<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended Commission File Number
July 31, 1999 0-26334
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
INFERENCE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-3436352
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Rowland Way
Novato, California 94945
(415) 893-7200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
_____________________________
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 shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes x No ___
---
As of September 3, 1999, there were 7,062,826 shares of the Registrant's Class A
Common Stock, par value $0.01 per share, and 535,332 shares of the Registrant's
Class B Common Stock, par value $0.01 per share, outstanding.
-1-
<PAGE>
INFERENCE CORPORATION
Index
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
July 31, 1999 and January 31, 1999.............................................. 3
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended July 31, 1999 and 1998......................................... 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended July 31, 1999 and 1998......................................... 5
Notes to Condensed Consolidated Financial Statements.............................. 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................. 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk........................ 27
Part II OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................. 29
ITEM 2. Changes in Securities............................................................. 29
ITEM 3. Defaults upon Senior Securities................................................... 29
ITEM 4. Submission of Matters to a Vote of Security Holders............................... 29
ITEM 5. Other Information................................................................. 29
ITEM 6. Exhibits and Reports on Form 8-K.................................................. 29
Signature......................................................................... 31
</TABLE>
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFERENCE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, January 31,
1999 1999
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash....................................................................... $ 21,204,000 $ 25,761,000
Accounts receivable, net................................................... 5,927,000 7,063,000
Other current assets....................................................... 727,000 433,000
--------------- ---------------
Total current assets..................................................... 27,858,000 33,257,000
Property and equipment, net.................................................. 1,554,000 1,607,000
Intangible assets, net....................................................... 1,006,000 --
Other assets................................................................. 483,000 511,000
--------------- ---------------
$ 30,901,000 $ 35,375,000
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ 715,000 819,000
Accrued salaries and related items...................................... 2,222,000 2,371,000
Other accrued liabilities............................................... 2,143,000 2,785,000
Deferred revenue........................................................ 3,689,000 4,642,000
--------------- ---------------
Total current liabilities............................................ 8,769,000 10,617,000
Shareholders' equity:
Common stock............................................................ 76,000 70,000
Additional paid-in capital.............................................. 48,478,000 46,328,000
Accumulated deficit..................................................... (26,050,000) (21,312,000)
Accumulated other comprehensive loss.................................... (372,000) (328,000)
--------------- ---------------
Total shareholders' equity........................................... 22,132,000 24,758,000
--------------- ---------------
$ 30,901,000 $ 35,375,000
=============== ===============
</TABLE>
See accompanying notes.
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<PAGE>
INFERENCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
---------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Products.......................................... $ 2,132,000 $ 4,118,000 $ 5,209,000 $ 7,193,000
Services.......................................... 3,374,000 3,394,000 6,691,000 6,668,000
=============== =============== =============== ===============
Total revenues.................................. 5,506,000 7,512,000 11,900,000 13,861,000
Operating costs and expenses:
Cost of product revenues.......................... 247,000 161,000 405,000 378,000
Cost of service revenues.......................... 1,698,000 1,723,000 3,382,000 3,562,000
Product development............................... 1,942,000 1,437,000 3,389,000 2,502,000
Sales and marketing............................... 3,540,000 3,738,000 7,462,000 7,471,000
General and administrative........................ 946,000 1,046,000 1,775,000 2,247,000
Amortization of intangible assets................. 61,000 -- 61,000 --
Acquisition related............................... -- -- 677,000 --
Restructuring..................................... -- 253,000 -- 1,574,000
--------------- --------------- --------------- ---------------
Total operating costs and expenses.............. 8,434,000 8,358,000 17,151,000 17,734,000
=============== =============== =============== ===============
Loss from operations................................ (2,928,000) (846,000) (5,251,000) (3,873,000)
Interest income..................................... 257,000 330,000 536,000 656,000
Other expenses...................................... (13,000) (88,000) (23,000) (40,000)
--------------- --------------- --------------- ---------------
Net loss............................................ $ (2,684,000) $ (604,000) $ (4,738,000) $ (3,257,000)
=============== =============== =============== ===============
Net loss per share.................................. $ (0.36) $ (0.08) $ (0.65) $ (0.44)
=============== =============== =============== ===============
Shares used in computing basic and diluted
net loss per share............................. 7,447,000 7,242,000 7,254,000 7,342,000
=============== =============== =============== ===============
</TABLE>
See accompanying notes.
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<PAGE>
INFERENCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
--------------------------------------
1999 1998
---------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net loss.................................................................. $ (4,738,000) $ (3,257,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Acquired in-process research and development............................. 450,000 --
Depreciation and amortization............................................ 695,000 560,000
Stock based compensation expense......................................... -- 80,000
Changes in operating assets and liabilities, net of effects from
acquisition of Verix Software:
Accounts receivable.................................................. 1,141,000 (246,000)
Other current assets................................................. (286,000) 472,000
Other assets......................................................... 28,000 44,000
Accounts payable..................................................... (111,000) 1,000
Accrued salaries and related items................................... (168,000) 16,000
Other accrued liabilities............................................ (981,000) 996,000
Deferred revenue..................................................... (953,000) (102,000)
---------------- ---------------
Net cash used in operating activities..................................... (4,923,000) (1,436,000)
---------------- ---------------
Cash flows from investing activities:
Net cash paid for acquisition of Verix Software........................ (84,000) --
Purchases of property and equipment, net............................... (556,000) (305,000)
---------------- ---------------
Net cash used in investing activities...................................... (640,000) (305,000)
---------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of common stock............................. 1,050,000 249,000
Repurchase of common stock............................................. -- (2,025,000)
---------------- ---------------
Net cash provided by (used in) financing activities........................ 1,050,000 (1,776,000)
================ ===============
Effect of exchange rate differences on cash.................................... (44,000) (112,000)
================ ===============
Net decrease in cash and cash equivalents...................................... (4,557,000) (3,629,000)
Cash and cash equivalents at beginning of period............................... 25,761,000 28,010,000
================ ===============
Cash and cash equivalents at end of period..................................... $ 21,204,000 $ 24,381,000
================ ===============
</TABLE>
See accompanying notes.
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<PAGE>
INFERENCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
-------------------------------------
1999 1998
--------------- ---------------
Supplemental disclosure of cash flow information:
<S> <C> <C>
Income taxes paid during the period....................................... $ 25,000 $ 89,000
=============== ===============
Supplemental disclosure of investing transactions:
In connection with the acquisition of Verix Software (Note 6),
the following transactions occurred:
Fair value of assets acquired.................................... $ 1,571,000 $ --
Issuance of common stock......................................... (1,106,000) --
Cash paid........................................................ (100,000) --
Accrued acquisition costs........................................ (281,000) --
--------------- ---------------
Liabilities assumed....................................................... $ 84,000 $ --
=============== ===============
</TABLE>
See accompanying notes.
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<PAGE>
INFERENCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments) considered necessary to present
fairly the financial information have been included. This financial information
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended January 31, 1999, included in the Annual Report
on Form 10-K. The results of operations for the three and six months ended July
31, 1999 are not necessarily indicative of the results to be expected for the
entire fiscal year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
2. Software Revenue Recognition
Inference recognizes revenue in accordance with the Statement of Position
97-2, Software Revenue Recognition ("SOP 97-2"), as amended by Statement of
Position 98-4, Deferral of the Effective Date of a Provision of SOP 97-2 ("SOP
98-4"). Inference derives revenue from the sale of software licenses, post-
contract support ("support") and other services. Support includes telephone
technical support, bug fixes, and rights to unspecified upgrades on a when-and-
if available basis. Services range from installation, training, and consulting
to meet specific customer needs. In software arrangements that include rights to
multiple software products, specified upgrades, support and/or other services,
Inference allocates the total arrangement fee among each deliverable based on
the relative fair value of each of the deliverables determined based on vendor-
specific objective evidence.
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Inference
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable. If the fee due from the customer is
not fixed or determinable, revenue is recognized as payments become due from the
customer. If collectibility is not considered probable, revenue is recognized
when the fee is collected.
Revenue allocable to support is recognized on a straight-line basis over
the period support is provided.
Arrangements that include other software services are evaluated to
determine whether those services are essential to the functionality of other
elements of the arrangement. When services are considered essential, revenue
under the arrangement is recognized using contract accounting. When services are
not considered essential, the revenue allocable to the software services is
recognized as the services are performed.
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<PAGE>
INFERENCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Net Loss Per Share
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," requires companies to compute net income per share under two
different methods, basic and diluted per share, for all periods for which an
income statement is presented. Basic earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding for all
periods. Diluted earnings per share reflects the potential dilution that could
occur if the income were divided by the weighted average number of common and
common stock equivalent shares outstanding during the period. Diluted earnings
per share is computed by dividing net income by the weighted average number of
common shares and common stock equivalents from outstanding stock options and
warrants. Common stock equivalents are calculated using the treasury stock
method and represent incremental shares issuable upon exercise of Inference's
outstanding options and warrants.
Options to purchase approximately 2,206,000 shares and 2,269,000 shares of
common stock were outstanding at July 31, 1999 and 1998, respectively, but were
not included in the computation of diluted earnings per share as a result of
their anti-dilutive effect. Such stock options could have a dilutive effect in
future periods. In addition, the diluted net loss per share at July 31, 1998
does not include the common stock equivalent effect of 22,000 shares of common
stock which could have been issued under outstanding warrants.
The following table sets forth the computation of basic and diluted net
loss per common share for the three and six months ended July 31, 1999 and 1998
(in thousands, except per share information):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------------------- -------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Numerator:
Net loss.......................................... $ (2,684) $ (604) $ (4,738) $ (3,257)
Denominator:
Denominator for basic net loss per
common share - weighted-average
shares outstanding................................ 7,447 7,242 7,254 7,342
Effect of dilutive securities:
Stock options and warrants.................... -- -- -- --
-------------- -------------- -------------- --------------
Dilutive potential common shares.............. -- -- -- --
-------------- -------------- -------------- --------------
Denominator for diluted net loss per
common share - adjusted weighted-average
shares for assumed conversions.................... 7,447 7,242 7,254 7,342
============== ============== ============== ==============
Basic and diluted net loss per share................. $ (0.36) $ (0.08) $ (0.65) $ (0.44)
============== ============== ============== ==============
</TABLE>
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<PAGE>
INFERENCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
4. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activity," which is
required to be adopted in years beginning after June 15, 1999. The Statement
will require Inference to recognize all derivatives on the balance sheet at fair
value. Inference does not anticipate that the adoption of this Statement will
have a significant effect on its results of operations or financial position.
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9") was issued in
December 1998 and addresses software revenue recognition as it applies to
certain multiple-element arrangements. SOP 98-9 also amends SOP 98-4 to extend
the deferral of application of certain passages of SOP 97-2 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. Inference does not anticipate that the adoption of this SOP will have
a significant effect on its results of operations or financial position.
5. Comprehensive Income
In 1998, Inference adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," ("SFAS 130"). This statement requires
companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. The following table
reconciles the net loss as reported to comprehensive loss under the provisions
of SFAS 130 for the three and six months ended July 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Comprehensive loss:
<S> <C> <C> <C> <C>
Net loss......................................... $ (2,684) $ (604) $ (4,738) $ (3,257)
Other comprehensive loss:
Foreign currency translation adjustment.......... (61) (27) (44) (112)
------------ ------------ ------------ ------------
Total comprehensive loss............................ $ (2,745) $ (631) $ (4,782) $ (3,369)
============ ============ ============ ============
</TABLE>
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<PAGE>
INFERENCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Business Acquisition
On April 30, 1999, Inference acquired all of the outstanding capital stock
of Verix Software ("Verix"), a privately held developer of Web direct sales
applications for e-commerce companies, for approximately $1,487,000. The
results of Verix' operations have been combined with those of Inference since
the date of acquisition.
The acquisition was accounted for using the purchase method of accounting.
Consideration for this transaction consisted of the following:
<TABLE>
<S> <C> <C>
Cash................................................ $ 100,000
Inference common stock.............................. 1,106,000
Acquisition costs................................... 281,000
------------
$ 1,487,000
============
A summary of the preliminary purchase price allocation is as follows:
Tangible assets..................................... $ 54,000
In-process research and development................. 450,000
Developed technology................................ 400,000
Goodwill............................................ 567,000
Workforce........................................... 100,000
Liabilities assumed................................. (84,000)
------------
$ 1,487,000
============
</TABLE>
A total of $677,000 was expensed in the quarter ended April 30, 1999
relating to acquisition items. This was comprised of in-process research and
development of $450,000 and other acquisition related expenses of $227,000.
At the time of the acquisition, the value of in-process research and
development was comprised of on-going projects related to the design and
development of an Internet Relationship Commerce (IRC) software solution. The
acquired in-process research and development was valued at $450,000 by Inference
management with the assistance of an independent appraiser. The value of the
purchased in-process technology was determined by estimating the projected net
cash flows related to such projects. These cash flows were discounted back to
their net present value at appropriate risk adjusted rates. The resulting
projected net cash flows from such projects were based on management's estimates
of revenues and operating profits related to such projects. These estimates were
based on several assumptions, including those summarized below. This valuation
was predicated on the determination that the developmental projects at the time
of acquisition were not technologically feasible and had no future alternative
use. This assumption was based on the anticipated effort required to bring the
acquired technologies to technological feasibility as illustrated by the fact
that Verix had not completed coding, alpha testing, or beta documentation for
the technologies related to the projects and that the technologies of the
projects had no alternative use other than as a part of the software application
which was not yet complete. This value was attributable solely to the
development efforts completed as of the acquisition date. Consistent with
Inference's expectations at the time of acquisition, the products related to the
acquired in-process technology were made commercially available late in the
second quarter of fiscal 2000.
The total amount allocated to developed technology and goodwill is being
amortized on a straight-line basis over a period of five years from the date of
acquisition. The amount allocated to workforce is being amortized on a
straight-line basis over a period of two years.
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INFERENCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Business Acquisition (Continued)
Unaudited proforma combined results of operations for the six months ended
July 31, 1999 and 1998 have been prepared as if the acquisition occurred at the
beginning of each period.
<TABLE>
<CAPTION>
Six Months Ended July 31,
---------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Total revenues....................................... $ 11,905,000 $ 13,861,000
=============== ===============
Net loss............................................. $ (4,911,000) $ (4,153,000)
=============== ===============
Basic and diluted net loss per share................. $ (0.66) $ (0.55)
=============== ===============
</TABLE>
7. Restructuring Costs
During the quarter ended April 30, 1998, Inference recorded restructuring
charges, primarily related to severance costs, in the amount of $1.3 million, as
a result of a reduction in force and personnel changes in Inference's executive
management team. Employees were terminated from all areas of Inference,
including the marketing, development and administrative areas. Such changes
resulted from Inference's adoption of a new strategic direction and included a
12% reduction in the number of Inference employees. These charges were fully
paid as of July 31, 1998. Additional restructuring charges totaling $253,000
were recorded in July 1998 as a result of Inference's decision to downsize
operations in its subsidiary in France. These charges were fully paid as of July
31, 1999.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical information contained herein, this Form 10-Q
contains forward-looking statements that are subject to certain risks, trends
and uncertainties that could cause actual results to differ materially from
those expressed in or implied by such forward looking statements. Factors that
could cause or contribute to differences in the final results include, but are
not limited to, timeliness of new k-Commerce product releases, fluctuations in
quarterly operating results, the size and timing of customer orders for product
licenses, changes in the competitive marketplace, market acceptance and customer
demand for k-Commerce product offerings, risks of entering markets in which
Inference has limited or no prior experience and the potential loss of key
employees. Second quarter financial results are not an indication of future
results. These business factors and others are discussed further in the section
of this Form 10-Q entitled "Year 2000 Compliance," "Additional Factors That May
Affect Future Results," and "Quantitative and Qualitative Disclosures about
Market Risk." Readers should also carefully review the business and risk factors
described in the documents Inference files from time to time with the Securities
and Exchange Commission, including, without limitation, the Annual Report on
Form 10-K, Current Reports on Form 8-K and Registration Statement on Form S-3.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto.
Results of Operations
The following table sets forth the percentages that certain statement of
operations items are to total revenues for the three and six months ended July
31, 1999 and 1998:
<TABLE>
<CAPTION>
Three months ended Six months ended
July 31, July 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Products..................................... 39% 55% 44% 52%
Services..................................... 61% 45% 56% 48%
========= ========= ========= =========
Total...................................... 100% 100% 100% 100%
Operating costs and expenses:
Products..................................... 5% 2% 3% 3%
Services..................................... 31% 23% 28% 26%
Product development.......................... 35% 19% 28% 18%
Sales and marketing.......................... 64% 50% 63% 54%
General and administrative................... 17% 14% 15% 16%
Amortization of intangibles.................. 1% -- 1% --
Acquisition related.......................... -- -- 6% --
Restructuring................................ -- 3% -- 11%
========= ========= ========= =========
Total...................................... 153% 111% 144% 128%
--------- --------- --------- ---------
Loss from operations........................... (53%) (11%) (44%) (28%)
========= ========= ========= =========
</TABLE>
Three months ended July 31, 1999 and July 31, 1998
Revenues
Inference recognizes revenue in accordance with the Statement of Position
97-2, Software Revenue Recognition ("SOP 97-2"), as amended by Statement of
Position 98-4, Deferral of the Effective Date of a Provision of SOP 97-2 ("SOP
98-4"). We derive revenue from the sale of software licenses, post-contract
support ("support") and other services. Support includes telephone technical
support, bug fixes, and rights to unspecified upgrades on a when-and-if
available basis. Services range from installation, training, and consulting to
meet specific customer needs. In software arrangements that include rights to
multiple software products, specified upgrades, support and/or other services,
we allocate the total arrangement fee among each deliverable based on the
relative fair value of each of the deliverables determined based on vendor-
specific objective evidence.
