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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER: 0-26298
HARBINGER CORPORATION
(exact name of registrant specified in its charter)
Georgia 58-1817306
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1055 LENOX PARK BOULEVARD 30319
ATLANTA, GEORGIA (zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 467-3000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Common Stock, par value $.0001 per share The Nasdaq National Market
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the average of the closing bid and ask quotations
for the Common Stock on March 18, 1997 as reported by The Nasdaq Stock Market,
was approximately $329,682,955. The shares of Common Stock held by each
officer and director and by each person known to the company who owns 5% or
more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. As of March 18,
1997, Registrant had outstanding 19,007,855 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1996 and Current Report on Form 8-K/A filed
March 14, 1997 are incorporated by reference in Parts II and IV of this Form
10-K to the extent stated herein. The Registrant's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held April 25, 1997 is
incorporated by reference in Part III of this Form 10-K to the extent stated
herein.
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PART I
ITEM 1. BUSINESS.
Harbinger Corporation ("Harbinger" or the "Company") is a leading
worldwide provider of electronic commerce products and services to businesses
and offers comprehensive, customizable, standards-based electronic commerce
solutions. Harbinger develops, markets and supports software products and
provides computer communications network and consulting services which enable
businesses to engage in electronic commerce. These electronic commerce
solutions are provided over the Harbinger value-added network ("VAN") or the
Company's Internet Value-Added Server ("IVAS"), or directly over standard
telephone lines, the Internet, or private internal computer networks known as
Intranets. Harbinger offers software products that operate on multiple
computer platforms, secure and reliable computer networks to facilitate the
transmission of business information and transactions, and value-added products
and services to enable businesses of all sizes to maximize the number and value
of their electronic trading relationships.
The Company's products and services facilitate electronic commerce
("EC") and electronic data interchange ("EDI") by businesses and financial
institutions by providing the ability to electronically transmit and receive
routine business information and documents in a standard format. The Harbinger
VAN and IVAS serve as electronic communications links for computer systems by
receiving, storing and forwarding electronically transmitted business documents
and data for re-transmission in a form that can be received and interpreted by
the computer of another commercial business. The method of document exchange
is user configurable by trading partner and by document type (such as purchase
order, invoice, quote and similar business documents). Both the Harbinger VAN
and IVAS provide encryption and other document management and security methods
to allow documents to be exchanged securely and reliably. Harbinger
facilitates the electronic link to its computer communications network through
its electronic commerce software packages for use in a broad range of computing
environments, including DOS, Windows (3.x, 95 and NT), UNIX, IBM AS/400
midrange and IBM MVS mainframe platforms. The Company also provides
professional services to assist businesses in the installation and
customization, operation and maintenance of their electronic trading
relationships.
ELECTRONIC COMMERCE AND EDI
Electronic commerce involves the automation of business transactions
through the use of telecommunications and computers to exchange and
electronically process commercial information and transactional documents.
Electronic commerce typically involves the use of a third-party or private
value-added computer network to perform EDI, electronic funds transfer ("EFT"),
electronic forms, and bulletin board and electronic catalog services. EDI is a
cornerstone of electronic commerce and has historically been the source of the
majority of the Company's revenue. The advantages of EDI include one-time data
entry, reduced clerical workload and the elimination of paper records, rapid,
accurate and secure exchange of business data, and reduced operating and
inventory carrying costs. EDI facilitates uniform communications with different
trading partners in different industries, including customers, suppliers,
common carriers, and banks or other financial institutions.
EDI Transaction Flow. In a typical EDI transaction, a trading partner
(the ''sending partner'') first creates with its computer, either manually or
electronically, the business data used for the completion of a particular set
of documents, described by EDI standards as a transaction set. Transaction
sets include requests for quotes, quotes, purchase orders, invoices, shipping
notices, and other related documents and messages. Second, a translation
software program on the sending partner's computer converts the document or
transaction set into a standard EDI format. Third, this information is
electronically transmitted through telecommunications links from the sending
partner's computer to a central computer system that serves as a value-added
network shared by many trading partners. Value-added networks receive
documents for subsequent delivery to the intended trading partner (the
''receiving partner''), and connect many types of computer hardware and
communications devices, convert multiple transaction sets from one industry
standard to another, and maintain security by reducing the possibility of one
trading partner obtaining unauthorized access to another computer.
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Trading Communities. Groups of companies that regularly trade with
each other generate significant repetitive business transactions. These
existing trading communities are natural prospects for implementation of EDI.
The expansion of EDI has been possible through the establishment of repetitive
transactions using two major standards, ANSI X12 in the United States and
EDIFACT in the rest of the world. In addition, there are now subsets of these
standards used in specific industries such as automotive, banking, chemical,
financial, grocery, healthcare, petroleum, retail and utilities. The adoption
of EDI as an accepted means of transmitting business documents and data has
also occurred, in part, because many trade organizations or groups and many
large companies within a trading community increasingly recommend or require
their member organizations or trading partners to adopt and use EDI as the
primary method of communicating business documents.
Hubs and Spokes. Large companies within a trading community often are
described as ''hubs'' and their trading partners as ''spokes.'' A hub company
and its trading partners communicate through electronic networks. These can be
third party networks and, for a few larger businesses, private networks owned
and operated by the hub company. Hub companies often initially justify EDI
programs with direct cost savings to reduce the administrative handling costs
and to eliminate data entry errors of the documents that they send and receive
from trading partners. Advanced EDI implementations by a hub company may be
more strategic in nature, being utilized as enabling technologies for business
processes such as supply chain management and just-in-time (JIT) manufacturing,
and efficient customer response (ECR) and vendor managed inventory (VMI) in
retailing. For these reasons, a hub company often adopts as a stated business
objective that all of its trading partners use EDI as the principal means of
communicating business documents. Spoke companies, in turn, often expand the
electronic commerce community by also requesting or requiring their other
trading partners to communicate through EDI. This expanding number of trading
partners adopting EDI results in the establishment of distinct trading
communities comprising potential software customers and network subscribers for
EDI services.
According to International Data Corporation, the worldwide market for
electronic commerce was an estimated $1.5 billion in revenues in 1995 and is
estimated to increase to almost $4.0 billion by 2000, an average annual growth
rate of approximately 21%. Furthermore, it is estimated by The EDI Group, Ltd.
that of the 3 million U.S. companies with five or more employees, approximately
120,000 have elected to date to make use of EDI. Although many of these
current users of EDI are members of defined trading communities, the Company
believes that many members of these trading communities have not widely adopted
electronic commerce solutions to address their method of transacting business.
Acceptance of electronic commerce and expansion within trading communities will
depend on various factors, such as the extent of automation in the industry,
the degree to which hub companies require electronic trading from their trading
partners, the level of computer sophistication of businesses in the trading
community, the frequency of transactions among trading partners in the
community and the economic benefits derived from the trading community by
implementing electronic trading. To date, EDI has minimal penetration in small
companies because the majority of EDI solution providers do not (i) provide an
affordable, easy to use, cross-platform solution, (ii) offer a complete suite
of services, (iii) provide tailored solutions for a wide range of industries,
(iv) employ active mass deployment strategies to encourage the widespread
adoption of EDI, and (v) address the unique and ongoing needs of smaller
trading partners.
THE HARBINGER SOLUTION
The Harbinger solution to addressing electronic commerce is based on
the following five components which are designed to build trading partner
relationships and generate recurring revenue and which the Company believes
differentiate it from its competitors in the market.
- Mass Deployment Services. The Company provides mass deployment
services to hub companies to permit them to plan, manage and
deploy EDI and electronic commerce solutions to spoke companies
within trading communities through the use of trading partner
conferences and direct marketing services.
- Comprehensive Product Offering. The Company offers a range of
electronic commerce software solutions for trading communities,
including a suite of fully scaleable EDI translation software, EDI
modules for supply chain management, its IVAS solution, and web
site creation and management software for small businesses.
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- Trading Relationship Management Services. The Company provides a
range of trading relationship management services, including
installation assistance, trading partner certification and rules,
and services such as customization, training and consulting.
- Vertical Market Expertise. The Company has developed vertical
market expertise in selected industries such as aerospace,
automotive, electronics, financial services, food and beverage,
government, healthcare, heavy manufacturing, petroleum/chemicals,
retail and utilities.
- Flexible, Secure Network Architecture. The Company has developed
a combined network architecture utilizing the VAN and the IVAS
which permits secure and reliable network and secure Internet
communications to facilitate the transmission of business
information and transactions.
STRATEGY
The Company's objective is to be a leading worldwide provider of
electronic commerce solutions to businesses of all sizes by offering a full
spectrum of products and services to enable customers to transact business on
the Internet, Intranets and through the Harbinger networks with a focus on
building trading partner relationships and generating recurring revenue by
increasing the number of subscribers to its network. The Company's strategy to
achieve this objective includes the following key elements.
Focus on Marketing to Trading Communities. Harbinger seeks to
establish new and larger trading communities by (i) developing marketing and
technical competence within specific industries by understanding the needs of
major trade organizations or hub companies in the industry, and the trading
customs and practices of their trading partners, (ii) working closely with
trading partners to define software and computer systems requirements, (iii)
developing trading community solutions to meet the needs of trading partners in
these markets, and (iv) providing a wide offering of value- added, high-quality
services to facilitate the adoption and implementation of EDI and other
electronic commerce solutions throughout these industries.
Provide a Comprehensive Range of Integrated Products and Services.
The products and services offered by the Company include EDI and electronic
commerce software for use on numerous computing platforms, value-added network
transaction processing, software programming and customization services,
customer support and training, and implementation and consulting services. The
Company designs its products with significant ease-of-use features and is in
the process of completing development efforts to integrate technologies
acquired from SupplyTech, INOVIS and NTEX with its existing software products.
Deliver Superior Customer Support Services. Harbinger offers
extensive customer service, consulting and support to trading partners to
assist in the operation and use of the Company's network services and its
software products. The ease-of-use of the Company's products, focus on
solutions that address specific vertical market needs, and extensive support
services attract new customers with limited EDI expertise and encourage greater
utilization of the Company's products and services by existing customers,
thereby increasing recurring revenues through greater transaction flow.
Capitalize on Electronic Commerce on the Internet. The Company formed
HNS in 1994 to develop EDI products and services for the Internet. Through its
acquisition of HNS, the Company now directly offers a suite of products and
services to facilitate electronic commerce using the Internet. The Company
expects to use the IVAS family of products to develop and market a
comprehensive range of products and services directed at delivering electronic
commerce solutions to business customers over the Internet, private Intranets
or the Company's networks.
Pursue Strategic Acquisitions and Alliances. The Company's strategy
is to enter new vertical markets, penetrate additional geographic markets and
expand its product and service offerings. The Company will continue to seek to
acquire complementary technologies and businesses. The Company has in the past
completed acquisitions to address other electronic commerce opportunities on
the Internet, enter new vertical markets, acquire complementary technologies
and further penetrate international markets. The Company also actively seeks
strategic alliances with leading telecommunications companies, software
application developers and computer system
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suppliers to resell, distribute and co-market the Company's electronic commerce
software products and network services.
Penetrate International Markets. The Company intends to aggressively
pursue international electronic commerce opportunities. Harbinger believes
that a significant component of its strategy is to provide electronic commerce
and EDI products and services to markets outside the United States. Through
acquisitions of INOVIS in Germany, NTEX in the Netherlands and STI's
subsidiaries in the United Kingdom, Italy and Australia the Company has
increased its support capabilities and product distribution in Europe. In
December 1996 the Company entered into an agreement with Brazilian- based
Teledata Informacoes & Technologia, S.A. ("Teledata") to provide Harbinger's
electronic commerce and EDI services throughout Brazil. Harbinger also entered
into an agreement in December 1996 with Commercio Electronico Ltd., an
affiliate of Teledata, to distribute the Company's products in the rest of
South America, and now has a presence in Mexico through SupplyTech. Under the
Company's relationship with Sprint International Communications Corporation
("Sprint"), the Harbinger network software has been licensed for use by various
government agencies in the People's Republic of China and Poland. The Company
intends to aggressively pursue international electronic commerce opportunities.
PRODUCTS AND SERVICES
The Company offers a comprehensive range of electronic commerce
products and services for entire trading communities. These Company offerings
are divided into three categories, providing electronic commerce solutions for
large companies, solutions designed for small and mid-sized companies, and
services for entire trading communities engaged in electronic commerce. The
following chart summarizes the functions and platforms of the Company's
principal electronic commerce software products and includes a description of
the services available to software customers and network subscribers:
<TABLE>
<CAPTION>
PRODUCT NAME FUNCTION COMPUTER PLATFORM
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SOLUTIONS FOR LARGE BUSINESSES
<S> <C> <C>
TrustedLink Enterprise EDI communications, document management plus UNIX, IBM AS/400, IBM
import/export of data from software MVS, Windows NT
applications
STX EDI communications, document management and DOS, Windows, IBM MVS, IBM
forms creation, plus import/export of data AS/400, DOS/VSE
from software applications
TrustedLink Guardian Data encryption and communications software Windows 95/NT, UNIX
for transmitting EDI documents over the
Internet
TrustedLink Mapping Mapping tool, integrate EDI software with Windows
Workbench specific applications
Internet Value Added Intermediation, archival, standards compliance Unix/Windows NT
Server (IVAS) and trusted third party services via the
Internet
STMAP Mapping software, translate/reformat EDI data DOS, Windows, UNIX, IBM
between STX and internal applications MVS
EDI*Benchmark and EDI Translation Software IBM MVS, DOS/VSE
EDI*Central
SOLUTIONS FOR SMALL AND MID-SIZE
BUSINESSES
TrustedLink Commerce EDI communications, document management and DOS, Windows, Windows
forms creation, plus import/export of data 95/NT
from software applications
</TABLE>
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<TABLE>
<CAPTION>
PRODUCT NAME FUNCTION COMPUTER PLATFORM
- ------------------------------------ ----------------------------------------------- ----------------------
<S> <C> <C>
Harbinger Express Software allowing users with only a web Web browser on Windows
browser to send and receive EDI documents
STFORMS Software for customizing the format of EDI Windows
documents
STSECURITY Software for encrypting EDI documents for Windows
transmission over the Internet
TrustedLink Banker Small business cash management activities, DOS, Windows
EFT, wire transfers, direct deposits and
debits
TrustedLink Distributor for EDI communications, document management and Windows
Petroleum forms creation specific for the Petroleum
Industry
Third Party Ticket System Translation of EDI documents to facilitate Windows
ownership tracking for petroleum companies
ESRS Solution for complying with retail vendor DOS, Windows
shipping requirements
STBAR Bar code labeling software DOS, Windows
Pronto Software for profiling suppliers to submit DOS, Windows
response to bids
TrustedLink INP Software permitting rapid development of a Windows
World Wide Web site for promoting and selling
products and services via the Internet
</TABLE>
<TABLE>
<CAPTION>
SERVICES DESCRIPTION
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<S> <C>
Value-Added Network Fault tolerant, store and forward, retrieval services, protocol conversion,
Services electronic mail box
Internet Value-Added Intermediation, archival, standards compliance manufacturing, and trusted
Server (IVAS) Services third party services via the Internet
Harbinger Net Access Internet access
EDI to Fax Services Translation of EDI documents to fax format
Trading Partner Certification Information seminars, support materials, testing and confirmation of EDI
communications with trading partners
Trading Partner Creation of trading partner packs for users to exchange documents with other
Implementation Service trading partners
Customer Support Telephone hotline, support documentation, network transmission support,
electronic software updates
Consulting and Development of computer programs needed to integrate EDI with a customers
Programming Services other software applications
Bid Filtering and Profiling Service which matches government bids with product suppliers.
Service
FAX-2-EDI Service which converts FAXes to EDI format for submitting to government
agencies
</TABLE>
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SOLUTIONS FOR LARGE BUSINESSES
TrustedLink Enterprise and STX for High-End Computing Platforms. The
TrustedLink Enterprise and STX products permit fast receipt and transmission of
EDI documents and support a comprehensive range of EDI standards across all
major computing platforms. The Company offers these products for MVS
mainframe, AS/400, UNIX and Windows NT. The products facilitate the creation
and control of business documents, such as order forms and invoices in complex
client/server computing environments and provides data linking and messaging
functions which act as a gateway to update a trading partner's accounting
system. The products also offer a mapping, translation, communication and
trading partner management tools and utilize standard EDI formats.
TrustedLink Guardian. TrustedLink Guardian is an open,
standards-based solution for enabling secure EDI over the Internet.
TrustedLink Guardian is available for both UNIX and Windows systems. It
consists of messaging, security, authentication and management modules which
automatically integrate with the Company's existing EDI translators.
Internet Value-Added Server (IVAS). Similar to the Harbinger VAN,
the Company's IVAS offers many of the same value-added services over the
Internet. The IVAS provides intermediation, archiving, standards compliance
monitoring and third-party services via the Internet. In conjunction with the
Company's VAN, the IVAS permits participants in a trading community to select
the desired communications transport mechanism for individual documents of a
typical EDI transaction. IVAS/P is tailored for public operators desiring to
offer electronic commerce services in their local market, while IVAS/E is
intended for large enterprises directly operating a server platform to link
members of the enterprise's trading community typically through a private
Intranet. IVAS is also offered as a product for license by end users.
Mass Deployment Services. Harbinger offers mass deployment services to
trade organizations or hub companies within selected industries to establish
and promote the growth of trading communities. Initially, the Company develops
marketing and technical competence within an industry by learning the trading
customs and practices of their trading partners. The Company then defines the
software and computer system requirements for the promotion of electronic
commerce in the trading community. These definitions are used to develop
standard and customized software products to meet the needs of trading partners
within their own markets. These products are complemented by an array of
services to facilitate the adoption and implementation of EDI and other
electronic commerce services throughout that industry.
Web Application Services. Harbinger offers an array of electronic
commerce products and services for the World Wide Web. This includes the
design and creation of customized web sites and the hosting of these sites.
The hosting service is designed for large companies that desire high levels of
security, reliability, and customer support. Other services included are
domain name registration, usage statistics, web registration with Internet
directories and Common Gateway Interface development.
SOLUTIONS FOR SMALL AND MID-SIZE BUSINESSES
TrustedLink Commerce. The TrustedLink Commerce product family is
designed for small to mid-sized companies which are new to electronic commerce.
The products perform the critical tasks to create, format and electronically
transmit and receive business documents and data between trading partners. The
products convert a customer's documents and data into EDI format, translate the
document to a standard form for use with the designated trading partner,
transmit the information to the Harbinger networks or Internet, and convert EDI
documents and data received from their trading partners into a format that may
be interpreted by the user's personal computer. Additionally, TrustedLink
Guardian, which provides encryption and decryption for secure transmission over
the Internet, can be used with TrustedLink Commerce for Windows 95, NT
Workstation and TrustedLink Enterprise for UNIX, enabling a variety of
communication options.
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STX Translation Software. These EDI translation software programs for
DOS and Windows allow companies to exchange business documents electronically.
The products are network independent with a large number of predefined network
connections available. They provide for automatic operation of EDI functions
without operator intervention, including scheduling to send and/or receive EDI
transactions, translating application files to an EDI format or translating EDI
files to an application-file format, and printing or deleting transactions.
Products in the STX family include STFORMS which enables the user to customize
the format of EDI documents, STBAR which allows the entry of data via bar
scanning and STSECURITY which allows users to perform secure EDI over the
Internet. Additionally, STMAP mapping integration software allows users to
download EDI data seamlessly from an application already integrated with STX
and to move data electronically between internal programs and EDI applications.
Harbinger Express. Harbinger Express allows small and mid-size
businesses to perform EDI and electronic commerce using a web browser. The
product is designed for companies that conduct low EDI transaction volumes and
have limited requirements for integrating with other software applications.
Harbinger Express translates EDI documents into an HTML form which can be
accessed by the trading partner via the Internet. Harbinger Express users can
also initiate EDI documents simply by filling out a browser-based HTML form at
the Harbinger Express Website. The product converts the resulting document
into EDI format and transmits it to the receiving trading partner over the
Harbinger networks or the Internet.
TrustedLink INP. TrustedLink INP allows a user to establish an
instant presence on the Internet through the creation of a web site for the
business user. Users create their web site by entering information in an
interview format. The user can then preview their site using the included
Netscape Navigator software and finally publish the site to Harbinger's IVAS
web hosting service. TrustedLink INP includes an electronic catalog and
purchase order system for conducting commerce over the Internet.
TrustedLink Banker. TrustedLink Banker allows a user to access its
bank records through the Harbinger networks and translates documents and data
through industry standard formats. Businesses use TrustedLink Banker to access
balance and transaction histories for various financial accounts, perform
electronic funds transfers between financial accounts (within a single bank or
among banks), register stop payments, write checks, reconcile accounts, send
and receive messages to and from financial institutions, perform budgeting and
cash flow analysis, and schedule activities by means of an electronic calendar.
The product is also used to perform direct deposits into payroll accounts, fund
tax payments and direct debit transactions and perform funds transfers. Banks
and financial institutions access the Harbinger network to exchange
information, electronic mail and messages with their trading partners.
Trading Partner Packs and STX Forms Overlays. Harbinger develops
custom software templates, known as Trading Partner Packs and STX Forms
Overlays, to conform with guidelines and parameters identified by the major
purchasers and suppliers within various trading communities. For example,
Harbinger can customize its software to utilize only a specified subset of the
ANSI X12 or EDIFACT standard that the major trading partners have defined for
the trading relationship. In this way, each trading partner is assured that
only the data elements that the trading partners expect are sent and received.
The Company distributes these customized products to help hub companies expand
the acceptance of EDI among trading partners. Harbinger maintains an extensive
library of Trading Partner Packs and STX Forms Overlays.
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SERVICES FOR ENTIRE TRADING COMMUNITIES
Value-Added Network Services. Harbinger operates its VAN and IVAS as
value-added networks that provide the central point for document and data
receipt, translation and transmission and serve as a communication link between
the members of a trading community. With more than 34,000 revenue generating
customers, Harbinger believes that its VAN is one of the largest EDI networks
in the United States as measured by the number of billable subscribers.
Harbinger offers trading partners a wide range of network services including
batch communication of purchase orders, invoices, shipping confirmations,
e-mail between trading partners and electronic catalogs. The Company believes
that its value- added network offers several advantages to trading partners,
including protocol conversion, transmission speed conversion, flexibility in
mail pick-up and drop-off times, and security and reliability. The Company
provides network services pursuant to subscriber agreements which can be
terminated by either party without cause at any time with 30 days written
notice. Customers are required to pay for services in accordance with the then
applicable service fees, which include set-up fees, monthly mailbox fees and
transaction fees. No minimum revenue commitment or annual fee is required.
Consulting and Programming Services. Harbinger technical consultants
work with trading communities to create the functional specifications to
develop computer programs necessary to integrate EDI with other software
applications. This process, known as ''mapping,'' requires the identification
of internal data file and record formats along with the creation of functional
specifications to integrate EDI with trading partner applications. Harbinger
also provides software programming services to trading communities to create
the application interface programs necessary to translate data into and out of
EDI standards.
Trading Partner Implementation and Certification. Harbinger offers
several programs to assist its hub customers in maximizing the use of EDI and
electronic commerce among its trading partners. These programs communicate the
advantages of EDI and electronic commerce to potential trading partners of a
major hub, regardless of size, and include information seminars, support
materials and the trading partner certification program. This program assists
trading partners in installing, testing and confirming EDI capabilities with
hub companies using the Harbinger networks.
Customer Training. Harbinger offers training classes for various
stages of EDI implementation by trading partners. These classes provide
instruction on the use of the Company software products operating either alone
or together with other application software. The classes explain the basics of
EDI and its integration with other application software and provide basic
information for creating application interface programs to connect trading
partners.
Customer Support Services. Harbinger provides extensive customer
service and support to trading partners on the use and operation of its
software products and the business processes associated with electronic
commerce. The Company's support of EDI communication standards enables its
customer support personnel to perform file transfers to analyze problems on a
customer's computer system and to transmit software or EDI standard updates to
a customer where necessary.
SALES AND MARKETING
The Company's principal marketing strategy focuses on establishing and
expanding the number of trading partners using the Harbinger networks and
software products. The Company seeks to target trading communities composed of
electronic trading partners in common industries or markets conducting
recurring business transactions. To achieve this objective, the Company has
developed a three-tiered sales and marketing program. First, the Company
identifies potential hub companies that either seek to formulate an EDI
program, or that have made the decision to implement EDI. The Company
representatives meet with the hub company and discuss the procedure for
establishing EDI relationships with trading partners. Second, the Company
contacts the hub company's trading partners through seminars and by
telemarketing, informing these parties of the EDI requirements of the hub
company and implementation procedures. The Company schedules and conducts
half-day information seminars with potential trading partners of a major hub
company highlighting the benefits of EDI and electronic commerce, explaining
the hub organization's EDI initiative, and demonstrating the Company's products
and services. Representatives of the hub company generally attend these
seminars to present their EDI
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recommendations and requirements. Third, Harbinger uses telemarketing, direct
mail and advertising activities that are targeted at potential customers who
are not trading partners of a specific hub. The Company's marketing and sales
activities are centered around the implementation of EDI within these trading
communities through hub and spoke programs, particularly within selected
vertical markets.
Harbinger also markets and sells its products through distributors in
the United States and numerous international markets. Through the Marketing
Partners Program the Company has established alliances with application
software developers, systems integrators and value-added resellers of computer
products. The Company's objective is to integrate Harbinger's products with
those of its Marketing Partners and to promote distribution of Harbinger
software along with products and services sold by its Marketing Partners. The
Company markets and distributes its TrustedLink Banker products and related
services through commercial banks and holding companies and bank processors,
and directly to the customers of certain banks and financial service
organizations. The Company's markets TrustedLink INP through a private-label
distribution agreement with Peachtree Software as well as through its World
Wide Web site, from where customers can download an evaluation version of the
software.
As of January 31, 1997, the Company employed approximately 185 sales
and marketing personnel who concentrate their efforts in direct sales of the
Company software products and services. The Company is in the process of
training and educating these new sales personnel on the range of its products
and services and obtaining from them an understanding of the new markets made
available through the acquisitions. Management believes that the addition of
these sales persons will allow the Company to expand many of its product and
service offerings into additional trading communities. The Company's
compensation strategies are designed to reward sales personnel based upon sales
to new customers and the sale of additional products and services to existing
customers. In addition to the Company's internal sales and marketing
personnel, the Company markets its products through several licensees,
distributors and co- marketers.
-10-
<PAGE> 11
CUSTOMERS AND MARKETS
The Company provides services to a wide range of hub companies and
their trading partners in numerous markets targeted by the Company in the
United States and internationally. Existing hub customers (grouped by
industry) include the following:
<TABLE>
<CAPTION>
ELECTRONICS
-----------
PETROLEUM/CHEMICALS GOVERNMENT
------------------- ----------
<S> <C> <C>
Compaq Computer Amoco GSA
Hitachi
Chevron GATEC
Digital Equipment Corporation
Exxon Environmental Protection Agency
Honeywell
Dupont State of California
Texas Instruments Eastman Kodak State of Minnesota
Westinghouse
Mobil VA
Hewlett-Packard Sunoco IRS
Apple Shell DOD
Lucent Pennzoil DOT
Mitsubishi Texaco Department of Commerce
IBM Dow Chemical United States Postal Services
NEC America PPG
TRW
Phillips
Arrow
AUTOMOTIVE HEALTHCARE RETAIL
---------- ---------- ------
Ford
Abbott Labs Sears
Chrysler Eli Lilly Kmart
GM
Upjohn Walmart
Dana Corp. Baxter International Calvin Klein
Allied Signal Johnson & Johnson Bon Ton Stores
TRW Curtis Mathes Ross Stores
Schlumberger
University Hospital May & Company
VW
Sercies Corp. Boscov's Department Stores
Johnson Controls Tenet Healthcare Crowley's Department Stores
Federal-Mogul Corp.
HEAVY MANUFACTURING FINANCIAL SERVICES FOOD AND BEVERAGE
------------------- ------------------ -----------------
Caterpillar
Bank of America Phillip Morris
John Deere Barnett Banks Anheuser-Busch
Steelcase
Deposit Guaranty A-Hold (Tops, BiLo)
United Technologies First of America Nestle's
Alcoa Premier Bank (Bank One) Pepsi
Illinois Power Firstar Seagrams
Ingersoll
Westamerica
GE
Freightliner
AEROSPACE UTILITIES
--------- ---------
Boeing ConEd
Rockwell Southern Company
Northrup/Grumman Commonwealth Edison
Lockhead/Martin Southern California Edison
United Technolgies Pacific Gas & Electric
Allied Signal Illinois Power
</TABLE>
-11-
<PAGE> 12
STRATEGIC RELATIONSHIPS
The Company actively seeks strategic alliances with leading
telecommunications companies, software application developers and computer
system suppliers. The Company entered into a relationship with UNISYS
Corporation in December 1996 to remarket the Company's suite of electronic
products and services in North America. Through an alliance with Peachtree
Software in August 1996, the TrustedLink INP product is bundled as part of the
Peachtree Business Internet Suite, allowing the user to create a web site that
may include the customer's catalog and company information. The resulting web
sites are hosted on the Company's IVAS. In December 1996 the Company entered
into an agreement with Brazilian-based Teledata to provide Harbinger's
electronic commerce and EDI services throughout Brazil. Harbinger also entered
into an agreement in December 1996 with Commercio Electronico Ltd., an
affiliate of Teledata, to distribute the Company's products in the rest of
South America. The Company has a Marketing Partners Program to establish
alliances between the Company and application software developers, systems
integrators and value-added resellers of computer products.
Harbinger is also a party to licensing and co-marketing agreements for
distribution of its products and services. Under an Alliance Agreement with
SSA, the Company has licensed its IBM AS/400, UNIX and PC-based EDI software
and related tools and utilities for remarketing to licensees of SSA's BPCS
software products. SSA pays Harbinger a royalty based on net fees realized by
SSA from the sale of software, related maintenance and support, and migration
fees payable when a customer upgrades from one computer platform to another.
The Company is also a party to an agreement with Sprint pursuant to which the
Company has licensed its PC and network system software to permit licensees to
remarket the PC-based software and to implement their own value-added network.
Under the Sprint relationship, the network system software has been licensed
for use by various government agencies in the People's Republic of China and
Poland. Additionally, Sprint uses Harbinger's existing network for Sprint's
own EDI service. These licenses and marketing agreements generally provide for
payment by the licensee of an initial license fee, recurring transaction and
network service and maintenance fees, and license fees based on the
distribution of the Company's software programs.
PRODUCT DEVELOPMENT
The Company continues to assess the needs of trading partners in
various trading communities and to develop software programs and network
services which facilitate electronic commerce transactions over the Harbinger
VAN and IVAS or directly over standard telephone lines, the Internet, or
private Intranets. The Company's product development efforts currently are
focused on providing a full range of electronic commerce solutions to Harbinger
customers. The Company is in the process of integrating software products and
technologies from acquired businesses with the Company's other software
products by combining the most favorable features of the products and
maintaining common translation software to facilitate the transfer of
information and data between operating environments. The Company's Internet
products are being designed to permit increased security and reliability for
transmitting commercial data over the Internet by using the Company's VAN and
IVAS and supplementing it with additional software encryption measures. These
products may also allow Internet users to access the Company's networks in
order to provide a greater level of reliability of accurate data transmission
than otherwise available by using the Internet alone.
The Company is in various stages of development for other software
applications, including electronic messaging, bar code integration to
facilitate the shipping and receiving of goods, an enhanced mapping product to
allow users to customize their EDI data to existing software applications, and
foreign translations of the Company's software products for distribution in
international markets.
-12-
<PAGE> 13
COMPETITION
The electronic commerce and EDI network services and computer software
markets are highly competitive. Numerous companies supply electronic commerce
network services, and several competitors target specific vertical markets such
as the pharmaceutical, agri-business, retail and transportation industries.
Additional competitors provide software designed to facilitate electronic
commerce and EDI communications. Several of the Company's most significant
competitors provide network services and related software products and
services. Other competitors provide PC-based computer programs and network
services specifically targeted to facilitate electronic banking transactions.
These competitors include banks and financial institutions that operate
privately-owned computer networks that link directly to their commercial
customers. The Company believes that many of its competitors have
significantly greater financial and personnel resources than the Company.
The market for Internet software and services is emerging and highly
competitive, ranging from small companies with limited resources to large
companies with substantially greater financial, technical and marketing
resources than the Company. The Company believes that existing competitors are
likely to expand the range of their electronic commerce services to include
Internet access, and that new competitors, which may include telephone
companies and media companies, are likely to increasingly offer services which
utilize the Internet to provide business-to-business data transmission
services. Additionally, several competitive network service providers allow
their subscribers access to the Internet, and several major software and
telecommunications companies have Internet access services. If the Internet
becomes an accepted method of electronic commerce, the Company could lose
network customers which would reduce recurring revenue from network services
and have a material adverse effect on the Company.
Competitors that offer products and/or services that compete with
various of the Company's products and services include, among others, Advantis
Systems, Inc. (a joint venture between Sears, Roebuck & Co. and IBM); AT&T;
Computer Associates International, Inc.; EDS; General Electric Information
Systems; Premenos Technology Corp.; QuickResponse Services, Inc.; Sterling
Commerce, Inc. and a joint venture between British Telecommunications Plc and
MCI Communications Corporation; as well as the internal programming staffs of
various businesses engaging in electronic commerce. The Company believes that
the principal competitive factors in the commercial electronic commerce
industry include responsiveness to customer needs, efficiency in the delivery
of solutions, ease of product use, quality of service, price and value. The
Company believes it competes favorably with regard to these factors.
