during a Plan Year,
whether or not paid during such Plan Year as such performance bonuses may be
determined by the Company.
(x) "Plan" shall mean the Viasoft, Inc. Deferred
Compensation Plan set forth herein, now in effect, or as amended from time to
time.
(y) "Plan Year" shall mean the 12 consecutive month
period beginning on each July 1 and ending on June 30.
(z) "Policy" shall mean an insurance policy purchased in
accordance with the terms of this Plan.
(aa) "Retirement" or "Retires" shall mean the attainment
of age of 60 by a Participant and his or her termination of employment with
Company.
(bb) "Scheduled Withdrawal Date: shall be the
distribution date elected by the Participant for an inservice withdrawal of all
amounts of Compensation deferred in a given Plan Year, and earnings and losses
attributable thereto, as set forth on the election form for such Plan Year.
(cc) "Trust" shall mean Viasoft Deferred Compensation
Plan Trust.
ARTICLE II
PARTICIPATION
-------------
An Eligible Employee shall become a Participant in the Plan by
(1) electing to defer a portion of his or her Compensation in accordance with
Section 3.1, (2) filing a life insurance application form along with his or her
deferral election form, and (3) complying with such medical underwriting
requirements as determined by the life insurance carrier selected by the
Company. An Eligible Employee who completes the requirements of the preceding
sentence shall commence participation in this Plan as of the first day of the
month in which Compensation is
4
<PAGE> 8
deferred. A money market rate of interest will be applied to all Participant
deferrals and Company Contributions until a Participant receives notification
that the life insurance policies which have been applied for have been issued by
the life insurance carrier. In the event it is determined by the Committee, that
the proposed life insurance policy cannot be obtained in a cost efficient manner
after medical underwriting requirements have been met, the Participant shall not
be eligible to receive death benefits in accordance with Section 6.1(c) of the
Plan.
ARTICLE III
DEFERRAL ELECTIONS
3.1 Elections to Defer Compensation.
(a) Initial Election Period. Subject to the provisions of
Article II, each Eligible Employee may elect to defer Base Salary and/or
Performance Bonuses by filing with the Committee an election that conforms to
the requirements of this Section 3.1, on a form provided by the Committee, no
later than the last day of his, her or its Initial Election Period.
(b) General Rule. The amount of Compensation which an
Eligible Employee may elect to defer is such Compensation earned on or after the
time at which the Eligible Employee elects to defer in accordance with Sections
1.2(s) and 3.1(a) and shall be a flat dollar amount which shall not exceed 50%
of the Eligible Employee's Base Salary and/or 100% of his Performance Bonuses
and Commissions, provided that the total amount deferred by a Participant shall
be limited in any calendar year, if necessary, to satisfy Social Security tax
(including Medicare), income tax and employee benefit plan withholding
requirements as determined in the sole and absolute discretion of the Committee.
The minimum contribution which may be made in any Plan Year by an Eligible
Employee shall not be less than $5,000, provided such minimum contribution can
be satisfied from either Base Salary and/or Performance Bonus and Commission
deferrals.
(c) Duration of Compensation Deferral Election. An
Eligible Employee's initial election to defer Base Salary must be filed before
July 30. 1997 and is to be effective for the next pay period. A Participant may
increase, decrease or terminate a deferral election with respect to Base Salary
for any subsequent Plan Year by filing a new election on or before June 30,
which election shall be effective on the first day of the next following Plan
Year. An Eligible Employee's Initial Election to defer Performance Bonuses and
Commissions must be filed by July 30, 1997. Any subsequent election with respect
to Performance Bonuses and Commissions must be filed by June 30 of the year
prior to the year that the Performance Bonuses and Commissions are earned. All
elections with respect to Performance Bonuses and Commissions are for one Plan
Year. In the case of an employee who becomes an Eligible Employee after July 1,
1997, such Eligible Employee shall have 30 days from the date he or she has
become an Eligible Employee to make an Initial Election with respect to Base
Salary, Performance Bonuses and Commissions. Such election shall be for the
remainder of the Plan Year.
(d) Elections other than Elections during the Initial
Election Period. Subject to the limitations of Section 3.1(b) above, any
Eligible Employee who fails to elect to defer
5
<PAGE> 9
Compensation during his or her Initial Election Period may subsequently become a
Participant, and any Eligible Employee who has terminated a prior Compensation
deferral election may elect to again defer Compensation, by filing an election,
on a form provided by the Committee, to defer Compensation as described in
Sections 3.1(b) and 3.1(c) above. An election to defer Compensation must be
filed on or before June 15 and will be effective for Compensation earned during
pay periods beginning after the following July 1.
3.2 Investment Elections.
(a) At the time of making the deferral elections
described in Section 3.1, the Participant shall designate, on a form provided by
the Committee, the types of investment funds the Participant's Account will be
deemed to be invested in for purposes of determining the amount of earnings to
be credited to that Account. In making the designation pursuant to this Section
3.2, the Participant may specify that all or any multiple of his Deferral
Account (equal to or greater than 10% in whole percentage increments) be deemed
to be invested in one or more of the types of investment funds listed above.