-12-
<PAGE>
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Inference
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable. If the fee due from the customer is
not fixed or determinable, revenue is recognized as payments become due from the
customer. If collectibility is not considered probable, revenue is recognized
when the fee is collected.
Revenue allocable to support is recognized on a straight-line basis over
the period support is provided.
Arrangements that include other software services are evaluated to
determine whether those services are essential to the functionality of other
elements of the arrangement. When services are considered essential, revenue
under the arrangement is recognized using contract accounting. When services are
not considered essential, the revenue allocable to the software services is
recognized as the services are performed.
Total revenues decreased to $5,506,000 in the three months ended July 31,
1999 from $7,512,000 in the three months ended July 31, 1998, representing a 27%
decrease, which was primarily attributable to a decrease in product revenue.
During the three month period ended July 31, 1998, one customer accounted for
12% of total revenues.
Total revenues from the Americas operations decreased to $3,039,000 in the
three months ended July 31, 1999 from $4,252,000 in the three months ended July
31, 1998, representing a 29% decrease. Total international revenues decreased to
$2,467,000 in the three months ended July 31, 1999 from $3,260,000 in the three
months ended July 31, 1998, representing a 24% decrease. Total international
revenues for the three months ended July 31, 1999 and July 31, 1998 represented
45% and 43% of total revenues, respectively. We currently have subsidiaries in
the United Kingdom, France and the Netherlands, offering licenses and consulting
services, and have relationships with 10 distributors worldwide, serving Europe,
the Middle East and Africa, and Asia and the Pacific Rim. International
operations, however, are subject to various risks, including unexpected changes
in regulatory requirements, tariffs and other trade barriers; costs and risks of
localizing products for foreign countries; longer accounts receivable payment
cycles; potentially adverse tax consequences; repatriation of earnings; exchange
rate fluctuations; and the burdens of complying with a wide variety of foreign
laws. There can be no assurance that such factors will not have an adverse
effect on the revenues from our future international operations and,
consequently, our results of operations and financial condition.
Product Revenue
Product revenue decreased to $2,132,000 in the three months ended July 31,
1999 from $4,118,000 in the three months ended July 31, 1998, representing a
decrease of 48%. The decrease in product revenue was due to lower unit sales
volumes. The prices of our products have remained relatively constant. Product
revenue represented 39% and 55% of total revenues for the three months ended
July 31, 1999 and July 31, 1998. During the three month period ended July 31,
1999, two customers in the aggregate accounted for 34% of total product revenue,
or 15% of total revenues, while during the three month period ended July 31,
1998, one customer accounted for 21% of total product revenue.
Product revenue from the Americas operations decreased to $868,000 in the
three months ended July 31, 1999 from $2,396,000 in the three months ended July
31, 1998, representing a 64% decrease. International product revenue decreased
to $1,264,000 in the three months ended July 31, 1999 from $1,722,000 in the
three months ended July 31, 1998, representing a 27% decrease.
Service Revenue
Total service revenue decreased to $3,374,000 in the three months ended
July 31, 1999 from $3,394,000 in the three months ended July 31, 1998,
representing a 1% decrease.
Service revenue from the Americas operations increased to $2,171,000 in the
three months ended July 31, 1999 from $1,856,000 in the three months ended July
31, 1998, representing a 17% increase. The increase was primarily due to
increased maintenance revenue. International service revenue decreased to
$1,203,000 in the three months ended July 31, 1999 from $1,538,000 in the three
months ended July 31, 1998, representing a 22% decrease. The decrease primarily
-13-
<PAGE>
resulted from a decline in consulting revenue attributable to decreased
headcount in the international professional services operations, partially
offset by increased maintenance revenue.
Cost of Product Revenue
Cost of product revenue, consisting primarily of the costs of product media
and duplication, manuals, packaging materials, personnel-related costs, shipping
expenses and royalties paid to third-party vendors, increased to $247,000 in the
three months ended July 31, 1999 from $161,000 in the three months ended July
31, 1998, representing a 53% increase. The increase primarily resulted from an
increase in royalties paid to third-party vendors. The gross margin on product
revenue was 88% and 96% for the three months ended July 31, 1999 and July 31,
1998, respectively. The decrease was primarily related to a decline in product
revenues.
As part of its development of the k-Commerce product line, we intend to
incorporate certain third party technology into its products, allowing us to
focus on providing quality, performance and functionality in its knowledge-based
technology. To the extent that we are required to pay royalties to these third
parties, the gross margin on product revenues will decrease accordingly.
Cost of Service Revenue
Cost of service revenue, consisting principally of personnel-related costs
for consulting, training and technical support, decreased to $1,698,000 in the
three months ended July 31, 1999 from $1,723,000 in the three months ended July
31, 1998, representing a 1% decrease. The gross margin on service revenue was
50% and 49% for the three months ended July 31, 1999 and July 31, 1998,
respectively.
Product Development
Product development expenses consist primarily of employee-related costs,
including salaries, benefits, equipment and facility costs, incurred in the
research, design, development and enhancement of our products. Product
development expenses increased to $1,942,000 in the three months ended July 31,
1999 from $1,437,000 in the three months ended July 31, 1998, representing a 35%
increase. The increase was primarily due to the growth of the product
development organization to expand on our k-Commerce product suite. Product
development expenses as a percentage of total revenues were 35% and 19% for the
three months ended July 31, 1999 and July 31, 1998, respectively.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, benefits and
commissions of sales and marketing personnel, trade shows and promotional
expenses, and non-chargeable customer field service and sales support. Sales and
marketing expenses decreased to $3,540,000 in the three months ended July 31,
1999 from $3,738,000 in the three months ended July 31, 1998, representing a 5%
decrease. The decrease was primarily attributable to a decline in commissions
resulting from lower unit sales volumes. Sales and marketing expenses as a
percentage of total revenues were 64% and 50% for the three months ended July
31, 1999 and July 31, 1998, respectively.
General and Administrative
General and administrative expenses consist of the personnel costs for
finance and accounting, human resources, information systems and general
management of Inference. General and administrative expenses decreased to
$946,000 in the three months ended July 31, 1999 from $1,046,000 in the three
months ended July 31, 1998, representing a 10% decrease. The decrease in general
and administrative expenses primarily resulted from significant legal fees
incurred during the three months ended July 31, 1998 associated with the
ServiceSoft litigation, which was settled in July 1998. General and
administrative expenses as a percentage of total revenues were 17% and 14% for
the three months ended July 31, 1999 and July 31, 1998, respectively.
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Amortization of Intangible Assets
We recorded amortization of intangible assets of $61,000 for the three
months ended July 31, 1999. This was based upon intangible assets of $1,067,000
recorded in connection with the acquisition of Verix Software.
Restructuring
We recorded restructuring charges totaling $253,000 in July 1998 as a
result of our decision to downsize operations in our subsidiary in France. These
charges were fully paid as of July 31, 1999.
Interest Income and Other Expenses, Net
Interest income and other expenses, net, primarily interest income,
increased to $244,000 in the three months ended July 31, 1999 from $242,000 in
the three months ended July 31, 1998, representing a 1% increase. The slight
change was primarily due to a decrease in other expenses resulting from a
reduction in foreign exchange losses.
Six months ended July 31, 1999 and July 31, 1998
Revenues
Total revenues decreased to $11,900,000 in the six months ended July 31,
1999 from $13,861,000 in the six months ended July 31, 1998, representing a 14%
decrease, which was primarily attributable to a decrease in product revenue.
Total revenues from the Americas operations decreased to $6,972,000 in the
six months ended July 31, 1999 from $7,960,000 in the six months ended July 31,
1998, representing a 12% decrease. Total international revenues decreased to
$4,928,000 in the six months ended July 31, 1999 from $5,901,000 in the six
months ended July 31, 1998, representing a 16% decrease. Total international
revenues for the six months ended July 31, 1999 and July 31, 1998 represented
41% and 43% of total revenues, respectively.
Product Revenue
Product revenue decreased to $5,209,000 in the six months ended July 31,
1999 from $7,193,000 in the six months ended July 31, 1998, representing a
decrease of 28%. The decrease in product revenue was due to lower unit sales
volumes. The prices of our products have remained relatively constant. Product
revenue represented 44% and 52% of total revenues for the six months ended July
31, 1999 and July 31, 1998. During the six months ended July 31, 1999, one
customer accounted for 10% of total product revenue, while during the six months
ended July 31, 1998, two customers in the aggregate accounted for 24% of total
product revenue, or 12% of total revenues.
Product revenue from the Americas operations decreased to $2,724,000 in the
six months ended July 31, 1999 from $4,288,000 in the six months ended July 31,
1998, representing a 36% decrease. International product revenue decreased to
$2,485,000 in the six months ended July 31, 1999 from $2,905,000 in the six
months ended July 31, 1998, representing a 14% decrease.
Service Revenue
Total service revenue increased to $6,691,000 in the six months ended July
31, 1999 from $6,668,000 in the six months ended July 31, 1998, representing an
increase of less than 1%.
Service revenue from the Americas operations increased to $4,248,000 in the
six months ended July 31, 1999 from $3,672,000 in the six months ended July 31,
1998, representing a 16% increase. The increase was primarily due to increased
maintenance revenue. International service revenue decreased to $2,443,000 in
the six months ended July 31, 1999 from $2,996,000 in the six months ended July
31, 1998, representing an 18% decrease. The decrease primarily resulted from a
decline in consulting revenue attributable to decreased headcount in the
international professional services operations, partially offset by increased
maintenance revenue.
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Cost of Product Revenue
Cost of product revenue increased to $405,000 in the six months ended July
31, 1999 from $378,000 in the six months ended July 31, 1998, representing a 7%
increase. The gross margin on product revenue was 92% and 95% for the six
months ended July 31, 1999 and July 31, 1998, respectively.
Cost of Service Revenue
Cost of service revenue decreased to $3,382,000 in the six months ended
July 31, 1999 from $3,562,000 in the six months ended July 31, 1998,
representing a 5% decrease. The gross margin on service revenue was 49% and 47%
for the six months ended July 31, 1999 and July 31, 1998, respectively.
Product Development
Product development expenses increased to $3,389,000 in the six months
ended July 31, 1999 from $2,502,000 in the six months ended July 31, 1998,
representing a 35% increase. The increase was primarily due to the growth of
the product development organization to expand on our k-Commerce product suite.
Product development expenses as a percentage of total revenues were 28% and 18%
for the six months ended July 31, 1999 and July 31, 1998, respectively.
Sales and Marketing
Sales and marketing expenses decreased to $7,462,000 in the six months
ended July 31, 1999 from $7,471,000 in the six months ended July 31, 1998,
representing a decrease of less than 1%. Sales and marketing expenses as a
percentage of total revenues were 63% and 54% for the six months ended July 31,
1999 and July 31, 1998, respectively.
General and Administrative
General and administrative expenses decreased to $1,775,000 in the six
months ended July 31, 1999 from $2,247,000 in the six months ended July 31,
1998, representing a 21% decrease. The decrease in general and administrative
expenses primarily resulted from significant legal fees incurred during the six
months ended July 31, 1998 associated with the ServiceSoft litigation, which was
settled in July 1998. General and administrative expenses as a percentage of
total revenues were 15% and 16% for the six months ended July 31, 1999 and July
31, 1998, respectively.
Amortization of Intangible Assets
We recorded amortization of intangible assets of $61,000 for the six months
ended July 31, 1999. This was based upon intangible assets of $1,067,000
recorded in connection with the acquisition of Verix Software.
Acquisition Related
A total of $677,000 was expensed in the quarter ended April 30, 1999
relating to acquisition items. This was comprised of in-process research and
development of $450,000 and other acquisition related expenses of $227,000.
At the time of the acquisition, the value of in-process research and
development was comprised of on-going projects related to the design and
development of an Internet Relationship Commerce (IRC) software solution. The
acquired in-process research and development was valued at $450,000 by Inference
management with the assistance of an independent appraiser. The value of the
purchased in-process technology was determined by estimating the projected net
cash flows related to such projects. These cash flows were discounted back to
their net present value at appropriate risk adjusted rates. The resulting
projected net cash flows from such projects were based on management's estimates
of revenues and operating profits related to such projects. These estimates were
based on several assumptions, including those summarized below. This valuation
was predicated on the determination that the developmental projects at the time
of acquisition were not technologically feasible and had no future alternative
use. This assumption was based on the anticipated effort required to bring the
acquired technologies to technological feasibility as illustrated by the fact
that Verix had not completed coding, alpha testing, or beta documentation for
the technologies related to the projects and that the technologies of the
projects had no alternative use other than as a part of the software application
which was not yet complete. This value was attributable solely to the
development efforts completed as of the acquisition date.
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Consistent with Inference's expectations at the time of acquisition, the
products related to the acquired in-process technology were made commercially
available late in the second quarter of fiscal 2000.
Restructuring
During the quarter ended April 30, 1998, we recorded restructuring charges,
primarily related to severance costs, in the amount of $1.3 million, as a result
of a reduction in force and personnel changes in our executive management team.
Employees were terminated from all areas of Inference, inlcuding the marketing,
development and administrative areas. Such changes resulted from our adoption
of a new strategic direction and included a 12% reduction in the number of
Inference employees. These charges were fully paid as of July 31, 1998.
Additional restructuring charges totaling $253,000 were recorded in July 1998 as
a result of our decision to downsize operations in our subsidiary in France.
These charges were fully paid as of July 31, 1999.
Interest Income and Other Expenses, Net
Interest income and other expenses, net, primarily interest income,
decreased to $513,000 in the six months ended July 31, 1999 from $616,000 in the
six months ended July 31, 1998, representing a 17% decrease. The decrease was
primarily due to a decrease in interest income resulting from a reduction in
cash and cash equivalents.
Liquidity and Capital Resources
Cash and cash equivalents at July 31, 1999 were $21,204,000, a decrease of
$4,557,000 since January 31, 1999. Working capital at July 31, 1999 was
$19,089,000.
Net cash used in operating activities amounted to $4,923,000 during the six
months ended July 31, 1999, as compared to net cash used in operating activities
of $1,436,000 during the six months ended July 31, 1998.
Investing activities for the six months ended July 31, 1999 included
$556,000 for net purchases of property and equipment and $84,000 related to the
acquisition of Verix Software. We had no significant capital commitments as of
July 31, 1999.
Cash provided by financing activities for the six months ended July 31,
1999 included $1,050,000 for the issuance of 369,000 shares of our common stock.
Our international operations are principally transacted in British pounds.
Translation into our reporting currency, the U.S. dollar, has not historically
had a material impact on our financial position. Additionally, our net assets
denominated in currencies other than the functional currency has not exposed us
to material risk associated with fluctuations in currency rates. Given this and
the relatively stable nature of the exchange rates, historically, between the
British pound and the U.S. dollar, we have not considered it necessary to use
foreign currency contracts or other derivative instruments to manage changes in
currency rates. However, future changes in the exchange rates between the
foreign currencies and the U.S. dollar could have an adverse effect on our
financial position.
We believe that existing cash balances, taking into consideration the
anticipated effect of cash flows from operations, will be sufficient to meet our
working capital and capital expenditure requirements for at least the next
twelve months.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
WE HAVE RECENTLY EXPERIENCED QUARTERLY LOSSES, WE EXPECT TO INCUR LOSSES IN THE
NEAR FUTURE AND WE MAY NOT EVER BECOME PROFITABLE
We have now experienced losses in four of the last six quarters. As of
July 31, 1999, we had an accumulated deficit of approximately $26.1 million. We
expect to continue to incur net losses in the near future and possibly longer.
We anticipate that our expenses will continue to be high in the foreseeable
future as we continue to develop our technology, expand our distribution
channels and increase our sales and marketing activities. These efforts may
prove more expensive than we currently anticipate and we may not succeed in
increasing our revenue sufficiently to offset these
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higher expenses. If we fail to increase our revenues to keep pace with our
expenses, we will continue to incur losses. If we do achieve profitability in
any period, we cannot be certain that we will sustain or increase such
profitability on a quarterly or annual basis.
FAILURE TO ACHIEVE BROAD MARKET ACCEPTANCE OF THE K-COMMERCE SUITE OF PRODUCTS
MAY MATERIALLY ADVERSELY AFFECT OUR REVENUE
We have released our k-Commerce Sales line of products, which are intended
to enable our customers to provide real-time and targeted sales promotions to
drive Web direct selling. Broad market acceptance of our k-Commerce Sales line
of products and our existing k-Commerce Support line of products is critical to
our future success. As a result, a decline in demand for or failure to achieve
broad market acceptance of k-Commerce products as a result of competition,
technological change or otherwise would have a material adverse effect on our
business, operating results and financial condition. As part of the k-Commerce
initiative, we have entered into several partnering agreements for the purposes
of extending the offerings and capabilities of our products. There can be no
assurance that these relationships will translate into increased revenues or
additional demand for our products.
DELAYS IN PRODUCT DEVELOPMENT MAY MATERIALLY ADVERSELY AFFECT OUR REVENUE
Our primary product development effort is focused on building and enhancing
the k-Commerce product line. There can be no assurance that the further
development of this new product line will be completed successfully or on a
timely basis or that the product will include the features required to achieve
market acceptance. Our future operations will be substantially dependent on the
k-Commerce product line, and failure to achieve market acceptance of this family
of products would have a material adverse effect on Inference's business,
operating results and financial condition.