INTELLECTUAL PROPERTY RIGHTS
In accordance with industry practice, the Company relies primarily on a
combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation
and other written materials principally under trade secret and copyright laws,
which afford only limited protection. The Company presently has one patent for
an electronic document interchange test facility and patent applications
pending for an EDI communication system. The Company routinely enters into
non-disclosure and confidentiality agreements with employees, vendors,
contractors, consultants and customers. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that competitors
will not independently develop similar technology. The Company believes that,
due to the rapid pace of innovation within the electronic commerce, EDI and
related software industries, factors such as the technological and creative
skills of its personnel are more important in establishing and maintaining a
leadership position within the industry than are the various legal protections
of its technology. The Company does not believe that any of its products
infringe the proprietary rights of third parties. There can be no assurance,
however, that third parties will not claim infringement by the Company with
respect to current or future products. From time to time, the Company has
received notices which allege, directly or indirectly, that the Company's
products or other intellectual property rights infringe the rights of others.
The Company generally has been able to address these allegations without
material cost to the Company. The Company expects that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in electronic commerce grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without
-13-
<PAGE> 14
merit, could be time-consuming, result in costly litigation, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be able
on terms acceptable to the Company or at all, which could have a material
adverse effect on the Company.
The Company entered into an agreement to cease use of its InTouch mark
after May 31, 1996. The Company adopted a new mark, TrustedLink, to use in
lieu of the InTouch mark.
RECENT DEVELOPMENTS
In January 1997, the Company consummated a merger with SupplyTech,
Inc. and its affiliate (collectively, "SupplyTech"). SupplyTech provides EC
software products and services under the "STX" brand. The acquisition allowed
the Company to expand into trading communities in the automotive, retail,
aerospace and heavy manufacturing industries markets. In addition to being one
of the largest providers of PC-based EDI translation software in the United
States, SupplyTech also has operations in the United Kingdom, Italy, Australia
and Mexico. The merger was accounted for as a pooling-of-interests. Management
of the Company anticipates that this merger will broaden the Company's markets
and customer base, add complementary products and technologies, strengthen its
ability to offer electronic commerce software and services to its customers and
diversify its revenue base. SupplyTech now operates under the name Harbinger
SupplyTech.
In January 1997, the Company completed the purchase of the $3 million
convertible subordinated debenture ("BST Debenture") from BellSouth
Telecommunications ("BellSouth Telecommunications") and the purchase of the
remaining equity in HNS from other shareholders. Through this acquisition, the
Company obtained products designed to address opportunities for using the
Internet as a communications vehicle to perform electronic commerce
transactions. HNS was formed by the Company in 1994 to develop EDI products
and services for the Internet, and prior to 1997 operated as a joint venture
with BellSouth Telecommunications in which the Company held an approximately
66% fully-diluted equity interest.
In April 1996, the Company acquired INOVIS GmbH & Co., headquartered
in Germany, which provides electronic solutions and catalog-based online
shopping systems with a focus in the media, publishing and consumer goods
industries. To enhance its international presence, in April 1996 the Company
also acquired NTEX Holding BV and its software development lab located in the
Netherlands. NTEX provides a web hosting application manager and other
Internet software tools designed to address the evolving international
standards in EDI and electronic commerce, with a focus in the shipping,
education, healthcare and agriculture markets.
The Company also completed two other acquisitions during 1996, the
acquisition of the remaining outstanding interests in Harbinger N.V. and the
acquisition of Comtech Management Systems, Inc. These transactions are not
expected to have a significant impact on the Company's financial position or
results of operations.
EMPLOYEES
As of January 31, 1997, the Company had approximately 680 full-time
employees, including SupplyTech and HNS employees. Approximately 147 are
technical personnel engaged in maintaining or developing the Company's products
or performing related services, approximately 185 are marketing and sales
personnel, approximately 262 are customer support and operations personnel, and
approximately 86 are involved in administration and finance.
-14-
<PAGE> 15
The current executive officers of the Company and their ages as of
March 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------- --- ---------------------------------------
<S> <C> <C>
C. Tycho Howle 47 Chairman of the Board of Directors
David T. Leach 46 Chief Executive Officer and Director
James C. Davis 44 President and Chief Operating Officer
Theodore C. Annis 54 President, Harbinger SupplyTech
James M. Travers 45 President, Harbinger Enterprise Solutions
George S. Hart 55 Senior Vice President, Licensee Relationships
David A. Meeker 54 Senior Vice President, North American Sales
A. Gail Jackson 48 Senior Vice President, Harbinger SupplyTech
Joel G. Katz 33 Chief Financial Officer and Secretary
</TABLE>
Mr. C. Tycho Howle has served as Chairman of the Board of Directors of
the Company and its predecessors since 1983. Mr. Howle also served as the Chief
Executive Officer until March 1997. From 1981 to 1983 Mr. Howle was a
consultant with McKinsey & Company, Inc., a management consulting firm. From
1979 to 1981, Mr. Howle was a Product Line Manager with the Hewlett-Packard
Company. From 1973 to 1977, he was a project manager with Booz, Allen &
Hamilton's Applied Research Unit.
Mr. David T. Leach has served as Chief Executive Officer of the
Company since March 1997 and a Director of the Company since February 1994.
From February 1994 until March 1997, he served as President and Chief Operating
Officer of the Company, and from June 1992 until February 1994, he was Group
Executive Vice President, Sales and Operations of the Company. He served as
Senior Vice President of Harbinger Computer Services, Inc. (''HCS'') from 1988
until 1990 and was President of HCS from 1990 until its reorganization into
Harbinger Corporation in 1992. Prior to joining HCS, Mr. Leach was a consultant
with McKinsey & Company, Inc., a management consulting firm.
Mr. James C. Davis has served as President and Chief Operating Officer
of Harbinger since March 1997. From January 1995 until March 1997, he served
as President of Harbinger Group Operations. He served as President of the
Company from January 1989 until December 1993, when he resigned as an officer
and director of the Company. He was Vice President and Senior Vice President of
HCS from May 1984 until December 1988.
Mr. Theodore C. Annis has served as President of Harbinger SupplyTech
since January 1997. Mr. Annis served as Chief Executive Officer and Treasurer
of SupplyTech, Inc. from its inception in 1984 until its merger with the
Company in January 1997.
Mr. James M. Travers has served as President of Harbinger Enterprise
Solutions since January 1995. In this capacity, Mr. Travers manages the
business operations acquired in the TI Acquisition. From 1978 through 1994, Mr.
Travers served in various managerial positions with TI, including the position
as Director of Business Development for TI's Worldwide Applications Software
Business and General Manager of TI's EDI business unit from June 1992 through
December of 1994.
-15-
<PAGE> 16
Mr. George S. Hart has served as Senior Vice President, Licensee
Relationships of Harbinger since April 1994. He served as Senior Vice
President, Business Development and Sales of the Company from the
Reorganization in May 1992 until April 1994. From April 1984 to May 1992, Mr.
Hart served as Senior Vice President, Business Development and Sales of HCS.
Mr. David A. Meeker has served as Senior Vice President, North
American Sales since January 1997. From January 1995 until January 1997, he
served as Vice President, Sales of the Company and from September 1992 through
December 1994, Mr. Meeker served as Vice President, Sales for National Data
Corp., a credit card processing company. From January 1992 through August 1992
Mr. Meeker served as Vice President, Sales and Marketing for Software
Alternatives, a computer software and systems vendor. From January 1990 to
January 1992, Mr. Meeker served as Manager, U.S. Channel Operations for IBM.
Ms. A. Gail Jackson has served as Senior Vice President of Harbinger
SupplyTech since March 1997 and as Vice President from January 1997 until
March 1997. Ms. Jackson served as President of SupplyTech, Inc. from its
inception in 1984 until its merger with the Company in January 1997.
Mr. Joel G. Katz has served as Chief Financial Officer since January
1997 and Secretary since February 1994. He served as Vice President, Finance
from January 1995 until January 1997 and as Senior Director of Finance from
February 1994 to January 1995. He joined Harbinger in 1990 as Controller and
became Director of Finance in December 1991. From 1985 to 1990, he was a
certified public accountant in the audit division of Arthur Andersen LLP.
GOVERNMENTAL REGULATIONS AND INDUSTRY STANDARDS
Government Regulatory and Industrial Policy Risks. The Company's
network services are transmitted to its customers over dedicated and public
telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for communications. Changes in the legislative
and regulatory environment relating to online services, EDI or the Internet
access industry, including regulatory or legislative changes which directly or
indirectly affect telecommunication costs or increase the likelihood of
competition from regional telephone companies or others, could have an adverse
effect on the Company's business. The Telecommunications Act of 1996 ("Act")
amended the federal telecommunications laws by lifting restrictions on regional
telephone companies and others competing with the Company and imposed certain
restrictions regarding obscene and indecent content communicated to minors over
the Internet or through interactive computer services. The Act lifted
restrictions on regional telephone companies providing transport between
defined geographic boundaries associated with the provision of its own
information services. This enables regional telephone companies to more
readily compete with the Company by packaging information service offerings
with other services. Additionally, the Act imposes fines and other criminal
liability on any entity that knowingly uses a telecommunications device or
interactive computer service to send obscene or indecent material to minors or
permits any telecommunications facility under such entity's control to be used
for such a purpose. The Act provides a defense for persons providing access or
a connection, such as the Company, so long as the access or connection provider
is not involved in the creation of content. Litigation has been filed in U.S.
federal court challenging the constitutionality of certain provisions of the
Act. A temporary restraining order has been issued by a federal court
enjoining the U.S. Attorney General from enforcing the Act's "indecency"
prohibition. This case is currently on appeal to the U.S. Supreme Court. The
ability and likelihood of state regulators and/or the FCC, or the governments
of foreign countries, to impose regulations on the Internet is unclear. At
present the Internet is treated by the FCC as an unregulated enhanced service,
but the FCC is currently considering whether to regulate certain aspects of the
Internet. Also, some countries such as Germany have adopted laws regulating
aspects of the Internet, and there are a number of bills currently being
considered in the United States at the federal and state levels involving
encryption and digital signatures, all of which may impact the Company. The
Company cannot predict the impact, if any, that the Act and future court
opinions, legislation, regulations or regulatory changes in the United States
or other countries may have on its business. Management believes that the
Company is in compliance with all material applicable regulations.
-16-
<PAGE> 17
ITEM 2. PROPERTIES.
The Company occupies approximately 60,000 square feet of office space
in Atlanta, Georgia under leases expiring from 1998 through 2003. The facility
serves as the Company's headquarters and data center. The Company also has
offices in Michigan, Texas and California, occupying approximately 38,000,
18,000 and 1,000 square feet, respectively. In addition, the Company also has
offices in The Netherlands, Germany, the United Kingdom, Italy and Mexico
occupying approximately 9,000, 5,000, 2,200, 750 and 900 square feet,
respectively
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings. From time
to time, the Company is involved in various routine legal proceedings
incidental to the conduct of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
Harbinger's Common Stock is traded on the Nasdaq National Market under
the symbol "HRBC". The price per share reflected in the table below represents
the range of low and high closing sale prices for the Company's Common Stock as
reported by the Nasdaq Stock Market for the quarters indicated:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH PRICE LOW PRICE
------------------- ---------- ---------
<S> <C> <C>
September 30, 1995 $11 5/8 $ 8 5/8
December 31, 1995 $19 5/8 $ 8 1/8
March 31, 1996 $15 5/8 $ 10 1/8
June 30, 1996 $18 1/2 $ 10
September 30, 1996 $18 5/8 $ 13 1/4
December 31, 1996 $19 1/4 $ 16 5/8
</TABLE>
The closing sale price of the Company's Common Stock as reported by
the Nasdaq Stock Market on March 18, 1997 was $22.00.
The number of shareholders of record of the Company's Common Stock as
of March 18, 1997, was approximately 180.
The Company has never paid cash dividends on its capital stock. The
Company currently intends to retain any earnings for use in the business and
does not anticipate paying any cash dividends in the foreseeable future. In
addition, the Company's bank line of credit prohibits payments of cash
dividends without prior bank approval. The Company declared a 3-for-2 stock
split in the form of a stock dividend which was paid on January 31, 1997 to
shareholders of record as of January 17, 1997.
-17-
<PAGE> 18
In August 1996, the Company issued 24,561 shares of Common Stock to
the shareholders of Comtech Management, Inc., ("Comtech") in exchange for all
of the outstanding shares of Comtech (the "Comtech Acquisition"). The shares
of common stock issued in the Comtech Acquisition were issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1993,
as amended (the "Securities Act") in reliance, in part , upon the
representation and warranties set forth in the Comtech Acquisition agreement.
Effective March 1996, the Company issued 43,548 shares of Common Stock
to a certain shareholder of Harbinger N.V. in exchange for such shareholder's
interest in Harbinger N.V. (the "HNV Acquisition"). Such shares were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act in reliance, in part, upon the representation and warranties set forth in
the HNV Acquisition agreement.
In July 1996, the Company issued a warrant to purchase 56,250 shares of
Common Stock exercisable at $18.50 per share to a certain shareholder of
Harbinger N.V. because certain events did not occur with respect to the
performance of Harbinger N.V. Such warrants to purchase Common Stock were
issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act in reliance, in part, upon the representation and warranties set
forth in the related warrant purchase agreement.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under the section entitled "Selected
Financial Data" on page 1 of the Company's 1996 Annual Report to Shareholders
is incorporated herein by reference and filed herewith as part of Exhibit 13.1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information set forth under the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Company's 1996 Annual Report to Shareholders is incorporated herein by
reference and filed herewith as a part of Exhibit 13.1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The quarterly results of operations set forth in the Company's 1996
Annual Report to Shareholders and the following financial statements, related
notes thereto and report of independent auditors set forth in the Company's
1996 Annual Report to Shareholders are incorporated herein by reference and
filed herewith as a part of Exhibit 13.1.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December
31, 1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
In addition to the foregoing, the following Financial Statements of
Harbinger NET Services, LLC set forth in the Company's Current Report on Form
8-K/A dated January 1, 1997 and filed on March 14, 1997 as Exhibit 99.3 thereto
are incorporated herein by reference.
Independent Auditors' Report.
Balance Sheets as of December 31, 1996 and 1995.
Statements of Shareholders' Equity for the periods ended December
31, 1996 and 1995. Statements of Cash Flows for the periods ended
December 31, 1996 and 1995. Notes to Financial Statements.
-18-
<PAGE> 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTATNS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
On December 26, 1995, the Company dismissed its independent public
accountants, Arthur Andersen LLP. Prior to December 26, 1995, Arthur Andersen
LLP was engaged as the principal accountant to audit the Company's financial
statements. The reports by Arthur Andersen LLP on the Company's financial
statements for the fiscal years ended December 31, 1994 and December 31, 1993
and subsequent interim periods, did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. The dismissal of the former accountants
was recommended by the Company's Audit Committee and approved by the Company's
Board of Directors.
During the Company's fiscal years ended December 31, 1994 and December
31, 1993, and during the subsequent interim fiscal periods following the
Company's fiscal year ended December 31, 1994 through the date of dismissal,
there were no disagreements with Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Arthur Andersen LLP, would have caused it to make reference to the subject
matter of the disagreement in their reports. Also, there were no reportable
events of the nature described in Rule 304(a)(l)(v) during the Company's fiscal
years ended December 31, 1994 and December 31, 1993, or during the subsequent
interim fiscal periods following the Company's fiscal year ended December 31,
1994 through the date of dismissal.
On January 2, 1996, the Company announced the appointment of KMPG Peat
Marwick LLP as independent accountants to audit the Company's financial
statements for 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information required by this item is incorporated by reference
from the information contained in the Company's Proxy Statement for the Annual
Meeting of Shareholders expected to be filed with the Commission on April 2,
1997 under the captions "Election of Directors" and "Executive Officers."
Certain information regarding executive officers of the Company is included in
Part I of this report on Form 10-K under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be included in the
Company's Proxy Statement for the Annual Meeting of Shareholders expected to be
filed with the Commission on April 2, 1997 under the caption "Executive
Compensation" and is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item will be included in the
Company's Proxy Statement for the Annual Meeting of Shareholders expected to be
filed with the Commission on April 2, 1997 under the caption "Security
Ownership of Certain Beneficial Owners and Management" and is incorporated by
reference herein.
-19-
<PAGE> 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be included in the
Company's Proxy Statement for the Annual Meeting of Shareholders expected to be
filed with the Commission on April 2, 1997 under the caption "Certain
Transactions" and is incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements
The financial statements of Harbinger Corporation and
Harbinger NET Services, LLC and respective reports of independent auditors as
set forth under Item 8 of this report on Form 10-K are incorporated herein by
reference.
2. Financial Statement Schedules
(i) The following Financial Statement Schedule of Harbinger
Corporation for the Years Ended December 31, 1994, 1995 and 1996 is filed as a
part of this Report on Form 10-K and should be read in conjunction with the
Consolidated Financial Statements, and related notes thereto, of Harbinger
Corporation.
HARBINGER CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Amount Charged to
Balance at Charged to Recorded Other Balance at
Beginning of Costs and Due to Accounts-- Deductions-- End of
Description Period Expenses Acquisitions Describe(B) Describe(A) Period
- ----------------------------------- ------------ ---------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994
Allowance for returns and doubtful
accounts . . . . . . . . $ 282,000 86,000 - 964,000 (1,062,000) $ 270,000
December 31, 1995
Allowance for returns and doubtful
accounts . . . . . . . . $ 270,000 99,000 - 1,309,000 (1,141,000) $ 537,000
December 31, 1996
Allowance for returns and doubtful
accounts . . . . . . . . $ 537,000 98,000 325,000 1,867,000 (1,275,000) $1,552,000
- --------------
</TABLE>
(A) Deductions represent write-offs of doubtful accounts and sales returns
charged against the allowance.
(B) Deductions from revenues for sales returns and allowances.
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<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Harbinger Corporation:
Under date of February 14, 1997, we reported on the consolidated
balance sheets of Harbinger Corporation and subsidiaries as of
December 31, 1996 and 1995 and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years
in the two-year period ended December 31, 1996, as contained in the
Harbinger Corporation 1996 Annual Report to Shareholders. These
consolidated financial statements and our report thereon are
incorporated by reference to the Harbinger Corporation Annual Report
on Form 10-K for the year 1996. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the
related financial statement schedule for each of the years in the
two-year period ended December 31, 1996 included in Item 14(a)2. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 14, 1997
Schedules not listed above have been omitted because they are not
applicable or the information required to be set forth herein is included in
the Financial Statements or notes thereto.
(ii) The following Report of Independent Public
Accountants with respect to the Company's statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1994 is
filed as a part of this Report on Form 10-K and should be read in conjunction
with the Financial Statements, and related notes thereto, of Harbinger
Corporation.
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<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Harbinger Corporation:
We have audited the statements of operations, shareholders'
equity and cash flows of HARBINGER CORPORATION, a Georgia corporation
(formerly known as Harbinger EDI Services, Inc.) for the year ended
December 31, 1994. These financial statements and the schedule
referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of operations
and cash flows of Harbinger Corporation for the year ended December
31, 1994 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed
in Item 14(a)2 herein is the responsibility of the Company's
management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 14, 1995
(b) Reports on Form 8-K. The Company filed the following report
on Form 8-K during the quarter ended December 31, 1996.
(i) Report on Form 8-K with respect to the acquisition of
the HNS Debenture and the outstanding equity interest in Harbinger NET
Services, LLC filed October 31, 1996.
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<PAGE> 23
(c) Exhibits. The following exhibits are filed as part of, or are
incorporated by reference into, this report on Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------------- --------------------------------------------------------------------------------
<S> <C>
2.1 Share Purchase Agreement effective as of March 31, 1996 among F.J. Nederlof
B.V., H.W.I. Bol, Arthur Nederlof (the "NTEX Shareholders") and the Company
(incorporated by reference to Exhibit 2(a) filed with the Company's Current
Report on Form 8-K dated April 18, 1996).
2.2 Share Purchase Agreement effective as of March 31, 1996 among Jakob Karszt,
Helmut Grimm, Hans Rauh, Nikolai Preis, Ulrich Rehn, Eugen Volbers, Jurgen M.
Diet, Wolffried Stucky and Jorg Blum (the "INOVIS Shareholders") and the
Company (incorporated by reference to Exhibit 2(a) filed with the Company's
Current Report on Form 8-K dated May 2, 1996).
2.3 Debenture Purchase Agreement effective as of January 1, 1997 between BellSouth
Telecommunications, Inc. and the Company (incorporated by reference to Exhibit
2.1 filed with the Company's Current Report on Form 8-K dated January 15,
1997).
2.4 Merger Agreement dated January 3, 1997 among SupplyTech, Inc., Harbinger
Acquisition Corporation II and the Company (incorporated by reference to
Exhibit 2.1 filed with the Company's Current Report on Form 8-K dated January
16, 1997).
2.5 Agreement and Plan of Reorganization between and among Vulcan Ventures, Inc.,
AXA Equity & Law Life Assurance Society, Ltd. (the "HNV Shareholders"),
Harbinger N.V. and the Company effective as of March 29, 1996 (incorporated by
reference to Exhibit 2(a) filed with the Company's Current Report on Form 8-K
dated May 3, 1996).
3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1
(File 33-93804) declared effective on August 22, 1995).
3.2 Amended and Restated Bylaws of the Company.
4.1 Provisions of the Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws of the Company defining rights of the holders of the
Common Stock (incorporated by reference to Exhibits 3.1 through 3.4 to the
Company's Registration Statement on Form S-1 (File No. 33-93804) declared
effective on August 22, 1995).
4.2 Specimen Stock Certificate (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-1 (File 33-93804)).
4.3 Form of Registration Rights Agreement effective March 31, 1996 between the
Company and each of the NTEX Shareholders (incorporated by reference to
Exhibit 2(a) filed with the Company's Current Report on Form 8-K dated April
18, 1996).
</TABLE>
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<PAGE> 24
<TABLE>
<S> <C>
4.4 Form of Registration Rights Agreement effective March 29, 1996 between each of
the Harbinger N.V. Shareholders and the Company (incorporated by reference to
Exhibit 2(a) filed with the Company's Current Report on Form 8-K dated May 3,
1996).
4.5 Form of Warrant issued to former Harbinger N.V. Shareholders on July 18,
1996.
4.6 Registration Rights Agreement among the former shareholders of SupplyTech,
Inc. and the Company effective January 3, 1997 (incorporated by reference to
Exhibit 4.1 filed with the Company's Current Report on Form 8-K dated January
16, 1997).
4.7 Form of Warrant issued to former INOVIS Shareholders on April 19, 1996
(incorporated by reference to Exhibit 2(a) filed with the Company's Current
Report on Form 8-K dated July 1, 1996).
4.8 Form of Registration Rights Agreement effective March 31, 1996 between each of
the former INOVIS Shareholders and the Company (incorporated by reference to
Exhibit 2(a) filed with the Company's Current Report on Form 8-K dated July 1,
1996).
10.1 Promissory Note for $3,000,000 payable by the Company to NationsBank of
Georgia, N.A. dated May 2, 1995 (incorporated by reference to Exhibit 10.12
filed to the Company's Registration Statement on Form S-1 (File 33-93804)
declared effective on August 22, 1995).
10.2 Loan Agreement between the Company and NationsBank of Georgia, N.A. dated as
of August 15, 1994 with First Amendment dated as of May 2, 1995 (incorporated
by reference to Exhibit 10.13 filed to the Company's Registration Statement on
Form S-1 (File 33-93804) declared effective on August 22, 1995).
10.3 Employment Agreement between the Company and Mr. James M. Travers effective as
of February 1, 1995 with letter from the Company to Mr. Travers dated December
27, 1994 (incorporated by reference to Exhibit 10.14 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.4 Employment Agreement between the Company and Mr. James C. Davis effective as
of January 18, 1995 (incorporated by reference to Exhibit 10.15 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.5 Assignment of Invention and Patents Thereon (Patent 5,367,664) by Texas
Instruments, Incorporated (''TI'') to the Company dated January 12, 1995 as
recorded with United States Patent and Trademark Office on March 13, 1995
(incorporated by reference to Exhibit 10.16 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.6 U.S. Patent 5,367,664 issued November 22, 1994 (incorporated by reference to
Exhibit 10.17 filed to the Company's Registration Statement on Form S-1 (File
33-93804) declared effective on August 22, 1995).
</TABLE>
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<PAGE> 25
<TABLE>
<S> <C>
10.7 Assignment of Invention and Patents Thereon (Application 07/502,955) by TI to
the Company dated January 12, 1995 as recorded with United States Patent and
Trademark Office on March 13, 1995 (incorporated by reference to Exhibit 10.18
filed to the Company's Registration Statement on Form S-1 (File 33-93804)
declared effective on August 22, 1995).
10.8 Asset Purchase Agreement between the Company and TI dated as of December 31,
1994 (incorporated by reference to Exhibit 10.19 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.9 Employment Agreement between the Company and Mr. David A. Meeker effective as
of December 21, 1994 (incorporated by reference to Exhibit 10.21 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.10 401(k) Profit Sharing Plan amended and restated effective as of September 1,
1994; original effective date October 1, 1991 (incorporated by reference to
Exhibit 10.24 filed to the Company's Registration Statement on Form S-1 (File
33-93804) declared effective on August 22, 1995).
10.11 Employment Agreement between the Company and Mr. C. Tycho Howle effective as
of March 4, 1997.
10.12 Employment Agreement between the Company and Mr. Joel G. Katz effective as of
March 7, 1994 (incorporated by reference to Exhibit 10.26 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.13 Employment Agreement between the Company and Mr. David T. Leach effective as
of March 7, 1994 (incorporated by reference to Exhibit 10.27 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.14 Employment Agreement between the Company and Mr. George S. Hart effective as
of March 7, 1994 (incorporated by reference to Exhibit 10.28 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.15+ License and Service Agreement between the Company and Bank of America National
Trust and Savings Association dated as of February 18, 1994 (incorporated by
reference to Exhibit 10.29 filed to the Company's Registration Statement on
Form S-1 (File 33-93804) declared effective on August 22, 1995).
10.16 Amended and Restated 1993 Stock Option Plan for Nonemployee Directors
effective as of August 11, 1993 (incorporated by reference to Exhibit 10.33
filed to the Company's Registration Statement on Form S-1 (File 33-93804)
declared effective on August 22, 1995).
10.17 Third Amendment to Amended and Restated 1993 Stock Option Plan for Nonemployee
Directors.
</TABLE>
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<PAGE> 26
<TABLE>
<S> <C>
10.18 Co-Marketing Agreement between the Company and Sprint Communications Company
Limited Partnership of Delaware made as of August 9, 1993 (incorporated by
reference to Exhibit 10.34 filed to the Company's Registration Statement on
Form S-1 (File 33-93804) declared effective on August 22, 1995).
10.19 Lease between the Company and Lenox Park Development 1 L.P. for office located
at 1055 Lenox Park Boulevard, Atlanta, Georgia dated July 16, 1992 with First
Amendment dated July 22, 1993 and Second Amendment dated December 27,
1993 (incorporated by reference to Exhibit 10.38 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.20 Amended and Restated 1989 Stock Option Plan effective as of April 15,
1992 (incorporated by reference to Exhibit 10.39 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.21+ Harbinger Business Financial Management System License Agreement between the
Company as assignee of Harbinger Computer Services, Inc. and Barnett Banks,
Inc. dated November 18, 1991 with amendment dated May 21, 1992 (incorporated
by reference to Exhibit 10.40 filed to the Company's Registration Statement on
Form S-1 (File 33-93804) declared effective on August 22, 1995).
10.22 Software License and Distribution Agreement between the Company and Sprint
International Communications Corporation (''Sprint'') effective July 27, 1990
with First Amendment effective as of May 24, 1993 (incorporated by reference
to Exhibit 10.41 filed to the Company's Registration Statement on Form S-1
(File 33-93804) declared effective on August 22, 1995).
10.23 Reseller Agreement (now known as Service Management Agreement) between the
Company and Sprint effective July 27, 1990 with First Amendment effective as
of May 1, 1991, Second Amendment effective as of May 1, 1992, and Third
Amendment dated July 1, 1994 (incorporated by reference to Exhibit 10.42 filed
to the Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.24 Form of Indemnification Agreement between the Company and
Directors (incorporated by reference to Exhibit 10.43 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.25 Harbinger Corporation 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.48 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.26 First Amendment to Harbinger Corporation 1996 Stock Option Plan.
10.27 Amended and Restated Harbinger Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.49 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.28 First Amendment to Harbinger Corporation Employee Stock Purchase Plan.
</TABLE>
-26-
<PAGE> 27
<TABLE>
<S> <C>
10.29 First Amendment to Harbinger Corporation Amended and Restated 1989 Stock
Option Plan (incorporated by reference to Exhibit 10.50 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.30 Alliance Agreement dated July 21, 1995 between Systems Software Associates,
Inc. and the Company (incorporated by reference to Exhibit 10.47 to the
Company's Registration Statement on Form S-1 (File No. 33-93804)).
10.31 First Amendment to Alliance Agreement between System Software Associates, Inc.
and Harbinger Corporation (incorporated by reference to Exhibit 10.51 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.32 Employment Agreement between the Company and Mr. Theodore C. Annis effective
January 3, 1997 (incorporated by reference to Exhibit 99.2 filed with the
Company's Current Report on Form 8-K/A dated March 17, 1997).
10.33 Employment Agreement between the Company and Ms. A. Gail Jackson effective
January 3, 1997 (incorporated by reference to Exhibit 99.3 filed with the
Company's Current Report on Form 8-K/A dated March 17, 1997).
11.1 Computation of Earnings Per Share.
13.1 The following financial information included within the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1996:
(i) Selected Financial Data;
(ii) Quarterly Results of Operations;
(iii) Management's Discussion and Analysis of Financial Condition and Results
of Operations; and
(iv) Financial Statements, Notes to Financial Statements, and Independent
Auditors' Report.
21.1 List of Subsidiaries of Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule (For SEC use only).
99.1 Certain Risk Factors relating to the Company.
- -----------
</TABLE>
+ The Company has received confidential treatment with respect to portions of
this exhibit.
-27-
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 27th day of
March, 1997.
HARBINGER CORPORATION
By: /s/ David T. Leach
------------------
David T. Leach
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ C. Tycho Howle Chairman of the Board of March 27, 1997
------------------ Directors
C. Tycho Howle
/s/ David T. Leach Chief Executive Officer; March 27, 1997
------------------ Director (Principal Executive
David T. Leach Officer)
/s/ James C. Davis President and Chief Operating March 27, 1997
------------------ Officer
James C. Davis
/s/ Joel G. Katz Chief Financial Officer; March 27, 1997
---------------- Secretary; (Principal Financial
Joel G. Katz Officer; Principal Accounting
Officer)
/s/ William D. Savoy Director March 27, 1997
--------------------
William D. Savoy
/s/ William B. King Director March 27, 1997
-------------------
William B. King
/s/ Stuart L. Bell Director March 27, 1997
------------------
Stuart L. Bell
/s/ Benn R. Konsynski Director March 27, 1997
---------------------
Benn R. Konsynski
</TABLE>
-28-
<PAGE> 29
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE #
------------- ----------------------------------------------------------------------------- ----------
<S> <C> <C>
2.1 Share Purchase Agreement effective as of March 31, 1996 among F.J. Nederlof
B.V., H.W.I. Bol, Arthur Nederlof (the "NTEX Shareholders") and the Company
(incorporated by reference to Exhibit 2(a) filed with the Company's Current
Report on Form 8-K dated April 18, 1996).
2.2 Share Purchase Agreement effective as of March 31, 1996 among Jakob Karszt,
Helmut Grimm, Hans Rauh, Nikolai Preis, Ulrich Rehn, Eugen Volbers, Jurgen
M. Diet, Wolffried Stucky and Jorg Blum (the "INOVIS Shareholders") and the
Company (incorporated by reference to Exhibit 2(a) filed with the Company's
Current Report on Form 8-K dated May 2, 1996).
2.3 Debenture Purchase Agreement effective as of January 1, 1997 between
BellSouth Telecommunications, Inc. and the Company (incorporated by
reference to Exhibit 2.1 filed with the Company's Current Report on Form 8-K
dated January 15, 1997).
2.4 Merger Agreement dated January 3, 1997 among SupplyTech, Inc., Harbinger
Acquisition Corporation II and the Company (incorporated by reference to
Exhibit 2.1 filed with the Company's Current Report on Form 8-K dated
January 16, 1997).
2.5 Agreement and Plan of Reorganization between and among Vulcan Ventures,
Inc., AXA Equity & Law Life Assurance Society, Ltd. (the "HNV
Shareholders"), Harbinger N.V. and the Company effective as of March 29,
1996 (incorporated by reference to Exhibit 2(a) filed with the Company's
Current Report on Form 8-K dated May 3, 1996).
3.1 Amended and Restated Articles of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (File 33-93804) declared effective on August 22, 1995).
3.2 Amended and Restated Bylaws of the Company. 35
4.1 Provisions of the Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws of the Company defining rights of the holders of the
Common Stock (incorporated by reference to Exhibits 3.1 through 3.4 to the
Company's Registration Statement on Form S-1 (File No. 33-93804) declared
effective on August 22, 1995).
4.2 Specimen Stock Certificate (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-1 (File 33-93804)).
4.3 Form of Registration Rights Agreement effective March 31, 1996 between the
Company and each of the NTEX Shareholders (incorporated by reference to
Exhibit 2(a) filed with the Company's Current Report on Form 8-K dated April
18, 1996).