Effective as of the end of any calendar month, a Participant may change the
designation made under this Section 3.2 by filing an election, on a form
provided by the Committee, at least 5 days prior to the end of such month. If a
Participant fails to elect a type of fund under this Section 3.2, he or she
shall be deemed to have elected the Money Market type of investment fund.
(b) Although the Participant may designate the type of
investment funds in Section 3.2(a) above, the Committee shall not be bound by
such designation. The Committee shall select from time to time, in its sole
discretion, a commercially available investment fund of each of the types
described in Section 3.2(a) above to be the Funds. The Interest Rate of each
such commercially available investment fund shall be used to determine the
amount of earnings or losses to be credited to Participant's Account under
Article IV.
(c) Pursuant to the requirements of Section 2.1 that a
Participant complete a life insurance application before being eligible to
participate in this Plan, a Participant's Deferral Account will be used to pay
for the supplemental life insurance coverage. The life insurance death benefit
will be an amount equal to a multiple of the Participant's first-year deferral
as set forth in Section 6.1(c).
ARTICLE IV
DEFERRAL ACCOUNTS AND TRUST FUNDING
4.1 Deferral Accounts.
The Committee shall establish and maintain a Deferral Account
for each Participant under the Plan. Each Participant's Deferral Account shall
be further divided into separate subaccounts ("investment fund subaccounts"),
each of which corresponds to a investment fund or contract elected by the
Participant pursuant to Section 3.2(a). A Participant's Deferral Account shall
be credited as follows:
6
<PAGE> 10
(a) As of the last day of each month, the Committee shall
credit the investment fund subaccounts of the Participant's Deferral Account
with an amount equal to Compensation deferred by the Participant during each pay
period ending in that month in accordance with the Participant's election under
Section 3.2(a); that is, the portion of the Participant's deferred Compensation
that the Participant has elected to be deemed to be invested in a certain type
of investment fund shall be credited to the investment fund subaccount
corresponding to that investment fund;
(b) As of the last day of each month, each investment
fund subaccount of a Participant's Deferral Account shall be credited with
earnings or losses in an amount equal to that determined by multiplying the
balance credited to such investment fund subaccount as of the last day of the
preceding month by the Interest Rate for the corresponding fund selected by the
Company pursuant to Section 3.2(b).
(c) In the event that a Participant elects for a given
Plan Year's deferral of Compensation to have a Scheduled Withdrawal Date, all
amounts attributed to the deferral of Compensation for such Plan Year shall be
accounted for in a manner which allows separate accounting for the deferral of
Compensation and investment gains and losses associated with such Plan Year's
deferral of Compensation.
4.2 Company Discretionary Contribution Account.
The Committee shall establish and maintain a Company
Discretionary Contribution Account for each Participant under the Plan. Each
Participant's Company Discretionary Contribution Account shall be further
divided into separate investment fund subaccounts corresponding to the
investment fund elected by the Participant pursuant to Section 3.2(a). A
Participant's Company Discretionary Contribution Account shall be credited as
follows:
(a) As of the last day of each Plan Year, the Committee
shall credit the investment fund subaccounts of the Participant's Company
Discretionary Contribution Account with an amount equal to the Company
Discretionary Contribution Amount, if any, applicable to that Participant, that
is, the proportion of the Company Discretionary Contribution Amount, if any,
which the Participant elected to be deemed to be invested in a certain type of
investment fund shall be credited to the corresponding investment fund
subaccount; and
(b) As of the last day of each month, each investment
fund subaccount of a Participant's Company Discretionary Contribution Account
shall be credited with earnings or losses in an amount equal to that determined
by multiplying the balance credited to such investment fund subaccount as of the
last day of the preceding month by the Interest Rate for the corresponding Fund
selected by the Company pursuant to Section 3.2(b).
4.3 Trust Funding.
The Company has created a Trust with First American Trust
Company serving as initial trustee. The Company shall cause the Trust to be
funded each year. The Company shall contribute to the Trust an amount equal to
the amount deferred by each Participant for the Plan
7
<PAGE> 11
Year. The Company shall contribute to the Trust an amount equal to the Company
Discretionary Contribution Amount for the Plan Year. The Company may also
contribute such additional amounts as it shall deem necessary or appropriate if
needed to pay for the insurance premiums on the Policies needed to fund the
death benefits pursuant to Section 6.1(c)(1) of the Plan.
Although the principal of the Trust and any earnings thereon
shall be held separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of Plan Participants and beneficiaries as
set forth therein, neither the Participants nor their beneficiaries shall have
any preferred claim on, or any beneficial ownership in, any assets of the Trust
prior to the time such assets are paid to the Participants or beneficiaries as
benefits and all rights created under this Plan shall be unsecured contractual
rights of Plan Participants and beneficiaries against the Company. Any assets
held in the Trust will be subject to the claims of Company's general creditors
under federal and state law in the event of insolvency as defined in Section
4.2(a) of the Trust.