We have in the past experienced delays in software development, and there
can be no assurance that we will not experience further delays in connection
with our current product development or future development activities. Software
products as complex as those offered by Inference may contain undetected errors
when first introduced or as new versions are released. Despite the quality
assurance procedures we currently have in place, there can be no assurance that
errors will not be found in our new or enhanced products after commencement of
commercial shipments, or that modifications to such products will not be
required to satisfy customer requirements, resulting in loss of or delay in
market acceptance. Delays or difficulties associated with new product
introductions or product enhancements could have a material adverse effect on
our business, operating results and financial condition.
THERE ARE MANY FACTORS, INCLUDING SOME BEYOND OUR CONTROL, THAT MAY CAUSE
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
We have experienced significant quarterly fluctuations in operating results
and we anticipate that such fluctuations will continue in the future depending
on a number of factors described below, including many that are beyond our
control. As a result, we believe that quarter-to-quarter comparisons of our
financial results are not necessarily meaningful, and you should not rely on
them as an indication of our future performance. These factors include:
. Changes in demand for our software, including changes in industry
growth rates for our products
. Varying size, timing and contractual terms of customer orders for our
products
. Fluctuation of consulting service revenues depending upon the status
of projects
. Varying budgeting cycles of our existing and potential customers
. Any downturn in our customers' businesses, in the domestic economy or
in international economies where our customers do substantial
business
. Changes in our pricing policies resulting from competitive pressures
such as aggressive price discounting by our competitors
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. Our ability to develop and introduce on a timely basis new products
or enhanced versions of our existing software
. Changes in the mix of revenues attributable to domestic and
international sales
. Seasonal buying patterns which tend to peak in the fourth quarter
. Changes in the mix of revenue attributable to higher-margin software
license revenue as opposed to substantially lower-margin service
revenue
Certain of the above factors can have a particularly significant effect on
our quarterly results, and they include the following:
FLUCTUATIONS IN LARGE CONTRACT LICENSE REVENUE. The value of individual
licenses as a percentage of quarterly revenues can be substantial, and
particular licenses may generate a substantial portion of the operating profits
for the quarter in which they are signed. To the extent Inference relies on
these large orders to meet our quarterly operating objectives, failure to close
such contracts in compliance with SOP 97-2, as modified by SOP 98-4, and in a
specified time period, could adversely affect our operating results.
VARYING SALES CYCLE. Product revenue is also difficult to forecast because
the market for client/server and web-based software products is rapidly
evolving, and our sales cycle, from initial trial to multiple copy purchases and
the provision of support services, varies substantially from customer to
customer. Because our staffing and other operating expenses are based on
anticipated revenues, a substantial portion of which is not typically generated
until the end of each quarter, delays in the receipt of orders can cause
significant variations in operating results from quarter to quarter. We also
may choose to reduce prices or to increase spending in response to competition
or to pursue new market opportunities, which may adversely affect Inference's
operating results. Accordingly, we believe that period-to-period comparisons of
our results of operations may not be meaningful and should not be relied upon as
an indication of future performance.
POTENTIAL CHANGES IN MIX OF LICENSE AND SERVICE REVENUE. Historically, a
majority of our revenue has been attributable to the licensing of our software
products. Changes in the mix of software products and services sold by us,
including the mix between higher margin software products and lower margin
maintenance, consulting and training, could materially affect our operating
results for future quarters.
Due to all of the foregoing factors, it is likely that in some future
quarters our operating results will be below the expectations of investors.
Regardless of the general outlook for Inference's business, the announcement of
quarterly operating results below investor expectations is likely to result in a
decline in the trading price of Inference's Class A Common Stock.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR SOFTWARE OR OUR INTERNAL OPERATING SYSTEMS
COULD ADVERSELY AFFECT OUR BUSINESS
Many computer systems were not designed to handle any dates beyond the year
1999, and therefore computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. We have completed a Year
2000 compliance review for all products released through July 31, 1999. We do
not anticipate that addressing the Year 2000 problem for our products will have
a material impact on operations or financial results. To date, costs incurred
in remediating identified Year 2000 issues have not been material.
All our products are capable of correctly identifying, manipulating, and
performing calculations on dates later than December 31, 1999, where operations
based on dates held in 2 digit format are affected due to re-sequencing from 99
to 00. We have instituted, within our product design specifications, the
requirement that internal date representations are held in full format and
manipulations are not performed on short formats. This assumes the software is
used in accordance with its associated documentation and provided that when the
software is linked up to other components, such components factor in the
calendar date on the same conditions as our products. However, despite design
review and ongoing testing, our products may contain undetected errors or
defects associated with Year 2000 date handling.
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Known or unknown errors or defects in its products could result in (i) delay or
loss of revenue; (ii) diversion of development resources; (iii) damage to
reputation; and (iv) increased service and warranty costs. The occurrence of any
of these errors or defects could adversely affect our business, operations and
financial condition.
Year 2000 issues may also affect the computer systems used internally by us
to manage and operate our business. To date we have not incurred and do not
believe that we will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be Year 2000 compliant. As
of July 31, 1999, we were in the process of reviewing all internal hardware
systems and software applications, both domestically and internationally, to
determine that they are complaint with the Year 2000. However, we may
experience significant unanticipated problems and costs caused by undetected
errors or defects in internal systems. We believe that the worst-case scenario
if such problems occur would be our inability to ship products and record
revenue, which would materially adversely affect our business, operations and
financial condition.
We do not currently have any information concerning the Year 2000
compliance status of our customers or prospective customers. If current or
future customers fail to achieve Year 2000 compliance or if they divert
technology expenditures (especially technology expenditures reserved for
software and services) to address Year 2000 compliance issues, our business,
results of operations or financial condition would be materially adversely
affected.
We have funded our Year 2000 activities from available cash and we have not
separately accounted for these costs in the past. To date, these costs have not
been material. We may incur additional costs for administrative, customer
support, internal IT and product engineering activities to address ongoing Year
2000 issues. We are in the process of developing a contingency plan to address
situations that may result if unanticipated problems caused by undetected errors
or defects in either internal systems or the Company's products arise. Our
contingency plan is expected to be complete in the third quarter of fiscal year
2000. The cost of developing and implementing such a plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions.
OUR INDUSTRY CHANGES RAPIDLY DUE TO EVOLVING TECHNOLOGY STANDARDS AND OUR FUTURE
SUCCESS WILL DEPEND ON OUR ABILITY TO CONTINUE TO MEET THE SOPHISTICATED NEEDS
OF OUR CUSTOMERS
The market for our products changes rapidly and our future success will
depend on our ability to continue to timely meet changing market conditions and
customer demands. The market for our products is characterized by rapid
technological developments, evolving industry standards, swift changes in
customer requirements and frequent new product introductions and enhancements.
As a result, our success depends upon our ability to continue to enhance our
existing products, respond to customer requirements, develop and introduce, in a
timely manner, new products incorporating technological advances and to address
the increasingly sophisticated needs of our customers by supporting existing and
emerging hardware, software, database and networking platforms. We will have to
develop and introduce enhancements to our existing products and new products on
a timely basis to keep pace with technological developments, evolving industry
standards and changing customer requirements. We expect that we will have to
respond quickly to:
. Rapid technological change
. Changing customer needs
. Frequent new product introductions
. Evolving industry standards that may render existing products and
services obsolete
To the extent one or more of our competitors introduce products that more
fully address customer requirements, our business, operating results and
financial condition could be adversely affected. There can be no assurance that
we will be successful in developing and marketing new products or enhancements
to our existing products on a timely basis or that any new or enhanced products
will adequately address the changing needs of the marketplace. As a result, our
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position in existing markets or potential markets could be eroded rapidly by
product advances. The life cycles of our products are difficult to estimate.
Our growth and future financial performance will depend in part upon our ability
to:
. Continue to enhance our existing products
. Develop and introduce new applications that keep pace with
technological advances on a timely and cost-effective basis
. Meet changing customer requirements
. Match or exceed the product deliveries of our competitors
If we are unable to develop and introduce new products or enhancements to
existing products in a timely manner in response to changing market conditions
or customer requirements, our business, operating results and financial
condition will be materially and adversely affected. From time to time, we or
our competitors may announce new products, capabilities or technologies that
have the potential to replace or shorten the life cycles of our existing
products. There can be no assurance that announcements of currently planned or
other new products will not cause customers to delay their purchasing decisions
in anticipation of such products, which could have a material adverse effect on
our business, operating results and financial condition.
We expect that our product development efforts will continue to require
substantial investments to be able to attract and retain qualified software
development engineers. We may not have sufficient resources to make the
necessary investments. Any of these events could have a material adverse effect
on our business, quarterly and annual operating results and financial condition.
WE MAY LOSE LARGE ENTERPRISE CUSTOMER PURCHASES WHICH MAY MATERIALLY ADVERSELY
AFFECT OUR REVENUE
We occasionally sell our products to large enterprise customers. Large
enterprise customers are expected to deploy our products in business critical
operations which involve significant capital and management commitments by such
customers. Potential large enterprise customers generally commit significant
resources to an evaluation of available software and require us to expend
substantial time, effort and money educating them about the value of our
solutions. Sales of our products to such customers require an extensive sales
effort throughout a customer's organization because decisions to purchase such
products generally involve the evaluation of the software by a significant
number of customer personnel in various functional and geographic areas, each
often having specific and conflicting requirements. A variety of factors,
including factors over which we have little or no control, may cause potential
large enterprise customers to favor a particular supplier or to delay or forego
a purchase. As a result of these or other factors, the sales cycle for our
products to these large customers is long, typically ranging between three and
nine months. As a result of the length of the sales cycle and the significant
selling expenses resulting from selling into the large enterprise, our ability
to forecast the timing and amount of specific sales is limited. The delay or
failure to complete, in compliance with SOP 97-2, one or more large transactions
to which we have devoted significant resources could have a material adverse
effect on our business, operating results or financial condition and could cause
significant variations in our operating results from quarter to quarter.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS
AND THE LOSS OF ONE OR MORE OF SUCH OFFICERS AND KEY PERSONNEL OR THE
UNSUCCESSFUL INTEGRATION OF REPLACEMENTS FOR SUCH PERSONNEL COULD MATERIALLY
ADVERSELY AFFECT OUR BUSINESS
Our success will depend to a significant extent on the continued service of
certain key sales, technical and senior management personnel. If we lost the
services of one or more of our senior executives or key employees, this could
materially adversely affect our business, results of operations and financial
condition, particularly if one or more of our senior executives or key employees
decided to join a competitor, or otherwise compete directly or indirectly with
Inference. In addition, we do not maintain key man life insurance on our
employees and have no plans to do so.
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On July 19, 1999, we hired Al Schallop as Vice President of the America's
field operations, who is responsible for our sales operations, field marketing
and professional services efforts throughout the Americas. Mr. Schallop
replaces Glen Vondrick, who resigned from Inference effective June 17, 1999.
Mr. Schallop may not integrate well with our existing management team, or he may
be unsuccessful in fulfilling our desired objectives for the position. The
occurrence of any of these factors could materially adversely affect our
business, results of operations and financial condition.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUSTAIN OR
GROW OUR BUSINESS
We consider our relationship with our employees to be good, and there has
never been an interruption in our business activities due to labor unrest.
However, our future performance is contingent upon the uninterrupted service of
key sales, technological and executive management staff and upon the maintenance
of conditions that can help attract and retain capable salespeople, technicians
and managers.
We may not be successful in attracting, training and retaining qualified
personnel, and the failure to do so, particularly in key functional areas such
as product development and sales, could materially adversely affect our
business, results of operations and financial condition. Competition for such
personnel in the computer software industry is intense, and in the past we have
experienced difficulty in recruiting qualified personnel, especially developers
and sales personnel. The demand for qualified personnel is particularly acute
in the San Francisco Bay Area, due to the large number of software companies and
the low unemployment in the region. Our future success will likely depend in
large part on our ability to attract and retain additional experienced sales,
technical, marketing and management personnel. We expect competition for
qualified personnel to remain intense, and we may not succeed in attracting or
retaining such personnel.
OUR FAILURE TO EXPAND OUR DIRECT SALES FORCE AND THIRD-PARTY DISTRIBUTION
CHANNELS WOULD IMPEDE OUR REVENUE GROWTH AND FINANCIAL CONDITION
To increase our revenue, we must increase the size of our direct sales
force and the number of our indirect marketing and distribution partners,
including software and hardware vendors and resellers. A failure to do so could
have a material adverse effect on our business, operating results and financial
condition. There is intense competition for sales personnel in our business,
and we may not be successful in attracting, integrating, motivating or retaining
new personnel for these positions. In addition, our existing or future
marketing and distribution partners may choose to devote greater resources to
marketing and supporting the products of competitors.
COMPETITION MAY AFFECT THE AMOUNT OF REVENUE WE CAN GENERATE FROM SALES OF OUR
PRODUCTS AND SERVICES WHICH COULD ADVERSELY AFFECT OUR BUSINESS
The market for customer support software is highly competitive, and there
are certain competitors with substantially greater sales, marketing, development
and financial resources than us. Among our major competitors in the problem
identification and resolution segment of the market are Primus Knowledge
Solutions, Inc., Clarify, Inc. and Verity, Inc. and other small privately held
companies. Furthermore, many potential customers implement low-end text
retrieval solutions or develop internal applications that eliminate the need to
acquire software and services from third-party vendors such as us.
We believe that the competitive factors affecting the market for our
products and services include vendor and product reputation; product quality,
performance and price; product functionality and features; product scaleability;
product integration with other enterprise applications; the availability of
products on multiple platforms; product ease-of-use; and the quality of customer
support services, documentation and training. The relative importance of each
of these factors depends upon the specific customer involved. There can be no
assurance that we will be able to compete effectively with respect to any of
these factors.
Our present or future competitors may be able to develop products
comparable or superior to those offered by us or adapt more quickly than us to
new technologies or evolving customer requirements. In order to be successful
in future, we must respond to technological change, customer requirements and
competitors' current products and innovations. In particular, while we are
currently developing additional product enhancements that we believe address
customer
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<PAGE>
requirements, there can be no assurance that we will successfully complete the
development or introduction of these additional product enhancements on a timely
basis or that these product enhancements will achieve market acceptance.
Accordingly, there can be no assurance that we will be able to continue to
compete effectively in its market, that competition will not intensify or that
future competition will not have a material adverse effect on our business,
operating results and financial condition.
OUR FUTURE REVENUE IS SUBSTANTIALLY DEPENDENT UPON SERVICE REVENUES; WHICH IS
DEPENDENT ON FUTURE SALES OF OUR SOFTWARE PRODUCTS
We depend on our installed customer base for service revenues. Service
revenues depend in part on ongoing renewals of support contracts by our
customers, some of which may not renew their support contracts. Therefore, our
current customers may not necessarily generate significant service revenue in
future periods. In addition, our customers may not necessarily purchase
additional products or professional services. Our service revenue is also
dependent upon the continued use of these services by our installed customer
base. Service revenues represented 43% of total revenues for fiscal 1999, 53%
for fiscal 1998 and 43% for fiscal 1997. We anticipate that service revenues
will continue to represent a significant percentage of total revenues. Because
service revenues have lower gross margins than license revenues, a continued
increase in the percentage of total revenues represented by service revenues or
an unexpected decrease in license revenues could have a detrimental impact on
overall gross margins and operating results. If service revenues are lower than
anticipated, Inference's business, financial condition and operating results
could be materially and adversely affected.
THE MARKET PRICE OF OUR CLASS A COMMON STOCK WILL LIKELY BE SUBJECT TO
SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS DUE TO A NUMBER OF FACTORS, CERTAIN OF
WHICH ARE BEYOND OUR CONTROL
Stock prices and trading volumes for many software companies fluctuate
widely for a number of reasons, including some reasons which may be unrelated to
their businesses or results of operations. This market volatility, as well as
general domestic or international economic, market and political conditions,
could materially adversely affect the market price of our common stock without
regard to our operating performance. In addition, our operating results may be
below the expectations of public market analysts and investors. If this were to
occur, the market price of our common stock would likely decrease significantly.
The market price of our common stock has fluctuated significantly in the past
and may continue to fluctuate significantly because of:
. Future announcements concerning us or our competitors
. Quarterly variations in operating results
. Announcements of technological innovations
. Changes in product pricing policies by us or our competitors
. Litigation relating to proprietary rights or otherwise
. Market uncertainty about our financial condition or business prospects
or the prospects for our market in general
. Revenues or results of operations that do not match analysts'
expectations
. The introduction of new products or product enhancements by us or our
competitors
. General business conditions in our industry
. Changes in the mix of revenues attributable to license and maintenance
sales
. Seasonal trends in technology purchases and other general economic
conditions
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<PAGE>
WE MAY BE UNABLE TO INTEGRATE THE RECENTLY ACQUIRED VERIX SOFTWARE BUSINESS INTO
OUR BUSINESS SUCCESSFULLY
If we do not successfully integrate Verix Software into our business, this
may materially adversely affect our business and future operating results.