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C> <C>
4.4 Form of Registration Rights Agreement effective March 29, 1996 between each
of the Harbinger N.V. Shareholders and the Company (incorporated by
reference to Exhibit 2(a) filed with the Company's Current Report on Form 8-
K dated May 3, 1996).
4.5 Form of Warrant issued to former Harbinger N.V. Shareholders on July 18, 56
1996.
4.6 Registration Rights Agreement among the former shareholders of SupplyTech,
Inc. and the Company effective January 3, 1997 (incorporated by reference to
Exhibit 4.1 filed with the Company's Current Report on Form 8-K dated
January 16, 1997).
4.7 Form of Warrant issued to former INOVIS Shareholders on April 19, 1996
(incorporated by reference to Exhibit 2(a) filed with the Company's Current
Report on Form 8-K dated July 1, 1996).
4.8 Form of Registration Rights Agreement effective March 31, 1996 between each
of the former INOVIS Shareholders and the Company (incorporated by reference
to Exhibit 2(a) filed with the Company's Current Report on Form 8-K dated
July 1, 1996).
10.1 Promissory Note for $3,000,000 payable by the Company to NationsBank of
Georgia, N.A. dated May 2, 1995 (incorporated by reference to Exhibit 10.12
filed to the Company's Registration Statement on Form S-1 (File 33-93804)
declared effective on August 22, 1995).
10.2 Loan Agreement between the Company and NationsBank of Georgia, N.A. dated as
of August 15, 1994 with First Amendment dated as of May 2, 1995
(incorporated by reference to Exhibit 10.13 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.3 Employment Agreement between the Company and Mr. James M. Travers effective
as of February 1, 1995 with letter from the Company to Mr. Travers dated
December 27, 1994 (incorporated by reference to Exhibit 10.14 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.4 Employment Agreement between the Company and Mr. James C. Davis effective as
of January 18, 1995 (incorporated by reference to Exhibit 10.15 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.5 Assignment of Invention and Patents Thereon (Patent 5,367,664) by Texas
Instruments, Incorporated (''TI'') to the Company dated January 12, 1995 as
recorded with United States Patent and Trademark Office on March 13, 1995
(incorporated by reference to Exhibit 10.16 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.6 U.S. Patent 5,367,664 issued November 22, 1994 (incorporated by reference to
Exhibit 10.17 filed to the Company's Registration Statement on Form S-1
(File 33-93804) declared effective on August 22, 1995).
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C> <C>
10.7 Assignment of Invention and Patents Thereon (Application 07/502,955) by TI
to the Company dated January 12, 1995 as recorded with United States Patent
and Trademark Office on March 13, 1995 (incorporated by reference to Exhibit
10.18 filed to the Company's Registration Statement on Form S-1 (File 33-
93804) declared effective on August 22, 1995).
10.8 Asset Purchase Agreement between the Company and TI dated as of December 31,
1994 (incorporated by reference to Exhibit 10.19 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.9 Employment Agreement between the Company and Mr. David A. Meeker effective
as of December 21, 1994 (incorporated by reference to Exhibit 10.21 filed to
the Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.10 401(k) Profit Sharing Plan amended and restated effective as of September 1,
1994; original effective date October 1, 1991 (incorporated by reference to
Exhibit 10.24 filed to the Company's Registration Statement on Form S-1
(File 33-93804) declared effective on August 22, 1995).
10.11 Employment Agreement between the Company and Mr. C. Tycho Howle effective as 63
of March 4, 1997.
10.12 Employment Agreement between the Company and Mr. Joel G. Katz effective as
of March 7, 1994 (incorporated by reference to Exhibit 10.26 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.13 Employment Agreement between the Company and Mr. David T. Leach effective as
of March 7, 1994 (incorporated by reference to Exhibit 10.27 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.14 Employment Agreement between the Company and Mr. George S. Hart effective as
of March 7, 1994 (incorporated by reference to Exhibit 10.28 filed to the
Company's Registration Statement on Form S-1 (File 33-93804) declared
effective on August 22, 1995).
10.15+ License and Service Agreement between the Company and Bank of America
National Trust and Savings Association dated as of February 18, 1994
(incorporated by reference to Exhibit 10.29 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.16 Amended and Restated 1993 Stock Option Plan for Nonemployee Directors
effective as of August 11, 1993 (incorporated by reference to Exhibit 10.33
filed to the Company's Registration Statement on Form S-1 (File 33-93804)
declared effective on August 22, 1995).
10.17 Third Amendment to Amended and Restated 1993 Stock Option Plan for 69
Nonemployee Directors.
</TABLE>
-31-
<PAGE> 32
<TABLE>
<S> <C> <C>
10.18 Co-Marketing Agreement between the Company and Sprint Communications Company
Limited Partnership of Delaware made as of August 9, 1993 (incorporated by
reference to Exhibit 10.34 filed to the Company's Registration Statement on
Form S-1 (File 33-93804) declared effective on August 22, 1995).
10.19 Lease between the Company and Lenox Park Development 1 L.P. for office
located at 1055 Lenox Park Boulevard, Atlanta, Georgia dated July 16, 1992
with First Amendment dated July 22, 1993 and Second Amendment dated December
27, 1993 (incorporated by reference to Exhibit 10.38 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.20 Amended and Restated 1989 Stock Option Plan effective as of April 15,
1992 (incorporated by reference to Exhibit 10.39 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.21+ Harbinger Business Financial Management System License Agreement between the
Company as assignee of Harbinger Computer Services, Inc. and Barnett Banks,
Inc. dated November 18, 1991 with amendment dated May 21, 1992 (incorporated
by reference to Exhibit 10.40 filed to the Company's Registration Statement
on Form S-1 (File 33-93804) declared effective on August 22, 1995).
10.22 Software License and Distribution Agreement between the Company and Sprint
International Communications Corporation (''Sprint'') effective July 27,
1990 with First Amendment effective as of May 24, 1993 (incorporated by
reference to Exhibit 10.41 filed to the Company's Registration Statement on
Form S-1 (File 33-93804) declared effective on August 22, 1995).
10.23 Reseller Agreement (now known as Service Management Agreement) between the
Company and Sprint effective July 27, 1990 with First Amendment effective as
of May 1, 1991, Second Amendment effective as of May 1, 1992, and Third
Amendment dated July 1, 1994 (incorporated by reference to Exhibit 10.42
filed to the Company's Registration Statement on Form S-1 (File 33-93804)
declared effective on August 22, 1995).
10.24 Form of Indemnification Agreement between the Company and
Directors (incorporated by reference to Exhibit 10.43 filed to the Company's
Registration Statement on Form S-1 (File 33-93804) declared effective on
August 22, 1995).
10.25 Harbinger Corporation 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.48 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.26 First Amendment to Harbinger Corporation 1996 Stock Option Plan. 71
10.27 Amended and Restated Harbinger Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.49 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.28 First Amendment to Harbinger Corporation Employee Stock Purchase Plan. 73
</TABLE>
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<PAGE> 33
<TABLE>
<S> <C> <C>
10.29 First Amendment to Harbinger Corporation Amended and Restated 1989 Stock
Option Plan (incorporated by reference to Exhibit 10.50 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.30 Alliance Agreement dated July 21, 1995 between Systems Software Associates,
Inc. and the Company (incorporated by reference to Exhibit 10.47 to the
Company's Registration Statement on Form S-1 (File No. 33-93804)).
10.31 First Amendment to Alliance Agreement between System Software Associates,
Inc. and Harbinger Corporation (incorporated by reference to Exhibit 10.51
to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.32 Employment Agreement between the Company and Mr. Theodore C. Annis effective
January 3, 1997 (incorporated by reference to Exhibit 99.2 filed with the
Company's Current Report on Form 8-K/A dated March 17, 1997).
10.33 Employment Agreement between the Company and Ms. A. Gail Jackson effective
January 3, 1997 (incorporated by reference to Exhibit 99.3 filed with the
Company's Current Report on Form 8-K/A dated March 17, 1997).
11.1 Computation of Earnings Per Share. 76
13.1 The following financial information included within the Company's Annual 78
Report to Shareholders for the fiscal year ended December 31, 1996:
(v) Selected Financial Data;
(vi) Quarterly Results of Operations;
(vii) Management's Discussion and Analysis of Financial Condition and
Results of Operations; and
(viii) Financial Statements, Notes to Financial Statements, and
Independent Auditor's Report.
21.1 List of Subsidiaries of Company. 113
23.1 Consent of KPMG Peat Marwick LLP. 115
23.2 Consent of Arthur Andersen LLP. 117
27.1 Financial Data Schedules. 119
99.1 Certain Risk Factors relating to the Company. 121
- -----------
</TABLE>
+ The Company has received confidential treatment with respect to portions of
this exhibit.
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<PAGE> 1
EXHIBIT 3.2
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<PAGE> 2
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . PAGE
ARTICLE I Offices . . . . . . . . . . . . . . . . . . . 1
Section 1 Registered Office . . . . . . . . . . . . . . 1
Section 2 Other Offices . . . . . . . . . . . . . . . . 1
ARTICLE II Meetings of Shareholders . . . . . . . . . . . 1
Section 1 Place of Meeting . . . . . . . . . . . . . . . 1
Section 2 Time of Meeting . . . . . . . . . . . . . . . 1
Section 3 Special Meetings . . . . . . . . . . . . . . . 1
Section 4 Notice of Meetings . . . . . . . . . . . . . . 1
Section 5 Waiver of Notice . . . . . . . . . . . . . . . 2
Section 6 Voting List . . . . . . . . . . . . . . . . . 2
Section 7 Voting Group . . . . . . . . . . . . . . . . . 2
Section 8 Quorum . . . . . . . . . . . . . . . . . . . 2
Section 9 Vote Required for Action . . . . . . . . . . . 2
Section 10 Voting . . . . . . . . . . . . . . . . . . . 3
Section 11 Action of Shareholders Without a Meeting . . . 3
Section 12 Record Date . . . . . . . . . . . . . . . . . 3
Section 13 Proxies . . . . . . . . . . . . . . . . . . . 3
Section 14 Presiding Officer . . . . . . . . . . . . . . 4
Section 15 Adjournments . . . . . . . . . . . . . . . . . 4
Section 16 Shareholder Proposals at Annual Meetings . . . 4
Section 17 Notice of Shareholder Nominees . . . . . . . . 4
ARTICLE III Board of Directors . . . . . . . . . . . . . . 5
Section 1 General Powers . . . . . . . . . . . . . . . . 5
Section 2 Number of Directors and Term of Office . . . . 5
Section 3 Removal . . . . . . . . . . . . . . . . . . . 6
Section 4 Vacancy . . . . . . . . . . . . . . . . . . . 6
Section 5 Compensation . . . . . . . . . . . . . . . . . 6
Section 6 Regular Meetings . . . . . . . . . . . . . . . 6
Section 7 Special Meetings . . . . . . . . . . . . . . . 6
Section 8 Notice of Meetings . . . . . . . . . . . . . . 6
Section 9 Waiver of Notice . . . . . . . . . . . . . . . 7
Section 10 Place of Meetings . . . . . . . . . . . . . . 7
Section 11 Participation by Conference Telephone . . . . 7
Section 12 Quorum . . . . . . . . . . . . . . . . . . . 7
Section 13 Voting . . . . . . . . . . . . . . . . . . . 7
Section 14 Action Without a Meeting . . . . . . . . . . . 7
Section 15 Adjournments . . . . . . . . . . . . . . . . . 7
Section 16 General Powers of Director . . . . . . . . . . 7
Section 16 Specific Powers of Directors . . . . . . . . . 8
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV Committees . . . . . . . . . . . . . . . . . . 8
Section 1 Appointing Committees . . . . . . . . . . . . 8
Section 2 Powers of Committees . . . . . . . . . . . . . 8
Section 3 Committee Meetings, Quorum and Voting . . . . 8
Section 4 Removal from Committees . . . . . . . . . . . 9
Section 5 Appointment of Executive Committee . . . . . . 9
Section 6 Procedures of Executive Committee . . . . . . 9
Section 7 Compensation Committee . . . . . . . . . . . . 9
Section 8 Audit Committee . . . . . . . . . . . . . . . 9
Section 9 Other Committees . . . . . . . . . . . . . . . 9
Section 10 Alternative Members . . . . . . . . . . . . . 10
ARTICLE V Officers . . . . . . . . . . . . . . . . . . . 10
Section 1 Number . . . . . . . . . . . . . . . . . . . 10
Section 2 Election and Term . . . . . . . . . . . . . . 10
Section 3 Salaries . . . . . . . . . . . . . . . . . . . 10
Section 4 Chairman of the Board . . . . . . . . . . . . 10
Section 5 Chief Executive Officer . . . . . . . . . . . 10
Section 6 Presidents and Vice Presidents . . . . . . . . 11
Section 7 Secretary . . . . . . . . . . . . . . . . . . 11
Section 8 Treasurer . . . . . . . . . . . . . . . . . . 11
Section 9 Duties of Officers May Be Delegated . . . . . 12
ARTICLE VI Contracts, Checks, Drafts, Bank Accounts,
and Documents . . . . . . . . . . . . . . . . 12
Section 1 Execution of Contracts and Documents . . . . . 12
Section 2 Checks and Drafts . . . . . . . . . . . . . . 12
Section 3 Deposits . . . . . . . . . . . . . . . . . . . 12
Section 4 Proxies . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII Distributions . . . . . . . . . . . . . . . . 13
Section 1 Authorization or Declaration . . . . . . . . . 13
Section 2 Record Date With Record to Distributions
and Share Dividends . . . . . . . . . . . . . 13
ARTICLE VIII Capital Stock . . . . . . . . . . . . . . . . . . 13
Section 1 Authorization and Issuance of . . . . . . . . 13
Section 2 Capital Stock . . . . . . . . . . . . . . . . 13
Section 3 Record of Shareholders . . . . . . . . . . . . 14
Section 4 Lost, Stolen or Destroyed Certificates . . . . 14
Section 5 Transfer of Shares . . . . . . . . . . . . . . 14
Section 6 Duty of Corporation to Register Transfer . . . 14
Section 7 Registered Shareholders . . . . . . . . . . . 14
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE IX Indemnification . . . . . . . . . . . . . . . 14
Section 1 Definitions . . . . . . . . . . . . . . . . . 14
Section 2 Indemnification . . . . . . . . . . . . . . . 15
Section 3 Advances for Expenses . . . . . . . . . . . . 16
Section 4 Court-Ordered Indemnification and
Advances for Expenses . . . . . . . . . . . . 16
Section 5 Determination and Authorization
of Indemnification . . . . . . . . . . . . . . 17
Section 6 Shareholder Approved Indemnification . . . . . 18
Section 7 Indemnification of Employees and Agents . . . 18
Section 8 Insurance . . . . . . . . . . . . . . . . . . 18
Section 9 Not Exclusive of Other Rights . . . . . . . . 19
Section 10 Severability . . . . . . . . . . . . . . . . . 19
ARTICLE X Emergency Powers . . . . . . . . . . . . . . . 19
Section 1 Power to Adopt . . . . . . . . . . . . . . . . 19
Section 2 Lines of Succession of Officers or Agents . . 19
Section 3 Change of Office . . . . . . . . . . . . . . . 19
Section 4 Effect of Bylaws . . . . . . . . . . . . . . . 19
Section 5 Notices . . . . . . . . . . . . . . . . . . . 19
Section 6 Quorum . . . . . . . . . . . . . . . . . . . 19
Section 7 Liability . . . . . . . . . . . . . . . . . . 20
ARTICLE XI General Provisions . . . . . . . . . . . . . . 20
Section 1 Fiscal Year . . . . . . . . . . . . . . . . . 20
Section 2 Corporate Seal . . . . . . . . . . . . . . . . 20
Section 3 Annual Financial Statements . . . . . . . . . 20
Section 4 Inspection of Books and Records . . . . . . . 20
Section 5 Conflict with Articles of Incorporation . . . 20
Section 6 Adoption of Amendments to Incentive
Stock Option Plans . . . . . . . . . . . . . 20
Section 7 Reference to Code Sections . . . . . . . . . . 20
ARTICLE XII Amendments . . . . . . . . . . . . . . . . . . 20
ARTICLE XIII Fair Price Requirements . . . . . . . . . . . 21
ARTICLE XIV Business Combinations with Interested
Shareholders . . . . . . . . . . . . . . . . . 21
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED BYLAWS OF
HARBINGER CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be in the
State of Georgia, County of Fulton. The Board of Directors from time to time
may change the address of the registered office, which may be, but need not be,
the principal office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Georgia as the Board of
Directors may from time to time determine and the business of the Corporation
may require or make desirable.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the Shareholders may be
held either within or without the State of Georgia, but in the absence of
notice to the contrary Shareholders' meetings shall be held at the principal
office of the Corporation.
Section 2. Time of Meeting. The Annual Meeting of the Shareholders
shall be held annually within six (6) months after the end of each fiscal year
of the Corporation at such time and place as may be designated in the notice of
the Annual Meeting. Failure to hold the Annual Meeting as aforesaid shall not
work a forfeiture or dissolution of the Corporation nor shall such failure
affect otherwise valid corporate acts.
Section 3. Special Meetings. Special Meetings may only be called by
the Chief Executive Officer, a majority of the Board or a majority of the
members of the Executive Committee. Moreover, if the company has more than
100 Shareholders then a special meeting can be called by request of
Shareholders holding at least 75% of the shares entitled to vote.
Section 4. Notice of Meetings. The Corporation shall give notice
stating the date, time and place of each Shareholders' Meeting, whether special
or annual, not less than ten (10) nor more than sixty (60) days before the date
of the meeting, and shall be in writing unless oral notice is reasonable under
the circumstances, and may be communicated in person, by telephone, telegraph,
facsimile, or other form of wire or wireless communication, or by mail or
private carrier, to each Shareholder of record entitled to vote at such
meeting, at such address as last appears on the books of the Corporation. In
the case of an Annual Meeting, the notice need not state the purpose or
purposes of the meeting unless the Articles of Incorporation or the Georgia
Business Corporation Code (the "Code") requires the purpose or purposes to be
stated in the notice of the meeting. In the case of a Special Meeting, the
notice of the meeting must include a description of purpose or purposes for
which the meeting is called. Notice of any adjourned meeting need not be given
otherwise than by announcement at the meeting, at which the adjournment is
taken; provided however, if a new record date for the adjourned meeting is or
must be fixed pursuant to Section 12 of this Article II, notice of the
adjourned meeting shall be given to persons who are Shareholders as of the new
record date.
Section 5. Waiver of Notice. Any Shareholder may waive notice of any
meeting, whether special or annual, either before, at or after the meeting, and
a Shareholder's attendance at a meeting, either in person or by proxy, shall of
itself constitute a waiver of notice and waiver of any and all objections to
the date, time, place, manner of calling, or consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, except when the Shareholder attends the meeting solely for
the purpose of stating such objection. Unless required by the Code, neither
the business transacted nor the purpose of the meeting need be specified in the
waiver of notice.
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<PAGE> 6
Section 6. Voting List. After fixing a record date for a meeting of
the Shareholders in accordance with Section 12 of this Article II, the
Corporation will cause to be prepared a complete alphabetical list of
Shareholders entitled to notice of a Shareholders' meeting, with the address of
and the number of shares held by each. This list shall be produced and kept
open at the time and place of the meeting and shall be subject to inspection by
any Shareholder during the whole time of the meeting. The foregoing list shall
not have to be prepared where the record of Shareholders is presented and shows
in alphabetical order or by alphabetical index, and by classes or series, if
any, the names of the Shareholders entitled to vote, with the address of and
the number of shares held by each.
Section 7. Voting Group. A Voting Group means all shares of one or
more classes or series that under the Articles of Incorporation or the Code are
entitled to vote and be counted together collectively on a matter at a meeting
of the Shareholders. All shares entitled by the Articles of Incorporation or
the Code to vote generally on the matter are for that purpose a single Voting
Group.
Section 8. Quorum. Shares entitled to vote as a separate Voting Group
may take action on a matter at a meeting only if a quorum of those shares
exists with respect to that matter. Unless the Articles of Incorporation
provide otherwise, the presence, in person or by proxy, of a majority of the
votes entitled to be cast on the matter by the Voting Group constitutes a
quorum of that Voting Group for action on that matter. Once a share is
represented for any purpose at a meeting other than solely to object to holding
the meeting or transacting business at the meeting, it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of
that meeting unless a new record date is or must be set for that adjourned
meeting.
Section 9. Vote Required for Action. If a quorum exists, action on a
matter (other than the election of Directors) by a Voting Group is approved if
the votes cast within the Voting Group favoring the action exceed the votes
cast opposing the action, unless the Articles of Incorporation, these Bylaws or
the Code requires a greater number of affirmative votes. If the Articles of
Incorporation or the Code provide for voting by two or more Voting Groups on a
matter, action on that matter is taken only when voted upon by each of those
Voting Groups counted separately. Action may be taken by one Voting Group on a
matter even though no action is taken by another Voting Group entitled to vote
on the matter. With regard to the election of Directors, unless otherwise
provided in the Articles of Incorporation, if a quorum exists, action on the
election of Directors is taken by a plurality of the votes cast by the shares
entitled to vote in the election.
Section 10. Voting. Except as otherwise provided for in the Articles
of Incorporation, each outstanding share having voting rights shall be entitled
to one vote on each matter submitted to a vote at a Shareholders' meeting.
Outstanding shares of preferred stock, if any, shall have the voting rights set
forth within the Corporation's Articles of Incorporation or as set by
resolution of the Board of Directors, as the case may be. Voting on all
matters may be by voice vote or by show of hands unless any qualified voter,
prior to the voting on any matter, demands vote by ballot, in which case each
ballot shall state the name of the Shareholder voting and the number of shares
voted by such Shareholder, and if the ballot be cast by proxy, it shall also
state the name of the proxy.
Section 11. Action of Shareholders Without a Meeting. Any action
required to be taken at a meeting of the Shareholders, or any action which may
be taken at a meeting of the Shareholders, may be taken without a meeting if
written consent and approval, setting forth the action authorized, shall be
signed by all Shareholders entitled to vote on such action or, if so provided
in the Articles of Incorporation, any persons who would be entitled to vote at
a meeting those shares having voting power to cast not less than the minimum
number (or numbers, in the case of voting by groups) of votes that would be
necessary to authorize or take such actions at a meeting at which all shares
entitled to vote were present and voted, provided that action by less than
unanimous written consent may not be taken with respect to any election of
Directors as to which Shareholders would be entitled to cumulative voting. The
action must be evidenced by one or more written consents describing the action
taken, signed by Shareholders entitled to take action without a meeting and
delivered to the Corporation for inclusion in the minutes or for filing with
the corporate records. No written consent shall be valid unless the consenting
Shareholder has been furnished the same material that would have been required
to be sent to the Shareholders in a notice of a meeting at which the proposed
action would have been submitted to the Shareholders for action, including
notice of any applicable dissenters' rights, or the written consent contains an
express waiver of the right to receive the material otherwise required to be
furnished. If corporate action is taken without a meeting by less than
unanimous written consent,
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<PAGE> 7
then written notice shall be given to all persons who are voting Shareholders
on the date the consent is first executed and who have not consented in
writing, not later than ten (10) days after such action is taken.
Section 12. Record Date. For the purpose of determining Shareholders
entitled to notice of or to vote at any meeting of Shareholders or any
adjournment thereof, or in order to make a determination of Shareholders for
any other proper purpose, the Board of Directors of the Corporation may fix in
advance a date as the record date not more than seventy (70) days before the
meeting or action requiring a determination of Shareholders. When a
determination of Shareholders entitled to notice of or to vote at any meeting
of Shareholders has been made as provided in this Section 12, such
determination shall apply to any adjournment and reconvened meeting thereof,
unless the Board of Directors sets a new record date under this section for the
reconvened meeting. If the adjournment is for a date more than 120 days after
the date fixed for the original meeting, a new record date must be fixed.
Section 13. Proxies. A Shareholder entitled to vote pursuant to
Section 10 of this Article II may vote in person or by proxy executed in
writing by the Shareholder or by his attorney-in-fact. A proxy shall not be
valid after eleven (11) months from the date of its execution, unless such
instrument provides for a longer period. If the validity of any proxy is
questioned, it must be submitted to the Secretary of the Shareholders' meeting
for examination or to a proxy officer or committee appointed by the person
presiding at the meeting. The Secretary of the meeting or, if appointed, the
proxy officer or committee, shall determine the validity of any proxy submitted
and reference by the Secretary in the minutes of the meeting to the regularity
of a proxy shall be received as prima facie evidence of the facts stated for
the purpose of establishing the presence of a quorum at such meeting and for
all other purposes.
Section 14. Presiding Officer. The Corporation's Chief Executive
Officer shall serve as Chairman of every Shareholders' meeting unless some
other person is elected to serve as Chairman by a majority vote of the shares
represented at the meeting. The Chairman shall appoint such persons as he
deems required to assist with the meeting.
Section 15. Adjournments. Any meeting of the Shareholders, whether
or not a quorum is present, may be adjourned by the holders of a majority of
the voting shares represented at the meeting to be reconvened at a specific
time and place. If notice of the adjourned meeting was properly given, it
shall not be necessary to give any notice of the reconvened meeting or of the
business to be transacted, if the date, time and place of the reconvened
meeting are announced at the meeting which was adjourned and before
adjournment. At any such reconvened meeting at which a quorum is present or
represented, any business may be transacted which could have been transacted at
the meeting which was adjourned.
Section 16. Shareholder Proposals at Annual Meetings.
(a) Business may be properly brought before an Annual Meeting of
Shareholders by a Shareholder only upon the Shareholder's timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a Shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than thirty (30) days prior to the meeting
as originally scheduled; provided, however, that in the event that less than
thirty (30) days notice or prior public disclosure of the date of the meeting
is given or made to Shareholders, notice by the Shareholder to be timely must
be so received not later than the close of business on the tenth day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made.
For purposes of this Section 16, any adjournment(s) or postponement(s)
of the original meeting whereby the meeting will reconvene within ninety (90)
days from the original date shall be deemed for purposes of notice to be a
continuation of the original meeting and no business may be brought before any
such reconvened meeting unless pursuant to a notice of such business which was
timely for the meeting on the date originally scheduled. Such Shareholder's
notice to the Secretary shall set forth (i) as to each matter the Shareholder
proposed to bring before the Annual Meeting, a brief description of the
business desired to be brought before the meeting, (ii) the name and address,
as they appear on the Corporation's books, of the Shareholder proposing such
business, (iii) the
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<PAGE> 8
class and number of shares of the Corporation which are beneficially owned by
the Shareholder, and (iv) a complete and accurate description of any material
interest of the Shareholder in such proposed business.
Notwithstanding the foregoing, nothing in this Section 16 shall be
interpreted or construed to require the inclusion of information about any such
proposal in any proxy statement distributed by the Corporation at the direction
of or on behalf of the Corporation.
(b) The Chairman of an Annual Meeting of Shareholders shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 16, and if the Chairman should so determine, the Chairman shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
Section 17. Notice of Shareholder Nominees.
(a) Nominations of persons for election to the Board of Directors
shall be made only at an Annual or Special Meeting of the Shareholders called
for that purpose and only (i) by or at the direction of the Board of Directors
or (ii) by any Shareholder entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in Section 16 of
this Article II for Annual Meetings. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
Shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than thirty (30) days
prior to the meeting; provided, however, that in the event that less than
thirty (30) days notice of the date of the meeting is given or made to
Shareholders, notice by the Shareholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made.
For purposes of this Section 17, any adjournment(s) or postponement(s)
of the original meeting whereby the meeting will reconvene within ninety (90)
days from the original date shall be deemed for purposes of notice to be a
continuation of the original meeting and no nominations by a Shareholder of a
person or persons to be elected a director or directors of the Corporation may
be made at any such reconvened meeting unless pursuant to a notice which was
timely for the meeting on the date originally scheduled. Such Shareholder's
notice to the Secretary shall set forth (i) as to each person whom the
Shareholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to the Securities Exchange Act of 1934, as amended; and
(ii) as to the Shareholder giving notice (A) the name and address, as they
appear on the Corporation's books, of such Shareholder, and (B) the class and
number of shares of the Corporation which are beneficially owned by such
Shareholder.
Notwithstanding the foregoing, nothing in this Section 17 shall be
interpreted or construed to require the inclusion of information about any such
nominee in any proxy statement distributed by the Corporation at the direction
of or on behalf of the Corporation.
(b) The Chairman of the Annual or Special Meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by this Section 17, and if
the Chairman should so determine, the Chairman shall so declare to the meeting
and the defective nomination shall be disregarded.
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ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation
shall be managed under the direction of, the Board of Directors. In addition
to the powers and authority expressly conferred upon it by these Bylaws, the
Board of Directors shall exercise all such powers of the Corporation and do all
such lawful acts and things as are not by law, by any legal agreement among
Shareholders, by the Articles of Incorporation, or by these Bylaws directed or
required to be exercised or done by the Shareholders.
Section 2. Number of Directors and Term of Office. The number of
Directors of the Corporation shall not be less than one (1) nor more than
fifteen (15), the precise number to be fixed by resolution of the Board of
Directors from time to time. The Directors shall be divided into three classes
in accordance with the Articles of Incorporation of the Corporation. Except as
provided in Section 4 of this Article III, a Director shall be elected by the
affirmative vote of a plurality of the shares represented at the meeting of
shareholders at which the Director stands for election and entitled to elect
such Director. The number of Directors may be increased or decreased from time
to time as provided by these Bylaws and in the Articles of Incorporation;
provided, however, that the total number of Directors at any time shall not be
less than one (1); and provided further, that no decrease in the number of
Directors shall have the effect of shortening the term of an incumbent
director. Each Director shall serve until his successor is elected and
qualified or until his earlier resignation, retirement, disqualification,
removal from office, or death.
Section 3. Removal. The entire Board of Directors or any individual
Director may be removed from the office but only for cause and only by the
affirmative vote of at least seventy-five percent (75%) of all classes of stock
of the Corporation entitled to vote in the election of such Director or
Directors, considered for purposes of this Section as one class.
Notwithstanding the foregoing, in the event that preferred stock of the
Corporation is issued and authorizes the election of one or more Directors by
the holders of such preferred stock, any individual Director elected by the
preferred shareholders may be removed only by the holders of the outstanding
shares of the preferred stock in accordance with the terms of the preferred
stock as provided therein. Removal action may be taken at any shareholders
meeting with respect to which notice of such purpose has been given, and a
removed Directors' successor may be elected at the same meeting to serve the
unexpired term.
Section 4. Vacancies. A vacancy occurring on the Board of Directors,
other than by reason of an increase in the number of Directors, but including
vacancies arising from resignation, death or the failure of the shareholders to
replace a removed Director, may be filled for the remainder of the unexpired
term by the affirmative vote of at least two-thirds (2/3) of the total number
of Directors then remaining in office, though they constitute less than a
quorum of the Board of Directors. A vacancy occurring in the Board of
Directors by reason of an increase in the number of Directors may be filled in
like manner, but only until the next election of Directors by the shareholders.
Section 5. Compensation. Directors may receive such compensation for
their services as directors and as members of committees of the Board of
Directors as may from time to time be fixed by a majority vote of the Directors
or the Shareholders. A Director may also serve the Corporation in a capacity
other than that of director and receive compensation, as determined by the
Board of Directors for services rendered in any other capacity. Directors
shall also be entitled to reimbursement for any reasonable expenses incurred in
attending any meeting of the Board of Directors or any committee thereof.
Section 6. Regular Meetings. The first meeting of each newly elected
Board of Directors shall follow immediately after the Annual Meeting of the
Shareholders and be held at the same place as the Annual Meeting of the
Shareholders, or may be held at such time and place as shall be fixed by the
consent in writing of all the Directors. In addition, the Board of Directors
may, by resolution providing for the date, time and place, schedule other
meetings to occur at regular intervals throughout the year.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Corporation's Chief
Executive Officer, or in his absence by the Secretary of the Corporation, or by
any two (2) Directors in office at that time.
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Section 8. Notice of Meetings. Unless the Articles of Incorporation
provide otherwise, regular meetings of the Board of Directors may be held
without notice of the date, time, place or purpose of the meeting. Unless the
Articles of Incorporation provide otherwise, every Special Meeting shall be
preceded by at least twenty-four (24) hours notice of the date, time and place
of the meeting. Such notice shall be in writing unless oral notice is
reasonable under the circumstances, and may be communicated in person, by
telephone, telegraph, facsimile, telecopy, or other forms of wire or wireless
communication, or by mail or private carrier. Such notice need not specify the
purpose of the Special Meeting of the Board unless required by the Articles of
Incorporation.
Section 9. Waiver of Notice. A Director may waive notice of any
meeting either before or after the meeting stated in the notice. Except as
specified herein, the waiver must be in writing, signed by the Director
entitled to notice, and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. A Director's attendance at or
participation in a meeting waives any required notice to the Director of the
meeting unless the Director at the beginning of the meeting (or promptly upon
arrival) objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.
Section 10. Place of Meetings. The Directors may hold their meetings
at the principal office of the Corporation or at such other place or places,
either in the State of Georgia or elsewhere, as they may from time to time
determine.
Section 11. Participation by Conference Telephone. Unless the
Articles of Incorporation provide otherwise, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee thereof, by means of
telephone conference or similar communications equipment, provided that all
Directors participating in the meeting can simultaneously hear each other
during the meeting. A Director participating in a meeting by this means is
deemed to be present in person at the meeting.