The assets of the Plan and Trust shall never inure to the
benefit of the Company and the same shall be held for the exclusive purpose of
providing benefits to Participants and their beneficiaries, deferring reasonable
expenses of administering the Plan and Trust. The sole exception to the
foregoing shall be if any amounts remain after payment to a Participant, such
amounts shall be transferred by the Trustee to the Company.
ARTICLE V
VESTING
5.1 Deferral Account.
A Participant's Deferral Account shall be 100% vested at all
times.
5.2 Company Discretionary Contribution Account.
A Company Discretionary Contribution Amount, if any, shall
vest and become nonforfeitable if the Participant is still in the employ of the
Company on the last day of the fifth Plan Year after a Company Discretionary
Contribution has been made with respect to a particular Plan Year.
ARTICLE VI
DISTRIBUTIONS
6.1 Distribution of Deferred Compensation and Discretionary
Company Contributions.
(a) Distribution Without Scheduled Withdrawal Date. In
the case of a Participant who terminates employment with Company for a reason
other than death and who either (i) Retires, or (ii) terminates as a result of a
long-term disability (as defined in the Company's Long-Term Disability Income
Plan for executives), the Distributable Amount shall be paid to the Participant
(and after his or her death to his or her Beneficiary) from among the
8
<PAGE> 12
following optional forms of benefit as elected by the Participant on the form
provided by Company during his or her Initial Election Period, as may be
modified pursuant to Section 6.1(f).
(1) A lump sum distribution beginning on the
Participant's Payment Date.
(2) Substantially equal quarterly installments
over five (5) years beginning on the Participant's Payment Date.
(3) Substantially equal quarterly installments
over ten (10) years beginning on the Participant's Payment Date.
In the event a Participant fails to elect an optional
form of benefit during his or her Initial Election Period, the Participant's
Distributable Amount will be distributed in substantially equal quarterly
installments over three (3) years beginning on his or her Payment Date.
In the event a Participant's employment is
involuntarily terminated, such Participant will receive his or her Distributable
Amount in substantially equal quarterly installments over three (3) years,
unless such Participant has previously elected to receive his or her
Distributable Amount in a lump-sum distribution.
In the event of any other type of employment
termination, the Participant shall receive his Distributable Amount in a lump
sum beginning on the Payment Date.
The Participant's Accounts shall continue to be
credited with earnings pursuant to Section 4.1 of the Plan until all amounts
credited to his or her Accounts under the Plan have been distributed.
(b) Distribution With Scheduled Withdrawal Date. In the
case of a Participant who has elected a Scheduled Withdrawal Date for a
distribution while still in the employ of the Company, such Participant shall
receive his or her Distributable Amount, but only with respect to those
deferrals of Compensation and earnings on such deferrals of Compensation as
shall have been elected by the Participant to be subject to the Scheduled
Withdrawal Date in accordance with Section 1.2(bb) of the Plan. A Participant's
Scheduled Withdrawal Date with respect to amounts of Compensation deferred in a
given Plan Year can be no earlier than two years from the last day of the Plan
Year for which the deferrals of Compensation are made. A Participant may extend
the Scheduled Withdrawal Date for the deferral of Compensation for any Plan
Year, provided such extension occurs at least one year before the Scheduled
Withdrawal Date and is for a period of not less than two years from the
Scheduled Withdrawal Date. The Participant shall have the right to twice modify
any Scheduled Withdrawal Date. In the event a participant terminates employment
with Company prior to a Scheduled Withdrawal Date, the Participant's entire
Distributable Amount will be paid as follows:
(1) In the case of Retirement or a long-term
disability (as defined in the Company's Long-Term Disability Income
Plan for executives) in substantially equal quarterly installments over
fifteen (15) years beginning on the Participant's Payment Date,
9
<PAGE> 13
or with the consent of the Company an optional form of benefit as set forth in
Sections 6.1(a)(1)(2)(3) may be chosen.
(2) In the event a Participant's termination of
employment with Company is involuntary, such Participant will receive
his or her Distributable Amount in substantially equal quarterly
installments over three (3) years beginning on the Payment Date.
(3) In the event of any other type of employment
termination, the Participant shall receive his Distributable Amount in
a lump sum beginning on the Payment Date.
(c) In the case of a Participant who dies while employed
by the Company, the following benefits shall be provided:
(1) that portion of the death benefit of any
life insurance policy purchased by the Company to insure the life of
the Participant and which is subject to a "Split-Dollar Life Insurance
Agreement" (as described therein) (the "Policy") which is equal to the
following amounts:
(i) If a Participant elects during his
first twelve months of Plan Participation (whether such election
occurs during more than one Plan Year) to defer Base Salary only, such
Participant's death benefit shall equal his Base Salary deferrals
annualized over the first twelve months of Plan Participation
multiplied by twenty. This amount shall constitute the Participant's
death benefit for the remainder of his participation in the Plan.