Additionally, we may never achieve the anticipated synergies from the
acquisition of Verix, including marketing, distribution or other operational
benefits. Our acquisition of Verix, which was completed in April 1999, will
require integrating the businesses and operations of the two companies. We
acquired Verix with the intent of adding their Web customer profiling,
personalization, product configuration and real-time sales promotions technology
to our k-Commerce solution to enable real-time and targeted sales promotions to
drive Web direct selling. Potential problems with this integration could
include:
. Impairment of relationships with Verix customers
. Difficulties in standardizing sales quotas, territories and incentive
compensation plans for sales personnel
. Difficulties in integrating Verix's distribution channels with our
existing channels
. The lack of focus on achieving our core business objectives if
management pays excessive attention to the integration process
ANY ACQUISITIONS OR INVESTMENTS THAT WE MAY MAKE WILL BE SUBJECT TO A NUMBER OF
FACTORS WHICH COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS AND SUCH
INVESTMENTS OR ACQUISITIONS MAY DILUTE EXISTING STOCKHOLDERS
As part of our business strategy, we may in the future review acquisition
prospects that would complement our existing product offerings, augment our
market coverage or enhance our technological capabilities, or that may otherwise
offer growth opportunities. If we were to make such an acquisition or large
investments, the risks described below could materially adversely affect our
business and future operating results. However, we may not be able to complete
any such additional acquisitions in the future. Any future acquisition or
investment would present risks commonly encountered in acquisitions of
businesses. The following are examples of such risks:
. Difficulty in combining the technology, operations or work force of
the acquired business
. Disruption of Inference's on-going businesses
. Difficulty in realizing the potential financial or strategic benefits
of the transaction
. Difficulty in maintaining uniform standards, controls, procedures and
policies across the existing and acquired businesses
. Difficulty in entering markets where we have no or limited prior
experience
. Possible impairment of relationships with employees and customers as a
result of any integration of new businesses and management personnel
. Possible dilution to existing stockholders if the consideration for
such transaction is paid in common stock
. Possible write-offs of software development costs or other assets,
incurrence of severance liabilities, or amortization of expenses
related to goodwill and other intangible assets and/or the incurrence
of debt, any of which could materially adversely affect Inference's
business, financial conditions, cash flows and results of operations.
There can be no assurance that we would be successful in overcoming these
or any other significant risks encountered and failure to do so could have a
material adverse effect upon our business, operating results and financial
condition.
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<PAGE>
ERRORS IN OUR PRODUCTS OR THE FAILURE OF OUR PRODUCTS TO CONFORM TO CUSTOMER
SPECIFICATIONS OR EXPECTATIONS COULD RESULT IN OUR CUSTOMERS ASSERTING CLAIMS
FOR DAMAGES AGAINST US OR IN DECREASED SALES OF OUR PRODUCTS
Because our software products are complex, they often contain errors or
"bugs" that can be detected at any point in a product's life cycle. While we
continually test our products for errors and work with customers through our
customer support services to identify and correct bugs in our software, we
expect that errors in our products will continue to be found in the future.
Although many of these errors may prove to be immaterial, certain of these
errors could be significant. Detection of any significant errors may result in,
among other things, loss of, or delay in, market acceptance and sales of our
products, diversion of development resources, injury to our reputation, or
increased service and warranty costs. These problems could materially adversely
affect our business and future quarterly and annual operating results.
A key determinative factor in our future success will continue to be the
ability of our products to operate and perform well with existing and future
leading, industry-standard application software products intended to be used in
connection with our products. Failure to meet in a timely manner existing or
future interoperability and performance requirements of certain independent
vendors could adversely affect the market for our products.
Commercial acceptance of our products and services could also be adversely
affected by critical or negative statements or reports by brokerage firms,
industry and financial analysts and industry periodicals concerning us, our
products, business or competitors or by the advertising or marketing efforts of
competitors, or other factors that could affect consumer perception.
PRODUCT LIABILITY CLAIMS ASSERTED AGAINST US IN THE FUTURE COULD ADVERSELY
AFFECT OUR BUSINESS
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. However,
it is possible that the limitation of liability provisions contained in our
license agreements may not be effective under the laws of certain jurisdictions.
Although Inference has not experienced any product liability claims to date, the
sale and support of our products may entail the risk of such claims, and there
can be no assurance that we will not be subject to such claims in the future.
In particular, issues relating to Year 2000 compliance have increased awareness
of the potential adverse effects of software defects and malfunctions. While we
carry insurance policies covering this type of liability, these policies may not
provide sufficient protection should a claim be asserted. A material product
liability claim could materially adversely affect our business.
WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY RIGHTS WHICH OFFER ONLY LIMITED
PROTECTION AGAINST POTENTIAL INFRINGERS; IF WE CANNOT PROTECT OUR INTELLECTUAL
PROPERTY RIGHTS, OUR BUSINESS COULD BE ADVERSELY AFFECTED
Our success depends in part upon our proprietary technology. Although
case-based reasoning technology ("CBR") is available in the public domain, we
believe implementation of the CBR technology is proprietary. We rely primarily
on a combination of copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect our proprietary
rights. We have been awarded several patents for our CBR and related
technology. Our CBR technology is embedded in our current k-Commerce and CBR
family of products. Despite the precautions we have taken, it may be possible
for an unauthorized third party to copy or otherwise obtain and use our
products, technology or other information that we regard as proprietary or to
develop similar products or technology independently.
In addition, effective trademark, copyright and trade secret protection may
be unavailable or limited in certain foreign countries where we do not operate.
We may also be unable to protect our technology because:
. Unauthorized third parties may be able to copy aspects of our products
or to obtain and use our proprietary information including by our
licensing activities where we provide third parties with access to our
data model and other proprietary information underlying our licensed
applications
-25-
<PAGE>
. Our competitors may independently develop similar or superior
technology
. Policing unauthorized use of our software is difficult
. The laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States
. "Shrink-wrap" and/or "click-wrap" licenses may be wholly or partially
unenforceable under the laws of certain jurisdictions
We may have to employ litigation to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others and any litigation could prove to be
unsuccessful, result in substantial costs and diversion of resources and could
materially adversely affect our business, future operating results and financial
condition. In addition, we generally provide our products to end-users under
signed license agreements. These agreements are negotiated with and signed by
the licensee. We occasionally publish articles regarding our technical
developments in industry publications that may prevent us from obtaining patent
protection for ideas contained in such publications, thus increasing the
availability to third parties of fundamental aspects of our technology. Our
means of protecting our proprietary rights may not be adequate and our inability
to protect our intellectual property rights may adversely affect our business
and financial condition.
THIRD PARTIES COULD ASSERT THAT OUR PRODUCTS INFRINGE THEIR INTELLECTUAL
PROPERTY RIGHTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS
We are not aware that any of our products infringe upon the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by us with respect to current or future
products. Any claims of this type could affect our relationships with existing
customers and may prevent future customers from licensing our products. Any of
these type of claims, with or without merit, could be time consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Royalty or license agreements may not be
available on acceptable terms or at all. If we were found to have infringed
upon the proprietary rights of third parties, we could be required to pay
damages, cease sales of the infringing products and redesign or discontinue such
products, any of which could have a material adverse effect on Inference's
business, operating results and financial condition. We expect that we will
increasingly be subject to infringement claims as the number of products and
competitors in the customer support software industry grows and the
functionality of such products overlaps with other industry segments. As a
result of these factors, infringement claims could materially adversely affect
our business.
OUR FUTURE SUCCESS IS DEPENDENT ON THE CONTINUED GROWTH AND COMMERCIAL
ACCEPTANCE OF THE WEB
Our future success depends in part upon the widespread adoption of the Web
as a primary medium for business applications and communications. If the Web
does not continue to increase in importance as a commercial medium, our
business, operating results and financial condition could be materially
affected. Critical issues concerning the commercial use of the Web, such as
security, reliability, cost, accessibility and quality of service, remain
unresolved and may negatively affect the growth of Web use or the attractiveness
of business communications over the Web.
WE MAY BECOME SUBJECT TO LITIGATION
We may become subject to legal proceedings and claims that arise in the
ordinary course of business. We currently believe that the ultimate amount of
liability, if any, with respect to any pending actions, either individually or
in the aggregate, will not materially affect our financial position, results of
operations or liquidity. However, the ultimate outcome of any litigation is
uncertain. If an unfavorable outcome were to occur, the impact could be
material. Furthermore, any litigation, regardless of the outcome, can have an
adverse impact on Inference's results of operations as a result of defense
costs, diversion of management resources, and other factors.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
OUR INTERNATIONAL OPERATIONS ARE EXPOSED TO INTERNATIONAL BUSINESS RISKS AS WELL
AS FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCY
Our international sales are made mostly from our foreign sales subsidiaries
in their respective countries and are typically denominated in the local
currency of each country. These subsidiaries also incur most of their expenses
in the local currency. Accordingly, all foreign subsidiaries use the local
currency as their functional currency.
Our exposure to foreign exchange rate fluctuations arises in part from
intercompany accounts in which costs incurred in the United States are charged
to our foreign sales subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
We are also exposed to foreign exchange rate fluctuations as the financial
results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected results. The effect of
foreign exchange rate fluctuations in fiscal 1999 was not material.
In addition, these subsidiaries which represent approximately 42% of our
total revenue in fiscal 1999, are subject to risks typical of an international
business, including, but not limited to the following, the occurrence of any of
which could materially adversely impact our business, operations and financial
condition:
. Difficulties in staffing and managing international operations
. Problems in collecting accounts receivable
. Longer payment cycles
. Fluctuations in currency exchange rates
. Seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world
. Uncertainties relating to political, economic and tax circumstances
. Recessionary environments in foreign economies
. Increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries
COSTS ASSOCIATED WITH ENSURING THAT OUR PRODUCTS AND INTERNAL OPERATING SYSTEMS
ARE ABLE TO EFFECTIVELY WORK WITH THE EURO CONVERSION MAY ADVERSELY AFFECT OUR
BUSINESS
On January 1, 1999, a new currency, the Euro, became the legal currency for
eleven of the fifteen member countries of the European Economic Community.
Between January 1, 1999 and January 1, 2002, governments, companies and
individuals may conduct business in these countries in both the Euro and the
existing national currencies. On January 1, 2002, the Euro will become the sole
currency in these countries.
We are taking steps to evaluate internal system capabilities, review the
ability of financial institution vendors to support Euro transactions and
examine current marketing and pricing policies and strategies in light of the
Euro conversion. Although, we have not yet completed evaluating the impact of
the Euro conversion on our functional currency designations, the cost of this
effort is not expected to have a material adverse effect on our results of
operations or financial condition. There can be no assurance, however, that all
issues related to the Euro conversion have been identified and that any
additional issues would not have a material effect on our results of operations
or financial condition.
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<PAGE>
The conversion to the Euro also may have competitive implications on our
pricing and marketing strategies, the impact of which are not known at this
time. Additionally, we are at risk to the extent its principal European
suppliers and customers are unable to deal effectively with the impact of the
Euro conversion.
WE ARE EXPOSED TO MARKET RATE RISK FOR CHANGES IN INTEREST RATES
Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We currently do not use derivative
financial instruments. We invest, by policy, our excess cash balances in money
market accounts, debt instruments of the U.S. Government and its agencies, and
in high-quality corporate issuers and limit the amount of credit exposure to any
one issuer. As of July 31, 1999, our investments consisted primarily of funds
contained in money market accounts. Investments in both fixed rate and floating
rate interest earning instruments carry a degree of interest rate risk. Fixed
rate securities may have their fair market value adversely impacted due to a
rise in interest rates, while floating rate securities may produce less income
than expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest
rates.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) On June 17, 1999, the Company's 1999 annual meeting of stockholders
("Annual Meeting") was held and the following matters were voted on:
1. The election of Raymond A. Smelek as a Class III director of the
Company's Board of Directors for a term of three years was ratified
with 5,325,599 votes in favor and 623,999 abstentions.
2. The amendment to the Company's Amended and Restated 1993 Stock Option
Plan to increase the number of shares was ratified with 4,758,084
votes in favor, 1,110,576 against and 80,938 abstentions.
3. The Form of Indemnification Agreement between the Company and its
directors, officers and certain agents was ratified with 5,646,721
votes in favor, 228,685 against and 74,192 abstentions.
4. The appointment of Ernst & Young LLP as the Company's independent
public accountants for the fiscal year ending January 31, 2000 was
ratified with 5,852,448 votes in favor, 46,570 against and 50,850
abstentions.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit
Number Exhibit
-------- -------
2.1(1) Agreement and Plan of Reorganization by and among Inference
Corporation, Inference Acquisition Corporation and Verix Software
dated April 30, 1999.
____________________________________________________________________
(1) Incorporated by reference to Exhibit of same number filed with
Registrant's Current Report on Form 8-K dated May 17, 1999.
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<PAGE>
Exhibit
Number Exhibit
------- -------
10.48 Form of Indemnification Agreement dated March 1, 1999 between the
Registrant and certain directors and officers (together with the
schedule indicating the name of each director and officer who
entered into the Indemnification Agreement).
10.49 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Nobby Akiha.
10.50 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Ralph Barletta.
10.51 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Steven Gal.
10.52 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Greg Pappas.
10.53 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Bob Tatemichi.
10.54 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Mark Wolf.
10.55 Resignation and Mutual Release Agreement dated June 30, 1999
between the Registrant and Glen D. Vondrick.
27 Financial Data Schedule.
(b) Reports on Form 8-K
1. On May 17, 1999, the Company filed a Form 8-K with the Securities and
Exchange Commission reporting that on April 30, 1999 the Company
acquired all of the outstanding capital stock of Verix Software.
2. On July 9, 1999, the Company filed a Form 8-K/A with the Securities
and Exchange Commission to amend its Current Report on Form 8-K, dated
May 17, 1999.
3. On August 19, 1999, the Company filed a Form 8-K with the Securities
and Exchange Commission to announce its financial results for the
quarter ended July 31, 1999 .
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Inference Corporation
/s/ MARK A. WOLF
----------------
MARK A. WOLF
Vice President,
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Dated: September 13, 1999
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<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------- -------
2.1(1) Agreement and Plan of Reorganization by and among Inference
Corporation, Inference Acquisition Corporation and Verix Software
dated April 30, 1999.
10.48 Form of Indemnification Agreement dated March 1, 1999 between the
Registrant and certain directors and officers (together with the
schedule indicating the name of each director and officer who
entered into the Indemnification Agreement).
10.49 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Nobby Akiha.
10.50 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Ralph Barletta.
10.51 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Steven Gal.
10.52 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Greg Pappas .
10.53 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Bob Tatemichi .
10.54 Executive Employment Agreement dated July 10, 1999 between the
Registrant and Mark Wolf .
10.55 Resignation and Mutual Release Agreement dated June 30, 1999
between the Registrant and Glen D. Vondrick.
27 Financial Data Schedule.
_______________________________________________________________________
(1) Incorporated by reference to Exhibit of same number filed with
Registrant's Current Report on Form 8-K dated May 17, 1999.
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<PAGE>
EXHIBIT 10.48
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made as of the 1st day
of March, 1999, between Inference Corporation, a Delaware corporation (the
"Company") and ((First_Name)) ((Last_Name)) ("Indemnitee").
BACKGROUND FACTS
The Indemnitee currently is serving as a director and/or officer of the
Company and the Company wishes the Indemnitee to continue in such capacity.
Article IX of the Company's Certificate of Incorporation, as amended, authorizes
the Company to indemnify Indemnitee to the fullest extent permitted by
applicable law and to enter into binding agreements with Indemnitee to provide
such indemnification. In order to induce the Indemnitee to continue to serve as
a director and/or officer of the Company and in consideration of Indemnitee's
continued service, the Company and the Indemnitee hereby agree as follows:
Section 1: Definitions.
-----------
As used in this Agreement:
1.1 Proceeding. The term "Proceeding" includes any threatened, pending or
----------
completed action, suit or proceeding, any appeal therefrom and any inquiry or
investigation, whether conducted by the Company or otherwise, that the
Indemnitee in good faith believes might lead to the institution of any such
action, suit or proceeding, whether brought by or in the right of the Company to
procure a judgment in its favor or brought by any third party or otherwise and
whether of a civil, criminal, administrative or investigative nature, in which
the Indemnitee is or may be or may have been involved as a party or otherwise by
reason of any action taken by Indemnitee or of any inaction on Indemnitee's part
while acting as a director, officer, employee or agent of the Company or any
subsidiary of the Company, or while acting at the request of the Company as a
director, officer, employee, partner, trustee or agent of any other corporation,
partnership, joint venture, trust or other enterprise (as defined in Section
1.3, below), regardless of whether Indemnitee is acting or serving in any such
capacity at the time any Expenses (as defined in Section 1.2, below) are
incurred for which indemnification may be provided under this Agreement.
1.2 Expenses. The term "Expenses" includes all costs, charges and expenses
--------
actually and reasonably incurred by or on behalf of the Indemnitee in connection
with any Proceeding, including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, expenses of investigations, judicial or administrative proceedings or
appeals, amounts paid in settlement by or on behalf of the Indemnitee (if such
settlement is approved in advance by the Company, which approval shall not
unreasonably be withheld), and any expenses of establishing a right to
indemnification pursuant to this Agreement or otherwise, including reasonable
compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which Indemnitee is not otherwise compensated by the Company or any third
party; provided, however, that the term "Expenses" shall
<PAGE>
not include (i) any judgments and fines and similar penalties against the
Indemnitee or (ii) any expenses, amounts paid in settlement, attorneys' fees or
disbursements, or any other costs whatsoever incurred in connection with any
Proceeding insofar as such Proceeding is based on a violation by the Indemnitee
of Section 16 of the Securities Exchange Act of 1934, as amended.