Section 12. Quorum. Unless a greater number is required by the
Articles of Incorporation or the Code, a majority of the Directors in office
immediately before the meeting begins shall constitute a quorum of the Board of
Directors.
Section 13. Voting. If a quorum is present when a vote is taken, the
affirmative vote of a majority of the Directors present is the act of the Board
of Directors unless the Articles of Incorporation, the Code or these Bylaws
require the vote of a greater number of Directors.
Section 14. Action Without a Meeting. Unless the Articles of
Incorporation provide otherwise, action required or permitted to be taken at a
meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if the action is taken by all members of the Board of
Directors, or of such committee, as the case may be. The action must be
evidenced by one or more written consents describing the action taken, signed
by each Director, or each committee member, as the case may be, and delivered
to the Corporation for inclusion in the minutes or filing with the corporate
records.
Section 15. Adjournments. Whether or not a quorum is present to
organize a meeting, any meeting of Directors (including an adjourned meeting)
may be adjourned by a majority of the Directors present, to reconvene at a
specific time and place. At any reconvened meeting any business may be
transacted that could have been transacted at the meeting that was adjourned.
If notice of the adjourned meeting was properly given, it shall not be
necessary to give any notice of the reconvened meeting or of the business to be
transacted, if the date, time and place of the reconvened meeting are announced
at the meeting that was adjourned.
Section 16. General Powers of Directors. The Board of Directors
shall have, in addition to such powers as are herein expressly conferred on it
and all such powers as may be conferred on it by law, all such powers as may be
exercised by the Corporation, subject to the provisions of the Articles of
Incorporation and the Code.
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Section 17. Specific Powers of Directors. The Board of Directors
shall also have power:
(a) to purchase or otherwise acquire property, rights, or
privileges for the Corporation, which the Corporation has power to make, at
such prices and on such terms as the Board of Directors may deem proper;
(b) to pay for such property, rights or privileges in
whole or in part with money, stocks, bonds, debentures or other securities of
the Corporation, or by the delivery of other property of the Corporation;
(c) to create, make and issue mortgages, bonds, deeds of
trust, trust agreements and negotiable or transferable instruments and
securities, secured by mortgages or otherwise, and to do every act and thing
necessary to effectuate the same;
(d) to elect the corporate officers and fix their
salaries, to appoint employees and trustees, and to dismiss them at its
discretion, to fix their duties and emoluments, and to change them from time to
time, and to require security as it may deem proper;
(e) to confer on any officer of the Corporation the power
of selecting, discharging or suspending such employees; and
(f) to determine by whom and in what manner the
Corporation's bills, notes, receipts, acceptances, endorsements, checks,
releases, contracts, or other documents shall be signed.
Section 18. Transactions with Affiliates. Any and all material
transactions between the Company and its affiliates, which include Harbinger
N.V. and Harbinger NET Services LLC as of the date hereof, shall be structured
by the Corporation to be on terms no less favorable to the Corporation than
terms which would be offered to an unaffiliated third party, and any such
transactions will be subject to approval by members of the Corporation's Board
of Directors who are not officers or directors of the affiliated entity which
is the other party to the proposed transaction. The Board of Directors shall
be authorized and empowered to take such other actions as it may deem
reasonably necessary to address any conflicts of interest that may arise
between the Corporation and any affiliated entities and otherwise to comply
with applicable laws.
ARTICLE IV
COMMITTEES
Section 1. Appointing Committees. Unless the Articles of
Incorporation provide otherwise, the Board of Directors may create one (1) or
more committees and appoint members of the Board of Directors to serve on them.
Each committee may have one or more members, who serve at the pleasure of the
Board of Directors.
Section 2. Powers of Committees. To the extent specified by the Board
of Directors or in the Articles of Incorporation, each committee may exercise
the authority granted to the Board of Directors, except that a committee may
not:
(a) approve or propose to Shareholders action that the
Code requires to be approved by Shareholders;
(b) fill vacancies on the Board of Directors or on any of
its committees;
(c) amend the Articles of Incorporation pursuant to
O.C.G.A. Section 14-2-1002;
(d) adopt, amend, or repeal Bylaws; or
(e) approve a plan of merger not requiring Shareholder
approval.
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Section 3. Committee Meetings, Quorum and Voting. Except as set forth
with respect to the Executive Committee in Section 6 below, Sections 8, 9, 10,
11, 12, 13, 14 and 15 of Article III of these Bylaws which govern meetings,
adjournments of meetings, actions without meeting, notice and waiver of notice,
and quorum and voting requirements of the Board of Directors, apply to
committees and their members.
Section 4. Removal from Committees. The Board of Directors shall have
power at any given time to remove any member of any committee, with or without
cause, and to fill vacancies in and to dissolve any such committee.
Section 5. Appointment of Executive Committee. The Board of Directors
may by resolution adopted by a majority of the full Board of Directors appoint
an Executive Committee consisting of not less than three (3) Directors who
shall serve until such time as their successors are elected to the Executive
Committee or such time as such person ceases being a member of the Board of
Directors or the Executive Committee. The Executive Committee shall to the
extent provided in such resolution have all of the powers and authority of the
Board of Directors, except as otherwise provided by these Bylaws or by law.
Such Executive Committee shall not have the power to amend or repeal any
resolution of the Board of Directors which by its terms is not subject to
amendment or repeal by the Executive Committee.
Section 6. Procedures of Executive Committee. The Executive Committee
shall meet from time to time on call of the Corporation's Chief Executive
Officer or of any two (2) or more members of the Executive Committee. Meetings
of the Executive Committee may be held at such place or places as the Executive
Committee shall determine or as may be specified or fixed in the respective
notices or waivers of such meetings. The Executive Committee may fix its own
rules of procedure, including provisions for notice of its meetings. It shall
keep minutes of its proceedings which shall be reviewed by the Board of
Directors and inserted with the Corporation's records, and all such proceedings
shall be subject to revision or alteration by the Board of Directors except to
the extent that action shall have been taken pursuant to or in reliance upon
such proceedings prior to any such revision or alteration.
Section 7. Compensation Committee. The Board of Directors may, from
time to time by a majority vote of the Directors, elect one or more Directors
as a Compensation Committee to serve until its authority is revoked or its
membership is changed by a majority vote of the Directors. The Compensation
Committee shall have such power and authority with regard to compensation
issues as are granted to the Committee by the Board of Directors from time to
time, including responsibility for recommendations to the Board of Directors
regarding compensation for key employees or key consultants of the Company,
including annual bonus compensation and stock grants to such persons.
Section 8. Audit Committee. The Board of Directors may, from time to
time by a majority vote of the Directors, elect two or more members of the
Board of Directors to serve as an Audit Committee. The members of the Audit
Committee shall serve until the authority of the Audit Committee is revoked or
its membership is changed by a majority vote of the Board of Directors. The
Board of Directors may designate persons other than members of the Board of
Directors to serve as non-voting members of the Audit Committee. The Audit
Committee shall have such power and authority with regards to accounting and
financial reporting issues as are granted to the Committee by the Board of
Directors from time to time, including making recommendations regarding the
Company's independent accountants, the annual audit of the Company's financial
statements and the Company's internal accounting practices and policies.
Section 9. Other Committees. The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate one or more
additional committees of the Board of Directors, each committee to consist of
one (1) or more Directors of the Corporation, which shall have such name or
names and shall have and may exercise such powers of the Board of Directors in
the management of the business and affairs of the Corporation, except as
otherwise provided by these Bylaws or by law, as may be determined from time to
time by resolution of the Board of Directors. The Board of Directors may also
appoint other committees which do not exercise any of the authority of the
Board of Directors, but which are fact finding, planning or advisory in nature.
Such additional committees may have members who are not directors.
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Section 10. Alternative Members. The Board of Directors, by
resolution adopted in accordance with Section 1 of Article IV of these Bylaws,
may designate one or more Directors as alternate members of any such committee,
who may act in the place of any absent member or members at any meeting of such
committee.
ARTICLE V
OFFICERS
Section 1. Number. The officers of the Corporation shall be
designated and elected by the Board of Directors, or appointed by the Chief
Executive Officer, with such responsibilities and duties as may be designated
by the Board of Directors consistent with this Article V. The Board of
Directors shall elect at least one officer who shall be responsible for
preparing minutes of the Directors' and Shareholders' meetings and for
authenticating records of the Corporation. Any two or more offices may be held
by the same person. No officer need be a Shareholder.
Section 2. Election and Term. All officers shall be appointed by the
Board of Directors or by a duly appointed officer pursuant to this Article V
and shall serve at the pleasure of the Board of Directors and the appointing
officers as the case may be. All officers, however appointed, may be removed
with or without cause by the Board of Directors and any officer appointed by
another officer may also be removed by the appointing officer with or without
cause.
Section 3. Salaries. The salaries and compensation of all officers
appointed by the Board of Directors shall be fixed by the Board of Directors,
unless the Directors delegate such power to any officer or officers.
Section 4. Chairman of the Board. Unless the Board of Directors
determines otherwise, the Chairman of the Board, if one shall so be elected,
shall preside at all meetings of the Board. The Chairman shall have such other
powers and duties as may be specifically designated by the Board of Directors
and, if so designated, may serve as Chief Executive Officer.
Section 5. Chief Executive Officer.
(a) The Chief Executive Officer shall be elected by the Board of
Directors. In the absence or disability of a President of the Corporation, or
at the direction of the Board of Directors, the Chief Executive Officer shall
also serve as a President of the Corporation. The Chief Executive Officer
shall preside at all meetings of the Shareholders; and, in the absence of the
Chairman, he shall preside at all meetings of the Board of Directors if the
Board so requests. He shall have general and active management of the business
of the Corporation, and shall exercise general supervision and administration
over all of its affairs with power to make all contracts in the conduct of the
regular and ordinary business of the Corporation, and shall see that all orders
and resolutions of the Board of Directors are carried into effect.
(b) The Chief Executive Officer shall execute deeds, bonds, notes,
mortgages and other contracts on behalf of the Corporation.
(c) The Chief Executive Officer shall be ex-officio a member of
all standing committees and shall have the general powers and duties of
supervision and management of the Corporation.
(d) The Chief Executive Officer may appoint and discharge agents
and employees of the Corporation and fix their compensation subject to the
general supervisory power of the Board of Directors, and do and perform such
other duties as from time to time may be assigned to him by the Board of
Directors and as may be authorized by law. The Chief Executive Officer may
from time to time appoint one or more Vice Presidents, Assistant Secretaries or
other inferior officers of the Corporation.
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Section 6. Presidents and Vice Presidents. The Board may elect one or
more Presidents, and the Board may elect, or the Chief Executive Officer
appoint, one or more Vice Presidents who shall have such duties as are assigned
by the electing or appointing party. The President, if one shall so be
elected, shall act in the absence or disability of the Chief Executive Officer.
If there is more than one (1) President or Vice President, then the one
designated by the Board of Directors shall act in the absence or disability of
the Chief Executive Officer.
Section 7. Secretary. The Secretary, if one shall so be elected,
shall keep accurate records of the acts and proceedings of all meetings of
Shareholders, Directors and committees of Directors. The Secretary shall give,
or cause to be given, notice of all meetings of the Shareholders and any
meetings of the Board of Directors, and other notices required by law or these
Bylaws, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision the Secretary shall be. The
Secretary shall keep in safe custody the seal of the Corporation, and the
Secretary or any other officer may affix the same to any instrument requiring
it and, when so affixed, it may be attested by the Secretary's signature or by
the signature of an Assistant Secretary. Notwithstanding the foregoing, unless
otherwise required by law or the Code, the seal of the Corporation need not be
affixed to any documents or instruments, nor must the Secretary or Assistant
Secretary attest any such document or instrument. In the absence or disability
of the Secretary or at the direction of the Chief Executive Officer, any
Assistant Secretary or other officer designated by the Board of Directors may
perform the duties and exercise the powers of the Secretary.
Section 8. Treasurer.
(a) The Treasurer, if one shall so be elected shall have custody
of and be responsible for all funds and securities, receipts and disbursements
of the Corporation, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit or cause
to be deposited, all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board of Directors.
(b) The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors or by the President, taking proper
vouchers for such disbursements, and shall render to the President and
Directors, whenever they may require it, an account of all transactions as
Treasurer and of the financial condition of the Corporation, and at the regular
meeting of the Board of Directors next preceding the Annual Shareholders'
Meeting, a like report for the preceding year.
(c) The Treasurer shall keep an account of stock registered and
transferred in such manner and subject to such regulations as the Board of
Directors may prescribe.
(d) The Treasurer shall give the Corporation a bond, if required
by the Board of Directors, in such sum and in form and with security
satisfactory to the Board of Directors for the faithful performance of the
duties of the office and the restoration to the Corporation in case of the
Treasurer's death, resignation or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the possession of the
Treasurer, belonging to the Corporation. The Treasurer shall perform such
other duties as the Board of Directors may from time to time prescribe or
require.
Section 9. Duties of Officers May Be Delegated. In case of the
absence of any officer of the Corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board may delegate, for the time
being, the powers or duties, or any of them, of such officer to any other
officer or to any Director or employee of the Corporation, provided a majority
of the entire Board of Directors concurs.
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ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS AND DOCUMENTS
Section 1. Execution of Contracts and Documents. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers or agent or agents of the Corporation to enter into any
contract or execute and deliver any instrument in the name and on the behalf of
the Corporation, and such authority may be general or confined to specific
instances. Unless otherwise specifically determined by the Board of Directors
or otherwise required by law, formal contracts, promissory notes and other
evidences of indebtedness, deeds of trust, mortgages and corporate instruments
or documents requiring the corporate seal, and certificates for shares of stock
owned by the Corporation shall be executed, signed or endorsed by the President
(or any Vice President) and by the Secretary (or any Assistant Secretary) or
the Treasurer (or any Assistant Treasurer). The Board of Directors may,
however, authorize any one of these officers to sign any of such instruments,
for and on behalf of the Corporation, without necessity of countersignature;
may designate officers or employees of the Corporation, other than those named
above, who may, in the name of the Corporation, sign such instruments; and may
authorize the use of facsimile signatures for any of such persons. No officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
damages, whether monetary or otherwise, for any purpose or for any amount
except as specifically authorized in these Bylaws or by the Board of Directors
or an officer or committee with the power to grant such authority.
Section 2. Checks and Drafts. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by the President or such other person
or persons and in such manner as shall, from time to time, be determined by the
Board of Directors.
Section 3. Deposits. All funds of the Corporation shall be deposited
to the credit of the Corporation under such conditions and in such banks, trust
companies or other depositories as the Board of Directors may designate or as
may be designated by an officer or officers or agent or agents of the
Corporation to whom such power may, from time to time, be determined by the
Board of Directors.
Section 4. Proxies. Unless otherwise provided by the Board of
Directors, the President may from time to time appoint an attorney or attorneys
or agent or agents of the Corporation in the name and on behalf of the
Corporation to cast the vote which the Corporation may be entitled to cast as a
Shareholder or otherwise in any other Corporation any of the stock or other
securities of which is held by the Corporation, at meetings of the holders of
the stock or other securities of such other Corporation, and may instruct the
person or persons so appointed as to the manner of casting such vote or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation such written proxies or other instruments as the President
may deem necessary or proper in the premises.
ARTICLE VII
DISTRIBUTIONS
Section 1. Authorization or Declaration. Unless the Articles of
Incorporation provide otherwise, the Board of Directors from time to time in
its discretion may authorize or declare distributions or share dividends in
accordance with the Code.
Section 2. Record Date With Respect to Distributions and Share
Dividends. For the purpose of determining shareholders entitled to a
distribution (other than one involving a purchase, redemption, or other
reacquisition of the Corporation's shares) or a share dividend, the Board of
Directors may fix a date as the record date. If no record date is fixed by the
Board of Directors, the record date shall be determined in accordance with the
provisions of the Code.
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ARTICLE VIII
Capital Stock
Section 1. Authorization and Issuance of Shares. In accordance with
the Code, the Board of Directors may authorize shares of any class or series
provided for in the Articles of Incorporation to be issued for any
consideration valid under the provisions of the Code. To the extent provided
in the Articles of Incorporation, the Board of Directors shall determine the
preferences, limitations, and relative rights of the shares.
Section 2. Capital Stock. All shares issued by the Corporation shall
be evidenced by a certificate or certificates. Each certificate of stock of
the Corporation shall be numbered, shall be entered in the books of the
Corporation, and shall be signed, either manually or in facsimile, by any one
of the President, a Vice President, the Secretary, or the Treasurer or such
other officer or officers as designated to sign such certificates, from time to
time, by the Board of Directors. In any case in which any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation, whether because of death, resignation
or otherwise, before such certificate or certificates shall have been delivered
by the Corporation, such certificate or certificates may nevertheless be
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature shall have been used thereon had not
ceased to be such officer or officers. If a share certificate is signed in
facsimile, then it shall be countersigned by a transfer agent or registered by
a registrar other than the Corporation itself or an employee of the
Corporation. The corporate seal need not be affixed to the share certificate.
Each certificate representing shares shall set forth upon the face thereof:
(a) The name of the Corporation;
(b) That the Corporation is organized under the laws of
the State of Georgia;
(c) The name of the person to whom issued; and
(d) The number and class of shares and the designation of
the series, if any, such certificate represents.
Section 3. Record of Shareholders. The Corporation shall keep a
record of the Shareholders of the Corporation which readily shows, in
alphabetical order or by alphabetical index, and by classes of stock, the names
of the Shareholders, including those Shareholders entitled to vote, with the
address of and the number of shares held by each.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his or her legal representative, to advertise the same in such
manner as it shall require or give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Transfers of shares shall be made upon
the transfer books of the Corporation, kept at the office of the transfer agent
designated to transfer the shares, only upon direction of the person named in
the certificate, or by an attorney lawfully constituted in writing; and before
a new certificate is issued, the old certificate shall be surrendered for
cancellation or in the case of a certificate alleged to have been lost, stolen
or destroyed, the provisions of Section 4 of this Article VIII shall have been
complied with.
Section 6. Duty of Corporation to Register Transfer. Notwithstanding
any of the provisions of Section 5 of this Article VIII, the Corporation is
under a duty to register the transfer of its shares only if:
(a) the share certificate is endorsed by the appropriate person or
persons; and
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(b) reasonable assurance is given that these endorsements are
genuine and effective; and
(c) the Corporation has no duty to inquire into adverse claims or
has discharged any such duty; and
(d) any applicable law relating to the collection of taxes has
been complied with; and
(e) the transfer is in fact rightful or is to a bona fide
purchaser.
Section 7. Registered Shareholders. Prior to due presentation for
transfer of registration of its shares, the Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the person
exclusively entitled to vote the shares, to receive any dividend or
distribution with respect to the shares, and for all other purposes; and,
accordingly, the Corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE IX
INDEMNIFICATION
Section 1. Definitions. As used in this Article IX, the term:
(a) "Corporation" includes any domestic or foreign predecessor
entity of the Corporation in a merger or other transaction in
which the predecessor's existence ceased upon consummation of
the transaction.
(b) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the
Corporation, is or was serving at the Corporation's request as
a director, officer, partner, trustee, employee, or agent of
another foreign or domestic Corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. A
director is considered to be serving an employee benefit plan
at the Corporation's request if his duties to the Corporation
also impose duties on, or otherwise involve services by, him
to the plan or to participants in or beneficiaries of the
plan. Director includes, unless the context requires
otherwise, the estate or personal representative of a
director.
(c) "Expenses" include attorneys' fees.
(d) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan), or reasonable
expenses incurred with respect to a proceeding.
(e) "Officer" means an individual who is or was an officer of the
Corporation or an individual who, while an officer of the
Corporation, is and was serving at the Corporation's request
as a director, officer, partner, trustee, employee, or agent
of another foreign or domestic Corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise.
An officer is considered to be serving an employee benefit
plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or
beneficiaries of the plan. Officer includes, unless the
context requires otherwise, the estate or personal
representative of an officer.
(f) "Party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or
informal.
Section 2. Indemnification.
(a) Except as provided in subsections (d) and (e) of this Section
2 below, the Corporation shall indemnify to the fullest extent
permitted by the Code, and to the extent that applicable law
from time to time in effect shall permit indemnification that
is broader than provided in these Bylaws, then to the maximum
extent authorized by law, any individual who is made a party
to a proceeding because he is or was a director or officer
against liability incurred by him in the proceeding if the
individual acted in a manner he believed in good faith to be
in or not opposed to
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the best interests of the Corporation and, in the case of any
criminal proceeding, he had no reasonable cause to be believe
his conduct was unlawful.
(b) An individual's conduct with respect to an employee benefit
plan for a purpose he believed in good faith to be in the
interests of the participants in and beneficiaries of the plan
is conduct that satisfies the requirement of subsection (a) of
this Section 2 above.
(c) The termination of a proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere
or its equivalent shall not, of itself, be determinative that
an individual did not meet the standard of conduct set forth
in subsection (a) of this Section 2 above.
(d) The Corporation shall not indemnify an individual under this
Article IX:
(1) In connection with a proceeding by or in the right of
the Corporation in which such individual was adjudged
liable to the Corporation; or
(2) In connection with any other proceeding in which such
individual was adjudged liable on the basis that
personal benefit was improperly received by him
unless, and then only to the extent that, a court of
competent jurisdiction determines pursuant to Section
14-2-854 of the Code that in view of the
circumstances of the case, such individual is fairly
and reasonably entitled to indemnification.
(e) Indemnification permitted under this Article IX in connection
with a proceeding by or in the right of the Corporation is
limited to reasonable expenses incurred in connection with the
proceeding.
Section 3. Advances for Expenses.
(a) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director or officer who is a party to a
proceeding in advance of final disposition of the proceeding
if:
(1) Such individual furnishes the Corporation a written affirmation of his
good faith belief that he has met the standard of conduct set forth in
subsection (a) of Section 2 above; and
(2) Such individual furnishes the Corporation a written undertaking,
executed personally or on his behalf, to repay any advances if it is
ultimately determined that he is not entitled to indemnification under
this Article IX.
(b) The undertaking required by paragraph (2) of subsection (a) of
this Section 3 must be an unlimited general obligation of the
director or officer but need not be secured and may be
accepted without reference to financial ability to make
repayment.
Section 4. Court-Ordered Indemnification and Advances for Expenses.
Unless the Articles of Incorporation provide otherwise, a director or officer
of the Corporation who is a party to a proceeding may apply for indemnification
or advances for expenses to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the court after
giving any notice the court considers necessary may order indemnification or
advances for expenses if it determines:
(a) The individual is entitled to mandatory indemnification under
Code Section 14-2-852, in which case the court shall also order the Corporation
to pay such individual's reasonable expenses incurred to obtain court ordered
indemnification;
(b) The individual is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not he
met the standard of conduct set forth in subsection (a) of Section 2 above or
was adjudged liable as described in subsection (d) of Section 2 above, but if
he was adjudged so liable his indemnification is limited to reasonable expenses
incurred unless the Articles of Incorporation or a contract or resolution
approved or ratified by the Shareholders pursuant to Section 6 of this Article
IX below provides otherwise; or
(c) In the case of advances for expenses, the individual is
entitled pursuant to the Articles of Incorporation or any applicable resolution
or agreement, to payment or reimbursement of his reasonable expenses incurred
as a party to a proceeding in advance of final disposition of the proceeding.
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Section 5. Determination and Authorization of Indemnification.
(a) The Corporation shall not indemnify a director or officer
under Section 2 of this Article IX above unless a
determination has been made in the specific case that
indemnification of such individual is permissible in the
circumstances because he has met the standard of conduct set
forth in subsection (a) of Section 2 of this Article IX above;
provided, however, that regardless of the result or absence of
any such determination, and unless limited by the Articles of
Incorporation, to the extent that such individual has been
successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party, or in defense of any
claim, issue or matter therein, because he is or was a
director or officer, the Corporation shall indemnify such
individual against reasonable expenses incurred by him in
connection therewith.
(b) The determination specified in subsection (a) of this Section
5 shall be made:
(1) By the Board of Directors by majority vote of a quorum consisting of
Directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under paragraph (1) of this subsection
(b) of this Section 5, by majority vote of a committee duly designated
by the Board of Directors (in which designation Directors who are
parties may participate), consisting solely of two or more Directors
not at the time parties to the proceeding;
(3) By special legal counsel:
(A) Selected by the Board of Directors or its committee in the
manner prescribed in paragraphs (1) and (2) of this subsection
(b) of this Section 5; or
(B) If a quorum of the Board of Directors cannot be obtained under
paragraph (1) of this subsection (b) of this Section 5 and a
committee cannot be designated under paragraph (2) of this
subsection (b) of this Section 5, selected by a majority vote
of the full Board of Directors (in which selection Directors
who are parties may participate); or
(4) By the Shareholders, but shares owned by or voted under the control of
directors or officers who are at the time parties to the proceeding
may not be voted on the determination.
(c) Evaluation as to reasonableness of expenses shall be made in
the same manner as the determination that indemnification is
permissible, except that if the determination is made by
special legal counsel, evaluation as to reasonableness of
expenses shall be made by those entitled under paragraph (3)
of subsection (b) of this Section 5 to select counsel.
(d) If the determination to be made pursuant to Section 5(a) above
has not been made within thirty (30) days following an
individual's written request for indemnification, then the
individual shall be deemed to have met the standard of conduct
set forth in subsection (a) of Section 5 of this Article IX.
If the determination to be made pursuant to Section 5(c) above
has not been made within thirty (30) days following an
individual's written request for indemnification for, or
advancement of, expenses, then the expenses claimed shall be
deemed reasonable.
Section 6. Shareholder Approved Indemnification.
(a) If authorized by the Articles of Incorporation or a contract
or resolution approved or ratified by the Shareholders of the
Corporation by a majority of the votes entitled to be cast,
the Corporation may indemnify or obligate itself to indemnify
a director or officer made a party to a proceeding, including
a proceeding brought by or in the right of the Corporation,
without regard to the limitations in other Sections of this
Article IX.
(b) The Corporation shall not indemnify an individual under this
Section 6 for any liability incurred in a proceeding in which
such individual is adjudged liable to the Corporation or is
subjected to injunctive relief in favor of the Corporation:
(1) For any appropriation, in violation of his duties, of any business
opportunity of the Corporation;
(2) For acts or omissions which involve intentional misconduct or a
knowing violation of law;
(3) For the types of liability set forth in Code Section 14-2-832 of the
Code; or
(4) For any transaction from which he received an improper personal
benefit.
(c) Where approved or authorized in the manner described in
subsection (a) of this Section 6, the Corporation may advance
or reimburse expenses incurred in advance of final disposition
of the proceeding only if:
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(1) The Director furnishes the Corporation a written affirmation of his
good faith belief that his conduct does not constitute behavior of the
kind described in subsection (b) of this Section 6; and
(2) The Director furnishes the Corporation a written undertaking, executed
personally or on his behalf to repay any advance if it is ultimately
determined that he is not entitled to indemnification under this
Section 6 of this Article IX.
Section 7. Indemnification of Employees and Agents. Unless the
Articles of Incorporation provide otherwise, the Corporation may indemnify and
advance expenses to an employee or agent of the Corporation who is not a
director or officer to the same extent, consistent with public policy, that may
be provided by the Articles of Incorporation, these Bylaws, general or specific
action of the Board of Directors, or contract.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer,
employee, or agent of the Corporation or who, while a director, officer,
employee, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise against liability asserted against
or incurred by him in that capacity or arising from his status as a director,
officer, employee, or agent, whether or not the Corporation would have power to
indemnify him against the same liability under Sections 2 and 5 of this Article
IX above.
Section 9. Not Exclusive of Other Rights. The indemnification and
advancement of expenses provided by this Article IX shall not be deemed
exclusive of any other rights, in respect of indemnification or otherwise, to
which those seeking indemnification or advancement of expenses may be entitled
under any resolution or agreement, either specifically or in general terms
approved by the affirmative vote of the holders of a majority of the shares
entitled to vote thereon, with respect to any proceeding to which a director or
officer is made a party, including a proceeding brought by or in the right of
the Corporation. This Section 9 shall apply both as to action by a director,
officer, employee or agent in his official capacity and as to action in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 10. Severability. In the event that any of the provisions of
Article IX is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions of this Article IX shall
remain enforceable to the fullest extent permitted by law.
ARTICLE X
EMERGENCY POWERS
Section 1. Power to Adopt. Unless the Articles of Incorporation
provide otherwise, the Board of Directors may adopt bylaws to be effective only
in an emergency, which bylaws shall be subject to amendment or repeal by the
Shareholders. An emergency exists for purposes of this Section if a quorum of
the Directors cannot readily be assembled because of some catastrophic event.
The emergency bylaws may make any provision that may be practical and necessary
for the circumstances of the emergency.
Section 2. Lines of Succession of Officers or Agents. The Board of
Directors, either before or during any such emergency, may provide, and from
time to time modify, lines of succession in the event that during such an
emergency any or all officers or agents of the Corporation shall for any reason
be rendered incapable of discharging their duties.
Section 3. Change of Office. The Board of Directors, either before or
during any such emergency, may, effective in the emergency, change the head
office or designate several alternative head offices or regional offices, or
authorize the officers so to do.
Section 4. Effect of Bylaws. To the extent not inconsistent with any
emergency bylaws so adopted, these Bylaws shall remain in effect during any
such emergency and, upon its termination, the emergency bylaws shall cease to
be operative.
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Section 5. Notices. Unless otherwise provided in emergency bylaws,
notice of any meeting of the Board of Directors during any such emergency may
be given only to such of the Directors as it may be feasible to reach at the
time, and by such means as may be feasible at the time, including publication,
radio or television.
Section 6. Quorum. To the extent required to constitute a quorum at
any meeting of the Board of Directors during any such emergency, the officers
of the Corporation who are present shall, unless otherwise provided in the
emergency bylaws, be deemed, in order of rank and within the same rank and
order of seniority, Directors for such meeting.
Section 7. Liability. Corporate action taken in good faith in
accordance with the emergency bylaws binds the Corporation and may not be used
to impose liability on a corporate director, officer, employee or agent.
ARTICLE XI
GENERAL PROVISIONS
Section 1. Fiscal Year. The Board of Directors is authorized to
designate and change the fiscal year of the Corporation from time to time as it
deems appropriate.
Section 2. Corporate Seal. The seal of the Corporation shall be in
such form as the Board of Directors shall approve from time to time. The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. In the event it is inconvenient to use such a seal at
any time, the signature of the Corporation followed by the word "Seal" enclosed
in parentheses shall be deemed the seal of the Corporation.
Section 3. Annual Financial Statements. In accordance with the Code,
the Corporation shall prepare and furnish to shareholders such financial
statements as may be required by the Code.
Section 4. Inspection of Books and Records. The Board of Directors
shall have power to determine which accounts, books and records of the
corporation shall be opened to the inspection of shareholders, except those as
may by law specifically be made open to inspection, and shall have power to fix
reasonable rules and regulations not in conflict with the applicable law for
the inspection of accounts, books and records which by law or by determination
of the Board of Directors shall be open to inspection. Without the prior
approval of the Board of Directors in their discretion, the right of inspection
set forth in Section 14-2-1602(c) of the Code shall not be available to any
Shareholder owning two percent (2%) or less of the shares outstanding.
Section 5. Conflict with Articles of Incorporation. In the event that
any provision of these Bylaws conflicts with any provision of the Articles of
Incorporation, the Articles of Incorporation shall govern.
Section 6. Adoption of Amendments to Incentive Stock Option Plans. In
addition to the rights of the Board of Directors to approve the adoption of
amendments to any incentive stock option plans of the Corporation which qualify
under Section 422A of the Internal Revenue Code of 1986, as amended, the
Shareholders of the Corporation may approve any such amendment by written
consent of the Shareholders which is signed by Shareholders having voting power
to cast not less than the minimum number of votes that would be necessary to
authorize such action, as provided in and subject to the provisions of Section
14-2-704, as amended, of the Code.
Section 7. Reference to Code Sections. Any reference to any Section
or Article of the Georgia Business Corporation Code contained herein shall be
interpreted to include any Section or Article which amends or supersedes such
Section or Article.
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ARTICLE XII
AMENDMENTS
Except as otherwise provided in these Bylaws, the Board of Directors
shall have power to alter, amend or repeal these Bylaws or adopt new Bylaws by
majority vote of all of the Directors, but any Bylaws adopted by the Board of
Directors may be altered, amended or repealed, and new Bylaws adopted, by the
Shareholders by majority vote of the holders of record entitled to vote
thereon. The Shareholders may prescribe by expressing in the action they take
in adopting any Bylaw or Bylaws that the Bylaw or Bylaws so adopted shall not
be altered, amended or repealed by the Board of Directors. Notwithstanding
anything herein to the contrary, the provisions of Articles IX, XII, XIII, or
XIV, or of Sections 3 or 11 of Article II, or Sections 2, 3 or 4 of Article
III, of these Bylaws shall not be altered, amended or repealed, and no
provision inconsistent therewith shall be adopted, without the affirmative vote
of a majority of the entire Board of Directors or of the holders of at least
75% of the shares of the Corporation entitled to vote generally in the election
of directors, voting as a single Voting Group.
ARTICLE XIII
FAIR PRICE REQUIREMENTS
All requirements of Sections 14-2-1110 through 14-2-1113 of the Code,
as may be in effect from time to time, shall apply to the Corporation.