(ii) If a Participant elects during his
first twelve months of Plan Participation to defer either bonuses
and/or commissions only, such Participant's death benefit during the
first twelve months of Plan Participation (whether such election
occurs during more than one Plan Year) shall be $100,000. At the end
of the initial twelve month period, the amount of the Participant's
deferral of Performance Bonuses and Commissions shall be aggregated
and multiplied by twenty, which amount shall constitute the
Participant's death benefit for the remainder of his or her
participation in this Plan.
(iii) In the event that a Participant elects
to defer Base Salary and Performance Bonuses and/or Commissions, then
the Participant's death benefit during his first twelve months of Plan
Participation (whether such election occurs during more than one Plan
Year) shall equal his Base Salary deferrals annualized over twelve
months multiplied by twenty. At the end of the initial twelve month
period, the Participant's death benefit shall equal the amount of Base
Salary deferrals annualized during the first twelve months multiplied
by twenty plus all deferrals of Performance Bonuses and Commissions
which occurred during the first twelve months shall be aggregated and
multiplied by twenty. This amount shall constitute the Participant's
death benefit for the remainder of his participation in the Plan.
10
<PAGE> 14
Any such Policy shall be subject to certain conditions set forth in a
"split-dollar life insurance agreement" between the Participant, Trustee and the
Company, pursuant to which the Participant may designate a beneficiary with
respect to the portion of the Policy proceeds described in the preceding
sentence in the event the Participant dies prior to terminating employment with
the Company. The Participant shall have the right to designate and change such
beneficiary (which need not be his or her Beneficiary) at any time on a form
provided by and filed with the insurance company. If no such form is on file
with the insurance company, the insurance proceeds designated in this paragraph
(1) shall be paid to the Beneficiary. The benefit payable pursuant to this
paragraph (1) shall only be paid if the insurance company agrees that the
Participant is insurable and shall be subject to all conditions and exceptions
set forth in the applicable insurance policy. Notwithstanding the provision of
this Plan or any other document to the contrary, the Company shall not have any
obligation to pay the Participant or his or her beneficiary any amounts
described in Section 6.1(c)(1); all such amounts due pursuant to Section
6.1(c)(1) shall be payable solely from the proceeds of the Policy, if any.
Furthermore, the Company is not obligated to maintain the Policy; no death
benefit shall be payable hereunder if the Company has discontinued the Policy
for the Participant. In addition, no Policy shall be allocated to any Account.
(2) The Account Balance in a lump sum or
installments as previously elected by the Participant.
(d) In the event a Participant dies after he has retired
from the employ of the Company and still has a balance in his or her Account,
the balance shall continue to be paid in quarterly installments for the
remainder of the period as elected by the Participant.
(e) In the event of a Change in Control and the
Participant's employment is terminated for any reason (either voluntary or
involuntary) within two years of the Change in Control, the Participant's
Distributable Amount shall be paid in a lump sum on the Payment Date.
(f) A Participant may modify the form of benefit that he
or she has previously elected, provided such modification occurs at least one
(1) year before the event triggering the distribution (i.e. the termination of
Participant's employment with the Company or the Scheduled Withdrawal Date, as
the case may be).
6.2 Early Distributions.
A Participant shall be permitted to elect an Early
Distribution from his or her Deferral Account and the vested portion of his or
her Company Discretionary Contribution Account prior to the Payment Date,
subject to the following restrictions:
(a) The election to take an Early Distribution shall be
made by filing a form provided by and filed with the Committee prior to the end
of any calendar month.
(b) The amount of the Early Distribution shall in all
cases equal 90% of the Deferral Account and 90% of the vested portion of his
Company Discretionary Contribution Account as of the end of the calendar month
as of which the distribution is to be made.
11
<PAGE> 15
(c) The amount described in subsection (b) above shall be
paid in a single cash lump sum as soon as practicable after the end of the
calendar month in which the Early Distribution election is made.
(d) If a Participant receives an Early Distribution, the
remaining balance of his or her Deferral Account (10% of the Deferral Account)
and the remaining balance of his vested Company Discretionary Contribution
Account (10% of the vested Company Discretionary Contribution Account) shall be
permanently forfeited and the Company shall have no obligation to the
Participant or his Beneficiary with respect to such forfeited amount.
(e) If a Participant receives an Early Distribution, the
following rules will apply for the balance of the Plan Year and for the
following Plan Year: (i) the Participant will be ineligible to participate in
the Plan, and (ii) neither the Participant (nor his Beneficiary or
beneficiaries) shall be entitled to death benefits under Section 6.1(c)(1) or
(2).
6.3 Inability to Locate Participant.
In the event that the Committee is unable to locate a
Participant or Beneficiary within two years following the required Payment Date,
the amount allocated to the Participant's Deferral Account, shall be forfeited.
If, after such forfeiture, the Participant or Beneficiary later claims such
benefit, such benefit shall be reinstated without interest or earnings.