1.3 Other Terms. The term "other enterprise" includes employee benefit
-----------
plans; the term "fines" includes any excise tax assessed with respect to any
employee benefit plan; the term "serving at the request of the Company" includes
any service as a director, officer, employee or agent of the Company or any of
its subsidiaries that imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interests of the
participants and beneficiaries of any employee benefit plan shall be deemed to
have acted in a manner "reasonably believed to be in the best interests" of the
Company or any of its subsidiaries as such term is used in this Agreement.
Section 2: General Right to Indemnification. The Company shall indemnify the
--------------------------------
Indemnitee against Expenses, judgments and fines and other amounts actually and
reasonably incurred in connection with any Proceedings to the full extent
permitted by federal law and any applicable law as from time to time in effect.
Without limiting the generality of the foregoing, the Company shall also
indemnify the Indemnitee in accordance with the provisions set forth below.
Section 3: Proceedings Other than by or in the Right of the Company. If the
--------------------------------------------------------
Indemnitee was or is a party or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (other than an action by or in the right
of the Company to procure a judgment in its favor), the Company shall indemnify
Indemnitee against all Expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such Proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company and, in the case of a
criminal proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the Indemnitee did not act in good faith and
in a manner the Indemnitee reasonably believed to be in the best interests of
the Company or that the Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
Section 4: Proceedings by or in the Right of the Company. If the Indemnitee
---------------------------------------------
was or is a party or is threatened to be made a party to, or is otherwise
involved in, any Proceeding by or in the right of the Company or any subsidiary
of the Company to procure a judgment in its favor, by reason of the fact that
Indemnitee is or was a director, officer, employee or agent of the Company, or
any subsidiary of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, the Company shall
indemnify Indemnitee against all Expenses relating to the Proceeding if
Indemnitee acted in good faith in a manner Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company and its shareholders;
however, no indemnification shall be made with respect to any claim, issue or
matter as to which Indemnitee shall have been adjudged to be liable to the
Company in the performance of Indemnitee's duty to the Company and its
shareholders unless the court in which such
-2-
<PAGE>
Proceeding is or was pending shall determine upon application that in view of
all the circumstances of the case, Indemnitee is fairly and reasonably entitled
to indemnity for Expenses, and then only to the extent that the court shall
determine. In addition, no indemnification shall be made (i) with respect to
amounts paid in settling or otherwise disposing of a pending action without
court approval and (ii) with respect to Expenses incurred in defending a pending
action which is settled or otherwise disposed of without court approval.
Section 5: Indemnification for Expenses of Successful Party. Notwithstanding
------------------------------------------------
the other provisions of this Agreement, to the extent that Indemnitee has been
successful on the merits in defense of any Proceeding or of any claim, issue or
matter forming part of any Proceeding, Indemnitee shall be indemnified against
Expenses actually and reasonably incurred by Indemnitee in connection therewith
to the fullest extent permitted by applicable law.
Section 6: Adverse Determination. Any indemnification under Sections 3 and 4
---------------------
hereof shall be paid by the Company in accordance with Section 8 unless (i) a
determination is made that indemnification is not proper because the Indemnitee
has not met the applicable standard of conduct set forth in Sections 3 and 4,
or (ii) with respect to indemnification under Section 4, the Indemnitee shall
have been adjudged to be liable to the Company, and the court in which such
Proceeding is or was pending has determined upon application that, in view of
all the circumstances of the case, the Indemnitee is not entitled to indemnity.
The determination set forth in (i) above shall be made no later than the end of
the thirty-day period set forth in Section 8.2 by any of the following: (1) with
respect to a person who is a director or officer at the time of such
determination (a) by a majority vote of the directors who are not parties to
such Proceeding, even if less than a quorum, (b) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, (c) if there are no such directors or if such directors so direct, by a
written opinion of independent legal counsel, or (d) by approval of the
Company's stockholders with the shares owned by the Indemnitee not being
entitled to vote thereon or (ii) with respect to employees and agents who are
not directors or officers at the time of such determination, by any person or
persons having corporate authority to act on the matter, including the foregoing
authorized persons, or (iii) with respect to all employees and agents whether
or not such employees and agents are officers or directors of the Company at the
time of such determination, by the court in which such Proceeding is or was
pending, if such is the case, upon application made by the Company or the
Indemnitee or the attorney or other person rendering services in connection with
the defense, whether or not such application by the Indemnitee, attorney or
other person is opposed by the Company.]
Section 7: Reliance on Books, Records and Other Information. The Indemnitee
------------------------------------------------
shall be presumed to have acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, to have had no
reasonable cause to believe Indemnitee's conduct was unlawful, if Indemnitee's
action is or was based on the records or books of account of the Company (other
than such records or such books of account which the Indemnitee prepared or was
responsible for preparing) with respect to which the Indemnitee may be affected
by a Proceeding, including financial statements, or on information supplied to
Indemnitee by executive officers of the Company in the course of their duties,
or on the written advice of legal counsel for the Company or on information or
records given or reports made to the Company by an independent certified public
accountant or by other expert selected with
-3-
<PAGE>
reasonable care by the Company. The provisions of this Section shall not be
deemed exclusive or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met any applicable standard of conduct. For
purposes of this Section 7, the term "Company" includes any other enterprise.
Section 8: Procedure for Indemnification.
-----------------------------
8.1 Advances. Expenses to which an Indemnitee is entitled to
--------
indemnification under Sections 2, 3 and 4 shall be paid promptly by the Company
in advance of any final disposition of the Proceeding upon receipt by the
Company of written documentation of the Indemnitee's obligation to pay such
Expenses; provided, however, that Indemnitee hereby undertakes to repay all
amounts so advanced if it shall be determined ultimately that the Indemnitee is
not entitled to be indemnified pursuant to this Agreement.
8.2 Payment Within 30 Days. After the final disposition of any Proceeding,
----------------------
the Indemnitee may send to the Company a written request for indemnification,
accompanied by written documentation of the Indemnitee's obligation to pay the
Expenses, judgments and fines and similar penalties for which indemnification is
requested. No later than 30 days following receipt by the Company of such
request, the Company shall pay the Expenses, judgments and fines and similar
penalties or reimburse the Indemnitee therefor (as the case may be) unless,
during such 30-day period (i) the Company determines that the indemnification
request is not permitted by the laws of the State of Delaware then in effect, or
(ii) with respect to indemnification under Sections 3 and 4, the adverse
determination described in Section 6 is made.
8.3 Actions to Enforce this Agreement. In any action by the Indemnitee to
---------------------------------
enforce this Agreement, the Company shall bear the burden of proving that any
applicable standard of conduct has not been met by the Indemnitee. Neither the
failure of the Company to have made the determination required pursuant to
Section 6, nor any determination made pursuant to Section 6 shall create a
presumption that the Indemnitee has or has not met any applicable standard of
conduct.
Section 9: Other Rights. The rights of the Indemnitee under this Agreement
------------
shall not be deemed exclusive of any other rights to which Indemnitee may be
entitled under any law (common or statutory), provision of the Company's
Certificate of Incorporation, as amended, or Bylaws, vote of stockholders or
Board of Directors of the Company or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office or while employed by or acting as agent for the Company in
any capacity.
Section 10: Notice to the Company; Defense of Proceeding.
--------------------------------------------
10.1 Notice. The Indemnitee shall, as a condition precedent to Indemnitee's
------
right to indemnification hereunder, provide prompt written notice to the Company
of any Proceeding in connection with which Indemnitee may assert a right to be
indemnified under this Agreement. Such notice shall be deemed to have been
provided if mailed by domestic certified mail, postage prepaid, to Inference
Corporation, at 100 Rowland Way, Novato, California 94945 (or to such other
address as the Company may specify in writing to the Indemnitee). Indemnitee
shall give the Company such information and cooperation as it may reasonably
require. The omission to so notify the Company
-4-
<PAGE>
will not relieve the Company from any liability which it may have to Indemnitee
under this Agreement or otherwise.
10.2 Defense of Proceeding. With respect to any Proceeding:
---------------------
(i) The Company shall be entitled to participate in the Proceeding at
its own expense.
(ii) Except as otherwise provided below, the Company shall be entitled
to assume the defense of such Proceeding, with counsel reasonably satisfactory
to the Indemnitee, to the extent that it may wish. After notice from the Company
to the Indemnitee of such assumption, during the Company's good faith active
defense the Company shall not be liable to the Indemnitee under this Agreement
for any Expenses subsequently incurred by Indemnitee in connection with such
defense. The Indemnitee shall have the right to employ separate counsel in the
Proceeding, but the fees and expenses of such counsel incurred after such
assumption shall be at the expense of the Indemnitee, unless (a) such employment
has been authorized in writing by the Company, or (b) the Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of the defense of the Proceeding.
(iii) The Company shall not be required to indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of any Proceeding
effected without its prior written consent. If the Indemnitee does not promptly
offer to settle a Proceeding on a basis that the Board of Directors has
approved, the Company shall not be liable to pay any Expenses incurred
thereafter in connection with that Proceeding.
(iv) The Company shall not settle any Proceeding which would impose
any penalty or limitation on the Indemnitee without the Indemnitee's written
consent.
Section 11: Exceptions. Any other provisions herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
11.1 Excluded Acts. To indemnify Indemnitee for any acts or omissions or
-------------
transactions from which a director, officer, employee or agent may not be
relieved of liability under the applicable law.
11.2 Claims Initiated by Indemnitee. To indemnify or advance expenses to
------------------------------
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such suit; or
11.3 Lack of Good Faith. To indemnify Indemnitee for any expenses incurred
------------------
by the Indemnitee with respect to any proceeding instituted by Indemnitee to
enforce or interpret this
-5-
<PAGE>
Agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the Indemnitee in such proceeding was not made in a
good faith or was frivolous;
11.4 Insured Claims. To indemnify Indemnitee for expenses or liabilities of
--------------
any type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) which have been paid
directly to Indemnitee by an insurance carrier under a policy of officers' and
directors' liability insurance maintained by the Company; or
11.5 Claims Under Section 16(b). To indemnify Indemnitee for expenses and
--------------------------
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
Section 12: Miscellaneous.
-------------
12.1 Amendments. This Agreement may be amended only by means of a writing
----------
signed by both the Company and the Indemnitee.
12.2 Retroactive Effect. This Agreement covers all Proceedings that either
------------------
now have been or later may be commenced, including any Proceeding relating to
any past act or omission of the Indemnitee that has not yet resulted in
commencement or threat of a Proceeding.
12.3 Savings Clause. Each provision of this Agreement is a separate and
--------------
distinct agreement, independent of all other provisions. If this Agreement or
any such provision shall be deemed invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
shall not be affected or impaired in any way, and the Company shall nevertheless
indemnify the Indemnitee as to Expenses, judgments and fines and similar
penalties with respect to any Proceeding to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated and to
the full extent permitted by applicable law. In the event of any whole or
partial invalidation, illegality or unenforceability of this Agreement, there
shall be added automatically to this Agreement a provision or provisions as
similar to such invalid, illegal or unenforceable provision, both in terms and
effect, as may be possible and be valid, legal and enforceable.
12.4 Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying Indemnitee under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake to the Securities and Exchange Commission
to submit the question of indemnification to a court in certain circumstances
for a determination of the Company's right under public policy to indemnify
Indemnitee.
12.5 Successors and Assigns. This Agreement shall be binding on, and inure
----------------------
to the benefit of, the successors and assigns of the Company, whether by
operation of law or otherwise, and the estate, heirs and personal
representatives of the Indemnitee.
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<PAGE>
12.6 Governing Law. This Agreement shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of this State of
Delaware.
12.7 Merger Clause. Except for the Company's Restated Articles of
-------------
Incorporation and Restated Bylaws, this Agreement constitutes the entire
understanding of the parties and supersedes all prior understandings and
agreements, written or oral, between the parties with respect to the subject
matter of this Agreement.
12.8 No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent that the Indemnitee has otherwise received payment
(under any insurance policy, Bylaw, or otherwise) of the amounts otherwise
indemnifiable hereunder.
12.9 Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary or appropriate to enable the Company
effectively to bring suit to enforce such rights.
12.10 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
INFERENCE CORPORATION
(a Delaware corporation)
By: /s/ Charles W. Jepson
---------------------
Charles W. Jepson
President & Chief Executive Officer
INDEMNITEE
/s/ ((First_Name)) ((Last_Name))
- --------------------------------
((First_Name)) ((Last_Name))
((Title))
-8-
<PAGE>
SCHEDULE OF PERSONS WHO EXECUTED
THE INDEMNIFICATION AGREEMENTS
Lou Cole
Charles Scott Gibson
Glen Vondrick
Greg Pappas
John Katsaros
Mark A. Wolf
Nobuo Nobby Akiha
Philip Padfield
Ralph Barletta
Ray Smelek
Steven Gal
-9-
<PAGE>
EXHIBIT 10.49
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is dated as of July
10, 1999, between Inference Corporation, a Delaware corporation (the "Company"),
and Nobby Akiha (the "Executive").
WHEREAS, the Company has determined that it is in the best interests
of the Company and its stockholders to reinforce and encourage the continued
attention and dedication of certain key members of the Company's management,
including the Executive, to their assigned duties without distraction in
uncertain circumstances arising from the possibility of a change in control of
the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its stockholders to minimize the personal
considerations of certain key members of management in their evaluation of any
offers for a change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on an effort to effect a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
TERMINATION
I.1 Definitions. For purposes of this Article I, the following
-----------
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
-----
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his duties; (iii) willful misconduct by the
Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless the
Executive first shall have received at least 5 days written notice setting forth
the reasons for the Company's intention to terminate or take other action.
(b) Change of Control "Change in Control" means and shall be
-----------------
deemed to have occurred with respect to the Company if: (i) there shall be
consummated (A) any consolidation, merger or other business combination of the
Company with another corporation or entity and as a result of such
consolidation, merger or other business combination less than 50% of the
outstanding voting securities of the surviving or resulting corporation or
entity shall be owned in the aggregate by the shareholders of the Company, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of any party to such consolidation, merger, or
other business combination, as the same shall have existed immediately prior to
such consolidation, merger, or other business combination; or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (ii)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; (iii) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the shareholders of
the Company as of the date hereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Company's
outstanding Common Stock; or (iv) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act shall have occurred.
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<PAGE>
(c) Good Reason. "Good Reason" shall mean each of the following:
-----------
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's position of employment
as contemplated herein, or any removal of the Executive from, without the
Executive's consent, to a position of employment consistent with the position
and status of Executive the position of CFO and the most senior financial
executive position in the company, reporting directly to the Chief Executive
Officer; (ii) a reduction by the Company, without the Executive's consent, in
the Executive's annual base salary as it may exist from time to time; (iii) a
failure by the Company, without the Executive's consent, to continue any Company
Benefit Plans in which the Executive presently is entitled to participate, as
the same may be modified from time to time; (iv) a failure, without the
Executive's consent, by the Company to continue the Executive as a participant
in any Company Benefit Plans on at least the same basis as he presently
participates in such plans; (v) the requirement by the Company, without
Executive's consent, that the Executive be based anywhere other than within 25
miles of the Executive's present office location, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
I.2 Severance Benefits Received Upon Termination.
---------------------------------------------
(a) If at any time the Executive's employment is terminated by
the Company for Cause, the Company shall pay the Executive, in cash, his base
salary through the end of the month during which such termination occurs plus
credit for any accrued vacation. All benefits will remain in effect until the
termination occurs.
(b) Subject to the other provisions contained in this Agreement,
the Company may terminate this Agreement for any reason other than Cause upon
thirty (30) days' written notice to Executive. The effective date of termination
("Effective Date") shall be considered to be thirty (30) days subsequent to
written notice of termination; however, the Company may elect to have Executive
leave the Company immediately.
(c) If at any time the Executive's employment is terminated by
the Company without Cause or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) Pay to the Executive within four business days following
the date of termination his base salary through the end of the month during
which such termination occurs plus credit for any vacation earned but not taken;
and
(2) Pay to the Executive in a lump sum within seven business
days following the date of termination, an amount equal to three (3) months of
the Executive's annual base salary in effect as of the date of termination. If
the Executive is not employed full-time within three (3) months of the
termination date, the Company shall continue the Executive's monthly salary for
up to three (3) months or until the Executive's commencement of full time
employment with a new employer, which ever occurs first; and
(3) Health Benefits. The Company shall provide the Executive
---------------
with the same level of health coverage and benefits as in effect for the
Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) six (6) months from the
termination of Executive's employment; and
(4) Pay to the Executive in lump sum within four business
days following the date of termination the Retention Bonus in the amount
specified in Section I.4, to the extent not already paid; and
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<PAGE>
(5) Continue to vest the Executive with the Retention Stock
in the amount specified in Section I.5 until the Retention Stock is fully vested
and exercisable.
I.3 Severance Benefits Received Upon Change of Control
--------------------------------------------------
If at any time the Executive's employment is terminated by the Company due to a
Change of Control or if the Executive is not offered a like position with the
same compensation, benefits, position and responsibilities due to a Change of
Control, the Company shall:
(1) Pay to the Executive in a lump sum within seven business days
following the date of termination, an amount equal to one (1) times the
Executive's annual base salary in effect as of the date of termination plus one
half (1/2) the Executive's annual bonus; and
(2) Health Benefits. The Company shall provide the Executive with
---------------
the same level of health coverage and benefits as in effect for the Executive on
the day immediately preceding the day of the Executive's termination of
employment; provided, however, that (i) the Executive constitutes a qualified
beneficiary, as defined in Section 4980(g)(l) of the Internal Revenue Code of
1986, as amended; and (ii) Executive elects continuation coverage pursuant to
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), within the time period prescribed pursuant to COBRA. The Company
shall continue to reimburse Executive for continuation coverage until the
earlier of (i) the date Executive is no longer eligible to receive continuation
coverage pursuant to COBRA or (ii) twelve months from the date Executive's
employment with the Company terminated.