ARTICLE XIV
BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
All of the requirements of Part 3 of Article 11 of the Code (currently
codified in Sections 14-2-1131 through 14-2-1133 thereof), as may be in effect
from time to time (the "Business Combination Statute"), shall apply to all
"business combinations" (as defined in Section 14-2-1131 of the Code) involving
the Corporation. The requirements of the Business Combination Statute shall be
in addition to the requirements of Article XIII above. Nothing contained in
the Business Combination Statute shall be deemed to limit the provisions
contained in Article XIII above, and nothing contained in Article XIII above
shall be deemed to limit the provisions contained in the Business Combination
Statute.
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EXHIBIT 4.5
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THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
(COLLECTIVELY THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") BUT HAVE BEEN
OFFERED AND SOLD IN RELIANCE ON THE EXEMPTIONS FROM REGISTRATION PROVIDED BY
REGULATION D AND REGULATION S PROMULGATED UNDER THE SECURITIES ACT. THE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OR THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL STATING THAT SUCH DISPOSITION
DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND THAT SUCH
DISPOSITION IS IN COMPLIANCE WITH ALL OTHER APPLICABLE LAWS, RULES, REGULATIONS
AND ORDINANCES.
HARBINGER CORPORATION
WARRANT
FOR THE PURCHASE
OF SHARES OF COMMON STOCK
WARRANT NO: ____________________ DATE OF GRANT: DATE, 1996
HOLDER: ________________________
NUMBER OF SHARES: ______________ PURCHASE PRICE PER SHARE: $_____
FOR VALUE RECEIVED, HARBINGER CORPORATION, a Georgia corporation (the
"Company"), hereby certifies that ______________________________________ (the
"Holder"), is entitled, subject to the provisions of this Warrant, to purchase
from the Company, during the period commencing on the date hereof and ending on
the Expiration Date (as defined in Section 1 below), up to _________________
fully paid and non-assessable shares of Common Stock at the Purchase Price Per
Share set forth above (the "Exercise Price").
The term "Common Stock" means the Common Stock, par value $.0001 per
share, of the Company as constituted on date, 1996 (the "Issue Date"). The
number of shares of Common Stock to be received upon the exercise of this
Warrant may be adjusted from time to time as hereinafter set forth. The shares
of Common Stock deliverable upon such exercise, and as adjusted from time to
time, are hereinafter referred to as "Warrant Stock." The term "Other
Securities" means any other equity or debt securities that may be issued by the
Company in addition thereto or in substitution for the Warrant Stock. The term
"Company" means and includes the corporation named above as well as (i) any
immediate or more remote successor corporation resulting from the merger or
consolidation of such corporation (or any immediate or more remote successor
corporation of such corporation) with another corporation, or (ii) any
corporation to which such corporation (or any immediate or more remote
successor corporation of such corporation) has transferred its property or
assets as an entirety or substantially as an entirety.
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Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and
all the rights hereunder shall be held, subject to all of the conditions,
limitations and provisions set forth herein.
1. EXERCISE OF WARRANT. This Warrant may be exercised in
whole or in part at any time, or from time to time, during the period
commencing on the date hereof and expiring 5:00 p.m. Eastern Time on the second
anniversary of the date hereof (the "Expiration Date") or, if such day is a day
on which banking institutions in New York are authorized by law to close, then
on the next succeeding day that shall not be such a day (provided, however,
that in no event may this warrant be exercised after date, 199__), by
presentation and surrender of this Warrant to the Company at its principal
office, or at the office of its stock transfer agent, if any, with the Warrant
Exercise Form attached hereto duly executed and accompanied by payment (either
in cash or by certified or official bank check, payable to the order of the
Company) of the Exercise Price for the number of shares specified in such form
and instruments of transfer, if appropriate, duly executed by the Holder or his
or her duly authorized attorney. If this Warrant should be exercised in part
only, the Holder shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder. Upon receipt by
the Company of this Warrant, together with the Exercise Price, at its office,
or by the stock transfer agent of the Company at its office, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered
to the Holder. The Company shall pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares
of Common Stock on exercise of this Warrant.
2. RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and delivery upon exercise of this Warrant all shares of
Common Stock or other shares of capital stock of the Company (and Other
Securities) from time to time receivable upon exercise of this Warrant. All
such shares (and Other Securities) shall be duly authorized and, when issued
upon such exercise, shall be validly issued, fully paid and non-assessable and
free of all preemptive rights.
3. FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but the Company shall pay the Holder an amount equal to the fair
market value of such fractional share of Common Stock in lieu of each fraction
of a share otherwise called for upon any exercise of this Warrant. For purposes
of this Warrant, the fair market value of a share of Common Stock shall be
determined as follows:
(a) If the Common Stock is listed on a national
securities exchange within the United States or admitted to unlisted trading
privileges on such exchange or listed for trading on The Nasdaq Stock Market,
the current market value shall be the average of the last reported sale price
of the Common Stock on such exchange or system for the ten trading days
immediately preceding the date of exercise of this Warrant or if no such last
sale is made or reported on any of such trading days, the average of the
closing bid and closing asked prices for such day on such exchange or system;
or
(b) If the Common Stock is not so listed or
admitted to unlisted trading privileges, the current market value shall be the
mean of the last reported bid and asked prices reported by the National
Quotation Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
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(c) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of the Company ending
prior to the date of the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
4. HOLDER DOES NOT HAVE THE RIGHTS OF A SHAREHOLDER.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or in equity, and the rights of the
Holder are limited to those expressed in this Warrant.
5. ANTI-DILUTION PROVISIONS.
5.1 ADJUSTMENT FOR RECAPITALIZATION. If the
Company shall at any time subdivide its outstanding shares of Common Stock (or
other securities at the time receivable upon the exercise of the Warrant) by
recapitalization, reclassification or split-up thereof, or if the Company shall
declare a stock dividend or distribute shares of Common Stock to its
stockholders, the number of shares of Common Stock subject to this Warrant
immediately prior to such subdivision shall be proportionately increased, and
if the Company shall at any time combine the outstanding shares of Common Stock
by recapitalization, reclassification or combination thereof, the number of
shares of Common Stock subject to this Warrant immediately prior to such
combination shall be proportionately decreased. Any such adjustment, and any
adjustment to the Exercise Price pursuant to this Section 5.1; shall be
effective at the close of business on the effective date of such subdivision or
combination or if any adjustment is the result of a stock dividend or
distribution then the effective date for such adjustment based thereon shall be
the record date therefor. Whenever the number of shares of Common Stock
purchasable upon the exercise of this Warrant is adjusted, as provided in this
Section 5.1, the Exercise Price shall be adjusted to the nearest cent by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction (x) the numerator of which shall be the number of shares of Common
Stock purchasable upon the exercise immediately prior to such adjustment, and
(y) the denominator of which shall be the number of shares of Common Stock so
purchasable immediately thereafter.
5.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION,
MERGER, ETC. In case of any reorganization of the Company (or any other
corporation, the securities of which are at the time receivable on the exercise
of this Warrant) after the Issue Date or in case after such date the Company
(or any such other corporation) shall consolidate with or merge into another
corporation or convey all or substantially all of its assets to another
corporation, then, and in each such case, the Holder of this Warrant upon the
exercise thereof as provided in Section 1 at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the securities and property receivable upon the exercise of
this Warrant prior to such consummation, the securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto; in each such case, the terms
of this Warrant shall be applicable to the securities or property receivable
upon the exercise of this Warrant after such consummation.
5.3 RESTRICTIONS ON CERTAIN ACTIONS. The Company
shall not, by amendment of its Articles of Incorporation or through
reorganization, consolidation, merger, dissolution, issue or sale of
securities, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of the Warrant. Without
limiting the generality of the foregoing, while any Warrant is outstanding, the
Company (a) shall not permit the par value, if any, of the shares of stock
receivable upon the exercise of this Warrant to be above the amount payable
therefor upon such exercise and (b) shall take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue or sell fully paid and non-assessable stock upon the exercise of all
Warrants at the time outstanding.
5.4 CERTIFICATE AS TO ADJUSTMENTS. In each case
of an adjustment in the number of shares of Common Stock receivable on the
exercise of the Warrant, the Company at its expense shall promptly compute such
adjustment in accordance with the terms of the Warrant and prepare a
certificate executed by an executive officer of the Company setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company shall forthwith mail a copy of each such certificate to the Holder.
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6. TRANSFER TO COMPLY WITH THE SECURITIES ACT AND OTHER
APPLICABLE LAWS. This Warrant and any Warrant Stock or Other Securities may not
be sold, transferred, pledged, hypothecated or otherwise disposed of except as
follows: (a) to a person who, in the opinion of counsel to the Company, is a
person to whom this Warrant or the Warrant Stock or Other Securities may
legally be transferred without registration and without the delivery of a
current prospectus under the Securities Act with respect thereto, and in
compliance with all other laws, rules, regulations, and ordinances, and then
only against receipt of an agreement of such person to comply with the
provisions of this Section 6 with respect to any resale or other disposition of
such securities; or (b) to any person upon delivery of a prospectus then
meeting the requirements of the Securities Act relating to such securities and
the offering thereof for such sale or disposition. In the event any Holder
shall propose to sell, transfer, pledge, or hypothecate or otherwise dispose of
this Warrant, such Holder shall first (i) surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, and (ii) deliver to the Company of the opinion of counsel to the
Holder as required by the legend set forth at Section 7 hereof. Upon receipt
of the foregoing and provided that the Company has received an opinion of its
counsel that such proposed sale, transfer, pledge or hypothecation is in
compliance with all applicable laws, rules, regulations and ordinances, the
Company shall execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled.
7. LEGEND. Unless the shares of Warrant Stock or Other
Securities have been registered under the Securities Act, upon exercise of any
of the Warrants and the issuance of any of the shares of Warrant Stock, all
certificates representing shares shall bear on the face thereof substantially
the following legend:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT AND ISSUABLE UPON
EXERCISE HEREOF (COLLECTIVELY THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE PROVISIONS OF THE SECURITIES LAWS OF
ANY OTHER JURISDICTION, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY
EXEMPTIONS UNDER THE SECURITIES ACT, AND IN COMPLIANCE WITH ALL OTHER
APPLICABLE LAWS, RULES, REGULATIONS AND ORDINANCES. THE SECURITIES
MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS OF THE SECURITIES ACT,
AND WHICH IS IN COMPLIANCE WITH ALL OTHER APPLICABLE SECURITIES LAWS,
RULES, REGULATIONS AND ORDINANCES, OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN A TRANSACTION OTHERWISE IN COMPLIANCE
WITH SUCH APPLICABLE LAWS, RULES, REGULATIONS AND ORDINANCES; AND IN
THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE SECURITIES UNDER THE SECURITIES ACT, AND
THAT SUCH TRANSACTION IS IN COMPLIANCE WITH ALL OTHER APPLICABLE LAWS,
RULES, REGULATIONS AND ORDINANCES.
8. NOTICES. All notices required hereunder shall be in
writing and shall be deemed given when delivered personally, when delivered by
facsimile against an electronic acknowledgment of delivery thereto, when
delivered by a reputable world-wide courier contracting for delivery in three
days or less, or five days after mailing when mailed by certified or registered
mail, return receipt requested, to the Company or the Holder, as the case may
be, for whom such notice is intended, at the address of such party as set forth
below, or at such other address of which the Company or the Holder has been
advised by notice hereunder.
9. APPLICABLE LAW. The Warrant is issued under and shall
for all purposes be governed by and construed in accordance with the laws of
the State of Georgia, United States of America, without giving effect to the
conflict of laws rules applicable therein.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
on its behalf, in its corporate name, by its duly authorized officer, all as of
the day and year first above written.
Attest:
HARBINGER CORPORATION
By:
- ---------------------------------- --------------------------------
Joel G. Katz, Secretary C. Tycho Howle, Chairman and
Chief Executive Officer
[Corporate Seal]
Address of Holder Address of Company:
1055 Lenox Park Boulevard
- ---------------------------------- Atlanta, Georgia 30319
- ----------------------------------
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EXHIBIT 10.11
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is effective as of the
4th day of January, 1997 ("Effective Date"), and is entered into this 4th day
of March, 1997, by and between HARBINGER CORPORATION ("Company"), a Georgia
corporation, and C. TYCHO HOWLE ("Employee"), an individual. For and in
consideration of the mutual covenants described below, the parties hereby agree
as follows:
1. Employment. Company agrees to employ or continue to employ
Employee, and Employee agrees to accept and continue such employment, upon the
following terms and conditions.
2. Duties.
a. Employee shall assume the responsibilities and perform the duties
specified in Exhibit A ("Duties"). Employee agrees to devote reasonable work
time and energy to the furtherance of the business of Company consistent with
the Duties and shall not during the term hereof work or perform services in any
advisory or other capacity (other than as a member of the Board of Directors or
Board of Advisors of an entity which is not competitive with the Company) for
any individual, firm, company, or corporation other than for Company without
Company's prior written consent.
b. Employee shall serve on the Company's Board of Directors (the "Board")
if elected by the Company's shareholders to serve in such capacity.
c. This Agreement may be supplemented from time to time by rules and
regulations of employment issued by Company, including, without limitation,
such rules and regulations described in the Company employee handbook, and
Employee agrees to adhere to these rules and regulations.
3. Compensation.
A. ANNUAL SALARY. Employee's annual salary ("Annual Salary") for
commencing as of April 1, 1997 shall be Two- Hundred and Twenty Thousand
Dollars ($220,000.00), payable in accordance with the Company's standard
payment terms. The amount of any Annual Salary increases in subsequent years
shall be determined by the Compensation Committee ("Committee") or the Board in
its sole discretion.
B. ANNUAL BONUS. Employee's annual bonus ("Annual Bonus") for 1997 shall
be fifty percent (50%) of the 1997 Annual Salary, payable in accordance with
Employee's satisfactory fulfillment of the objectives as established and
determined by the Committee or the Board. Any future Annual Bonus(es) in
subsequent years shall be determined by the Committee or the Board.
C. BENEFITS. Employee shall be entitled to receive the same employee
benefits as made available by Company to its Chief Executive Officer.
4. STOCK OPTION. The Company acknowledges that Employee has received
an option to purchase One Hundred Thousand (100,000) shares of common stock of
the Company (the "Option") (150,000 shares as of the January 31, 1997 stock
split) on the terms and subject to the conditions set forth in the Stock Option
Agreement, attached hereto as Exhibit C.
5. Term. The term of this Agreement (the "Term") shall commence on the
Effective Date and shall remain in full force and effect for four (4) years
thereafter, unless sooner terminated as provided in Section 9 below. Upon the
Effective Date, the previously executed Employment Agreement between Company
and Employee dated March 7, 1994 shall be deemed to have terminated
automatically and shall thereafter be of no further force or effect, and this
Agreement shall supersede all prior agreements, arrangements and understandings
with respect to the subject matter hereof, except as set forth in Section
13(b).
6. OWNERSHIP. For purposes of this Agreement, "Work Product" shall mean
the data, materials, documentation, computer programs, inventions (whether or
not patentable), and all works of authorship, including all worldwide rights
therein under patent, copyright, trade secret, confidential information, or
other property right, created or developed in whole or in part by Employee,
whether prior to or after the Effective Date, while retained or employed by
Company (whether developed during work hours or not). All Work Product shall
be considered work made for hire by Employee and owned by Company. If any of
the Work Product may not, by operation of law or otherwise, be considered work
made for hire by Employee for Company, or if ownership of all right, title, and
interest of the intellectual property rights therein shall not otherwise vest
exclusively in Company, Employee hereby assigns to Company, and upon the future
creation thereof automatically assigns to Company, without further
consideration, the ownership of all Work Product. Company shall have the right
to obtain and hold in its own name copyrights, patents, registrations, and any
other protection available in the Work Product. Employee agrees to perform,
during or after Employee's employment, such further acts as may be necessary or
desirable to transfer, perfect, and defend Company's ownership of the Work
-63-
<PAGE> 3
Product that are reasonably requested by Company.
7. LICENSE. To the extent any materials other than Work Product are
contained in the materials Employee delivers to Company or Company's customers
("Licensed Materials"), Employee grants to Company an irrevocable,
nonexclusive, worldwide, royalty-free license to: (i) use and distribute
(internally or externally) copies of, and prepare derivative works based upon,
the Licensed Materials and derivative works thereof, and (ii) authorize others
to do any of the foregoing.
8. NONDISCLOSURE OF PROPRIETARY INFORMATION.
a. As used herein, "Trade Secrets" means information constituting a trade
secret within the meaning of Section 10- 1-761(4) of the Georgia Trade Secrets
Act of 1990, including all amendments hereafter adopted. As used herein,
"Confidential Information" means information, other than Trade Secrets, that is
of value to its owner and is treated as confidential. "Proprietary
Information" means, collectively, Confidential Information and Trade Secrets.
b. Company may disclose to Employee certain Proprietary Information.
Employee acknowledges and agrees that the Proprietary Information of Company is
the sole and exclusive property of Company (or a third party providing such
information to Company) and that Company owns all worldwide copyrights, trade
secret rights, confidential and proprietary information rights, and all other
property rights therein.
c. Employee acknowledges and agrees that the disclosure of the
Proprietary Information of Company to Employee does not confer upon Employee
any license, interest or rights of any kind in or to the Proprietary
Information.
d. Employee agrees to use the Proprietary Information solely for the
benefit of Company. Except in the performance of services for Company,
Employee will hold in confidence and not use, reproduce, distribute, transmit,
reverse engineer, decompile, disassemble, or transfer, directly or indirectly,
in any form, by any means, or for any purpose, the Proprietary Information of
Company or any portion thereof communicated, discussed, delivered or made
available by Company to or received by Employee, whether orally or in written
form, without the prior written consent of Company. Employee shall notify
Company immediately upon discovery of any unauthorized use or disclosure of the
Proprietary Information.
e. Employee acknowledges that its obligations under this Agreement with
regard to the Trade Secrets of Company remain in effect for as long as such
information shall remain a trade secret under applicable law. Employee
acknowledges that its obligations with regard to the Confidential Information
of Company shall remain in effect while Employee is retained by Company to
perform the Duties and for three (3) years thereafter. The foregoing
obligations shall not apply if and to the extent that: (a) Employee
establishes that the information communicated was already known to Employee,
without obligation to keep it confidential, at the time of its receipt from
Company; (b) Employee establishes that the information communicated was
received by Employee in good faith from a third party lawfully in possession
thereof and having no obligation to keep such information confidential; or (c)
Employee establishes that the information communicated was publicly known at
the time of its receipt by Employee or has become publicly known other than by
a breach of this Agreement or other action by Employee.
f. The terms of this Agreement and the relationship between Company and
Employee shall be subject to the obligations of nondisclosure herein, except to
the extent that disclosure thereof is required by law or regulation.
9. TERMINATION. The parties agree that Employee's term of employment
may be terminated at any time, for any reason or for no reason, with cause or
without cause (as defined below), by Company or Employee.
A. TERMINATION WITH CAUSE. The parties agree that Employee's employment
may be terminated at any time with notice by Company for cause ("Termination
With Cause") under any one or more of the following events:
(i) Employee's knowing and willful misconduct with
respect to the business and affairs of the Company;
(ii) Any material violation by Employee of any policy of
the Company relating to ethical business conduct or practices or
fiduciary duties of a senior executive;
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<PAGE> 4
(iii) Knowing and willful material breach of any provision
of this Agreement which is not remedied within thirty (30) days after
Employee's receipt of notice thereof;
(iv) Employee's commission of a felony or an illegal act
involving moral turpitude or fraud or Employee's dishonesty which may
reasonably be expected to have a material adverse effect on the
Company; and/or
(v) Failure to comply with reasonable directives of the
Board which are consistent with the Duties, if not remedied within
thirty (30) days after Employee's receipt of notice thereof.
B. TERMINATION WITHOUT CAUSE. "Termination Without Cause" means any
termination of employment by the Company which is not "Termination With Cause"
as defined above. A resignation or voluntary departure from Company by
Employee or his death shall not be deemed Termination Without Cause under this
Agreement.
C. SEVERANCE. In the event that Employee's employment is Terminated
Without Cause by Company at any time (other than at the expiration of the
Term), Company shall pay to Employee the severance pay equal to Employee's
Annual Salary at the then current rate for a period equal to the remainder of
the then current Term ("Severance Period"). The severance pay shall be payable
to Employee in accordance with the Company's standard pay periods and shall be
subject to all applicable withholdings, or, in the Company's sole discretion,
in a lump sum equal to the Annual Salary for the period equal to the remainder
of the current Term, discounted to its present value as reasonably determined
by the Board.
D. POST TERMINATION OBLIGATIONS. Upon termination of employment for any
reason, Employee shall return immediately to Company all documents, property,
and other records of Company, and all copies thereof, and all Work Product
within Employee's possession, custody or control, including but not limited to
any materials containing any Trade Secrets or Confidential Information or any
portion thereof.
10. Customer Non-Solicitation. The relationships made or enhanced in
the course of Employee's employment with the Company belong to Company. During
Employee's employment with Company and for the period of one (1) year after
termination of Employee's employment with Company for any reason or the
Severance Period, whichever is longer (the "Limitation Period"), Employee shall
not contact, solicit or attempt to solicit, on Employee's own behalf or on
behalf of any other person or entity, any customer or prospective customer of
Company with whom Employee had contact in the two (2) years prior to the end of
Employee's employment with Company ("Restrictive Period") with a view to
offering, providing, selling or licensing during the Limitation Period any
program, product or service that is competitive with the Company's business as
defined in Exhibit B ("Company Business").
11. EMPLOYEE NON-SOLICITATION. During the Limitation Period, Employee
agrees not to call upon, solicit, recruit, or assist others in calling upon,
recruiting or soliciting any person who is or was an employee of Company during
the Restrictive Period, for the purpose of having such person work in any other
corporation, association, entity, or business that is competitive with the
Company Business.
12. NONCOMPETITION. DURING THE LIMITATION PERIOD, EMPLOYEE AGREES
THAT, WITHOUT THE PRIOR WRITTEN CONSENT OF COMPANY, EMPLOYEE SHALL NOT PERFORM
THE DUTIES SPECIFIED ON EXHIBIT A and performed by Employee during the
Restrictive Period for any person or entity competing with the Company Business
in the territory defined in EXHIBIT B ("Territory"), provided that Company is
still engaged in the Company Business. The parties agree and acknowledge that:
(i) the periods of restriction and Territory of restriction contained in this
Agreement are fair and reasonable in that they are reasonably required for the
protection of Company and that the Territory is the area in which Employee
shall perform (or currently performs) services for Company; and (ii) by having
access to information concerning employees and actual or prospective customers
of Company, Employee shall obtain a competitive advantage as to such parties.
If, however, for any reason any court determines that the restrictions in
Sections 10 through 12 are not reasonable or that consideration is inadequate,
then such restrictions shall be interpreted, modified or re-written to include
as much of the duration, scope and geographic area in this section as will
render such restrictions valid and enforceable.
-65-
<PAGE> 5
13. INDEMNIFICATION.
A. BY EMPLOYEE. Employee shall indemnify and hold harmless
Company, any affiliated corporation, and their respective shareholders,
directors, officers, agents, and employees, from and against any and all
liability, including payment of attorneys' fees, arising directly or indirectly
from a violation of Section 13.
B. BY COMPANY. Company shall indemnify and hold harmless
Employee in accordance with the indemnification obligations as set forth in
Article IX, Section 2 of the Company's Amended and Restated Bylaws dated April
29, 1995, and the previously executed Indemnification Agreement between Company
and Employee.
14. EQUITABLE RELIEF. The parties to this Agreement acknowledge that a
breach by Employee of any of the terms or conditions of this Agreement will
result in irrevocable harm to Company and that the remedies at law for such
breach may not adequately compensate Company for damages suffered.
Accordingly, Employee agrees that in the event of such breach, Company shall be
entitled to injunctive relief or such other equitable remedy as a court of
competent jurisdiction may provide. Nothing contained herein will be construed
to limit Company's right to any remedies at law, including the recovery of
damages for breach of this Agreement.
15. SEVERABILITY. If any provision or part of any provision of this
Agreement is held invalid or unenforceable by a court of competent
jurisdiction, such holding shall not affect the enforceability of any other
provisions or parts thereof, and all other provisions and parts thereof shall
continue in full force and effect.
16. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof (other than disputes with respect to
alleged violations of the covenants contained in Sections 10, 11, and 12, and
the Company's pursuit of the remedies described in Section 15 in connection
therewith) shall be settled by arbitration in Atlanta, Georgia. In such case,
both parties agree to the appointment of three (3) arbitrators, with one
arbitrator selected by each party, and the third selected by the American
Arbitration Association ("AAA"). The arbitration shall be conducted in
Atlanta, Georgia in accordance with the Commercial Arbitration Rules,
regulations and procedures of the AAA. The judgment upon the award rendered
may be entered in any court having jurisdiction thereof. The parties shall be
free to pursue any remedy before the arbitration tribunal that they shall be
otherwise permitted to pursue in a court of competent jurisdiction, and the
decision of the arbitration panel shall be final and binding on both parties.
17. MISCELLANEOUS. This Agreement shall not be amended or modified
except by a writing executed by both parties. This Agreement shall be binding
upon and inure to the benefit of Company and its successors and assigns. Due
to the personal nature of this Agreement, Employee shall not have the right to
assign Employee's rights or obligations under this Agreement without the prior
written consent of company. This agreement shall be governed by the laws of
the state of Georgia without regard to its rules governing conflicts of law.
This Agreement and the attached Exhibits represent the entire understanding of
the parties concerning the subject matter hereof and supersede and terminate
all prior communications, agreements and understandings, whether oral or
written, relating to the subject matter hereof. All communications required or
otherwise provided under this Agreement shall be in writing and shall be deemed
given when delivered to the address provided below such party's signature (as
may be amended by notice from time to time), by hand, by courier or express
mail, or by registered or certified united states mail, return receipt
requested, postage prepaid. The exhibits attached hereto are incorporated
herein by this reference.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals effective as of the date first above written.
<TABLE>
<S> <C>
COMPANY: HARBINGER CORPORATION
EMPLOYEE: C. TYCHO HOWLE
By: /s/ David T. Leach
Title: Signature /s/ C. Tycho Howle
------------------------------ --------------------
Date: Date:
------------------------------ -----------------------------
Address: 905 Reds Ridge Court, N.W.
Address: 1055 Lenox Park Boulevard Atlanta, Georgia 30327
Atlanta, Georgia 30319
</TABLE>
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<PAGE> 1
EXHIBIT 10.17
-67-
<PAGE> 2
THIRD AMENDMENT TO THE HARBINGER CORPORATION
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
THIS THIRD AMENDMENT TO THE HARBINGER CORPORATION AMENDED AND RESTATED
1993 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (the "Amendment") is made
effective as of the 24th day of March, 1997 (the "Effective Date"), by
HARBINGER CORPORATION, a corporation organized and doing business under the
laws of the State of Georgia (the "Company"). All capitalized terms in this
Amendment have the meaning ascribed to such term as in the Harbinger
Corporation Amended and Restated 1993 Stock Option Plan for Non-Employee
Directors (the "Plan"), unless otherwise stated herein.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company desires to amend the
Plan to provide the Board with authority to determine the transferability of
Options granted under the Plan.
NOW THEREFORE, in consideration of the premises and mutual promises
contained herein, the Plan is hereby amended as follows:
Section 5.8 of the Plan is hereby amended by inserting at the end of
Section 5.8 of the Plan the following: "...unless otherwise determined by the
Board".
IN WITNESS WHEREOF, the Company has caused this Third Amendment to the
Harbinger Corporation Amended and Restated 1993 Stock Option Plan for
Non-Employee Directors to be executed on the Effective Date.
HARBINGER CORPORATION
By: ______________________
David T. Leach
Title: CEO
ATTEST:
By:___________________
Joel G. Katz
Title: Secretary
-68-
<PAGE> 1
EXHIBIT 10.26
-69-
<PAGE> 2
FIRST AMENDMENT TO THE HARBINGER CORPORATION
1996 STOCK OPTION PLAN
THIS FIRST AMENDMENT TO THE HARBINGER CORPORATION 1996 STOCK OPTION
PLAN (the "Amendment") is made effective as of the 25th day of April, 1997 (the
"Effective Date"), by HARBINGER CORPORATION, a corporation organized and doing
business under the laws of the State of Georgia (the "Company"). All
capitalized terms in this Amendment have the meaning ascribed to such term as
in the Harbinger Corporation 1996 Stock Option Plan (the "Plan"), unless
otherwise stated herein.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company desires to amend the
Plan to increase the number of shares that may be granted under the Plan;
WHEREAS, the Board of Directors of the Company desires to amend the
Plan to limit the directors that may be appointed to the Committee to
non-employee directors as defined in Section 16b-3(b)(3)(i) of the Exchange
Act; and
WHEREAS, the Board of Directors of the Company desires to amend the
Plan to provide the Committee with authority to determine the transferability
of Options granted under the Plan.
NOW THEREFORE, in consideration of the premises and mutual promises
contained herein, the Plan is hereby amended as follows:
SECTION 1. Section 3.1 of the Plan is hereby amended by deleting the
first sentence of Section 3.1 of the Plan in its entirety and substituting in
lieu thereof the following:
"3.1 SHARES RESERVED FOR ISSUANCE. Subject to any
antidilution adjustment pursuant to Section 3.2, the maximum number of
Shares that may be subject to Options granted hereunder shall not
exceed 4,125,000, plus the number of Prior Plan Shares."
SECTION 2. The first sentence of Section 5 of the Plan is hereby
amended by deleting the first sentence of Section 5 of the Plan in its entirety
and substituting in lieu therefore the following:
"This Plan shall be administered by either the Committee or a
sub-committee of the Committee, which shall consist of two (2) or more
directors appointed by the Board, each of whom is a non-employee
director as defined in Section 16b-3(b)(3)(i) of the Exchange Act."
SECTION 3. Section 7.7 of the Plan is hereby amended by inserting at
the end of Section 7.7 of the Plan the following: "...unless otherwise
determined by the Committee".
SECTION 4. Except as specifically amended by this First Amendment,
the Plan shall remain in full force and effect as prior to this First
Amendment.
IN WITNESS WHEREOF, the Company has caused this First Amendment to the
Harbinger Corporation 1996 Stock Option Plan to be executed on the Effective
Date.
HARBINGER CORPORATION
By: ______________________
David T. Leach
Title: CEO
ATTEST:
By:___________________
Joel G. Katz
Title: Secretary
-70-
<PAGE> 1
EXHIBIT 10.28
-71-
<PAGE> 2
FIRST AMENDMENT TO
THE AMENDED AND RESTATED
HARBINGER CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
THIS FIRST AMENDMENT (this "Amendment") to the Amended and Restated
Harbinger Corporation Employee Stock Purchase Plan (the "Plan"), which Plan was
amended and restated as of January 1, 1997, amends and modifies the Plan
pursuant to the right reserved in Section 16 as follows:
1. Section 16 of the Plan is hereby deleted and the following new
Section 16 is inserted in lieu thereof:
"16. AMENDMENT AND TERMINATION.
The Committee may terminate or amend the Plan at any
time; provided, however, that no termination or amendment of
the Plan shall change or affect Purchase Rights previously
granted under the Plan without the consent of the affected
Participant. If not sooner terminated by the Committee, the
Plan shall terminate at the time Purchase Rights have been
exercised with respect to all shares of Common Stock reserved
for grant under the Plan."
2. The following new subsection (c) is inserted in Section 3
immediately following subsection (b) thereof:
"(c) Subject to committee approval, any employees
of a company or other entity which is acquired directly or
indirectly by the Company (whether by merger, consolidation,
stock purchase or otherwise) and becomes a subsidiary of the
Company (as such term is defined in Code Section 424(f)) may,
for purposes of determining eligibility to participate in the
Plan, be granted past service credit for employment with such
company or entity."
3. Section 5 is amended by adding the following sentences at the
end thereof:
"Notwithstanding the above, and subject to committee approval,
the Plan Administrator may provide for a special election
period for participation in the Plan following the acquisition
of a company or other entity directly or indirectly by the
Company (whether by merger, consolidation, stock purchase or
otherwise) which results in such company or entity becoming a
subsidiary of the Company (as such term is defined in Code
Section 424(f)). Subject to committee approval, all employees
of the Company and its subsidiaries shall be eligible to
participate in such special election period."
4. Subsection (b) of Section 9 is amended by deleting the phrase
"(other than a Section 16(b) Insider)" therefrom.
5. Subsection (c) of Section 9 is amended by adding the phrase
"To the extent, if any, required by Section 16(b) of the Securities Exchange
Act of 1934, as amended, and the rules, regulations, decisions and no action
positions thereunder, " at the beginning thereof.
6. The effective date of this Amendment shall be January 1, 1997.
7. Except as specifically amended above, the Plan shall remain
unchanged and, as amended herein, shall continue in full force and effect.
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<PAGE> 3
IN WITNESS WHEREOF, the Compensation Committee of the Board of
Directors of Harbinger Corporation has caused this Amendment to be executed as
of the 1st day of January, 1997.