6.4 Payment of Policy Premiums.
So long as the Company maintains a Policy for a Participant,
the Company shall pay to the Trustee amounts necessary to pay premiums on the
Policy insuring the Participant's life from as soon as practical after the end
of each Plan Year (but no later than the tax return due date for the Company for
such year), in amounts equal to the amount deferred by the Participant for the
Plan Year and the Company discretionary contribution amount for the Participant
for the Plan Year. The Company shall also pay to the Trustee amounts necessary
to pay premiums in an amount equal to the "cost of insurance" (as defined in
Policy) needed to fund the death benefit described in Section 6.1(c)(1);
provided that such obligation shall not apply with respect to a Policy if (1)
the Committee has discontinued the Policy, (2) the Participant is no longer
employed by the Company, or (3) the Participant is not entitled to a death
benefit under the Policy because he or she has taken an early distribution as
described in Section 6.2 of the Plan.
ARTICLE VII
ADMINISTRATION
7.1 Committee.
A committee shall be appointed by, and serve at the pleasure
of, the Board of Directors. The number of members comprising the Committee shall
be determined by the Board which may from time to time vary the number of
members. A member of the Committee may resign by delivering a written notice of
resignation to the Board. The Board may remove any
12
<PAGE> 16
member by delivering a certified copy of its resolution of removal to such
member. Vacancies in the membership of the Committee shall be filled promptly by
the Board.
7.2 Committee Action.
The Committee shall act at meetings by affirmative vote of a
majority of the members of the Committee. Any action permitted to be taken at a
meeting may be taken without a meeting if, prior to such action, a written
consent to the action is signed by all members of the Committee and such written
consent is filed with the minutes of the proceedings of the Committee. A member
of the Committee shall not vote or act upon any matter which relates solely to
himself or herself as a Participant. The Chairman or any other member or members
of the Committee designated by the Chairman may execute any certificate or other
written direction on behalf of the Committee.
7.3 Powers and Duties of the Committee.
(a) The Committee, on behalf of the Participants and
their Beneficiaries, shall enforce the Plan in accordance with its terms, shall
be charged with the general administration of the Plan, and shall have all
powers necessary to accomplish its purposes, including, but not by way of
limitation, the following:
(1) To select the Funds in accordance with
Section 3.2(b) hereof;
(2) To construe and interpret the terms and
provisions of this Plan;
(3) To compute and certify to the amount and
kind of benefits payable to Participants and their Beneficiaries;
(4) To maintain all records that may be
necessary for the administration of the Plan;
(5) To provide for the disclosure of all
information and the filing or provision of all reports and statements to
Participants, Beneficiaries or governmental agencies as shall be required by
law;
(6) To make and publish such rules for the
regulation of the Plan and procedures for the administration of the Plan as are
not inconsistent with the terms hereof;
(7) To appoint a plan administrator or any other
agent, and to delegate to them such powers and duties in connection with the
administration of the Plan as the Committee may from time to time prescribe;
(8) To take all actions necessary for the
administration of the Plan, including determining whether to hold or discontinue
the Policies; and
(9) If a Policy is discontinued or a Participant
has terminated employment with the Company for a reason other than death, (A) to
notify the insurance company
13
<PAGE> 17
that no death benefits are payable to the beneficiaries of the applicable
Participant under the Policy (and that neither the Participant nor his or her
beneficiary has any rights under the Policy or to any benefits under the Policy)
and (B) to file a new beneficiary designation with the insurance company naming
the Company as beneficiary or to cash in the Policy.
7.4 Construction and Interpretation.
The Committee shall have full discretion to construe and
interpret the terms and provisions of this Plan, which interpretations or
construction shall be final and binding on all parties, including but not
limited to the Company and any Participant or Beneficiary. The Committee shall
administer such terms and provisions in a uniform and nondiscriminatory manner
and in full accordance with any and all laws applicable to the Plan.
7.5 Information.
To enable the Committee to perform its functions, the Company
shall supply full and timely information to the Committee on all matters
relating to the Compensation of all Participants, their death or other events
which cause termination of their participation in this Plan, and such other
pertinent facts as the Committee may require.
7.6 Compensation, Expenses and Indemnity.
(a) The members of the Committee shall serve without
compensation for their services hereunder.
(b) The Committee is authorized at the expense of the
Company to employ such legal counsel as it may deem advisable to assist in the
performance of its duties hereunder. Expenses and fees in connection with the
administration of the Plan shall be paid by the Company.
(c) To the extent permitted by applicable state law, the
Company shall indemnify and save harmless the Committee and each member thereof,
the Board of Directors and any delegate of the Committee who is an employee of
the Company against any and all expenses, liabilities and claims, including
legal fees to defend against such liabilities and claims arising out of their
discharge in good faith of responsibilities under or incident to the Plan, other
than expenses and liabilities arising out of willful misconduct. This indemnity
shall not preclude such further indemnities as may be available under insurance
purchased by the Company or provided by the Company under any bylaw, agreement
or otherwise, as such indemnities are permitted under state law.