I.4 Retention Bonus
---------------
(1) If the Executive is actively employed by the Company on April
30, 2000, the Executive shall receive a cash bonus of $22,500.
I.5 Retention Stock
---------------
(1) On July 8, 1999 the Board of Directors approved a stock grant
of 7,500 options that completely vest one year from the grant date (July 8,
1999), if the Executive is actively employed on July 31, 2000. You will continue
to be eligible for additional stock grants at the end of the fiscal year when we
review all the executives.
I.6 2/nd/ Half FYOO Bonus Plan
--------------------------
(1) The Company shall modify the 2/nd/ half of FY00 operating
plan to set goals that are more achievable. The executive bonus plans will be
tied to the new plan and provide a reasonable opportunity to achieve bonus
targets for the 2/nd/ half of FY00.
I.7 No Obligation to Mitigate Damages; No Effect on Other Contractual
-----------------------------------------------------------------
Rights.
- ------
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination.
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
-3-
<PAGE>
ARTICLE II
CONFIDENTIALITY AND NONDISCLOSURE
II.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business,
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
II.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
II.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
II.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (1) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
II.5. Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article II are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article II are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
II.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article II shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
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<PAGE>
ARTICLE III
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
III.1 Assumption of Obligations. The Company will require any
-------------------------
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Any failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement becomes bound by all the
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement the Executive is employed by any corporation a
majority of the voting securities of which is then owned by the Company,
"Company" as used in this Agreement shall in addition include such employer. In
such event, the Company agrees that it shall pay or shall cause such employer to
pay any amounts owed to the Executive pursuant to this Agreement.
III.2 Beneficial Interests. This Agreement shall inure to the
--------------------
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
ARTICLE IV
GENERAL PROVISIONS
IV.1 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
IV.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
IV.3 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
IV.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IV.5 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
IV.6 Notice Provisions. All notices must be written and executed by
-----------------
registered mail with a return receipt.
-5-
<PAGE>
IV.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
IV.8 Arbitration. Any controversy, dispute, claim or other matter
-----------
in question arising out of or relating to this Agreement shall be settled, at
the request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
1.1 Notice of the demand for arbitration shall be filed in writing with
the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
1.2 Discovery as allowable under California Code of Civil Procedure
Sections 2001 et. seq. shall be allowed in arbitration.
1.3 The costs and fees of the arbitration shall be advanced by the Company
and shall be allocated by the arbitrators after judgement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INFERENCE CORPORATION, a Delaware corporation
By: _____________________________________________
Charles Jepson, President and Chief Executive
Officer
EXECUTIVE
_____________________________________________
Nobby Akiha
-6-
<PAGE>
EXHIBIT 10.50
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is dated as of July
10, 1999, between Inference Corporation, a Delaware corporation (the "Company"),
and Ralph Barletta (the "Executive").
WHEREAS, the Company has determined that it is in the best interests
of the Company and its stockholders to reinforce and encourage the continued
attention and dedication of certain key members of the Company's management,
including the Executive, to their assigned duties without distraction in
uncertain circumstances arising from the possibility of a change in control of
the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its stockholders to minimize the personal
considerations of certain key members of management in their evaluation of any
offers for a change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on an effort to effect a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
TERMINATION
I.1 Definitions. For purposes of this Article I, the following
-----------
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
-----
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his duties; (iii) willful misconduct by the
Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless the
Executive first shall have received at least 5 days written notice setting forth
the reasons for the Company's intention to terminate or take other action.
(b) Change of Control "Change in Control" means and shall be
-----------------
deemed to have occurred with respect to the Company if: (i) there shall be
consummated (A) any consolidation, merger or other business combination of the
Company with another corporation or entity and as a result of such
consolidation, merger or other business combination less than 50% of the
outstanding voting securities of the surviving or resulting corporation or
entity shall be owned in the aggregate by the shareholders of the Company, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of any party to such consolidation, merger, or
other business combination, as the same shall have existed immediately prior to
such consolidation, merger, or other business combination; or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (ii)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; (iii) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the shareholders of
the Company as of the date hereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Company's
outstanding Common Stock; or (iv) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act shall have occurred.
-1-
<PAGE>
(c) Good Reason. "Good Reason" shall mean each of the following:
-----------
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's position of employment
as contemplated herein, or any removal of the Executive from, without the
Executive's consent, to a position of employment consistent with the position
and status of Executive the position of CFO and the most senior financial
executive position in the company, reporting directly to the Chief Executive
Officer; (ii) a reduction by the Company, without the Executive's consent, in
the Executive's annual base salary as it may exist from time to time; (iii) a
failure by the Company, without the Executive's consent, to continue any Company
Benefit Plans in which the Executive presently is entitled to participate, as
the same may be modified from time to time; (iv) a failure, without the
Executive's consent, by the Company to continue the Executive as a participant
in any Company Benefit Plans on at least the same basis as he presently
participates in such plans; (v) the requirement by the Company, without
Executive's consent, that the Executive be based anywhere other than within 25
miles of the Executive's present office location, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
I.2 Severance Benefits Received Upon Termination.
---------------------------------------------
(a) If at any time the Executive's employment is terminated by
the Company for Cause, the Company shall pay the Executive, in cash, his base
salary through the end of the month during which such termination occurs plus
credit for any accrued vacation. All benefits will remain in effect until the
termination occurs.
(b) Subject to the other provisions contained in this Agreement,
the Company may terminate this Agreement for any reason other than Cause upon
thirty (30) days' written notice to Executive. The effective date of termination
("Effective Date") shall be considered to be thirty (30) days subsequent to
written notice of termination; however, the Company may elect to have Executive
leave the Company immediately.
(c) If at any time the Executive's employment is terminated by
the Company without Cause or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) Pay to the Executive within four business days following
the date of termination his base salary through the end of the month during
which such termination occurs plus credit for any vacation earned but not taken;
and
(2) Pay to the Executive in a lump sum within seven business
days following the date of termination, an amount equal to three (3) months of
the Executive's annual base salary in effect as of the date of termination. If
the Executive is not employed full-time within three (3) months of the
termination date, the Company shall continue the Executive's monthly salary for
up to three (3) months or until the Executive's commencement of full time
employment with a new employer, which ever occurs first; and
(3) Health Benefits. The Company shall provide the Executive
---------------
with the same level of health coverage and benefits as in effect for the
Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) six (6) months from the
termination of Executive's employment; and
(4) Pay to the Executive in lump sum within four business
days following the date of termination the Retention Bonus in the amount
specified in Section I.4, to the extent not already paid; and
-2-
<PAGE>
(5) Continue to vest the Executive with the Retention Stock
in the amount specified in Section I.5 until the Retention Stock is fully vested
and exercisable.
I.3 Severance Benefits Received Upon Change of Control
--------------------------------------------------
If at any time the Executive's employment is terminated by the Company due to a
Change of Control or if the Executive is not offered a like position with the
same compensation, benefits, position and responsibilities due to a Change of
Control, the Company shall:
(1) Pay to the Executive in a lump sum within seven business days
following the date of termination, an amount equal to one (1) times the
Executive's annual base salary in effect as of the date of termination plus one
half (1/2) the Executive's annual bonus; and
(2) Health Benefits. The Company shall provide the Executive with
---------------
the same level of health coverage and benefits as in effect for the Executive on
the day immediately preceding the day of the Executive's termination of
employment; provided, however, that (i) the Executive constitutes a qualified
beneficiary, as defined in Section 4980(g)(l) of the Internal Revenue Code of
1986, as amended; and (ii) Executive elects continuation coverage pursuant to
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), within the time period prescribed pursuant to COBRA. The Company
shall continue to reimburse Executive for continuation coverage until the
earlier of (i) the date Executive is no longer eligible to receive continuation
coverage pursuant to COBRA or (ii) twelve months from the date Executive's
employment with the Company terminated.
I.4 Retention Bonus
---------------
(1) If the Executive is actively employed by the Company on April
30, 2000, the Executive shall receive a cash bonus of $25,000.
I.5 Retention Stock
---------------
(1) On July 8, 1999 the Board of Directors approved a stock grant
of 10,000 options that completely vest one year from the grant date (July 8,
1999), if the Executive is actively employed on July 31, 2000. You will continue
to be eligible for additional stock grants at the end of the fiscal year when we
review all the executives.
I.6 2/nd/ Half FYOO Bonus Plan
--------------------------
(1) The Company shall modify the 2/nd/ half of FY00 operating
plan to set goals that are more achievable. The executive bonus plans will be
tied to the new plan and provide a reasonable opportunity to achieve bonus
targets for the 2/nd/ half of FY00.
I.7 No Obligation to Mitigate Damages; No Effect on Other Contractual
-----------------------------------------------------------------
Rights.
- ------
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination.
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
-3-
<PAGE>
ARTICLE II
CONFIDENTIALITY AND NONDISCLOSURE
II.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business,
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
II.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
II.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
II.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (1) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
II.5. Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article II are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article II are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
II.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article II shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
-4-
<PAGE>
ARTICLE III
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
III.1 Assumption of Obligations. The Company will require any
-------------------------
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Any failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement becomes bound by all the
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement the Executive is employed by any corporation a
majority of the voting securities of which is then owned by the Company,
"Company" as used in this Agreement shall in addition include such employer. In
such event, the Company agrees that it shall pay or shall cause such employer to
pay any amounts owed to the Executive pursuant to this Agreement.
III.2 Beneficial Interests. This Agreement shall inure to the
--------------------
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
ARTICLE IV
GENERAL PROVISIONS
IV.1 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
IV.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
IV.3 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
IV.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IV.5 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
IV. 6 Notice Provisions. All notices must be written and executed by
-----------------
registered mail with a return receipt.
-5-
<PAGE>
IV.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
IV.8 Arbitration. Any controversy, dispute, claim or other matter
-----------
in question arising out of or relating to this Agreement shall be settled, at
the request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
1.1 Notice of the demand for arbitration shall be filed in writing with
the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
1.2 Discovery as allowable under California Code of Civil Procedure
Sections 2001 et. seq. shall be allowed in arbitration.
1.3 The costs and fees of the arbitration shall be advanced by the Company
and shall be allocated by the arbitrators after judgement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INFERENCE CORPORATION, a Delaware corporation
By _____________________________________________
Charles Jepson, President and Chief Executive
Officer
EXECUTIVE
_____________________________________________
Ralph Barletta
-6-
<PAGE>
EXHIBIT 10.51
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is dated as of July
10, 1999, between Inference Corporation, a Delaware corporation (the "Company"),
and Steven Gal (the "Executive").
WHEREAS, the Company has determined that it is in the best interests
of the Company and its stockholders to reinforce and encourage the continued
attention and dedication of certain key members of the Company's management,
including the Executive, to their assigned duties without distraction in
uncertain circumstances arising from the possibility of a change in control of
the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its stockholders to minimize the personal
considerations of certain key members of management in their evaluation of any
offers for a change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on an effort to effect a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
TERMINATION
I.1 Definitions. For purposes of this Article I, the following
-----------
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
-----
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his duties; (iii) willful misconduct by the
Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless the
Executive first shall have received at least 5 days written notice setting forth
the reasons for the Company's intention to terminate or take other action.
(b) Change of Control "Change in Control" means and shall be
-----------------
deemed to have occurred with respect to the Company if: (i) there shall be
consummated (A) any consolidation, merger or other business combination of the
Company with another corporation or entity and as a result of such
consolidation, merger or other business combination less than 50% of the
outstanding voting securities of the surviving or resulting corporation or
entity shall be owned in the aggregate by the shareholders of the Company, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of any party to such consolidation, merger, or
other business combination, as the same shall have existed immediately prior to
such consolidation, merger, or other business combination; or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (ii)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; (iii) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the shareholders of
the Company as of the date hereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Company's
outstanding Common Stock; or (iv) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act shall have occurred.
-1-
<PAGE>
(c) Good Reason. "Good Reason" shall mean each of the following:
-----------
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's position of employment
as contemplated herein, or any removal of the Executive from, without the
Executive's consent, to a position of employment consistent with the position
and status of Executive the position of CFO and the most senior financial
executive position in the company, reporting directly to the Chief Executive
Officer; (ii) a reduction by the Company, without the Executive's consent, in
the Executive's annual base salary as it may exist from time to time; (iii) a
failure by the Company, without the Executive's consent, to continue any Company
Benefit Plans in which the Executive presently is entitled to participate, as
the same may be modified from time to time; (iv) a failure, without the
Executive's consent, by the Company to continue the Executive as a participant
in any Company Benefit Plans on at least the same basis as he presently
participates in such plans; (v) the requirement by the Company, without
Executive's consent, that the Executive be based anywhere other than within 25
miles of the Executive's present office location, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
I.2 Severance Benefits Received Upon Termination.
---------------------------------------------
(a) If at any time the Executive's employment is terminated by
the Company for Cause, the Company shall pay the Executive, in cash, his base
salary through the end of the month during which such termination occurs plus
credit for any accrued vacation. All benefits will remain in effect until the
termination occurs.
(b) Subject to the other provisions contained in this Agreement,
the Company may terminate this Agreement for any reason other than Cause upon
thirty (30) days' written notice to Executive. The effective date of termination
("Effective Date") shall be considered to be thirty (30) days subsequent to
written notice of termination; however, the Company may elect to have Executive
leave the Company immediately.
(c) If at any time the Executive's employment is terminated by
the Company without Cause or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) Pay to the Executive within four business days
following the date of termination his base salary through the end of the month
during which such termination occurs plus credit for any vacation earned but not
taken; and
(2) Pay to the Executive in a lump sum within seven
business days following the date of termination, an amount equal to three (6)
months of the Executive's annual base salary in effect as of the date of
termination; and
(3) Health Benefits. The Company shall provide the
---------------
Executive with the same level of health coverage and benefits as in effect for
the Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) six (6) months from the
termination of Executive's employment; and
(4) Pay to the Executive in lump sum within four business
days following the date of termination the Retention Bonus in the amount
specified in Section I.4, to the extent not already paid; and
(5) Continue to vest the Executive with the Retention Stock
in the amount specified in Section I.5 until the Retention Stock is fully vested
and exercisable.
-2-
<PAGE>
I.3 Severance Benefits Received Upon Change of Control
--------------------------------------------------
If at any time the Executive's employment is terminated by the Company due to a
Change of Control or if the Executive is not offered a like position with the
same compensation, benefits, position and responsibilities due to a Change of
Control, the Company shall:
(1) Pay to the Executive in a lump sum within seven business
days following the date of termination, an amount equal to one (1) times the
Executive's annual base salary in effect as of the date of termination plus one
half (1/2) the Executive's annual bonus; and
(2) Health Benefits. The Company shall provide the Executive
---------------
with the same level of health coverage and benefits as in effect for the
Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) twelve months from the date
Executive's employment with the Company terminated.
I.4 Retention Bonus
---------------
(1) If the Executive is actively employed by the Company on
April 30, 2000, the Executive shall receive a cash bonus of $50,000.
I.5 Retention Stock
---------------
(1) On July 8, 1999 the Board of Directors approved a stock
grant of 10,000 options that completely vest one year from the grant date (July
8, 1999), if the Executive is actively employed on July 31, 2000. You will
continue to be eligible for additional stock grants at the end of the fiscal
year when we review all the executives.
I.6 2/nd/ Half FYOO Bonus Plan
--------------------------
(1) The Company shall modify the 2/nd/ half of FY00 operating
plan to set goals that are more achievable. The executive bonus plans will be
tied to the new plan and provide a reasonable opportunity to achieve bonus
targets for the 2/nd/ half of FY00.
I.7 No Obligation to Mitigate Damages; No Effect on Other Contractual
-----------------------------------------------------------------
Rights.
- ------
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination.
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
-3-
<PAGE>
ARTICLE II
CONFIDENTIALITY AND NONDISCLOSURE
II.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business,
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
II.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
II.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
II.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (1) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
II.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article II are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article II are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
II.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article II shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
-4-
<PAGE>
ARTICLE III
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
III.1 Assumption of Obligations. The Company will require any
-------------------------
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Any failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement becomes bound by all the
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement the Executive is employed by any corporation a
majority of the voting securities of which is then owned by the Company,
"Company" as used in this Agreement shall in addition include such employer. In
such event, the Company agrees that it shall pay or shall cause such employer to
pay any amounts owed to the Executive pursuant to this Agreement.
III.2 Beneficial Interests. This Agreement shall inure to the
--------------------
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
ARTICLE IV
GENERAL PROVISIONS
IV.1 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
IV.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
IV.3 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
IV.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IV.5 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
IV.6 Notice Provisions. All notices must be written and executed by
-----------------
registered mail with a return receipt.
-5-
<PAGE>
IV.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
IV.8 Arbitration. Any controversy, dispute, claim or other matter
-----------
in question arising out of or relating to this Agreement shall be settled, at
the request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
1.1 Notice of the demand for arbitration shall be filed in writing with
the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
1.2 Discovery as allowable under California Code of Civil Procedure
Sections 2001 et. seq. shall be allowed in arbitration.