HARBINGER CORPORATION
COMPENSATION COMMITTEE
By: /s/ Stuart Bell
-------------------
-73-
<PAGE> 1
EXHIBIT 11.1
-74-
<PAGE> 2
HARBINGER CORPORATION AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED PER SHARE EARNINGS
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
PRIMARY
Net income (loss) applicable to common
shareholders . . . . . . . . . . . . . $ (8,277,000) $ 1,048,000 $ (2,111,000)
============ ============ =============
Weighted average common shares
outstanding . . . . . . . . . . . . . 16,065,000 12,608,000 10,293,000
Net effect of dilutive stock options and
warrants--using the treasury stock method
computed on a primary basis . . . . . - 790,000 -
Total weighted average common
------------ ------------ -------------
and common equivalent shares
outstanding . . . . . . . . . . 16,065,000 13,398,000 10,293,000
============ ============ =============
Net income (loss) per share applicable to
common shareholders . . . . . . . . . $ (0.52) $ 0.08 $ (0.21)
============ ============ =============
FULLY DILUTED
Net income (loss) applicable to common
shareholders . . . . . . . . . . . . . $ (8,277,000) $ 1,048,000 $ (2,111,000)
============ ============ =============
Weighted average common shares
outstanding . . . . . . . . . . . . . 16,065,000 12,608,000 10,293,000
Net effect of dilutive stock options and
warrants--using the treasury stock method
computed on a fully diluted basis . . - 785,000 -
------------ ------------ -------------
Total weighted average common and
common equivalent shares
outstanding . . . . . . . . . . 16,065,000 13,785,000 10,293,000
============ ============ =============
Net income (loss) per share applicable to
common shareholders . . . . . . . . . $ (0.52) $ 0.08 $ (0.21)
============ ============ =============
</TABLE>
-75-
<PAGE> 1
EXHIBIT 13.1
-76-
<PAGE> 2
SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
(in thousands, except per share data) Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 41,725 $ 23,117 $ 13,652 $ 10,536 $ 6,717
Direct costs . . . . . . . . . . . . . . . 10,784 5,672 3,700 2,752 1,811
--------- --------- ---------- --------- ----------
Gross margin . . . . . . . . . . . . . . . $ 30,941 $ 17,445 $ 9,952 $ 7,784 $ 4,906
========= ========= ========== ========= ==========
Operating income (loss) . . . . . . . . . . $ (1,186) $ 3,135 $ (2,698) $ 1,142 $ 166
========= ========= ========== ========= ==========
Net income (loss) applicable to common
shareholders . . . . . . . . . . . . . $ (8,277) $ 1,048 $ (2,111) $ 3,242 $ (353)
========= ========= ========== ========= ==========
Net income (loss) per share of common
stock . . . . . . . . . . . . . . . . . $ (0.52) $ 0.08 $ (0.21) $ 0.32 $ (0.04)
========= ========= ========== ========= ==========
Weighted average common and common
equivalent shares outstanding . . . . . 16,065 13,398 10,293 10,116 8,467
========= ========= ========== ========= ==========
Operating income* (excluding charge for
in-process product development and
acquisition related charge) . . . . . . $ 7,589 $ 3,135 $ 1,619 $ 1,142 $ 166
========= ========= ========== ========= ==========
Net income (loss) applicable to common
shareholders (Excludes effect of HNS
and acquisition related charge.)** . . $ 4,654 $ 1,563 $ 626 $ 3,242 $ (353)
========= ========= ========== ========= ==========
Net income (loss) per common share
(Excludes effect of HNS and
acquisition related charge.)** . . . . $ 0.27 $ 0.12 $ 0.06 $ 0.32 $ (0.04)
========= ========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
(in thousands) At December 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Working capital . . . . . . . . . . . . . . 11,352 14,320 2,726 3,790 150
Total assets . . . . . . . . . . . . . . . 42,457 40,260 15,661 12,201 4,832
Long-term obligations, redeemable
preferred stock and puttable common
stock . . . . . . . . . . . . . . . . . - 4,675 2,943 4,944 7,138
Shareholders' equity . . . . . . . . . . . 31,293 29,133 5,399 4,337 (4,457)
</TABLE>
Note: All share, per share and shareholders' equity amounts have been
retroactively restated to reflect a three-for-two stock split effected in the
form of a 150% stock dividend paid on January 31, 1997.
* Excludes $8.8 million and $4.3 million pre-tax charges for 1996 and 1994,
respectively, for purchased in-process product development and acquisition
related charge.
** Excludes equity in loss of HNS, expected to recur, of $7.0 million and
$954,000 for 1996 and 1995, respectively, and $8.8 million and $4.3 million
charges for 1996 and 1994, respectively, for purchased in-process product
development and acquisition related charges, net of related income taxes.
-77-
<PAGE> 3
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands, except per share data) THREE MONTHS ENDED
- ------------------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 4,542 $ 5,288 $ 6,102 $ 7,185
======= ======= ======= ========
Gross margin . . . . . . . . . . . . . . . . $ 3,418 $ 4,055 $ 4,505 $ 5,467
======= ======= ======= ========
Operating income . . . . . . . . . . . . . . $ 472 $ 616 $ 740 $ 1,307
======= ======= ======= ========
Net income applicable to common shareholders $ 166 $ 210 $ 146 $ 526
======= ======= ======= ========
Net income per share of common stock . . . . $ 0.01 $ 0.02 $ 0.01 $ 0.03
======= ======= ======= ========
Weighted average common and common
equivalent shares outstanding . . . . . . 11,890 11,867 14,138 16,363
======= ======= ======= ========
Net income applicable to common shareholders
(excluding equity in loss of HNS, expected
to recur and charges for in-process product
development and acquisition related charges,
net of related income taxes). . . . . . . . $ 194 $ 274 $ 335 $ 760
======= ======= ======= ========
Net income per common share (excluding equity in
loss of HNS, expected to recur and charges for
in-process product development and acquisition
related charges, net of related income
taxes). . . . . . . . . . . . . . . . . . $ 0.02 $ 0.02 $ 0.02 $ 0.05
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
(in thousands, except per share data) THREE MONTHS ENDED
- -------------------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996* 1996 1996 1996*
========= ========= ========= =========
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 7,162 $ 10,081 $11,154 $13,328
========= ========= ======= =======
Gross margin . . . . . . . . . . . . . . . . $ 5,381 $ 7,466 $ 8,228 $ 9,866
========= ========= ======= =======
Operating income (loss) . . . . . . . . . . . $ (7,147) $ 1,544 $ 1,793 $ 2,624
========= ========= ======= =======
Net income (loss) applicable to common
shareholders . . . . . . . . . . . . . . $ (8,301) $ (107) $ (246) $ 377
========= ========= ======= =======
Net income (loss) per share of common stock . $ (0.54) $ (0.01) $ (0.02) $ 0.02
========= ========= ======= =======
Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . 15,503 16,111 16,197 17,429
========= ========= ======= =======
Net income applicable to common shareholders
(excluding equity in loss of HNS, expected
to recur and charges for in-process product
development and acquisition related charges,
net of related income taxes) . . . . . . . $ 726 $ 992 $ 1,100 $ 1,836
========= ========= ======= =======
Net income per common share (excluding equity in
loss of HNS, expected to recur and charges
for in-process product development and
acquisition related charges, net of related
income taxes). . . . . . . . . . . . . . . $ 0.04 $ 0.06 $ 0.06 $ 0.11
========= ========= ======= =======
</TABLE>
* Includes pre-tax charge of $8.35 million for the quarter ended March 31,
1996 and a pre-tax charge of $425,000 for the quarter ended December 31,
1996 for purchased in-process product development, and acquisition-related
charges.
Note: All share, per share and shareholders' equity amounts have been
retroactively restated to reflect a three-for-two stock split effected in the
form of a 150% stock dividend paid on January 31, 1997.
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<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ABOUT THE COMPANY
Harbinger Corporation (the "Company") generates revenues from various
sources, including revenues for services and license fees for software.
Revenues for services principally includes subscription fees for transactions
on the Company's Value Added Network ("VAN"), software maintenance and
implementation charges and charges for consulting and training services.
Subscription fees are based on a combination of monthly access charges and
transaction-based usage charges. Software maintenance and implementation
revenues represent recurring charges to customers and are deferred and
recognized ratably over the service period. Revenues for consulting and
training services are based on actual services rendered and are recognized as
services are performed. License fees for software are recognized upon
shipment. Software revenues include royalty revenues under the Company's
Distribution Agreement with System Software Associates, Inc. ("SSA") which are
recognized based upon sales to end users by SSA. Software revenues also
include royalty revenues from Harbinger NET Services, LLC ("HNS"), an
affiliated company, based upon sales to end users by HNS.
1994 ACQUISITION AND SSA ALLIANCE
Effective December 31, 1994, the Company completed the acquisition
(the "TI Acquisition") of certain assets from Texas Instruments, Incorporated
relating to its EDI business unit for $3.9 million. Effective July 21, 1995,
the Company purchased technology and entered into a distribution agreement with
SSA for $4.8 million (the "SSA Alliance") pursuant to which the Company
acquired from SSA computer software that performs EDI functions on IBM AS/400
midrange computers and licensed to SSA the Company's AS/400, Unix and PC-based
EDI software and related tools and utilities, under agreements whereby SSA may
remarket this software to licensees of SSA's Business Planning and Control
System. Through the TI Acquisition and the SSA Alliance, the Company acquired
software products and technologies that complement the Company's existing
software product line.
HARBINGER NET SERVICES, LLC
In December 1994, the Company founded Harbinger NET Services, LLC
("HNS") to develop products and services to facilitate electronic commerce
using the Internet. HNS was capitalized in March 1995 with an initial
investment of approximately $360,000 from the Company and approximately
$340,000 from certain other investors, including shareholders, executive
officers and directors of the Company. In June 1995, the Company purchased
additional HNS common shares for $2.0 million in cash and a note for $6.0
million, which was paid in full from the proceeds of the Company's initial
public offering. Also, in June 1995, BellSouth Telecommunications, Inc.
("BellSouth") invested $3.0 million in HNS in exchange for a five-year
subordinated convertible debenture (the "Debenture") bearing interest at the
rate of 6% per annum. In 1995 and 1996, the Company realized significant losses
on its investment in HNS, which has been accounted for under the equity method
through December 31, 1996. On January 1, 1997, because of the expiration of
restrictions on the Company's ability to appoint a majority of the HNS Board
of Managers, the Company exercised its rights as majority shareholder of HNS
by appointing a majority of the members of the HNS Board of Managers. As a
result, effective January 1, 1997, the Company will account for its investment
in HNS by consolidating the statements of financial position and results of
operations of HNS with those of the Company.
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<PAGE> 5
Also on January 1, 1997, the Company entered into a debenture purchase
agreement with the holder of the Debenture whereby the Company acquired the
Debenture in exchange for $1.5 million in cash and 242,288 shares of the
Company's common stock valued at $4.2 million. The Company expects to record
an extraordinary loss on debt extinguishment of $2.4 million in the first
quarter of 1997 related to this transaction which represents the amount paid of
$5.7 million in excess of the face amount of the Debenture of $3.0 million
plus accrued interest of $280,000. The Company anticipates that it will incur
integration costs related to these transactions of $1.5 million to $2.5 million
during 1997.
Immediately after this transaction, the Company acquired the minority
interest in HNS, consisting of 585,335 shares of HNS common stock and stock
options to acquire 564,727 shares of HNS common stock at exercise prices
ranging from $0.70 per share to $1.65 per share, by exchanging cash of $1.6
million and stock options to acquire 355,317 shares of the Company's common
stock at exercise prices ranging from $15.22 per share to $16.53 per share
which were valued by the Company at $2.2 million. Including transaction and
other costs of $350,000, the Company paid $4.1 million for the acquisition of
the HNS minority interest which will be accounted for using the purchase method
of accounting with $2.7 million of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations on
January 1, 1997, and $1.4 million allocated to goodwill and purchased
technology.
1996 ACQUISITIONS
Effective March 31, 1996, the Company completed the acquisition of
NTEX Holding B.V. ("NTEX") for $8.0 million and the acquisition of INOVIS GmbH
("INOVIS") for $6.2 million. NTEX is a Rotterdam, The Netherlands-based
supplier of EC products and services with about 40 employees at the time of the
acquisition. It develops software for EDI, wide area communications, and web
site development, and it operates an electronic clearing center in The
Netherlands. NTEX builds value-added applications that utilize EDI and manages
trading communities for such markets as healthcare, agriculture, shipping and
education. INOVIS is a Karlsruhe, Germany-based supplier of EC products and
services with about 30 employees at the time of the acquisition. INOVIS
develops software for electronic catalogs and ordering systems that use both
CD-ROM and the Internet. It also manages an electronic clearing center serving
the German- speaking market. INOVIS builds value-added applications that
utilize EDI and manages trading communities for the music, book publishing,
sporting goods, and other markets. The Company's acquisitions of NTEX and
INOVIS are expected to accelerate the Company's realization of opportunities
for its products in international markets.
The Company also completed two other acquisitions during 1996, the
acquisition of the remaining outstanding common stock of Harbinger N.V. and the
acquisition of Comtech Management Systems, Inc., which are more fully described
in the Company's accompanying consolidated financial statements and which are
not expected to have a significant impact on the Company's financial position
or results of operations.
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<PAGE> 6
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the
percentage relationship of certain statement of operations data items to total
revenues.
<TABLE>
<CAPTION>
Percentage of Total Revenues
-------------------------------------------
Year Ended December 31,
1996 1995 1994
----- ------- --------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Services 66.6% 71.0% 78.3%
Software 33.4 29.0 21.7
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Direct costs:
Services 20.6 18.7 22.1
Software 5.2 5.8 5.0
----- ----- -----
Total direct costs 25.8 24.5 27.1
----- ----- -----
Gross Margin 74.2 75.5 72.9
----- ----- -----
Operating costs:
Selling and marketing 19.0 21.1 21.4
General and administrative 18.7 20.9 22.9
Depreciation and amortization 4.8 3.4 3.8
Product development 13.5 16.5 13.0
Charge for purchased in-process
product development,
write-off of software development
costs and acquisition-related
charges 21.0 - 31.6
----- ----- -----
Total operating costs 77.0 61.9 92.7
----- ----- -----
Operating income (loss) (2.8) 13.6 (19.8)
----- ----- -----
Interest expense (income), net (0.4) (0.3) 0.2
----- ----- -----
Equity in losses of joint ventures 17.0 5.5 1.7
----- ----- -----
Income (loss) before income
tax expense (benefit) (19.4) 8.4 (21.7)
Income tax expense (benefit) 0.4 3.0 (7.7)
----- ----- -----
Net income (loss) (19.8)% 5.4% (14.0)%
===== ===== =====
</TABLE>
Revenues. Total revenues increased from $13.7 million in 1994 to
$23.1 million in 1995 and $41.7 million in 1996. Revenues for services
increased from $10.7 million in 1994 to $16.4 million in 1995 and to $27.8
million in 1996. These increases reflect an increase in the number of
subscribers utilizing the Company's VAN, increases in the average volume of
transmissions by subscribers, and increases resulting from service revenues
generated from the Company's European subsidiaries which were acquired in March
1996. Revenues from software maintenance and implementation also increased in
each year, reflecting an overall increase in the number of customers. Revenue
from software license fees increased from $3.0 million in 1994 to $6.7 million
in 1995 and to $13.9 million in 1996. The increase in 1995 as compared to 1994
was primarily the result of $2.0 million in software license fees attributable
to the licensing of enterprise-wide software products obtained in the TI
Acquisition, $1.5 million in royalties from SSA, and software licensed in
connection with several new hub programs. The increase in 1996 as compared to
1995 was primarily the result of the increase in royalties from SSA to $5.7
million, $1.2 million in royalties for software licensed through HNS, increases
in software license fees attributable to the licensing of enterprise-wide
software products, and software revenues generated from the Company's European
subsidiaries which were acquired in March 1996. The Company expects that
royalty revenues from SSA may substantially decline in 1997 from 1996. See
discussion under Liquidity and Capital Resources for revenue expectations for
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<PAGE> 7
1997 from SSA. Revenues reported by the Company for the European subsidiaries
may be impacted by the effect of exchange rates in converting their currency
into the Company's reporting currency.
Direct Costs. Direct costs for services increased from $3.0 million
in 1994 to $4.3 million in 1995 and to $8.6 million in 1996. As a percentage
of services revenues, these costs were 28.1% in 1994, 26.3% in 1995 and 31.0%
in 1996. The decrease as a percentage of services revenues from 1994 to 1995
reflect greater margins achieved from increased services revenues. The
increase as a percentage of services revenues from 1995 to 1996 primarily
reflect the effect of a higher mix of lower margin professional services
revenues from the Company's European subsidiaries acquired in March 1996.
Direct software costs increased from $689,000 in 1994 to $1.3 million in 1995
and to $2.1 million in 1996. Direct software costs, as a percentage of
software revenues, were 23.2% in 1994, 20.1% in 1995, and 15.6% in 1996. The
decrease in direct software costs as a percentage of software revenues from
1994 to 1996 primarily reflects the effect of higher margin royalty revenues
from both SSA and HNS and the licensing of higher margin enterprise-wide
products.
Selling and Marketing. Selling and marketing expenses increased from
$2.9 million in 1994 to $4.9 million in 1995 and to $7.9 million in 1996. As a
percentage of revenues, these expenses were 21.4% in 1994, 21.1% in 1995 and
19.0% in 1996. The decreases as a percentage of revenues between years
principally reflect the effect of increased services revenues and efficiencies
associated with other costs to support increased sales activity. The Company
anticipates that it will spend a higher percentage of revenues on selling and
marketing in 1997 than in 1996.
General and Administrative. General and administrative expenses
increased from $3.1 million in 1994 to $4.8 million in 1995 and to $7.8 million
in 1996. As a percentage of revenues, these expenses decreased from 22.9% in
1994 to 20.9% in 1995, and 18.7% in 1996. These decreases as a percentage of
revenues reflect efficiencies associated with expanding the Company's
operations and the effect of increases in software and services revenues.
Depreciation and Amortization. Depreciation and amortization
increased from $512,000 in 1994 to $794,000 in 1995 and to $2.0 million in
1996. As a percentage of revenues, these expenses increased from 3.8% in 1994
to 4.8% in 1996. The increase as a percentage of revenues, is primarily the
result of the amortization of the intangible assets related to the acquisitions
completed in 1996.
Product Development. Total expenditures for product development,
including capitalized software development costs, increased from $2.2 million
in 1994 to $4.8 million in 1995 and to $7.8 million in 1996. The Company
capitalized software development costs of $394,000, $962,000, and $2.1 million
in 1994, 1995 and 1996, respectively, which represented 18.2%, 20.2% and 27.2%
of total expenditures for product development in these respective periods. The
increase in the amounts capitalized, as a percentage of total expenditures for
product development, from 1994 to 1996 reflects the fact that the Company
incurred greater product development costs in 1995 and 1996 on products that
had reached technological feasibility. As a percentage of revenues, total
product development expenditures increased from 15.8% in 1994 to 18.6% in 1996.
The increase in such expenditures from 1994 to 1995 principally reflects costs
related to the continuing development of technologies acquired in connection
with the TI Acquisition and the SSA Alliance. The increase in such
expenditures from 1995 to 1996 principally reflects development related to the
Company's new Windows- based PC product line, continued enhancements to the
enterprise-wide product line obtained in the TI Acquisition, and new products
being developed by the Company's European subsidiaries. Amortization of
capitalized software development costs included in direct costs of software
totaled $387,000, $872,000 and $1.8 million in 1994, 1995 and 1996,
respectively. Additionally, the Company, through its investment in HNS,
expended approximately $1.1 million in 1995 and $4.3 million in 1996 to develop
products and services to facilitate electronic commerce on the Internet.
Charge for Purchased In-Process Product Development, Write-off of
Software Development Costs and Acquisition- Related Charges. The Company
incurred expenses of $4.3 million in 1994 and $8.8 million in 1996 primarily
for purchased in-process product development. In connection with the 1994 TI
Acquisition, the Company acquired in-process product development for several
software products. Since the Company determined that certain of the acquired
technologies had not reached technological feasibility, the Company expensed
the portion of the purchase price allocable to such in-process product
development. Also, the Company wrote-off software
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<PAGE> 8
development costs related to the Company's then existing Windows-based PC
product which, as a result of the TI Acquisition, has been integrated with
technologies acquired from TI to create a new Windows-based product offering.
In connection with the acquisition of three European companies in March 1996,
the Company acquired in-process product development for several software
products. Since the Company determined that certain of the acquired
technologies had not reached technological feasibility, the Company expensed
the portion of the purchase price allocable to such in- process product
development.
Equity in Losses of Joint Ventures. The Company recognized, as its
equity in the losses of HNV, $227,000 in 1994, $313,000 in 1995 and $69,000 in
1996. These losses reflect the impact of the operations of HNV for the full
year in 1994 and 1995 as compared to three months in 1996, prior to the
Company's acquisition of the remaining 80% of equity of HNV effected on March
31, 1996. In addition, the Company recognized, as its equity in the losses of
HNS, $954,000 in 1995 and $7.0 million in 1996 reflecting the Company's losses
associated with its Internet joint venture with BellSouth. The Company
acquired the BellSouth convertible debenture and the remaining equity interests
of this joint venture on January 1, 1997 from BellSouth and the other HNS
minority shareholders and option holders.
Income Taxes. The Company recorded income tax expense of $146,000
and $687,000 and an income tax benefit of $1.1 million in 1996, 1995 and 1994,
respectively. Domestic taxable income of $7.4 million will be required in
future years to realize the Company's recorded net deferred income tax assets
of $2.8 million. During 1996, the Company provided a $4.8 million valuation
allowance for acquired foreign net operating loss carryforwards and the
deductible temporary differences associated with certain acquired foreign
intangible assets. Future decreases in $3.3 million of the total valuation
allowance of $4.8 million related to the foreign net operating loss
carryforwards will reduce the intangibles associated with those acquisitions
as those net operating loss carryforwards are realized.
Net Income. The Company realized a net loss of $8.3 million in 1996
as compared to net income of $1.0 million in 1995 and a net loss of $2.1
million in 1994. The net loss in 1994 reflects principally the effect of the
charges for purchased in-process product development and write-off of software
development costs of $4.3 million in connection with the TI Acquisition.
Without these charges, the Company's net income for 1994 would have been
approximately $626,000 or $0.06 per share. The net income in 1995 reflects
principally the effect of equity in losses of joint ventures of $1.3 million.
Excluding the equity in losses of HNS, the Company's net income in 1995 would
have been approximately $1.6 million or $0.12 per share. The net loss in 1996
reflects principally the effect of charges for purchased in-process product
development and acquisition-related charges of $8.8 million in connection with
three European acquisitions effected in March 1996 and equity in losses of HNS
of $7.0 million. Excluding these charges and the equity in losses of HNS, the
Company's net income in 1996 would have been approximately $4.7 million or
$0.27 per share.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through a
combination of private and public equity and debt financings, a bank line of
credit and cash flows from operations. In 1996, 1995, and 1994, the Company
generated cash from operating activities of $7.8 million, $2.9 million and $3.4
million, respectively. The Company used net cash for investing activities of
$10.6 million in 1996 as compared to $11.8 million in 1995 and $511,000 in
1994. Cash used for investing activities in 1996 included principally
acquisitions and purchases of property and equipment. The Company used cash
from financing activities of $392,000 in 1996 primarily to pay off debt assumed
in 1996. The Company generated net cash from financing activities of $16.2
million in 1995, representing principally proceeds from its initial public
offering in August 1995, and $1.0 million in 1994, representing principally the
proceeds from the issuance of securities.
The Company's bank credit facility consists of a revolving line of
credit which bears interest at prime plus 0.625% and permits the Company to
borrow a maximum of $4.0 million, limited to a maximum amount available based
upon the Company's qualified receivables. This facility, which also provides
the Company with a 24-month term-out feature for up to $2.0 million, contains
certain restrictive covenants and is secured by substantially all of the
Company's assets. The covenants include restrictions on the Company's capital
expenditures and net losses, and require the Company to maintain certain
financial ratios. The Company pays a commitment fee on the unused portion of
this revolving credit facility. As of December 31, 1996, the Company had $4
million available and no
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<PAGE> 9
outstanding balance on this facility. The Company has invested in a new
telephone system which commits the Company to a final payment of approximately
$775,000 during the first quarter of 1997. The Company currently has no other
material commitments for capital expenditures.
Revenues for 1996 include minimum royalties from SSA of $5.7 million
which were paid in October 1996 and represented 13.7% of the Company's
consolidated revenues for the year ended December 31, 1996. The terms of the
SSA distribution agreement provide for SSA to pay the Company royalties through
December 2000 based upon sales to end users by SSA and provide for SSA to vest
in 4 million shares of the Company's Zero Coupon Redeemable Preferred Stock as
more fully described in the Company's accompanying consolidated financial
statements. There is no minimum royalty obligation after 1996. Based upon
discussions with SSA and considering the payment terms under the SSA
distribution agreement, the Company expects that royalty revenues from SSA may
substantially decline in 1997 as compared to 1996 and that the average
collection period related to cash flows derived from royalty revenues earned
from SSA in the future will substantially increase.
Management expects that the Company will continue to be able to fund
its operations, investment needs and capital expenditures through cash flows
generated from operations, cash on hand, borrowing under the Company's credit
facility and additional equity and debt capital. Management believes that
outside sources for debt and additional equity capital, if needed, will be
available to finance expansion projects and any potential future acquisitions.
The form of any financing will vary depending upon prevailing market and other
conditions and may include short or long term borrowings from financial
institutions, or the issuance of additional equity or debt securities.
However, there can be no assurances that funds will be available on terms
acceptable to the Company. The Company does not believe that inflation has had
a material impact on its business. However, there can be no assurance that
Harbinger's business will not be affected by inflation in the future.
FORWARD LOOKING STATEMENTS
This report includes "forward looking" statements within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934 related
to the Company that involve risks and uncertainties including, but not limited
to, quarterly fluctuations in results, the management of growth, market
acceptance of certain products and other risks. For further information about
these and other factors that could affect the Company's future results, please
see the Company's most recent Form 10-K filed with the Securities and Exchange
Commission. Investors are cautioned that any forward looking statements are
not guarantees of future performance and involve risks and uncertainties and
that actual results may differ materially from those contemplated by such
forward looking statements.
SUBSEQUENT EVENTS
Stock Split
On January 10, 1997, the Board of Directors declared a three-for-two
stock split in the form of a 150% stock dividend on the Company's common stock
payable on January 31, 1997 to shareholders of record on January 17, 1997. All
share, per share and shareholders' equity amounts included in the Company's
consolidated financial statements have been retroactively restated to reflect
the split for all periods presented.
Acquisition of SupplyTech, Inc. and SupplyTech International, LLC
On January 3, 1997, the Company acquired SupplyTech, Inc. a Michigan
corporation ("STI"), and its affiliate, SupplyTech International, LLC, a
Michigan limited liability company ("STILLC"), for two million four hundred
thousand unregistered shares of common stock, par value of $0.0001 per share.
STI was acquired in a merger transaction (the "Merger") pursuant to the terms
of a Merger Agreement, dated as of January 3, 1997, by and among the Company,
STI and Harbinger Acquisition Corporation II, a Georgia corporation and a
wholly owned subsidiary of the Company. STI survived the Merger as a wholly
owned subsidiary of Harbinger. STILLC was acquired by the Company in a series
of related share purchases, which includes the exchange of the Company's common
stock for all the outstanding shares of STILLC.
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<PAGE> 10
In connection with the Merger, which will be accounted for using the
pooling-of-interests method of accounting, the Company expects to take a charge
of $7.0 million in 1997 for Merger-related expenses and expects to
incur integration costs of $2.5 to $3.5 million during 1997.
The financial position and results of the Company and STI for all
prior periods presented will be restated beginning with the Company's first
quarter 1997 results to give effect to the Merger.