7.7 Quarterly Statements.
Under procedures established by the Committee, a Participant
shall receive a statement with respect to such Participant's Accounts on a
quarterly basis as of each March 31, June 30, September 30 and December 31.
14
<PAGE> 18
7.8 Disputes.
(a) Claim.
A person who believes that he or she is being denied
a benefit to which he or she is entitled under this Agreement (hereinafter
referred to as "Claimant") may file a written request for such benefit with the
Company, setting forth his or her claim. The request must be addressed to the
President of the Company at its then principal place of business.
(b) Claim Decision.
Upon receipt of a claim, the Company shall advise the
Claimant that a reply will be forthcoming within ninety (90) days and shall, in
fact, deliver such reply within such period. The Company may, however, extend
the reply period for an additional ninety (90) days for special circumstances.
If the claim is denied in whole or in part, the
Company shall inform the Claimant in writing, using language calculated to be
understood by the Claimant, setting forth: (A) the specified reason or reasons
for such denial; (B) the specific reference to pertinent provisions of this
Agreement on which such denial is based; (C) a description of any additional
material or information necessary for the Claimant to perfect his or her claim
and an explanation of why such material or such information is necessary; (D)
appropriate information as to the steps to be taken if the Claimant wishes to
submit the claim for review; and (E) the time limits for requesting a review
under subsection (c).
(c) Request For Review.
Within sixty (60) days after the receipt by the
Claimant of the written opinion described above, the Claimant may request in
writing that the Committee review the determination of the Company. Such request
must be addressed to the Secretary of the Company, at its then principal place
of business. The Claimant or his or her duly authorized representative may, but
need not, review the pertinent documents and submit issues and comments in
writing for consideration by the Committee. If the Claimant does not request a
review within such sixty (60) day period, he or she shall be barred and estopped
from challenging the Company's determination.
(d) Review of Decision.
Within sixty (60) days after the Committee's receipt
of a request for review, after considering all materials presented by the
Claimant, the Committee will inform the Participant in writing, in a manner
calculated to be understood by the Claimant, the decision setting forth the
specific reasons for the decision containing specific references to the
pertinent provisions of this Agreement on which the decision is based. If
special circumstances require that the sixty (60) day time period be extended,
the Committee will so notify the Claimant and will render the decision as soon
as possible, but no later than one hundred twenty (120) days after receipt of
the request for review.
15
<PAGE> 19
ARTICLE VIII
MISCELLANEOUS
8.1 Unsecured General Creditor.
Participants and their Beneficiaries, heirs, successors, and
assigns shall have no legal or equitable rights, claims, or interest in any
specific property or assets of the Company. No assets of the Company shall be
held in any way as collateral security for the fulfilling of the obligations of
the Company under this Plan. Any and all of the Company's assets shall be, and
remain, the general unpledged, unrestricted assets of the Company. The Company's
obligation under the Plan shall be merely that of an unfunded and unsecured
promise of the Company to pay money in the future, and the rights of the
Participants and Beneficiaries shall be no greater than those of unsecured
general creditors. It is the intention of the Company that this Plan be unfunded
for purposes of the Code and for purposes of Title 1 of ERISA.
8.2 Restriction Against Assignment.
The Company shall pay all amounts payable hereunder only to
the person or persons designated by the Plan and not to any other person or
corporation. No part of a Participant's Accounts shall be liable for the debts,
contracts, or engagements or any Participant, his or her Beneficiary, or
successors in interest, nor shall a Participant's Accounts be subject to
execution by levy, attachment, or garnishment or by any other legal or equitable
proceeding, nor shall any such person have any right to alienate, anticipate,
sell, transfer, commute, pledge, encumber, or assign any benefits or payments
hereunder in any manner whatsoever. if any Participant, Beneficiary or successor
in interest is adjudicated bankrupt or purports to anticipate, alienate, sell,
transfer, commute, assign, pledge, encumber or charge any distribution or
payment from the Plan, voluntarily or involuntarily, the Committee, in its
discretion, may cancel such distribution or payment (or any part thereof) to or
for the benefit of such Participant, Beneficiary or successor in interest in
such manner as the Committee shall direct.
8.3 Withholding.
There shall be deducted from each payment made under the Plan
or any other Compensation payable to the Participant (or Beneficiary) all taxes
which are required to be withheld by the Company in respect to such payment or
this Plan. The Company shall have the right to reduce any payment (or
compensation) by the amount of cash sufficient to provide the amount of said
taxes.
8.4 Amendment, Modification, Suspension or Termination.
The Chief Executive Officer of Company may amend, modify,
suspend or terminate the Plan in whole or in part, except that no amendment,
modification, suspension or termination shall have any retroactive effect to
reduce any amounts allocated to a Participant's Accounts (neither the Policies
themselves, nor the death benefit described in Section 6.1(c)(1) shall be
treated as allocated to Accounts). In addition, the Chief Executive Officer has
the right to
16
<PAGE> 20
amend or terminate Section 6.1(c)(1). In the event that this Plan is terminated,
the amounts allocated to a Participant's Accounts shall be distributed to the
Participant or, in the event of his or her death, his or her Beneficiary in a
lump sum within thirty (30) days following the date of termination.