1.3 The costs and fees of the arbitration shall be advanced by the Company
and shall be allocated by the arbitrators after judgement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
INFERENCE CORPORATION, a Delaware corporation
By: __________________________________________________
Charles Jepson, President and Chief Executive
Officer
EXECUTIVE
__________________________________________________
Steven Gal
-6-
<PAGE>
EXHIBIT 10.52
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is dated as of July
10, 1999, between Inference Corporation, a Delaware corporation (the "Company"),
and Greg Pappas (the "Executive").
WHEREAS, the Company has determined that it is in the best interests
of the Company and its stockholders to reinforce and encourage the continued
attention and dedication of certain key members of the Company's management,
including the Executive, to their assigned duties without distraction in
uncertain circumstances arising from the possibility of a change in control of
the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its stockholders to minimize the personal
considerations of certain key members of management in their evaluation of any
offers for a change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on an effort to effect a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
TERMINATION
I.1 Definitions. For purposes of this Article I, the following
-----------
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
-----
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his duties; (iii) willful misconduct by the
Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless the
Executive first shall have received at least 5 days written notice setting forth
the reasons for the Company's intention to terminate or take other action.
(b) Change of Control "Change in Control" means and shall be
-----------------
deemed to have occurred with respect to the Company if: (i) there shall be
consummated (A) any consolidation, merger or other business combination of the
Company with another corporation or entity and as a result of such
consolidation, merger or other business combination less than 50% of the
outstanding voting securities of the surviving or resulting corporation or
entity shall be owned in the aggregate by the shareholders of the Company, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of any party to such consolidation, merger, or
other business combination, as the same shall have existed immediately prior to
such consolidation, merger, or other business combination; or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (ii)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; (iii) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the shareholders of
the Company as of the date hereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Company's
outstanding Common Stock; or (iv) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act shall have occurred.
-1-
<PAGE>
(c) Good Reason. "Good Reason" shall mean each of the following:
-----------
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's position of employment
as contemplated herein, or any removal of the Executive from, without the
Executive's consent, to a position of employment consistent with the position
and status of Executive the position of CFO and the most senior financial
executive position in the company, reporting directly to the Chief Executive
Officer; (ii) a reduction by the Company, without the Executive's consent, in
the Executive's annual base salary as it may exist from time to time; (iii) a
failure by the Company, without the Executive's consent, to continue any Company
Benefit Plans in which the Executive presently is entitled to participate, as
the same may be modified from time to time; (iv) a failure, without the
Executive's consent, by the Company to continue the Executive as a participant
in any Company Benefit Plans on at least the same basis as he presently
participates in such plans; (v) the requirement by the Company, without
Executive's consent, that the Executive be based anywhere other than within 25
miles of the Executive's present office location, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
I.2 Severance Benefits Received Upon Termination.
---------------------------------------------
(a) If at any time the Executive's employment is terminated by
the Company for Cause, the Company shall pay the Executive, in cash, his base
salary through the end of the month during which such termination occurs plus
credit for any accrued vacation. All benefits will remain in effect until the
termination occurs.
(b) Subject to the other provisions contained in this Agreement,
the Company may terminate this Agreement for any reason other than Cause upon
thirty (30) days' written notice to Executive. The effective date of termination
("Effective Date") shall be considered to be thirty (30) days subsequent to
written notice of termination; however, the Company may elect to have Executive
leave the Company immediately.
(c) If at any time the Executive's employment is terminated by
the Company without Cause or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) Pay to the Executive within four business days
following the date of termination his base salary through the end of the month
during which such termination occurs plus credit for any vacation earned but not
taken; and
(2) Pay to the Executive in a lump sum within seven
business days following the date of termination, an amount equal to three (3)
months of the Executive's annual base salary in effect as of the date of
termination. If the Executive is not employed full-time within three (3) months
of the termination date, the Company shall continue the Executive's monthly
salary for up to three (3) months or until the Executive's commencement of full
time employment with a new employer, which ever occurs first; and
(3) Health Benefits. The Company shall provide the
---------------
Executive with the same level of health coverage and benefits as in effect for
the Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) six (6) months from the
termination of Executive's employment; and
(4) Pay to the Executive in lump sum within four business
days following the date of termination the Retention Bonus in the amount
specified in Section I.4, to the extent not already paid; and
-2-
<PAGE>
(5) Continue to vest the Executive with the Retention Stock
in the amount specified in Section I.5 until the Retention Stock is fully vested
and exercisable.
I.3 Severance Benefits Received Upon Change of Control
--------------------------------------------------
If at any time the Executive's employment is terminated by the Company due to a
Change of Control or if the Executive is not offered a like position with the
same compensation, benefits, position and responsibilities due to a Change of
Control, the Company shall:
(1) Pay to the Executive in a lump sum within seven
business days following the date of termination, an amount equal to one (1)
times the Executive's annual base salary in effect as of the date of termination
plus one half (1/2) the Executive's annual bonus; and
(2) Health Benefits. The Company shall provide the
---------------
Executive with the same level of health coverage and benefits as in effect for
the Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) twelve months from the date
Executive's employment with the Company terminated.
I.4 Retention Bonus
---------------
(1) If the Executive is actively employed by the Company on
April 30, 2000, the Executive shall receive a cash bonus of 20,000.
I.5 Retention Stock
---------------
(1) On July 8, 1999 the Board of Directors approved a stock
grant of 5,000 options that completely vest one year from the grant date (July
8, 1999), if the Executive is actively employed on July 31, 2000. You will
continue to be eligible for additional stock grants at the end of the fiscal
year when we review all the executives.
I.6 2/nd/ Half FYOO Bonus Plan
--------------------------
(1) The Company shall modify the 2/nd/ half of FY00
operating plan to set goals that are more achievable. The executive bonus plans
will be tied to the new plan and provide a reasonable opportunity to achieve
bonus targets for the 2/nd/ half of FY00.
I.7 No Obligation to Mitigate Damages; No Effect on Other
-----------------------------------------------------
Contractual Rights.
- ------------------
(a) The Executive shall not be required to mitigate damages
or the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination.
(b) The provisions of this Agreement, and any payment or
benefit provided for hereunder, shall not reduce any amounts otherwise payable,
or in any way diminish the Executive's existing rights, or rights which would
accrue solely as a result of the passage of time, under any Company Benefit
Plan, employment agreement or other contract, plan or arrangement.
-3-
<PAGE>
ARTICLE II
CONFIDENTIALITY AND NONDISCLOSURE
II.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business,
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
II.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
II.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
II.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (1) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
II.5. Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article II are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article II are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
II.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article II shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
-4-
<PAGE>
ARTICLE III
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
III.1 Assumption of Obligations. The Company will require any
-------------------------
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Any failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement becomes bound by all the
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement the Executive is employed by any corporation a
majority of the voting securities of which is then owned by the Company,
"Company" as used in this Agreement shall in addition include such employer. In
such event, the Company agrees that it shall pay or shall cause such employer to
pay any amounts owed to the Executive pursuant to this Agreement.
III.2 Beneficial Interests. This Agreement shall inure to the
--------------------
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
ARTICLE IV
GENERAL PROVISIONS
IV.1 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
IV.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
IV.3 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
IV.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IV.5 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
IV.6 Notice Provisions. All notices must be written and executed by
-----------------
registered mail with a return receipt.
-5-
<PAGE>
IV.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
IV.8 Arbitration. Any controversy, dispute, claim or other matter
-----------
in question arising out of or relating to this Agreement shall be settled, at
the request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
1.1 Notice of the demand for arbitration shall be filed in writing with
the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
1.2 Discovery as allowable under California Code of Civil Procedure
Sections 2001 et. seq. shall be allowed in arbitration.
1.3 The costs and fees of the arbitration shall be advanced by the Company
and shall be allocated by the arbitrators after judgement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INFERENCE CORPORATION, a Delaware corporation
By: __________________________________________________
Charles Jepson, President and Chief Executive
Officer
EXECUTIVE
__________________________________________________
Greg Pappas
-6-
<PAGE>
EXHIBIT 10.53
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is dated as of July
10, 1999, between Inference Corporation, a Delaware corporation (the "Company"),
and Bob Tatemichi (the "Executive").
WHEREAS, the Company has determined that it is in the best interests
of the Company and its stockholders to reinforce and encourage the continued
attention and dedication of certain key members of the Company's management,
including the Executive, to their assigned duties without distraction in
uncertain circumstances arising from the possibility of a change in control of
the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its stockholders to minimize the personal
considerations of certain key members of management in their evaluation of any
offers for a change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on an effort to effect a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
TERMINATION
I.1 Definitions. For purposes of this Article I, the following
-----------
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
-----
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his duties; (iii) willful misconduct by the
Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless the
Executive first shall have received at least 5 days written notice setting forth
the reasons for the Company's intention to terminate or take other action.
(b) Change of Control "Change in Control" means and shall be
-----------------
deemed to have occurred with respect to the Company if: (i) there shall be
consummated (A) any consolidation, merger or other business combination of the
Company with another corporation or entity and as a result of such
consolidation, merger or other business combination less than 50% of the
outstanding voting securities of the surviving or resulting corporation or
entity shall be owned in the aggregate by the shareholders of the Company, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of any party to such consolidation, merger, or
other business combination, as the same shall have existed immediately prior to
such consolidation, merger, or other business combination; or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (ii)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; (iii) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the shareholders of
the Company as of the date hereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Company's
outstanding Common Stock; or (iv) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act shall have occurred.
-1-
<PAGE>
(c) Good Reason. "Good Reason" shall mean each of the following:
-----------
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's position of employment
as contemplated herein, or any removal of the Executive from, without the
Executive's consent, to a position of employment consistent with the position
and status of Executive the position of CFO and the most senior financial
executive position in the company, reporting directly to the Chief Executive
Officer; (ii) a reduction by the Company, without the Executive's consent, in
the Executive's annual base salary as it may exist from time to time; (iii) a
failure by the Company, without the Executive's consent, to continue any Company
Benefit Plans in which the Executive presently is entitled to participate, as
the same may be modified from time to time; (iv) a failure, without the
Executive's consent, by the Company to continue the Executive as a participant
in any Company Benefit Plans on at least the same basis as he presently
participates in such plans; (v) the requirement by the Company, without
Executive's consent, that the Executive be based anywhere other than within 25
miles of the Executive's present office location, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
I.2 Severance Benefits Received Upon Termination.
---------------------------------------------
(a) If at any time the Executive's employment is terminated by
the Company for Cause, the Company shall pay the Executive, in cash, his base
salary through the end of the month during which such termination occurs plus
credit for any accrued vacation. All benefits will remain in effect until the
termination occurs.
(b) Subject to the other provisions contained in this Agreement,
the Company may terminate this Agreement for any reason other than Cause upon
thirty (30) days' written notice to Executive. The effective date of termination
("Effective Date") shall be considered to be thirty (30) days subsequent to
written notice of termination; however, the Company may elect to have Executive
leave the Company immediately.
(c) If at any time the Executive's employment is terminated by
the Company without Cause or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) Pay to the Executive within four business days following
the date of termination his base salary through the end of the month during
which such termination occurs plus credit for any vacation earned but not taken;
and
(2) Pay to the Executive in a lump sum within seven business
days following the date of termination, an amount equal to three (3) months of
the Executive's annual base salary in effect as of the date of termination. If
the Executive is not employed full-time within three (3) months of the
termination date, the Company shall continue the Executive's monthly salary for
up to three (3) months or until the Executive's commencement of full time
employment with a new employer, which ever occurs first; and
(3) Health Benefits. The Company shall provide the Executive
---------------
with the same level of health coverage and benefits as in effect for the
Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) six (6) months from the
termination of Executive's employment; and
(4) Pay to the Executive in lump sum within four business
days following the date of termination the Retention Bonus in the amount
specified in Section I.4, to the extent not already paid; and
-2-
<PAGE>
(5) Continue to vest the Executive with the Retention Stock
in the amount specified in Section I.5 until the Retention Stock is fully vested
and exercisable.
I.3 Severance Benefits Received Upon Change of Control
--------------------------------------------------
If at any time the Executive's employment is terminated by the Company due to a
Change of Control or if the Executive is not offered a like position with the
same compensation, benefits, position and responsibilities due to a Change of
Control, the Company shall:
(1) Pay to the Executive in a lump sum within seven business days
following the date of termination, an amount equal to one (1) times the
Executive's annual base salary in effect as of the date of termination plus one
half (1/2) the Executive's annual bonus; and
(2) Health Benefits. The Company shall provide the Executive with
---------------
the same level of health coverage and benefits as in effect for the Executive on
the day immediately preceding the day of the Executive's termination of
employment; provided, however, that (i) the Executive constitutes a qualified
beneficiary, as defined in Section 4980(g)(l) of the Internal Revenue Code of
1986, as amended; and (ii) Executive elects continuation coverage pursuant to
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), within the time period prescribed pursuant to COBRA. The Company
shall continue to reimburse Executive for continuation coverage until the
earlier of (i) the date Executive is no longer eligible to receive continuation
coverage pursuant to COBRA or (ii) twelve months from the date Executive's
employment with the Company terminated .
I.4 Retention Bonus
---------------
(1) If the Executive is actively employed by the Company on April
30, 2000, the Executive shall receive a cash bonus of $25,000.
I.5 Retention Stock
---------------
(1) On July 8, 1999 the Board of Directors approved a stock grant
of 10,000 options that completely vest one year from the grant date (July 8,
1999), if the Executive is actively employed on July 31, 2000. You will continue
to be eligible for additional stock grants at the end of the fiscal year when we
review all the executives.
I.6 2/nd/ Half FYOO Bonus Plan
--------------------------
(1) The Company shall modify the 2/nd/ half of FY00 operating
plan to set goals that are more achievable. The executive bonus plans will be
tied to the new plan and provide a reasonable opportunity to achieve bonus
targets for the 2/nd/ half of FY00.
I.7 No Obligation to Mitigate Damages; No Effect on Other Contractual
-----------------------------------------------------------------
Rights.
- ------
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination.
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
-3-
<PAGE>
ARTICLE II
CONFIDENTIALITY AND NONDISCLOSURE
II.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business,
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
II.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
II.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
II.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (1) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
II.5. Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article II are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article II are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
II.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article II shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
-4-
<PAGE>
ARTICLE III
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
III.1 Assumption of Obligations. The Company will require any
-------------------------
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Any failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement becomes bound by all the
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement the Executive is employed by any corporation a
majority of the voting securities of which is then owned by the Company,
"Company" as used in this Agreement shall in addition include such employer. In
such event, the Company agrees that it shall pay or shall cause such employer to
pay any amounts owed to the Executive pursuant to this Agreement.
III.2 Beneficial Interests. This Agreement shall inure to the
--------------------
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
ARTICLE IV
GENERAL PROVISIONS
IV.1 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
IV.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
IV.3 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
IV.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IV.5 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
IV.6 Notice Provisions. All notices must be written and executed by
-----------------
registered mail with a return receipt.
-5-
<PAGE>
IV.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
IV.8 Arbitration. Any controversy, dispute, claim or other matter
-----------
in question arising out of or relating to this Agreement shall be settled, at
the request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
1.1 Notice of the demand for arbitration shall be filed in writing with
the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
1.2 Discovery as allowable under California Code of Civil Procedure
Sections 2001 et. seq. shall be allowed in arbitration.
1.3 The costs and fees of the arbitration shall be advanced by the Company
and shall be allocated by the arbitrators after judgement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INFERENCE CORPORATION, a Delaware corporation
By: _____________________________________________
Charles Jepson, President and Chief Executive
Officer
EXECUTIVE
_____________________________________________
Bob Tatemichi
-6-
<PAGE>
EXHIBIT 10.54
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is dated as of July
10, 1999, between Inference Corporation, a Delaware corporation (the "Company"),
and Mark Wolf (the "Executive").
WHEREAS, the Company has determined that it is in the best interests
of the Company and its stockholders to reinforce and encourage the continued
attention and dedication of certain key members of the Company's management,
including the Executive, to their assigned duties without distraction in
uncertain circumstances arising from the possibility of a change in control of
the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its stockholders to minimize the personal
considerations of certain key members of management in their evaluation of any
offers for a change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on an effort to effect a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
TERMINATION
I.1 Definitions. For purposes of this Article I, the following
-----------
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
-----
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his duties; (iii) willful misconduct by the
Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless the
Executive first shall have received at least 5 days written notice setting forth
the reasons for the Company's intention to terminate or take other action.
(b) Change of Control "Change in Control" means and shall be
-----------------
deemed to have occurred with respect to the Company if: (i) there shall be
consummated (A) any consolidation, merger or other business combination of the
Company with another corporation or entity and as a result of such
consolidation, merger or other business combination less than 50% of the
outstanding voting securities of the surviving or resulting corporation or
entity shall be owned in the aggregate by the shareholders of the Company, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of any party to such consolidation, merger, or
other business combination, as the same shall have existed immediately prior to
such consolidation, merger, or other business combination; or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (ii)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; (iii) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the shareholders of
the Company as of the date hereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Company's
outstanding Common Stock; or (iv) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act shall have occurred.
-1-
<PAGE>
(c) Good Reason. "Good Reason" shall mean each of the following:
-----------
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's position of employment
as contemplated herein, or any removal of the Executive from, without the
Executive's consent, to a position of employment consistent with the position
and status of Executive the position of CFO and the most senior financial
executive position in the company, reporting directly to the Chief Executive
Officer; (ii) a reduction by the Company, without the Executive's consent, in
the Executive's annual base salary as it may exist from time to time; (iii) a
failure by the Company, without the Executive's consent, to continue any Company
Benefit Plans in which the Executive presently is entitled to participate, as
the same may be modified from time to time; (iv) a failure, without the
Executive's consent, by the Company to continue the Executive as a participant
in any Company Benefit Plans on at least the same basis as he presently
participates in such plans; (v) the requirement by the Company, without
Executive's consent, that the Executive be based anywhere other than within 25
miles of the Executive's present office location, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
I.2 Severance Benefits Received Upon Termination.