-85-
<PAGE> 11
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 8,395,000 $11,918,000
Accounts receivable, less allowances for returns and
doubtful accounts of $1,552,000 and $537,000
in 1996 and 1995, respectively . . . . . . . . . . . 9,795,000 5,624,000
Royalty receivable from SSA . . . . . . . . . . . . . . - 1,382,000
Deferred income taxes . . . . . . . . . . . . . . . . . 1,517,000 999,000
Due from joint ventures . . . . . . . . . . . . . . . . 1,760,000 566,000
Other current assets . . . . . . . . . . . . . . . . . . 1,049,000 283,000
----------- -----------
Total current assets . . . . . . . . . . . . . . . . 22,516,000 20,772,000
----------- -----------
Property and equipment, less accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . . . . 6,845,000 3,772,000
Investments in joint ventures . . . . . . . . . . . . . . . . 407,000 7,480,000
Intangible assets, less accumulated amortization . . . . . . 11,405,000 6,298,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 1,284,000 1,938,000
----------- -----------
$42,457,000 $40,260,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 1,570,000 $ 1,335,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . 5,843,000 2,759,000
Deferred revenues . . . . . . . . . . . . . . . . . . . 3,751,000 2,358,000
----------- -----------
Total current liabilities . . . . . . . . . . . . . 11,164,000 6,452,000
----------- -----------
Commitments and contingencies
Zero Coupon redeemable preferred stock, no par value;
4,000,000 shares issued and outstanding at
December 31, 1996 and 1995, respectively . . . . . . . . . - -
Puttable common stock, $0.0001 par value; 825,000 shares
issued and outstanding as of December 31, 1995, respectively - 4,675,000
Shareholders' equity:
Preferred stock, 20,000,000 shares authorized, Series C,
$10.00 par value; 250,000 shares issued and
outstanding as of December 31, 1995 . . . . . . . . - 2,485,000
Common stock, $0.0001 par value; 100,000,000 shares
authorized; 16,290,265 and 14,536,026 shares issued
and outstanding as of December 31, 1996 and 1995,
respectively . . . . . . . . . . . . . . . . . . . . 2,000 1,000
Additional paid-in capital . . . . . . . . . . . . . . . 45,259,000 32,201,000
Accumulated deficit . . . . . . . . . . . . . . . . . . (13,968,000) (5,554,000)
----------- -----------
Total shareholders' equity . . . . . . . . . . . . 31,293,000 29,133,000
----------- -----------
$42,457,000 $40,260,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 12
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Services $ 27,806,000 $ 16,418,000 $ 10,688,000
Software (including royalties from HNS and
SSA of $6.9 million and $1.5 million for the
years ending December 31, 1996 and 1995,
respectively) . . . . . . . . . 13,919,000 6,699,000 2,964,000
-------------- ------------- -------------
Total revenues . . . . . . 41,725,000 23,117,000 13,652,000
-------------- ------------- -------------
Direct costs:
Services 8,619,000 4,323,000 3,011,000
Software 2,165,000 1,349,000 689,000
-------------- ------------- -------------
Total direct costs . . . . 10,784,000 5,672,000 3,700,000
-------------- ------------- -------------
Gross margin . . . . . . 30,941,000 17,445,000 9,952,000
-------------- ------------- -------------
Operating costs:
Selling and marketing 7,929,000 4,875,000 2,922,000
General and administrative . . . . 7,799,000 4,832,000 3,132,000
Depreciation and amortization . . 1,992,000 794,000 512,000
Product development . . . . . . . 5,632,000 3,809,000 1,767,000
Charge for purchased in-process product
development, write-off of software develop-
ment costs and acquisition related charges 8,775,000 - 4,317,000
-------------- ------------- -------------
Total operating costs . . . 32,127,000 14,310,000 12,650,000
-------------- ------------- -------------
Operating income (loss) . (1,186,000) 3,135,000 (2,698,000)
Interest expense (income), net . . . (156,000) (65,000) 38,000
Equity in losses of joint ventures . 7,073,000 1,266,000 227,000
-------------- ------------- -------------
Income (loss) before income tax
expense (benefit) . . (8,103,000) 1,934,000 (2,963,000)
Income tax expense (benefit) . . . . 146,000 687,000 (1,052,000)
-------------- ------------- -------------
Net income (loss) . . . . (8,249,000) 1,247,000 (1,911,000)
Preferred stock dividends . . . . . . (28,000) (199,000) (200,000)
-------------- ------------- -------------
Net income (loss) applicable to
common shareholders . . . . . . . $ (8,277,000) $ 1,048,000 $ (2,111,000)
============== ============ =============
Net income (loss) per share of
common stock . . . . . . . . . . . $ (0.52) $ 0.08 $ (0.21)
============== ============ =============
Weighted average common and common
equivalent shares outstanding . . 16,065,000 13,398,000 10,293,000
============== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
-87-
<PAGE> 13
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
Preferred stock, Series C Common stock Additional
------------------------- ------------------------ paid-In
Shares Amount Shares Amount capital
--------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 . . . . . . . . . - - 10,121,577 $ 1,000 $ 8,783,000
Exercise of stock options and warrants - - 504,354 - 1,193,000
Issuance of common stock in redemption
of Series B preferred stock . . . . . . - - - - 5,000
Amortization of discount on Series
C preferred stock . . . . . . . . . . . . - - - - -
Conversion of debt to common stock - - 470,220 - 1,996,000
Net loss . . . . . . . . . . . . . . . . . - - - - -
Preferred stock dividends . . . . . . . . . - - - - -
-------- ---------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1994 . . . . . . . . . - - 11,096,151 1,000 11,977,000
Exercise of stock options and warrants - - 916,071 - 1,945,000
Purchase and retirement of treasury stock - - (1,500) - (5,000)
Sale of common stock . . . . . . . . . . . - - 2,525,304 - 18,284,000
Reclassification of Series C preferred
stock to shareholders' equity . . . . . 250,000 2,485,000 - - -
Amortization of discount on Series
C preferred stock . . . . . . . . . . . . - - - - -
Net income . . . . . . . . . . . . . . . . - - - - -
Preferred stock dividends . . . . . . . . . - - - - -
-------- ---------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . 250,000 2,485,000 14,536,026 1,000 32,201,000
Exercise of stock options and warrants and
issuance of stock under employee stock
purchase plan . . . . . . . . . . . . . . - - 312,166 - 894,000
Amortization of discount on Series C
preferred stock . . . . . . . . . . . . . - 4,000 - - -
Preferred stock dividends . . . . . . . . . - - - - -
Conversion of preferred stock, Series C
to common stock . . . . . . . . . . . . . (250,000) (2,489,000) 211,038 - 2,489,000
Issuance of common stock and options
and warrants to acquire common stock
in connection with acquisitions . . . . . - - 406,035 - 5,001,000
Reclassification of puttable common stock
to common stock as a result of forfeiture
of put right . . . . . . . . . . . . . . - - 825,000 1,000 4,674,000
Net loss . . . . . . . . . . . . . . . . . - - - - -
Increase in cumulative currency translation
adjustment . . . . . . . . . . . . . . . - - - - -
-------- ---------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1996 . . . . . . . . . 0 0 16,290,265 $ 2,000 $45,259,000
======== ========== ========== ======== ============
<CAPTION>
Total
Accumulated shareholders'
deficit equity
-------------- ------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1993 . . . . . . . . . $ (4,447,000) $ 4,337,000
Exercise of stock options and warrants - 1,193,000
Issuance of common stock in redemption
of Series B preferred stock . . . . . . - 5,000
Amortization of discount on Series
C preferred stock . . . . . . . . . . . . (21,000) (21,000)
Conversion of debt to common stock - 1,996,000
Net loss . . . . . . . . . . . . . . . . . (1,911,000) (1,911,000)
Preferred stock dividends . . . . . . . . . (200,000) (200,000)
------------- ------------
BALANCE, DECEMBER 31, 1994 . . . . . . . . . (6,579,000) 5,399,000
Exercise of stock options and warrants - 1,945,000
Purchase and retirement of treasury stock - (5,000)
Sale of common stock . . . . . . . . . . . - 18,284,000
Reclassification of Series C preferred
stock to shareholders' equity . . . . . - 2,485,000
Amortization of discount on Series
C preferred stock . . . . . . . . . . . . (23,000) (23,000)
Net income . . . . . . . . . . . . . . . . 1,247,000 1,247,000
Preferred stock dividends . . . . . . . . . (199,000) (199,000)
------------- ------------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . (5,554,000) 29,133,000
Exercise of stock options and warrants and
issuance of stock under employee stock
purchase plan . . . . . . . . . . . . . . - 894,000
Amortization of discount on Series C
preferred stock . . . . . . . . . . . . . (4,000) -
Preferred stock dividends . . . . . . . . . (28,000) (28,000)
Conversion of preferred stock, Series C
to common stock . . . . . . . . . . . . . - -
Issuance of common stock and options
and warrants to acquire common stock
in connection with acquisitions . . . . . - 5,001,000
Reclassification of puttable common stock
to common stock as a result of forfeiture
of put right . . . . . . . . . . . . . . - 4,675,000
Net loss . . . . . . . . . . . . . . . . . (8,249,000) (8,249,000)
Increase in cumulative currency translation
adjustment . . . . . . . . . . . . . . . (133,000) (133,000)
------------- ------------
BALANCE, DECEMBER 31, 1996 . . . . . . . . . $ (13,968,000) $ 31,293,000
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
-88-
<PAGE> 14
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . $ (8,249,000) $ 1,247,000 $ (1,911,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Charge for purchased in-process product
development and write-off of
capitalized software . . . . . . . . 8,350,000 - 4,317,000
Depreciation and amortization . . . . . 3,773,000 1,666,000 899,000
Gain on sale of property and equipment - - (3,000)
Discount amortization on subordinated
debt . . . . . . . . . . . . . . . . - - 19,000
Equity in losses of joint ventures . . 7,073,000 1,266,000 227,000
Deferred income tax expense (benefit) . 136,000 687,000 (1,052,000)
(Increase) decrease in:
Accounts receivable . . . . . . . . . (2,944,000) (2,303,000) 35,000
Royalty receivable from SSA . . . . . 1,382,000 (1,382,000) -
Due from joint ventures . . . . . . . (1,227,000) (516,000) 140,000
Other current assets . . . . . . . . (707,000) (68,000) (69,000)
Note receivable . . . . . . . . . . . - - 180,000
Increase (decrease) in:
Accounts payable and accrued expenses (684,000) 1,603,000 70,000
Deferred revenues . . . . . . . . . . 849,000 696,000 517,000
------------ ------------ ------------
Net cash provided by operating
activities . . . . . . . . . 7,752,000 2,896,000 3,369,000
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
-89-
<PAGE> 15
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994
------------ -------------- -------------
<S> <C> <C> <C>
Cash flows from investing activities:
Short-term investment . . . . . . . . . . . - - 1,000,000
Purchases of property and equipment . . . . (3,958,000) (2,364,000) (899,000)
Additions to software development costs . . (2,086,000) (962,000) (394,000)
Purchased technology . . . . . . . . . . . . - - (218,000)
Investment in acquisitions . . . . . . . . . (4,604,000) - -
Investment in joint ventures . . . . . . . . - (8,514,000) -
------------- ------------- ------------
Net cash used in investing activities (10,648,000) (11,840,000) (511,000)
------------- ------------- ------------
Cash flows from financing activities:
Dividends paid on preferred stock . . . . (28,000) (199,000) (167,000)
Exercise of stock options and warrants and
issuance of stock under employee stock
purchase plan . . . . . . . . . . . . . 894,000 1,945,000 1,149,000
Repayment of notes payable . . . . . . . . (1,814,000) (3,325,000) -
Proceeds from issuance of common stock . . - 18,284,000 -
Purchase of treasury stock . . . . . . . . - (5,000) -
Redemption of Series B preferred stock . . - (480,000) -
------------- ------------- ------------
Net cash provided by (used in)
financing activities . . . . . . (948,000) 16,220,000 982,000
------------- ------------- ------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . (3,844,000) 7,276,000 3,840,000
Cash and cash equivalents at beginning of year 11,918,000 4,642,000 802,000
Effect of exchange rates on cash held in
foreign currencies . . . . . . . . . . . . (53,000) - -
Cash received from acquisitions . . . . . . . 374,000 - -
------------- ------------- ------------
Cash and cash equivalents at end of year . . $ 8,395,000 $ 11,918,000 $ 4,642,000
============= ============= ============
Supplemental disclosure of cash paid for
interest . . . . . . . . . . . . . . . . . $ 87,000 $ 123,000 $ 150,000
============= ============= ============
Supplemental disclosures of noncash
investing activities:
Acquisition of technology and
distribution agreement in exchange
for common stock . . . . . . . . . $ - $ 4,675,000 $ -
============= ============= ============
Acquisition of businesses in exchange for
assumption of liabilities and issuance
of common stock and options and
warrants to acquire common stock . $ 11,294,000 $ - $ 3,826,000
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
-90-
<PAGE> 16
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRESENTATION
Harbinger Corporation and subsidiaries (the "Company") develops,
markets, and supports software products and provides computer communications
network and consulting services to enable businesses to engage in electronic
commerce. The Company's products and services are used by more than 24,000
customers in targeted industries, including the petroleum, chemicals,
utilities, financial services, electronics, distribution, aerospace,
textile/apparel and healthcare industries both in the United States and certain
international markets including Europe and South America.
The accompanying consolidated financial statements of Harbinger
Corporation include the accounts of the Company and its wholly owned
subsidiaries, NTEX Holding B.V. ("NTEX"), INOVIS GmbH & Co. ("INOVIS"), Comtech
Management Systems, Inc. ("Comtech") and Harbinger NV ("HNV"). Significant
intercompany accounts and transactions have been eliminated in consolidation.
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
REVENUE RECOGNITION
Software
Revenues derived from software license fees are recognized
upon shipment, net of estimated returns. Royalty revenues from System
Software Associates, Inc. ("SSA") and Harbinger Net Services, LLC
("HNS") are recognized based upon sales to end users by SSA (see Note
3) and HNS (see Note 5).
Services
Revenues derived from services includes subscription fees,
maintenance and implementation fees, and consulting and training fees.
Subscription fees include both fixed and usage based fees for use of
the Company's value added network and are recognized over the service
period and as transactions are processed. Maintenance and
implementation fees are generally billed annually in advance, include
fixed fees for customer support and product updates, and are
recognized ratably over the service period. Consulting and training
fees are billed under both time and materials and fixed fee
arrangements and are recognized as services are performed.
Deferred Revenue
Deferred revenues represent payments received from customers
or billings invoiced to customers for software and services billed in
advance.
DIRECT COSTS
Direct costs for services include telecommunications charges, the
costs of personnel to conduct network operations and customer support,
consulting and other personnel-related expenses. Direct costs for software
include duplication, packaging and amortization of purchased technology and
software development costs.
-91-
<PAGE> 17
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the assets as
follows:
Computer and communications equipment 3 - 5 years
Furniture, fixture and leasehold
improvements 5 - 10 years
INVESTMENTS IN JOINT VENTURES
The Company's 91% investment in HNS and its 20% investment in HNV
through March 31, 1996 (see Note 2) (collectively, the "Joint Ventures") are
accounted for using the equity method of accounting. The Company applies the
equity method of accounting for its investment in HNS because of a shareholders
agreement among all HNS shareholders which provides for all significant
operating and management decisions for HNS to be vested in the HNS Board of
Managers through December 31, 1996. The HNS Board of Managers is not
controlled by the Company (see Note 5 and Note 13).
INTANGIBLE ASSETS
Purchased Technology, Goodwill, and Other Intangible Assets
Purchased technology, goodwill and other intangible assets are
being amortized over periods of five to ten years. The Company evaluates the
recoverability of these intangible assets at each period end using the
undiscounted estimated future net operating cash flows expected to be derived
from such assets. If such evaluation indicates a potential impairment, the
Company uses fair value in determining the amount of these intangible assets
that should be written off.
Software Development Costs
The Company capitalizes certain software development costs in
accordance with Statement of Financial Accounting Standards No. 86,
''Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed.'' Costs incurred internally to create a computer software
product or to develop an enhancement to an existing product are charged to
expense when incurred as research and development until technological
feasibility has been established for the product or enhancement. Thereafter,
all software production costs are capitalized and reported at the lower of
unamortized cost or net realizable value. Capitalization ceases when the
product or enhancement is available for general release to customers. Software
development costs are amortized on a product-by-product basis at the greater of
the amounts computed using (a) the ratio of current gross revenues for a
product or enhancement to the total current and anticipated future gross
revenues for that product or enhancement or (b) the straight-line method over
the remaining estimated economic life of the product or enhancement, not to
exceed five years. The Company evaluates the net realizable value of its
software development costs at each period end using undiscounted estimated
future net operating cash flows expected to be derived from the respective
software product or enhancement. If such evaluation indicates that the
unamortized software development costs exceed the net realizable value, the
Company writes off the amount by which the unamortized software development
costs exceed net realizable value.
-92-
<PAGE> 18
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes ("SFAS No. 109")". Under SFAS No. 109, deferred income tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
EARNINGS PER SHARE
Net income (loss) per share has been computed based upon net income
(loss) applicable to common shareholders. The dilutive effect of outstanding
stock options and warrants is included in weighted average common and common
equivalent shares outstanding using the treasury stock method computed on a
primary basis unless their inclusion is antidilutive. Stock options and
warrants issued in the twelve months prior to the Company's initial public
offering have been considered outstanding and included in the computations of
weighted average common and common equivalent shares outstanding for all
periods presented prior to the initial public offering even if antidilutive.
Net income (loss) per share computed on a fully diluted basis is not
significantly different than net income (loss) per share computed using the
primary basis.
RECLASSIFICATIONS
Certain amounts in the accompanying 1995 and 1994 financial statements
have been reclassified to conform to the presentation adopted in the 1996
consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of its
business. The carrying values of cash equivalents, accounts and royalty
receivable, accounts payable, accrued expenses, and deferred revenues
approximate fair value due to the short-term maturities of these assets and
liabilities. The Company's investments in joint ventures are accounted for
using the equity method and pertain to privately held companies for which fair
values are not readily available. The Company believes the fair values of its
joint venture investments exceed the carrying values.
FOREIGN CURRENCY TRANSLATION
Foreign currency financial statements of the Company's international
operations are translated into U.S. dollars at current exchange rates, except
for revenues, costs and expenses, and net income (loss) which are translated at
average exchange rates during each reporting period. Net exchange gains or
losses resulting from the translation of assets and liabilities are accumulated
as cumulative foreign currency translation adjustments and reported as a
separate component of shareholders' equity included in the Company's
accumulated deficit. The cumulative foreign currency translation adjustment at
December 31, 1996 was $(133,000).
-93-
<PAGE> 19
STOCK COMPENSATION PLANS
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
No. 123"), which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995
and future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosures under the provisions
of SFAS No. 123 (see Note 9).
2. ACQUISITIONS
1994 ACQUISITION
Effective December 31, 1994, the Company acquired certain assets and
assumed certain liabilities of the EDI business unit of Texas Instruments,
Incorporated in exchange for a $3.325 million note (TI Note"), the assumption
of liabilities of $526,000, and an agreement to pay royalties through 1998
based upon future software license fee revenues derived from certain of the
software products acquired if such revenues exceed certain specified levels.
The Company has accounted for the transaction using the purchase method of
accounting and the results of operations of the business acquired have been
included in the Company's accompanying statement of operations since the
acquisition date. The Company paid the TI Note in January 1995 and has not
become obligated to pay any additional royalties under the terms of the
agreement through December 31, 1996. Of the total purchase price of $3.851
million, $2.66 million was allocated to in-process product development and
charged to the statement of operations at the acquisition date, $441,000 was
allocated to purchased technology, $317,000 was allocated to tangible assets
(primarily working capital and equipment), and $433,000 was allocated to
goodwill.
The unaudited pro forma results of operations of the Company for 1994
as if the acquisition described above had been effected on January 1, 1994 are
summarized below:
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
-----------------
<S> <C>
Revenues $ 15,738,000
============
Net loss applicable to common shareholders $ (2,894,000)
============
Net loss per share of common stock $ (0.28)
============
Weighted average common and common
equivalent shares outstanding 10,293,000
============
</TABLE>
The unaudited pro forma results do not necessarily represent results
which would have occurred if the acquisition had taken place on the date
indicated nor are they necessarily indicative of the results of future
operations.
-94-
<PAGE> 20
1996 ACQUISITIONS
Effective March 31, 1996, the Company acquired all of the common stock
of NTEX Holding, B.V. ("NTEX"), a Dutch corporation based in Rotterdam, The
Netherlands, for $8.0 million, consisting of $3,195,000 in cash, 107,778 shares
of the Company's common stock valued at $1.2 million, warrants to acquire
18,750 shares of the Company's stock at $11.33 per share valued at $100,500 and
the assumption of $3.5 million in liabilities including transaction costs. The
Company recorded the acquisition using the purchase method of accounting with
$4,449,000 of the purchase price allocated to in- process product development
and charged to the consolidated statement of operations on March 31, 1996,
$204,000 allocated to purchased technology, $621,000 allocated to tangible
assets and $2.8 million allocated to goodwill.
Effective March 31, 1996, the Company acquired all of the common stock
of INOVIS GmbH & Co. ("INOVIS"), a German corporation based in Karlsruhe,
Germany for $6.1 million, consisting of $1,409,000 in cash, 210,276 shares of
the Company's common stock valued at $2.4 million, warrants to acquire 30,000
shares of the Company's stock at $10.17 per share valued at $104,000, a note
payable of $557,000 and the assumption of $1.7 million in liabilities including
transaction costs. The Company recorded the acquisition using the purchase
method of accounting with $3.4 million of the purchase price allocated to
in-process product development and charged to the consolidated statement of
operations on March 31, 1996, $600,000 allocated to purchased technology,
$1,077,000 allocated to tangible assets and $1.1 million allocated to goodwill.
Effective March 31, 1996, the Company acquired the remaining
outstanding common stock of Harbinger N.V. ("HNV"), a Dutch corporation based
in Hoofddorp, the Netherlands for $1.2 million, consisting of 58,065 shares of
the Company's common stock valued at $668,000 and the assumption of $554,000 in
liabilities including transaction costs. The Company recorded the acquisition
using the purchase method of accounting with $300,000 of the purchase price
allocated to in-process product development and charged to the consolidated
statement of operations on March 31, 1996, $518,000 allocated to tangible
assets and $447,000 allocated to goodwill and other intangibles (see Note 5).
Effective August 1, 1996, the Company acquired all of the common stock
of Comtech Management Systems, Inc. ("Comtech"), a Texas corporation based in
Amarillo, Texas, for $500,000, consisting of 24,561 shares of the Company's
common stock valued at $422,000 and the assumption of $75,000 in liabilities.
The Company recorded the acquisition using the purchase method of accounting
with $114,000 of the purchase price allocated to tangible assets, $100,000
allocated to purchased technology, and $283,000 allocated to goodwill.
The balance sheets of the above companies have been included in the
Company's consolidated balance sheet as of December 31, 1996 and the results of
operations of the acquired companies have been included in the Company's
consolidated statements of operations beginning on March 31, 1996, except for
Comtech, which has been included beginning on August 1, 1996.
-95-
<PAGE> 21
The unaudited pro forma results of operations of the Company for 1996
and 1995 as if the acquisitions described above had been effected on January 1,
1996 and 1995, respectively, are summarized as follows:
<TABLE>
<CAPTION>
Years Ended
December 31
1996 1995
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . $ 43,116,000 $ 28,679,000
Net loss applicable to
common shareholders . . . . . . . . . $ (9,010,000) $ (1,885,000)
Net loss per share of common stock . . . $ (0.56) $ (0.14)
Weighted average common and common
equivalent shares outstanding . . . . 16,167,000 13,803,000
</TABLE>
The unaudited pro forma results do not necessarily represent results
which would have occurred if the acquisitions had taken place on the dates
indicated nor are they necessarily indicative of the results of future
operations.
The terms of the Company's acquisitions of NTEX and INOVIS included
earnout agreements with certain employees/shareholders which provide for the
Company to pay these individuals additional consideration based upon the
attainment of certain performance goals for their respective former companies
for the year ended March 31, 1997. The Company has provided an accrual of
$425,000 for the year ended December 31, 1996 which is included in acquisition
related charges in the accompanying 1996 statement of operations to reflect the
Company's estimate of the employee compensation earned with respect to these
agreements.
3. PURCHASED TECHNOLOGY AND DISTRIBUTION AGREEMENT
On July 21, 1995, the Company entered into a distribution agreement
and purchased certain software products from SSA in exchange for the issuance
of 825,000 shares of the Company's common stock valued at $4,675,000 at the
date of issuance and the issuance of 4 million shares of the Company's Zero
Coupon Redeemable Preferred Stock. The Company also provided SSA with an
option to put the 825,000 shares of common stock issued back to the Company for
cash on January 31, 1997 exercisable only if the market value of the common
stock on that date is less than $6.00 per share. In September 1996, the
Company registered the 825,000 shares of puttable common stock. SSA sold all
of the shares during 1996. The Zero Coupon Redeemable Preferred Stock issued
has no voting or dividend rights, vests at a rate of one million shares per
year only if SSA attains certain royalty targets for the years 1997 through
2000, and contains mandatory redemption provisions of $0.67 per share payable
in cash or the Company's common stock at the option of the holder thirty days
after the end of each year. The Company will accrete the Zero Coupon
Redeemable Preferred Stock to its redemption price as it becomes probable that
it will be earned through a charge to direct costs of software in the period
earned.
The terms of the distribution agreement provide for SSA to pay the
Company royalties through December 2000 based upon future software and service
revenues that SSA derives from the sale of the Company's products including
certain minimum royalties of $1.4 million for 1995 and $5.7 million in 1996.
Payments by SSA to the Company under these minimum royalty provisions in excess
of royalties on actual software and service revenues will be creditable against
future SSA royalty obligations. Royalty revenues are recognized based upon
sales to end users.
-96-
<PAGE> 22
The Company has allocated the consideration associated with these
transactions of $4,797,000 (including transaction costs of $122,000) as
follows: $2.331 million of the fair value to purchased technology and $2.466
million to the distribution agreement based upon the estimated fair values of
the purchased technology and distribution agreement at the date of the
exchange.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computer and communications
equipment . . . . . . . . . . . $ 8,907,000 $ 4,696,000
Furniture, fixtures and
leasehold improvements . . . . . 2,130,000 1,618,000
------------ ------------
11,037,000 6,314,000
Less accumulated depreciation
and amortization . . . . . (4,192,000) (2,542,000)
------------ ------------
$ 6,845,000 $ 3,772,000
============ ============
</TABLE>
5. INVESTMENTS IN JOINT VENTURES
INVESTMENT IN HNS
The Company founded HNS to develop products and services to facilitate
electronic commerce using the Internet. In March 1995, HNS was capitalized
with an investment of approximately $360,000 from the Company and approximately
$340,000 from certain other investors, including certain shareholders,
executives, officers, and directors of the Company. In June 1995, the Company
and BellSouth Corporation ("BellSouth") contributed cash of $8.0 million for
HNS common stock and $3.0 million for HNS convertible debt, respectively. As
of December 31, 1996, the Company owned an equity interest in HNS of
approximately 91.4% or 66.1%, assuming the conversion of the BellSouth
Debenture and the exercise of outstanding HNS options. The Company recognized
equity in losses of its HNS joint venture of $7,004,000 and $954,000 for the
years ended December 31, 1996 and 1995, respectively.
The Company has several agreements with HNS governing certain
transactions between them, including the use of personnel, the management and
operation of HNS, the use by HNS of the Company's products and services, the
Company's right to license and distribute HNS products, if any, derived from
the Company's products and the payment by HNS and the Company of royalties and
other amounts. Amounts charged to HNS by the Company for services provided were
$1,785,000 and $324,000 for the years ended December 31, 1996 and 1995,
respectively. These amounts primarily consist of employee salaries and related
benefits and included $729,000 and $94,000 in general and administrative
expenses, $105,000 and $36,000 in selling and marketing expenses, and $951,000
and $194,000 in product development costs for the years ended December 31, 1996
and 1995, respectively. These amounts have been included in the Company's
statements of operations as a reduction of expense in the categories indicated.
Additionally, the Company paid expenses on behalf of HNS in 1996 and 1995 of
$505,000 and $413,000 that have been reimbursed by HNS.
The Company recognized royalty revenues from HNS of $1,199,000 for the
year ended December 31, 1996 related to HNS's licensing of products which
include the Company's technology and for referral fees. These royalty revenues
and referral fees from HNS were determined based upon a royalty agreement
between the Company and HNS. At December 31, 1996, the Company had an amount
due from HNS of $1,760,000 for these services and expenses incurred by the
Company on behalf of HNS and for the royalty revenues earned from HNS.
Likewise, amounts charged to the Company by HNS for services provided during
the period ended December 31, 1996 were $214,000. This amount includes
$191,000 in general and administrative expenses and $23,000 in selling
-97-
<PAGE> 23
and marketing expenses which are included in the Company's accompanying 1996
statement of operations. Additionally, HNS paid expenses of $50,000 on behalf
of the Company that have been reimbursed by the Company.
Effective January 1, 1997, the Company purchased the BellSouth
debenture and acquired the remaining minority interest in HNS (see Note 13).
The following table sets forth the condensed financial statements of
HNS as of December 31, 1996 and 1995 and for the periods then ended:
<TABLE>
<CAPTION>
Balance sheets:
1996 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . $ 3,322,000 $ 10,645,000
Accounts receivable . . . . . . . . . . . . . 1,866,000 -
Property and equipment, net . . . . . . . . . 1,039,000 219,000
Other assets . . . . . . . . . . . . . . . . . 277,000 42,000
------------ ------------
$ 6,504,000 $ 10,906,000
============ ============
Accounts payable and accrued expenses . . . . $ 990,000 $ 173,000
Due to affiliates, net . . . . . . . . . . . . 2,040,000 180,000
Deferred revenue . . . . . . . . . . . . . . . 196,000 -
Long-term debt . . . . . . . . . . . . . . . . 3,000,000 3,000,000
Shareholder's equity . . . . . . . . . . . . . 278,000 7,553,000
------------ ------------
$ 6,504,000 $ 10,906,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
Statements of operations:
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Services . . . . . . . . . . . . . . . . . $ 117,000 $ -
Software . . . . . . . . . . . . . . . . . 2,036,000 -
------------ ------------
Total revenues . . . . . . . . . . . .
2,153,000 -
------------ ------------
Direct costs:
Services . . . . . . . . . . . . . . . . . 644,000 -
Software . . . . . . . . . . . . . . . . . 1,617,000 -
------------ ------------
Total direct costs . . . . . . . . . . 2,261,000 -
------------ ------------
Gross margin . . . . . . . . . . (108,000) -
------------ ------------
Operating costs:
Selling and marketing . . . . . . . . . . 926,000 84,000
General and administrative . . . . . . . . 1,614,000 133,000
Depreciation and amortization . . . . . . 621,000 21,000
Product development . . . . . . . . . . . 4,303,000 1,077,000
------------ ------------
Total operating costs . . . . . . . . 7,464,000 1,315,000
------------ ------------
Operating loss . . . . . . . . . (7,572,000) (1,315,000)
Interest expense (income), net . . . . . . . . (130,000) (165,000)
------------ ------------
Net loss . . . . . . . . . . . . . . . . . . . $(7,442,000) $ (1,150,000)
============ ============
</TABLE>
-98-
<PAGE> 24
INVESTMENT IN HNV
On November 5, 1993, the Company acquired a 20% interest in HNV, a
Dutch corporation headquartered in Hoofddorp, The Netherlands, which was formed
to offer electronic commerce services in the European marketplace. The initial
capitalization of HNV consisted of an investment of $500,000 from the Company
and $2,000,000 from certain other investors, including shareholders of the
Company. In December 1995, the Company and other HNV investors, including
shareholders of the Company, contributed to HNV additional capital of $150,000
and $600,000, respectively. The Company has a license arrangement with HNV
which allows HNV to use the Company's network and PC technology and provides
for the payment of royalty fees to the Company based on a percentage of
software and network revenues, as defined. The Company did not recognize any
royalty revenue from HNV during 1994, 1995 or 1996. Under a management
agreement, the Company provides certain consulting and management services to
HNV. At December 31, 1995, the Company had an amount due from HNV of
approximately $472,000 for such services and expenses incurred by the Company
on behalf of HNV, which was paid in January 1996. Effective March 31, 1996,
the Company acquired the remaining outstanding common stock of HNV (see Note
2).
The Company recognized equity in losses of its HNV joint venture of
$69,000, $313,000 and $227,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
Amounts charged to HNV by the Company for services provided during the
years ended December 31, 1996, 1995 and 1994 were:
<TABLE>
<CAPTION>
1996 1995 1994
------- --------- ---------
<S> <C> <C> <C>
Services - direct costs . . . . . . - $ 63,000 $ 47,000
General and administrative . . . . $54,000 182,000 187,000
Selling & marketing . . . . . . . . - - 6,000
Product development . . . . . . . . - 27,000 40,000
Depreciation and amortization . . . - 4,000 5,000
------- --------- ---------
$54,000 $276,000 $285,000
======= ========= =========
</TABLE>
These amounts have been included in the statement of operations for
the Company as a reduction of expenses in the categories indicated.
Additionally, the Company paid expenses on behalf of HNV of $18,000, $95,000
and $95,000 for the years ended December 31, 1996, 1995 and 1994, respectively,
that were reimbursed by HNV.
6. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Purchased technology . . . . . . . . . . . $ 3,676,000 $ 2,772,000
Goodwill . . . . . . . . . . . . . . . . . 4,823,000 433,000
SSA distribution agreement . . . . . . . . 2,466,000 2,466,000
Software development costs . . . . . . . . 4,461,000 2,435,000
------------ ------------
15,426,000 8,106,000
Less accumulated amortization . . . . . . . (4,021,000) (1,808,000)
------------ ------------
$11,405,000 $ 6,298,000
============ ============
</TABLE>
-99-
<PAGE> 25
During 1994, the Company wrote off $1,659,000 in capitalized software
development costs related to products which the Company ceased marketing.
Approximately $1,419,000 of such amount related to a product development effort
that was discontinued as a result of certain technology acquired in connection
with an acquisition described in Note 2.
7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accrued salaries and wages . . . . . . . . $3,004,000 $1,635,000
Accrued rent . . . . . . . . . . . . . . . 236,000 353,000
Other accrued . . . . . . . . . . . . . . . 2,603,000 771,000
---------- ----------
$5,843,000 $2,759,000
========== ==========
</TABLE>
8. INCOME TAXES
The provision for income tax expense (benefit) includes income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax basis of assets and liabilities and any
increase or decrease in the valuation allowance for deferred income tax assets.
Income (loss) before income tax expense (benefit) for the years ended
December 31, 1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
U.S. operations . . . . . . . . . . . . $ 171,000 $ 1,934,000 $ (2,963,000)
Foreign operations . . . . . . . . . . . (8,274,000) - -
------------ ------------ -------------
Total income (loss) before income
tax expense (benefit) . . . . $ (8,103,000) $ 1,934,000 $ (2,963,000)
============ ============ =============
</TABLE>
Income tax expense (benefit) for the years ended December 31, 1996,
1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . $ - $ - $ -
Foreign . . . . . . . . . . . . . 10,000 - -
State . . . . . . . . . . . . . . - - -
------------ --------- ------------
Total current . . . . . . . . $ 10,000 $ - $ -
------------ --------- ------------
Deferred:
Federal . . . . . . . . . . . . . $ (28,000) $ 615,000 $ (941,000)
Foreign . . . . . . . . . . . . . 167,000 - -
State . . . . . . . . . . . . . . (3,000) 72,000 (111,000)
------------ --------- ------------
Total deferred . . . . . . . . $ 136,000 $ 687,000 $ (1,052,000)
------------ --------- ------------
Total income tax expense (benefit) . . $ 146,000 $ 687,000 $ (1,052,000)
============ ========= ============
</TABLE>
-100-
<PAGE> 26
Income tax expense (benefit) differs from the amounts computed by
applying the federal statutory income tax rate of 34% to income (loss) before
income taxes as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ---------- -------------
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit) . . . $ (2,755,000) $ 659,000 $(1,007,000)
Increase (decrease) in income tax expense (benefit)
resulting from:
State income taxes, net of federal income tax
benefit . . . . . . . . . . . . . . . . . . . . . (2,000) 48,000 (78,000)
Tax-exempt income . . . . . . . . . . . . . . . . . (130,000) (49,000) -
Nondeductible charge for purchased in-process
product development . . . . . . . . . . . . . . . 1,615,000 - -
Increase in the valuation allowance for deferred
income tax assets . . . . . . . . . . . . . . . . 1,494,000 - -
Other . . . . . . . . . . . . . . . . . . . . . . . (76,000) 29,000 33,000
------------ ---------- -----------
$ 146,000 $ 687,000 $(1,052,000)
============ ========== ===========
</TABLE>
The significant components of deferred income tax expense (benefit)
for the years ended December 31, 1996, 1995, and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ---------- ------------
<S> <C> <C> <C>
Deferred income tax expense (benefit) . . $ (1,358,000) $ 687,000 $(1,052,000)
Increase in the valuation allowance for
deferred income tax assets . . . . . 1,494,000 - -
------------- ---------- -----------
$ 136,000 $ 687,000 $(1,052,000)
============= ========== ===========
</TABLE>
The income tax effects of the temporary differences that give rise to
the Company's deferred income tax assets and liabilities as of December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards . . . . . . . . . . $ 3,755,000 $ 894,000
Deferred revenue . . . . . . . . . . . . . . . . . . 814,000 542,000
Intangible assets . . . . . . . . . . . . . . . . . 2,474,000 943,000
Other . . . . . . . . . . . . . . . . . . . . . . . 992,000 825,000
----------- ------------
Gross deferred income tax assets . . . . . . . . 8,035,000 3,204,000
Valuation allowance . . . . . . . . . . . . . . . . . . (4,798,000) -
----------- ------------
Deferred income tax assets, net of the valuation
allowance . . . . . . . . . . . . . . . . . . . . . 3,237,000 3,204,000
Deferred income tax liabilities - principally due to
depreciation . . . . . . . . . . . . . . . . . . . . (436,000) (267,000)
----------- ------------
Net deferred income tax assets . . . . . . . . . 2,801,000 2,937,000
Less current deferred income tax assets . . . . . . . . 1,517,000 999,000
----------- ------------
Noncurrent deferred income tax assets . . . . . . . . . $ 1,284,000 $ 1,938,000
=========== ============
</TABLE>
The increase (decrease) in net deferred income tax assets for the
years ended December 31, 1996, 1995, and 1994, was $(136,000), $(687,000), and
$1,052,000, respectively. A valuation allowance of $4,798,000 at December 31,
1996 offsets the full amount of the foreign deferred income tax assets related
to foreign net operating loss carryforwards and the deductible temporary
differences related to foreign intangible assets. Under SFAS No. 109, deferred
income tax assets and liabilities are recognized for differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities which will result in future deductible or taxable amounts
-101-
<PAGE> 27
and for net operating loss and tax credit carryforwards. A valuation allowance
is then established to reduce the deferred income tax assets to the level at
which it is "more likely than not" that the tax benefits will be realized.