8.5 Governing Law.
This Plan shall be construed, governed and administered in
accordance with the laws of the State of Delaware.
8.6 Receipt or Release.
Any payment to a Participant or the Participant's Beneficiary
in accordance with the provisions of the Plan shall, to the extent thereof, be
in full satisfaction of all claims against the Committee and the Company. The
Committee may require such Participant or Beneficiary, as a condition precedent
to such payment, to execute a receipt and release to such effect.
8.7 Payments on Behalf of Persons Under Incapacity.
In the event that any amount becomes payable under the Plan to
a person who, in the sole judgment of the Committee, is considered by reason of
physical or mental condition to be unable to give a valid receipt therefore, the
Committee may direct that such payment be made to any person found by the
Committee, in its sole judgment, to have assumed the care of such person. Any
payment made pursuant to such determination shall constitute a full release and
discharge of the Committee and the Company.
8.8 Limitation of Rights and Employment Relationship
Neither the establishment of the Plan and Trust nor any
modification thereof, nor the creating of any fund or account, nor the payment
of any benefits shall be construed as giving to any Participant or other person
any legal or equitable right against the Company or the trustee of the Trust
except as provided in the Plan and Trust; and in no event shall the terms of
employment of any Employee or Participant be modified or in any way be affected
by the provisions of the Plan and Trust.
8.9 Headings.
Headings and subheadings in this Plan are inserted for
convenience of reference only and are not to be considered in the construction
of the provisions hereof.
17
<PAGE> 21
IN WITNESS WHEREOF, the Company has caused this document to be
executed by its duly authorized officer on this 13th day of August, 1997.
VIASOFT, INC.
By /s/ Steven D. Whiteman
---------------------------------------
By /s/ Catherine R. Hardwick
---------------------------------------
18
<PAGE> 1
EXHIBIT 11
VIASOFT, INC. AND SUBSIDIARIES
Computation of Earnings(Loss) Per Share
Exhibit 11
(in thousands, except per share data)
<TABLE>
<CAPTION>
Twelve Months Ended
June 30,
---------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 19,321 17,723 16,719
Effect of Weighting of Shares:
Employee stock options exercised 73 130 131
Shares issued in public offering -- 1,132 --
Shares purchased 78 29 241
Treasury shares (1,164) (15) --
Shares issued related to R&O acquisition -- -- 121
-------- ------- --------
Weighted average number of common shares outstanding 18,308 18,999 17,212
======== ======= ========
Net income (loss) $ (8,490) $ 7,935 $(15,436)
======== ======= ========
Earnings (loss) per common share $ (0.46) $ 0.42 $ (0.90)
======== ======= ========
DILUTED EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 19,321 17,723 16,719
Effect of Weighting of Shares:
Warrants and employee stock options outstanding -- 800 --
Employee stock options exercised 73 130 131
Shares issued in public offering -- 1,132 --
Shares purchased 78 29 241
Treasury shares (1,164) (15) --
Shares issued related to R&O acquisition -- -- 121
-------- ------- --------
Weighted average number of common and common
share equivalents outstanding 18,308 19,799 17,212
======== ======= ========
Net income (loss) $ (8,490) $ 7,935 $(15,436)
======== ======= ========
Earnings (loss) per common and common share equivalent $ (0.46) $ 0.40 $ (0.90)
======== ======= ========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Viasoft International, Inc.
Viasoft (U.K.) Limited
Viasoft Pty. Ltd.
Viasoft France S.A.S.
Viasoft Canada Company
Viasoft Benelux S.A.
Viasoft International GmbH
Viasoft (FSC), LTD.
Viasoft de Mexico S.A. de C.V.
Viasoft Software Development Geshcaftsfuhrungs GmbH
Viasoft Software Development GmbH & Co. KG
R&O Inc.
R&O (UK) Limited
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K and into the Company's
previously filed registration statement file Nos. 33-89868, as amended,
33-89870, 333-16519, 333-14671, 333-33815, 333-35779, as amended, 333-21461,
333-69511, 333-69509 and 333-47571.
Phoenix, Arizona,
September 28, 1999.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Mark R. Schonau or Catherine R.
Hardwick (with full power of substitution), his true and lawful attorney-in-fact
and agent, in any and all capacities, to do any and all acts and things and to
execute any and all documents, forms and reports which said attorney-in-fact and
agent may deem necessary or advisable to enable Viasoft, Inc., a Delaware
corporation (the "Corporation"), to sign an annual report on Form 10-K for the
fiscal year ended June 30, 1999 and to file the same with all exhibits thereto,
and all documents in connection therewith, and to comply with the Securities
Exchange Act of 1934 and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, and the undersigned does
hereby ratify and confirm all that said attorney-in-fact and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 14th day of September 1999.