---------------------------------------------
(a) If at any time the Executive's employment is terminated by
the Company for Cause, the Company shall pay the Executive, in cash, his base
salary through the end of the month during which such termination occurs plus
credit for any accrued vacation. All benefits will remain in effect until the
termination occurs.
(b) Subject to the other provisions contained in this Agreement,
the Company may terminate this Agreement for any reason other than Cause upon
thirty (30) days' written notice to Executive. The effective date of termination
("Effective Date") shall be considered to be thirty (30) days subsequent to
written notice of termination; however, the Company may elect to have Executive
leave the Company immediately.
(c) If at any time the Executive's employment is terminated by
the Company without Cause or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) Pay to the Executive within four business days
following the date of termination his base salary through the end of the month
during which such termination occurs plus credit for any vacation earned but not
taken; and
(2) Pay to the Executive in a lump sum within seven
business days following the date of termination, an amount equal to three (3)
months of the Executive's annual base salary in effect as of the date of
termination. If the Executive is not employed full-time within three (3) months
of the termination date, the Company shall continue the Executive's monthly
salary for up to three (3) months or until the Executive's commencement of full
time employment with a new employer, which ever occurs first; and
(3) Health Benefits. The Company shall provide the
---------------
Executive with the same level of health coverage and benefits as in effect for
the Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) six (6) months from the
termination of Executive's employment; and
(4) Pay to the Executive in lump sum within four business
days following the date of termination the Retention Bonus in the amount
specified in Section I.4, to the extent not already paid; and
-2-
<PAGE>
(5) Continue to vest the Executive with the Retention Stock
in the amount specified in Section I.5 until the Retention Stock is fully vested
and exercisable.
I.3 Severance Benefits Received Upon Change of Control
--------------------------------------------------
If at any time the Executive's employment is terminated by the Company due to a
Change of Control or if the Executive is not offered a like position with the
same compensation, benefits, position and responsibilities due to a Change of
Control, the Company shall:
(1) Pay to the Executive in a lump sum within seven business
days following the date of termination, an amount equal to one (1) times the
Executive's annual base salary in effect as of the date of termination plus one
half (1/2) the Executive's annual bonus; and
(2) Health Benefits. The Company shall provide the Executive
---------------
with the same level of health coverage and benefits as in effect for the
Executive on the day immediately preceding the day of the Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980(g)(l) of the Internal
Revenue Code of 1986, as amended; and (ii) Executive elects continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The
Company shall continue to reimburse Executive for continuation coverage until
the earlier of (i) the date Executive is no longer eligible to receive
continuation coverage pursuant to COBRA or (ii) twelve months from the date
Executive's employment with the Company terminated.
I.4 Retention Bonus
---------------
(1) If the Executive is actively employed by the Company on
April 30, 2000, the Executive shall receive a cash bonus of $22,500.
I.5 Retention Stock
---------------
(1) On July 8, 1999 the Board of Directors approved a stock
grant of 7,500 options that completely vest one year from the grant date (July
8, 1999), if the Executive is actively employed on July 31, 2000. You will
continue to be eligible for additional stock grants at the end of the fiscal
year when we review all the executives.
I.6 2/nd/ Half FYOO Bonus Plan
--------------------------
(1) The Company shall modify the 2/nd/ half of FY00 operating
plan to set goals that are more achievable. The executive bonus plans will be
tied to the new plan and provide a reasonable opportunity to achieve bonus
targets for the 2/nd/ half of FY00.
I.7 No Obligation to Mitigate Damages; No Effect on Other Contractual
-----------------------------------------------------------------
Rights.
- ------
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination.
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
-3-
<PAGE>
ARTICLE II
CONFIDENTIALITY AND NONDISCLOSURE
II.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business,
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
II.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
II.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
II.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (1) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
II.5. Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article II are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article II are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
II.6 Survival of Obligations. Executive agrees that the terms of
-----------------------
this Article II shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
-4-
<PAGE>
ARTICLE III
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
III.1 Assumption of Obligations. The Company will require any
-------------------------
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Any failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement becomes bound by all the
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement the Executive is employed by any corporation a
majority of the voting securities of which is then owned by the Company,
"Company" as used in this Agreement shall in addition include such employer. In
such event, the Company agrees that it shall pay or shall cause such employer to
pay any amounts owed to the Executive pursuant to this Agreement.
III.2 Beneficial Interests. This Agreement shall inure to the
--------------------
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
ARTICLE IV
GENERAL PROVISIONS
IV.1 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
IV.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
IV.3 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
IV.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IV.5 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
IV.6 Notice Provisions. All notices must be written and executed by
-----------------
registered mail with a return receipt.
-5-
<PAGE>
IV.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
IV.8 Arbitration. Any controversy, dispute, claim or other matter
-----------
in question arising out of or relating to this Agreement shall be settled, at
the request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
1.1 Notice of the demand for arbitration shall be filed in writing with
the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
1.2 Discovery as allowable under California Code of Civil Procedure
Sections 2001 et. seq. shall be allowed in arbitration.
1.3 The costs and fees of the arbitration shall be advanced by the Company
and shall be allocated by the arbitrators after judgement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
INFERENCE CORPORATION, a Delaware corporation
By: __________________________________________________
Charles Jepson, President and Chief Executive
Officer
EXECUTIVE
__________________________________________________
Mark Wolf
-6-
<PAGE>
EXHIBIT 10.55
RESIGNATION AND MUTUAL RELEASE AGREEMENT
This Resignation and Mutual Release Agreement (the "Agreement") is made by
and between Inference Corporation, a Delaware corporation (the "Company") and
Glen D. Vondrick ("Vondrick") and is effective as of June 30, 1999 (the
effective date).
WHEREAS, Vondrick has been employed by the Company;
WHEREAS, Vondrick and the Company have mutually agreed to terminate the
employment relationship and to release each other from any claims arising from
or related to the employment relationship;
NOW, THEREFORE, in consideration of the mutual promises made herein,
Vondrick and the Company (collectively referred to as the "Parties") hereby
agree as follows;
1. Resignations. Vondrick hereby resigns as of June 30, 1999 (the
------------
"Termination Date") as an officer of the Company, and as an officer of any of
the Company's subsidiaries. Vondrick's employment with the Company will also be
deemed terminated as of such date.
2. Severance Payments. The Company agrees to pay Vondrick a lump sum
------------------
severance payment of $37,500 within ten (10) business days of the effective date
(but in no case later than June 30, 1999 if the agreement is signed by June 20,
1999) of this release and three (3) months salary continuation of $8,334
bimonthly ("Severance"), beginning on October 1, 1999 and ending on December 31,
1999 or until Vondrick is employed (as an employee or a consultant/contractor
working greater than 80 hours per month) by another employer, whichever occurs
earlier. Vondrick agrees to notify the Company immediately of any such new
employment. The parties understand and agree that the Severance will be paid for
consulting services and are treated as a consulting engagement. The parties
also understand and agree that Vondrick will only be available for phone
consulting on an as needed basis as responsibilities for consulting services.
3. Vacation and Commissions. The Company shall also pay all accrued
------------------------
vacation due Vondrick through the Termination Date and the Company agrees to pay
all commissions earned as outlined in the FYOO General Provisions document
(attached). The Company also agrees to reimburse Vondrick up to $2,000 for a
golf vacation earned for his performance in first fiscal quarter providing the
vacation is taken prior to December 31, 1999. The Company also agrees to offer
Vondrick the ability to buy back his two original charter seat licenses for the
San Francisco Giants Pac Bell Part at the same amount which the Company paid and
immediately transfer (if possible) ownership to Vondrick.. This option expires
July 15, 1999.
4. Benefits. The Company shall continue to make coverage available to
--------
Vondrick and his dependents under the Company's group health and dental plans
and shall make all payments
<PAGE>
under such plans which would have otherwise been paid by Vondrick through
December 31, 1999 or until coverage begins under new employment, and thereafter
to the extent required by COBRA ("the Benefits"). Vondrick will be able to roll
over his 401(k) account as outlined in the 401(k) plan.
5. Vesting Under Stock Option Agreements. The parties acknowledge that
-------------------------------------
the vesting of the stock options previously granted to Vondrick under the
Company's stock plans terminates as of the Termination Date. In accordance with
the terms of such options, Vondrick shall have until 90 days following
termination of employment to exercise the vested portions thereof. There shall
be no further vesting of any stock options previously granted to Vondrick under
the Company's stock plans following termination of employment.
6. Confidential Information. Vondrick agrees to immediately return to the
------------------------
Company all of the Company's property (except for the cell phone, printer and
home computer equipment- which Vondrick will keep as his sole and separate
property) and confidential and proprietary information in his possession as of
the termination of his employment, and agrees not to use or disclose any such
information (including employee lists and employee information) without the
prior written consent of the Company. The limitations described in this Section
6 are in addition to any similar limitations to which Vondrick is subject based
on other legal or contractual obligations and subject to the signed General
Terms of Employment (attached).
7. California Labor Code. Assuming the payments of the above severance
---------------------
amounts, California Labor Code section 206.5 will not be applicable to the
parties hereto. Said section provides in pertinent part:
NO EMPLOYER SHALL REQUIRE THE EXECUTION OF ANY RELEASE OF ANY CLAIM OR
RIGHT ON ACCOUNT OF WAGES DUE, OR TO BECOME DUE, OR MADE AS AN ADVANCE ON WAGES
TO BE EARNED, UNLESS PAYMENT OF SUCH WAGES HAS BEEN MADE.
8. Release of Claims. Vondrick agrees that the foregoing consideration
-----------------
represents settlement in full of all outstanding obligations owed to Vondrick by
the Company. The Company and Vondrick, on behalf of themselves and their
respective heirs, executors, officers, directors, employees, investors,
shareholders, administrators, predecessor and successor corporations, and
assigns, hereby fully and forever release each other and their respective heirs,
executors, officers, directors, employees, investors, shareholders,
administrators, predecessor and successor corporations, and assigns, of and from
any claim, duty, obligation or cause of action relating to any matters of any
kind, whether presently known or unknown, suspected or unsuspected, that any of
them may possess arising from any omissions, acts or facts that have occurred up
to and including the Effective Date including, without limitation:
(a) any and all claims relating to or arising from Vondrick's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from Vondrick's right
to purchase shares of stock of the Company;
-2-
<PAGE>
(c) any and all claims for wrongful discharge of employment; breach
of contract, both express and implied breach of the covenant of good faith and
fair dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage;
defamation; violation of any federal, state or municipal law including, but not
limited to, any claims for violation of Title VII of the Civil rights Act of
1964, any and all claims for violation of the Age Discrimination in Employment
Act of 1967, and any and all claims for violation of the California Fair
Employment and Housing Act;
(d) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination; and
(e) any and all claims for attorneys' fees and costs.
The Company and Vondrick agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release as
to the matters released. This release does not extend to any obligations
incurred under this Agreement.
9. Acknowledgment of Waiver of Claims under ADEA. Vondrick acknowledges
---------------------------------------------
that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Vondrick and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date of this Agreement. Vondrick acknowledges that the
consideration given for this waiver and release is in addition to anything of
value to which Vondrick was already entitled. Vondrick further acknowledges
that he has been advised by this writing that (a) he should consult with an
attorney prior to executing this Agreement; (b) he has at least twenty-one (21)
-----
days within which to consider this Agreement; (c) he has at least seven (7) days
following the execution of this Agreement by the Parties to revoke the
Agreement; and (d) this Agreement shall not be effective until the revocation
period has expired.
10. Civil Code Section 1542. The parties represent that they are not aware
-----------------------
of any claim by either of them other than the claims that are released by this
Agreement. The Company and Vondrick acknowledge that they are familiar with the
provisions of California Civil Code Section 1542 which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
The Company and Vondrick, being aware of said section, agree to expressly
waive any rights that they may have thereunder, as well as under any other
statute or common law principles of similar effect.
-3-
<PAGE>
11. Confidentiality. Except as required by law, the parties hereto each
---------------
agree to maintain in confidence the existence of contents and terms of, and the
consideration for this Agreement (hereinafter collectively referred to as
"Settlement Information"). Each party hereto agrees to take every precaution to
prevent disclosure of any Settlement Information to third parties, and each
agrees that there will be no publicity, directly or indirectly, concerning any
Settlement Information. The parties hereto agree to take every precaution to
disclose Settlement Information only to those employees, officers, directors,
attorneys, accountants and family members who have a reasonable need to know of
such Settlement Information.
12. No Disparagement. Both parties agree not to disparage each other.
----------------
Except as required by law, Vondrick agrees that as of the Effective Date, he
will not comment on the Company or any of its affiliates or employees,
directors, outside consultants or any other parties financially related thereto
and upon any inquiries made to Vondrick, whether directly or indirectly,
relating to such parties, Vondrick will refer such inquiries to the Company's
Chief Financial Officer. All inquiries by prospective employers for the purpose
of reference information on Vondrick will be directed to the Company's Human
Resources Department. The Human Resources Department will only provide date of
hire, position and date of termination information, unless otherwise instructed
in writing by Vondrick.
13. Indemnification. The Company agrees that nothing in this Agreement
---------------
will affect Vondrick's rights to indemnification pursuant to Labor Code Section
2902 or the Company's Certificate of Incorporation or Bylaws.
14. No Admissions. The parties understand and acknowledge that this
-------------
Agreement constitutes a compromise and settlement of claims. No action taken by
the parties hereto, or either of them, either previously or in connection with
this Agreement shall be deemed or construed to be (a) an admission of the truth
or falsity of any claims heretofore made, or (b) an acknowledgment or admission
by either party of any fault or liability whatsoever to the other party or to
any third party.
15. Costs. The parties shall each bear their own costs, expert fees,
-----
attorneys' fees and other fees incurred in connection with this Agreement. The
Company will reimburse Vondrick up to $250 for attorney's fees incurred to
review this document.
16. Authority. The Company represents and warrants that the undersigned
---------
has the authority to act on behalf of the Company and to bind the Company and
all who may claim through it to the terms and conditions of this Agreement.
Vondrick represents and warrants that he has the capacity to act on his own
behalf and on behalf of all who might claim through him to bind him to the term
and conditions of this Agreement. Each party warrants and represents that there
are no liens or claims of lien or assignments in law or equity or otherwise of
or against any of the claims or causes of action released herein.
17. No Representations. Each party represents that it has had the
------------------
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied on any representations or statements made by the other party hereto which
are not specifically set forth in this Agreement.
-4-
<PAGE>
18. Severability. In the event that any provision hereof becomes or is
------------
declared by a court of competent jurisdiction to be illegal, unenforceable, or
void, this Agreement shall continue in full force and effect without said
provision.
19. Entire Agreement. This Agreement represents the entire agreement and
----------------
understanding between the parties concerning Vondrick's separation from the
Company and supersedes and replaces any and all prior agreements and
understandings concerning Vondrick's relationship with the Company and his
compensation by the Company.
20. No Oral Modification. This Agreement may only be amended in writing
--------------------
signed by the parties.
Governing Law. This Agreement shall be governed by the laws of the State of
-------------
California.
Should any party institute any action or proceeding to enforce this
Agreement or any provision hereof, or for damages by reason of any alleged
breach of this Agreement or of any provision hereof, or for a declaration of
rights hereunder, the prevailing party in any such action or proceeding shall be
entitled to receive from the other party all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
This Agreement and the provisions hereof shall be binding upon each of the
parties, their heirs, executors, successors and permitted assigns.
21. Effective Date. This Agreement is effective (the "Effective Date")
--------------
seven (7) days after it has been signed by both parties.
22. Counterparts. This Agreement may be executed in counterparts, and each
------------
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
23. Voluntary Execution of Agreement. This Agreement is executed
--------------------------------
voluntarily and without any duress or undue influence on the part or behalf of
the parties hereto, with full intent of releasing all claims, and the parties
acknowledge that:
(a) They have read the Agreement;
(b) The have been represented in the preparation, negotiations, and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement and
of the releases it contains; and
(d) They are fully aware of the legal and binding effect of this
Agreement.
-5-
<PAGE>
[Remainder of page intentionally left blank]
-6-
<PAGE>
IN WITNESS THEREOF, the parties have executed or caused to be executed by
an authorized officer this Agreement on the respective dates set forth below.
GLEN D. VONDRICK INFERENCE CORPORATION
By:______________________________ By:_____________________________________
_________________________________ ________________________________________
Dated:___________________________ Dated:__________________________________
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 21,204,000
<SECURITIES> 0
<RECEIVABLES> 5,927,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,858,000
<PP&E> 6,163,000
<DEPRECIATION> 4,609,000
<TOTAL-ASSETS> 30,901,000
<CURRENT-LIABILITIES> 8,769,000
<BONDS> 0
0
0
<COMMON> 76,000
<OTHER-SE> 22,056,000
<TOTAL-LIABILITY-AND-EQUITY> 30,901,000
<SALES> 5,209,000
<TOTAL-REVENUES> 11,900,000
<CGS> 405,000
<TOTAL-COSTS> 3,787,000
<OTHER-EXPENSES> 4,127,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,738,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,738,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,738,000)
<EPS-BASIC> (.65)
<EPS-DILUTED> (.65)
</TABLE>