/s/ J. David Parrish
-----------------------------------------
Signature
J. David Parrish
-----------------------------------------
Printed Name
-----------------------------------------
Witness
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 14th day of September 1999, before me, the undersigned Notary
Public, personally appeared J. David Parrish, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Joni K. Summers
-----------------------------------------
Notary Public
My commission expires:
March 30, 2000
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Mark R. Schonau or Catherine R.
Hardwick (with full power of substitution), his true and lawful attorney-in-fact
and agent, in any and all capacities, to do any and all acts and things and to
execute any and all documents, forms and reports which said attorney-in-fact and
agent may deem necessary or advisable to enable Viasoft, Inc., a Delaware
corporation (the "Corporation"), to sign an annual report on Form 10-K for the
fiscal year ended June 30, 1999 and to file the same with all exhibits thereto,
and all documents in connection therewith, and to comply with the Securities
Exchange Act of 1934 and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, and the undersigned does
hereby ratify and confirm all that said attorney-in-fact and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 27th day of September 1999.
/s/ Alexander S. Kuli
---------------------------------------
Signature
Alexander S. Kuli
----------------------------------------
Printed Name
----------------------------------------
Witness
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 27th day of September 1999, before me, the undersigned Notary
Public, personally appeared Alexander S. Kuli, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Joni K. Summers
---------------------------------------
Notary Public
My commission expires:
March 30, 2000
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Mark R. Schonau or Catherine R.
Hardwick (with full power of substitution), his true and lawful attorney-in-fact
and agent, in any and all capacities, to do any and all acts and things and to
execute any and all documents, forms and reports which said attorney-in-fact and
agent may deem necessary or advisable to enable Viasoft, Inc., a Delaware
corporation (the "Corporation"), to sign an annual report on Form 10-K for the
fiscal year ended June 30, 1999 and to file the same with all exhibits thereto,
and all documents in connection therewith, and to comply with the Securities
Exchange Act of 1934 and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, and the undersigned does
hereby ratify and confirm all that said attorney-in-fact and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 9th day of September 1999.
/s/ John J. Barry III
-----------------------------------------
Signature
John J. Barry III
-----------------------------------------
Printed Name
-----------------------------------------
Witness
STATE OF TEXAS )
) ss.
County of Harris )
On this 9th day of September 1999, before me, the undersigned Notary
Public, personally appeared John J. Barry III, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Patsy R. Butcher
-----------------------------------------
Notary Public
My commission expires:
May 20, 2003
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Mark R. Schonau or Catherine R.
Hardwick (with full power of substitution), his true and lawful attorney-in-fact
and agent, in any and all capacities, to do any and all acts and things and to
execute any and all documents, forms and reports which said attorney-in-fact and
agent may deem necessary or advisable to enable Viasoft, Inc., a Delaware
corporation (the "Corporation"), to sign an annual report on Form 10-K for the
fiscal year ended June 30, 1999 and to file the same with all exhibits thereto,
and all documents in connection therewith, and to comply with the Securities
Exchange Act of 1934 and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, and the undersigned does
hereby ratify and confirm all that said attorney-in-fact and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 13th day of September 1999.
/s/ Arthur C. Patterson
--------------------------------------
Signature
A. C. Patterson
--------------------------------------
Printed Name
---------------------------------------
Witness
STATE OF NEW JERSEY )
) ss.
County of Ocean )
On this 13th day of September 1999, before me, the undersigned Notary
Public, personally appeared Arthur C. Patterson, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Mark A. Dalton
--------------------------------------
Notary Public
My commission expires:
May 24, 2001
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE COMPANY AND ITS SUBSIDIARIES AS OF JUNE 30,
1999 AND 1998, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR EACH OF
THE TWO YEARS IN THE PERIOD ENDED JUNE 30, 1999 AND 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 37,809 25,609
<SECURITIES> 63,294 55,650
<RECEIVABLES> 33,227 23,632
<ALLOWANCES> 815 829
<INVENTORY> 0 0
<CURRENT-ASSETS> 142,104 110,857
<PP&E> 13,543 12,540
<DEPRECIATION> 5,934 6,191
<TOTAL-ASSETS> 162,377 134,169
<CURRENT-LIABILITIES> 45,847 39,234
<BONDS> 0 0
0 0
0 0
<COMMON> 19 19
<OTHER-SE> 115,839 94,611
<TOTAL-LIABILITY-AND-EQUITY> 162,377 134,169
<SALES> 113,602 104,233
<TOTAL-REVENUES> 113,687 104,272
<CGS> 31,274 37,908
<TOTAL-COSTS> 106,205 121,573
<OTHER-EXPENSES> 317 678
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (4,912) (4,297)
<INCOME-PRETAX> 12,077 (13,682)
<INCOME-TAX> 4,142 (5,192)
<INCOME-CONTINUING> 7,935 (8,490)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,935 (8,490)
<EPS-BASIC> 0.42 (0.46)
<EPS-DILUTED> 0.40 (0.46)
</TABLE>