Realization of tax benefits of deductible temporary differences and operating
loss and tax credit carryforwards depends on having sufficient taxable income
within the carryback and carryforward periods. Sources of taxable income that
may allow for the realization of tax benefits include (1) taxable income in the
current year or prior years that is available through carryback, (2) future
taxable income that will result from the reversal of existing taxable temporary
differences, and (3) future taxable income generated by future operations. The
Company believes that realization of the net deferred income tax assets
recorded at December 31, 1996 is more likely than not.
During 1996, the Company acquired foreign net operating loss
carryforwards in the NTEX and HNV acquisitions (see Note 2) of approximately
$6,528,000 and $3,114,000, respectively. The Company established a valuation
allowance relating to the carryforwards of $2,350,000 and $1,121,000,
respectively, which is included in the valuation allowance at December 31,
1996. If the benefit from these net operating loss carryforwards are realized,
the Company will reduce the related valuation allowance and will reduce
goodwill recorded in connection with these transactions. For the year ended
December 31, 1996, the Company realized a portion of these foreign net
operating loss carryforwards and recognized deferred foreign income tax expense
of $93,000 and $74,000 relating to the reduction in the valuation allowance for
these carryforwards and reduced goodwill associated with these acquisitions by
a like amount. During 1996, the Company also acquired certain intangible
assets in the INOVIS acquisition (see Note 2). The Company's acquisition of
these intangible assets for income tax reporting purposes created a deferred
income tax asset of approximately $1,494,000 for which the Company provided a
valuation allowance.
At December 31, 1996, the Company has domestic and foreign net
operating loss carryforwards and research and experimentation income tax credit
carryforwards of approximately $7,152,000, $9,177,000 and $301,000,
respectively. The domestic net operating loss carryforwards expire at various
dates through the year 2009 unless utilized, the foreign net operating loss
carryforwards do not expire, and the research and experimentation income tax
credit carryforwards expire beginning in 2007 through 2010. The Company's
domestic net operating loss carryforward at December 31, 1996 includes $6.0
million in income tax deductions related to stock options excluded from the
table of deferred income tax assets above, which will be reflected as a credit
to additional paid-in capital when realized.
9. SHAREHOLDERS' EQUITY
AMENDMENT TO THE ARTICLES OF INCORPORATION
Effective June 1995, the Company increased its authorized shares of
common stock and preferred stock to 100,000,000 and 20,000,000, respectively,
and established a par value of $.0001 per share for the Company's authorized
but unissued common stock.
INITIAL PUBLIC OFFERING
In August 1995, the Company completed an initial public offering of
its common stock. The Company sold 2,525,304 shares at $8.00 per share
resulting in net proceeds to the Company, after underwriters commissions and
offering expenses, of $18.3 million.
PREFERRED STOCK, SERIES C
In 1993, the Company sold Series C redeemable preferred stock and
warrants in a private placement resulting in proceeds of $2.5 million. The
terms of the Series C redeemable preferred stock included a 7% cash dividend
payable quarterly and a mandatory redemption on March 1, 1996. The proceeds of
the placement were allocated between the preferred stock and warrants based on
their estimated relative fair values. This resulted in a discount from the face
amount of the stock of approximately $66,000 which was allocated to the
warrants. The warrants were exercised during fiscal 1995.
-102-
<PAGE> 28
In June 1995, the Company entered into agreements with holders of its
Series C redeemable preferred stock to provide for the conversion on March 1,
1996 of all Series C redeemable preferred stock to the Company's Common Stock.
The number of shares of common stock issuable upon conversion was determined by
dividing (i) the issue price of $10.00 times the number of shares of the Series
C redeemable preferred stock outstanding by (ii) 95% of the average trading
price of the common stock, as defined. As a result of the June 1995 agreement,
the Company reclassed the preferred stock from redeemable preferred stock to
shareholders' equity. On March 1, 1996, the Company issued 211,038 shares of
its common stock in exchange for all outstanding shares of the Company's Series
C preferred stock.
COMMON STOCK
In April 1996 the Company issued 381,474 shares of the Company's
common stock as partial consideration related to the Company's acquisition of
(i) NTEX, (ii) INOVIS and (iii) HNV. In August 1996 the Company issued 24,561
shares of the Company's common stock as consideration related to the Company's
acquisition of Comtech.
In September 1996, the Company registered 825,000 shares of puttable
common stock held by SSA. As of December 31, 1996, SSA had sold the shares and
forfeited their rights to put the shares of common stock back to the Company.
Therefore, approximately $4.7 million of puttable common stock has been
reclassified to shareholders' equity.
WARRANTS
The Company issued warrants in April 1996 related to the acquisition
of NTEX and INVOIS. The warrants enable the holders to acquire 48,750 shares
of the Company's common stock at a range of $11.34 to $11.43 per share,
representing the fair value of the common stock at the date of issuance.
The Company issued warrants in July 1996 to two investors in HNV who
are also shareholders of the Company because certain events did not occur with
respect to the performance of HNV. The warrants enable the holders to acquire
75,000 shares of the Company's common stock at $18.50 per share, representing
the fair value of the common stock at the date of issuance.
STOCK COMPENSATION PLANS
Stock options
The Company's 1989 Stock Option Plan (the "1989 Plan") and
1996 Stock Option Plan (the "1996 Plan") and with the 1989 Plan (the "Plans")
provide for the grant of options to officers, directors, consultants and key
employees. The maximum number of shares of stock that may be issued under the
1996 Plan shall not exceed in the aggregate the sum of 2,625,000 options plus
an amount equal to the number of all shares that are either not subject to
options granted under the 1989 Plan or were subject to options granted
thereunder that expire without exercise to officers, directors, consultants and
key employees. Options granted under the terms of the 1996 Plan generally vest
ratably over four years and are granted with an exercise price no less than the
fair market value of common stock on the grant date. Options granted prior to
July 1994 vest ratably over three years and options granted since July 1994
vest ratably over four years. All options granted expire seven years from the
date of grant. At December 31, 1996, there were options outstanding to purchase
2,453,234 shares of the Company's common stock, of which options to purchase
826,444 shares were exercisable. There were 1,719,756 options available for
grant at December 31, 1996.
-103-
<PAGE> 29
In 1993, the Board of Directors authorized the creation of a
stock option plan for nonemployee members of the Company's Board of Directors
(the ''Nonemployee Directors Plan''). A total of 225,000 shares of common stock
have been reserved for issuance under the Nonemployee Directors Plan at an
option price no less than the fair market value of the common stock on the
option grant date. Options expire seven years from the date of grant. The
options granted under the Nonemployee Directors Plan vest ratably in the year
of grant based on attendance at regularly scheduled board meetings. Options
which have not vested in the year of grant expire and become available for
grant under the Nonemployee Directors Plan. Options granted under the
Nonemployee Directors Plan for 119,000 shares of common stock were outstanding
and exercisable as of December 31, 1996. There were 89,625 options available
for grant under the Nonemployee Directors Plan at December 31, 1996.
In addition to outstanding options granted under the Company's
existing stock option plans, the Company has granted options to acquire 105,000
shares of common stock to certain existing and former nonemployee directors for
past services. As of December 31, 1996, all of these options were outstanding
and exercisable.
The following table summarizes the activity in outstanding
stock options for the year ended December 31, 1994:
<TABLE>
<CAPTION>
Stock Options
----------------------------------
Number Price
--------- -----------------
<S> <C> <C>
December 31, 1993 . . . . . . . . . . . . 1,397,565 $0.78 - $3.25
Granted . . . . . . . . . . . . . . 364,500 4.25
Exercised . . . . . . . . . . . . . (204,354) 0.78 - 4.25
Forfeited/canceled . . . . . . . . . (93,200) 2.33 - 4.25
--------- ----------------
December 31, 1994 . . . . . . . . . . . . 1,464,511 0.78 - 4.25
========= ================
</TABLE>
At December 31, 1996 the Company has five stock-based compensation
plans which are described herein. The Company applies APB Opinion No. 25 and
related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan. The compensation cost that has been charged against
income for its performance-based plan was $1,784,000 and $502,000 for 1996 and
1995, respectively. Had compensation cost for the Company's five stock-based
compensation plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Net income As reported $(8,277,000) $ 1,048,000
Pro forma (10,061,000) 546,000
Primary earnings As reported $ (0.52) $ 0.08
per share
Pro forma (0.63) 0.04
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996: dividend yield
of 0.5%; expected volatility of 57.8%; risk-free interest rates of 5.9%; and
expected lives of 8 months for all of the Plan options.
-104-
<PAGE> 30
A summary of the status of the Company's fixed stock option plans as
of December 31, 1996 and 1995, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Weighted- Weighted-
Average Average
Shares Exercise Shares Exercise
Fixed Options (000) Price (000) Price
----------------------------------------- ------- --------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,711 $ 3.80 1,465 $ 4.03
Granted 1,160 13.07 733 5.24
Exercised (306) 2.72 (322) 2.16
Forfeited/canceled (112) 5.86 (165) 3.60
----- -----
Outstanding at end of year 2,453 8.22 1,711 3.80
===== =====
Options exercisable at year-end 826 604
Weighted-average fair value of options
granted during the year $ 8.68 $ 3.38
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
--------------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 1.17 - $ 1.67 59,176 1.09 $ 1.54 57,375 $ 1.54
$ 2.33 - $ 2.33 360,075 2.36 $ 2.33 360,075 $ 2.33
$ 2.67 - $ 3.25 84,675 3.25 $ 2.88 84,675 $ 2.88
$ 4.25 - $ 4.67 705,268 4.90 $ 4.27 243,976 $ 4.26
$ 9.17 - $11.41 277,890 5.29 $ 10.24 59,343 $ 9.76
$ 11.67 - $11.67 579,375 6.21 $ 11.67 - -
$ 14.50 - $17.83 386,775 6.62 $ 16.47 21,000 $ 14.50
---------- --------
$ 1.17 - $17.83 2,453,234 5.01 $ 8.22 826,444 $ 3.75
========== ========
</TABLE>
Employee Stock Purchase Plan
Effective January 1, 1996, the Company began offering
employees the right to purchase shares of the Company's common stock at 85% of
the lower of the beginning of period or end of period market price pursuant to
the Employee Stock Purchase Plan (the "Purchase Plan"). Under the Purchase
Plan, full-time employees, except persons owning 5% or more of the Company's
common stock, are eligible to participate after six months of employment.
Employees may contribute up to 15% of their annual salary, toward the Purchase
Plan up to a maximum of $15,000 per year. A maximum of 225,000 shares of
common stock are reserved for issuance under the Purchase Plan. As of December
31, 1996, 6,639 shares have been issued under the Purchase Plan.
Under FASB Statement 123, compensation cost is recognized for the fair
value of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following assumptions for 1996: dividend yield of
0.05%; an expected life of 8 months for all years; expected volatility of
57.8%; and risk-free interest rates of 5.9%. The weighted-average fair value
of those purchase rights granted in 1996 was $8.43.
-105-
<PAGE> 31
10. RELATED PARTY TRANSACTIONS
The Company has entered into related party transactions in the normal
course of business, including transactions with HNS and HNV as described in
Note 5 and the transaction with SSA as described in Note 3 as well as the
transactions described below. The Company believes that the terms of all
related party transactions are comparable to those that could have been
obtained in transactions with unaffiliated parties.
The Company paid fees which are included in the Company's financial
statements as direct costs of services to Westinghouse Communications, Inc.
(''Westinghouse'') of approximately $1,387,000, $930,000, and $520,000 in 1996,
1995 and 1994, respectively, under telecommunications agreements with
Westinghouse. Westinghouse owned more than 5% of the Company until the sale of
their investment in the Company's common stock in August 1995. During 1996,
the Company received $600,000 in revenue from an affiliated company that is
partially owned by an employee of one of the Company's foreign subsidiaries.
This same affiliated company also billed the Company $350,000 for services that
the affiliated company provided to the Company.
11. SEGMENT INFORMATION, INTERNATIONAL OPERATIONS AND MAJOR CUSTOMERS
SEGMENT INFORMATION
The Company operates in a single industry segment: the development,
marketing and supporting of software products and the providing of network and
consulting services to enable businesses to engage in electronic commerce.
INTERNATIONAL OPERATIONS
As a result of the 1996 Acquisitions described in Note 2, the Company
established operations in Europe. A summary of the Company's operations by
geographic area as of and for the year ended December 31, 1996 is presented
below:
<TABLE>
<CAPTION>
United
States Europe Eliminations Total
------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 35,299,000 $ 6,554,000 $ (128,000) $ 41,725,000
Operating income (loss) $ 7,019,000 $(8,205,000) - $ (1,186,000)
Identifiable assets $ 45,062,000 $ 8,343,000 $(10,948,000) $ 42,457,000
</TABLE>
Revenues and operating income (loss) for the Company's European
operations shown above reflects the results of operations of NTEX, INOVIS, and
HNV beginning on March 31, 1996 and includes a charge for purchased in-process
product development and a related acquisition charge of $8.6 million. Revenues
from foreign operations and identifiable assets of foreign operations were less
than 10% of consolidated revenue and assets in 1995 and 1994.
Revenues generated from export sales included in United States
revenues were less than 10% of consolidated revenues in 1996, 1995, and 1994.
MAJOR CUSTOMERS
Revenues from one customer (SSA) represented 13.7% of the Company's
consolidated revenues for the year ended December 31, 1996. No other single
customer comprised 10% or greater of the Company's consolidated revenues in
1996, 1995, and 1994.
-106-
<PAGE> 32
12. COMMITMENTS
401(K) PROFIT SHARING PLAN
The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan")
for the benefit of its domestic employees, which is intended to be a
tax-qualified defined contribution plan under Section 401(k) of the Internal
Revenue Code. Under the 401(k) Plan, employees who have completed one year of
service and at least 1,000 hours of service during that period are eligible to
participate. Subject to certain limitations, the Company may make a
discretionary matching contribution of up to $300 of the salary deferral
contributions of participants at a rate determined by the Board of Directors of
the Company each year. The Board of Directors approved contributions by the
Company to the 401(k) Plan of $35,000, $27,000 and $19,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
CREDIT FACILITY
The Company maintains a credit facility which provides $4 million in
borrowing availability, subject to the terms of the facility, at an interest
rate of prime plus .625% and requires the Company to pay a commitment fee on
the unused portion of .25%. The credit facility requires, among other things,
the Company to maintain certain minimum financial ratios and restricts the
Company from making certain investments, incurring additional indebtedness, and
making capital expenditures in excess of certain specified levels, as defined
in the terms of the facility. No amounts were outstanding under the facility
at December 31, 1996 or 1995.
LEASES
The Company leases office facilities and automobiles under operating
leases which extend through 2001. Rent expense under all operating leases was
approximately $1,351,000, $784,000, and $655,000 for the years ended December
31, 1996, 1995 and 1994, respectively. Future minimum lease payments under
operating leases with noncancelable lease terms in excess of one year for the
next five years and in the aggregate are as follows:
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . $ 2,018,000
1998 . . . . . . . . . . . . . . . . . 2,158,000
1999 . . . . . . . . . . . . . . . . . 2,155,000
2000 . . . . . . . . . . . . . . . . . 953,000
2001 . . . . . . . . . . . . . . . . . 579,000
-----------
$ 7,863,000
===========
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
STOCK SPLIT
On January 10, 1997, the Board of Directors declared a three-for-two
stock split in the form of a 150% stock dividend on the Company's common stock
payable on January 31, 1997 to shareholders of record on January 17, 1997. All
share, per share and shareholders' equity amounts included in the Company's
consolidated financial statements have been retroactively restated to reflect
the split for all periods presented.
ACQUISITION OF HNS
On January 1, 1997, because of the expiration of restrictions on the
Company's ability to appoint a majority of the HNS Board of Managers, the
Company exercised its rights as majority shareholder of HNS by appointing a
majority of the members of the HNS Board of Managers. As a result, effective
January 1, 1997, the Company will account for its investment in HNS by
consolidating the statements of financial position and results of operations of
HNS with those of the Company.
-107-
<PAGE> 33
Also on January 1, 1997, the Company entered into a debenture purchase
agreement with the holder of the Debenture whereby the Company acquired the
Debenture in exchange for $1.5 million in cash and 242,288 shares of the
Company's common stock valued at $4.2 million. The Company expects to record
an extraordinary loss on debt extinguishment of $2.4 million in the first
quarter of 1997 related to this transaction which represents the amount paid of
$5.7 million in excess of the face amount of the Debenture of $3.0 million plus
accrued interest of $280,000.
Immediately after this transaction, the Company acquired the minority
interest in HNS, consisting of 585,335 shares of HNS common stock and stock
options to acquire 564,727 shares of HNS common stock at exercise prices
ranging from $0.70 per share to $1.65 per share, by exchanging cash of $1.6
million and stock options to acquire 355,317 shares of the Company's common
stock at exercise prices ranging from $15.22 per share to $16.53 per share
which were valued by the Company at $2.2 million. Including transaction and
other costs of $350,000, the Company paid $4.1 million for the acquisition of
the HNS minority interest which will be accounted for using the purchase method
of accounting with $2.7 million of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations on
January 1, 1997, and $1.4 million allocated to goodwill and purchased
technology.
The Company anticipates that it will incur integration costs related
to these transactions of $1.5 million to $2.5 million.
ACQUISITION OF SUPPLYTECH, INC. AND SUPPLYTECH INTERNATIONAL, LLC
On January 3, 1997, the Company acquired SupplyTech, Inc. a Michigan
corporation ("STI"), and its affiliate, SupplyTech International, LLC, a
Michigan limited liability company ("STILLC"), for two million four hundred
thousand unregistered shares of the Company's common stock, par value of
$0.0001 per share. STI was acquired in a merger transaction (the "Merger")
pursuant to the terms of a Merger Agreement, dated as of January 3, 1997, by
and among the Company, STI and Harbinger Acquisition Corporation II, a Georgia
corporation and a wholly owned subsidiary of the Company. STI survived the
Merger as a wholly owned subsidiary of Harbinger. STILLC was acquired by the
Company in a series of related share purchases, which included the exchange of
the Company's common stock for all the outstanding shares of STILLC.
In connection with the Merger, which will be accounted for using the
pooling-of-interests method of accounting, the Company expects to take a charge
of $7.0 million in 1997 for Merger-related expenses and expects to incur
integration costs of $2.5 million to $3.5 million during 1997, which are not
reflected in the following pro forma financial information.
The financial position and results of operations of the Company and
STI for all prior periods presented will be restated beginning with the
Company's first quarter 1997 results to give effect to the Merger.
The following unaudited pro forma results of operations present the
business combination between the Company and STI and related entities as of
December 31, 1996 and for each of the years in the three-year period ended
December 31, 1996.
-108-
<PAGE> 34
Pro forma Combined Condensed Balance Sheets (unaudited):
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Assets:
Cash . . . . . . . . . . . . . . . . . . . . $9,059,000
Accounts receivable, net . . . . . . . . . . 11,890,000
Deferred income taxes-current . . . . . . . 1,517,000
Due from joint venture . . . . . . . . . . . 1,827,000
Other current assets . . . . . . . . . . . . 1,399,000
Property, net . . . . . . . . . . . . . . . 8,226,000
Investment in joint ventures . . . . . . . . 407,000
Intangible assets, net . . . . . . . . . . . 13,147,000
Deferred income taxes . . . . . . . . . . . 1,284,000
Other non-current assets . . . . . . . . . . 37,000
-----------
$48,793,000
===========
Liabilities and Equity:
Accounts payable . . . . . . . . . . . . . . $3,053,000
Accrued expenses . . . . . . . . . . . . . . 9,799,000
Deferred revenues . . . . . . . . . . . . . 7,193,000
Current portion of long-term debt . . . . . 907,000
Note payable to related party . . . . . . . 1,550,000
Investment in joint ventures 81,000
Long-term debt . . . . . . . . . . . . . . . 1,368,000
Equity . . . . . . . . . . . . . . . . . . . 24,842,000
-----------
$48,793,000
===========
</TABLE>
Pro Forma Combined Condensed Statement of Operations (unaudited):
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ 59,263,000 $37,830,000 $27,893,000
============ =========== ===========
Net loss applicable to common
shareholders $(13,095,000) $(1,941,000) $(2,088,000)
============ =========== ===========
Net loss per share of common stock $ (0.71) $ (0.13) $ (0.16)
============ =========== ===========
Weighted average common and common
share equivalents 18,465,000 15,008,000 12,693,000
============ =========== ===========
</TABLE>
The unaudited pro forma results do not necessarily represent results
which would have occurred if the acquisitions had taken place on the dates
indicated nor are they necessarily indicative of the results of future
operations.
-109-
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Harbinger Corporation:
We have audited the accompanying consolidated balance sheets of Harbinger
Corporation and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1996 and 1995 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Harbinger Corporation and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
February 14, 1997
-110-
<PAGE> 1
EXHIBIT 21.1
-111-
<PAGE> 2
HARBINGER CORPORATION
LIST OF SUBSIDIARIES
Comtech Management Systems, Inc.
EDI Integration Services Limited
Harbinger N.V.
Harbinger Ltd. (UK)
Omega GmbH
INOVIS GmbH & Co.
NTEX Holdings B.V.
NTEX Computer Centrum, B.V.
NTEX Datacommunications, B.V.
SupplyTech, Inc.
SupplyTech International, LLC
SupplyTech de Mexico, S.A. de C.V.
SupplyTech International S.r.L.
-112-
<PAGE> 1
EXHIBIT 23.1
-113-
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Harbinger Corporation:
We consent to incorporation by reference in the Registration Statement (No.
33-96774) and (No. 333-03247) on Form S-8 and Registration Statement (No.
333-10893) on Form S-3 of Harbinger Corporation of our reports dated February
14, 1997, relating to the consolidated balance sheets of Harbinger Corporation
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1996, and the related financial statement
schedule, which reports appear in the 1996 Annual Report on Form 10-K of
Harbinger Corporation.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 26, 1997
-114-
<PAGE> 1
EXHIBIT 23.2
-115-
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Harbinger Corporation:
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K for the fiscal year ended December 31,
1996 into Harbinger Corporation's previously filed Registration Statements (No.
33- 96774) and (No. 333-03247) on Form S-8 and Registration Statement (No.
333-10893) on Form S-3.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 26, 1997
-116-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATMENETS OF HARBINGER CORPORATION FOR THE YEAR ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,395
<SECURITIES> 0
<RECEIVABLES> 11,347
<ALLOWANCES> 1,552
<INVENTORY> 0
<CURRENT-ASSETS> 22,516
<PP&E> 11,037
<DEPRECIATION> 4,192
<TOTAL-ASSETS> 42,457
<CURRENT-LIABILITIES> 11,164
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 31,293
<TOTAL-LIABILITY-AND-EQUITY> 42,457
<SALES> 13,919
<TOTAL-REVENUES> 41,725
<CGS> 2,165
<TOTAL-COSTS> 10,784
<OTHER-EXPENSES> 32,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (156)
<INCOME-PRETAX> (8,103)
<INCOME-TAX> 146
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,277)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
-118-
<PAGE> 2
HARBINGER CORPORATION
RISK FACTORS
Integration of Recent Acquisitions. The Company has completed a
number of acquisitions since January 1, 1996, including the acquisitions of
SupplyTech and HNS. SupplyTech and HNS have historically reported significant
operating losses. The Company's acquisitions present a number of risks,
including reversal of the historical operating losses of SupplyTech and HNS,
the integration of the SupplyTech software products into the Company's current
suite of products, the integration of the sales force of SupplyTech into the
Company's existing sales operations, the coordination of customer support
services, the integration of international operations with the Company's
international affiliates, the development and commercialization of HNS's
internet related products and the integration of those products with the
Company's existing products, and the diversion of management's attention from
other business concerns. Several of the newly acquired products address the
same markets as, and may therefore be competitive with, existing Company
products. There can be no assurance that the Company can successfully
assimilate its operations and integrate its software products with these
recently acquired operations, software products and technologies, or that the
Company will be successful in repositioning its products on a timely basis to
achieve market acceptance. Any delay in such integration could have a material
adverse effect on the Company.
Factors Affecting Operating Results; Potential Fluctuations in
Quarterly Results. The Company's quarterly operating results have in the past
and may in the future vary or decrease significantly depending on factors such
as revenue from software sales, the timing of new product and service
announcements, changes in pricing policies by the Company and its competitors,
market acceptance of new and enhanced versions of the Company's products, the
size and timing of significant orders, changes in operating expenses, changes
in Company strategy, personnel changes, government regulation, the introduction
of alternative technologies, the effect of acquisitions and general economic
factors. The Company has limited or no control over many of these factors.
The Company has experienced losses in the past, and at December 31, 1996, after
giving effect to the restatement of the financial statements of the Company to
reflect the acquisition of SupplyTech, which was accounted for under the
"pooling of interests" method of accounting, the Company had an accumulated
deficit of approximately $20 million. The Company operates with virtually no
network services or software product order backlog because its network services
are purchased on demand and its software products typically are shipped shortly
after orders are received. As a result, revenues in any quarter are
substantially dependent on the quantity of purchases of services requested and
product orders received in that quarter. Quarterly revenues also are difficult
to forecast because the market for electronic commerce and EDI software
products is rapidly evolving and the Company's revenues in any period are
significantly affected by the announcements and product offerings of the
Company's competitors as well as alternative technologies. The Company's IVAS
product is more complex and expensive compared to its other electronic commerce
and Internet products introduced to date, and will generally involve
significant investment decisions by prospective customers. Accordingly, the
Company expects that in selling its IVAS product it will encounter risks
typical of companies that rely on large accounts, including the reluctance of
purchasers to commit to major investments in new products and protracted sales
cycles, both of which add to the difficulty of predicting future revenues and
may result in quarterly fluctuations. The Company's expense levels are based,
in part, on its expectations as to future revenues. If revenue levels are
below expectations, the Company may be unable or unwilling to reduce expenses
proportionately and operating results are likely to be adversely affected. As
a result, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Due to all of the foregoing factors, it is
likely that in some future quarter or quarters the Company's operating results
will be below the expectations of public market analysts and investors. In
such event, the price of the Company's Common Stock will likely be adversely
affected.
The Company recognizes revenues from software license fees upon
shipment, net of estimated returns. Customers using the Company's PC products
are permitted to return products after delivery for a specified period,
generally 60 days. The Company generally has experienced returns of
approximately 20% of the PC product sales, and the Company records revenues
after a deduction for estimated returns. Any material increase in the
Company's return experience could have an adverse effect on its operating
results.
-119-
<PAGE> 3
Non-Recurring Charges; Expected Loss in 1997 First Quarter, and Year
Ended December 31, 1997. In January 1997, the Company completed the merger
with SupplyTech, accounted for as a pooling of interests, and expects a $7.0
million first quarter 1997 charge related to merger related expenses.
Additionally, the Company anticipates that it will incur integration costs
related to the merger of $2.5 to $3.5 million during 1997. In January 1997,
the Company completed the purchase of the $3,000,000 Convertible Subordinated
Debenture of HNS ("BST Debenture") from BellSouth Telecommunications and the
remaining equity in HNS from other shareholders for an aggregate of
approximately $7.2 million in consideration. The Company anticipates that it
will incur integration costs related to these transactions of $1.5 million to
$2.5 million during the first quarter of 1997. Additionally, the Company
anticipates that it will incur costs related to $2.4 million loss on
extinguishment of the Debenture and a $2.7 million charge for in-process
product development related to the acquisition of the minority interest of HNS.
These charges will be recorded in the first quarter of 1997. As a result of
these charges, the Company expects to incur a net loss for the first quarter of
1997 and for the year ending December 31, 1997.
Intense Competition. The electronic commerce, EDI and network
services and products businesses are intensely competitive and the Company has
many competitors with substantially greater financial, marketing, personnel and
technological resources than the Company. Other companies offer products and
services that may be considered by customers to be acceptable alternatives to
the Company's products and services. Certain companies also operate private
computer networks for transacting business with their trading partners. It is
expected that other companies may develop and implement similar
computer-to-computer networks, some of which may be ''public'' networks such as
the Company's and others may be ''private,'' providing services only to a
specific group of trading partners, thereby reducing the Company's ability to
increase sales of its network services. In addition, several companies offer
PC-based, UNIX, midrange and mainframe and Internet computer software products
which compete with the Company's software products. Advanced operating systems
and applications software from Microsoft and other vendors also may offer
electronic commerce functions that limit the Company's ability to sell its
software products. The Company believes that the continuing acceptance of
electronic commerce and EDI will attract new competitors, including software
applications and operating systems companies that may bundle electronic
commerce solutions with their programs, and alternative technologies that may
be more sophisticated and cost effective than the Company's products and
services. Competitive companies may offer certain electronic commerce products
or services, such as communications software or network transactional services,
at no charge or a deeply discounted charge, in order to obtain the sale of
other products or services. Since the Company's agreements with its network
subscribers are terminable upon 30 days' notice, the Company does not have the
contractual right to prevent its customers from changing to a competing
network. Competitors that offer products and/or services that compete with
various of the Company's products and services include, among others, Advantis
Systems, Inc. (a joint venture between Sears, Roebuck & Co. and IBM); AT&T;
Computer Associates International, Inc.; EDS; General Electric Information
Systems; Premenos Technology Corp.; QuickResponse Services, Inc.; Sterling
Commerce, Inc. and a joint venture between British Telecommunications Plc and
MCI Communications Corporation; as well as the internal programming staffs of
various businesses engaging in electronic commerce.
Emergence of EC Over the Internet. The Internet provides a potential
alternative means of providing electronic commerce to business trading
partners. The market for Internet software and services is both emerging and
highly competitive, ranging from small companies with limited resources to
large companies with substantially greater financial, technical and marketing
resources than the Company. In addition to the Company's Internet related
products and services, several existing competitors of the Company have
introduced their own Internet electronic commerce products and services.
Moreover, new competitors, which may include telephone companies and media
companies, are likely to increase the provision of business-to-business data
transmission services using the Internet. There is no assurance that the
Company's TrustedLink Guardian end user software and IVAS which enable
electronic commerce over the Internet will be accepted in the Internet market
or can be competitive with other products based on evolving technologies. If
the Internet becomes an accepted method of electronic commerce, the Company
could also lose network customers from its VAN which would reduce recurring
revenue from network services and have a material adverse effect on the
Company.
-120-
<PAGE> 4
The use of the Company's Internet electronic commerce products and
services will depend in large part upon the continued development of the
infrastructure for providing Internet access and services. Use of the Internet
for business-to-business electronic commerce services raises numerous issues
that, to the knowledge of the Company, have yet to be satisfactorily resolved.
Such issues include reliability, data security and data integrity, timely
transmission, and product and service pricing. Because global commerce and
online exchange of information on the Internet is new and evolving, it is
difficult to predict with any assurance whether the Internet will prove to be a
viable commercial marketplace. The Internet has experienced, and is expected
to continue to experience, substantial growth in the number of users and the
amount of traffic. There can be no assurance that the Internet will continue
to be able to support the demands placed on it by this continued growth. In
addition, the Internet could lose its viability due to delays in the adoption
of new standards and protocols to handle increased levels of Internet activity,
or due to increased governmental regulation. There can be no assurance that
the infrastructure or complementary services necessary to make the Internet a
viable commercial marketplace will be developed, or, if developed, that the
Internet will become a viable commercial marketplace for products and services
such as those offered by the Company. If the necessary infrastructure or
complementary services or facilities are not developed, or if the Internet does
not become a viable commercial marketplace, the Company's business, operating
results or financial condition will be materially adversely affected.
Risks of Potential Future Acquisitions. The Company's growth has been
significantly enhanced through acquisitions of other businesses, products and
licenses. Following the Offering, the Company will have significant cash
resources, which may be used for acquisitions. There can be no assurance that
the Company will be able to identify suitable acquisition candidates available
for sale at reasonable prices, consummate any acquisition or successfully
integrate any acquired business into the Company's operations. Operational and
software integration problems may arise if the Company undertakes future
acquisitions of complementary products, technologies or businesses. Future
acquisitions may also result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the write-off of in-process
product development and capitalized product costs, and the amortization of
expenses related to goodwill and other intangible assets, all of which could
have a material adverse effect on the Company. Acquisitions involve numerous
additional risks, including difficulties in the assimilation of the operations,
products and personnel of the acquired company, differing company cultures, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has little or no direct prior experience,
and the potential loss of key employees of the acquired company. Customer
satisfaction or performance problems at a single acquired firm could have a
material adverse impact on the reputation of the Company as a whole. The
Company expects to finance any future acquisitions with the proceeds of this
Offering as well as with possible debt financing, the issuance of equity
securities (common or preferred stock) or a combination of the foregoing.
There can be no assurance that the Company will be able to arrange adequate
financing on acceptable terms.
Dependence on New Products; Industry Standards. The electronic
commerce industry is characterized by rapid technological change, frequent new
product and service introductions and evolving industry standards. The
Company's future success will depend in significant part on its ability to
anticipate industry standards, continue to apply advances in electronic
commerce product and service technologies, enhance existing products and
services and introduce and acquire new products and services on a timely basis
to keep pace with technological developments. There can be no assurance that
the Company will be successful in developing, acquiring or marketing new or
enhanced products or services that respond to technological change or evolving
industry standards, that the Company will not experience difficulties that
could delay or prevent the successful development, acquisition or marketing of
such products or services or that its new or enhanced products and services
will adequately meet the requirements of the marketplace and achieve market
acceptance. In the past, the Company has experienced delays in the commencement
of commercial shipments of new products and enhancements, resulting in delays
or losses of product revenues. Such delays or failure in the introduction of
new or enhanced products or services, or the failure of such products or
services to achieve market acceptance, could have a material adverse effect on
the business, results of operations and financial condition of the Company.
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Ability to Manage Growth. The Company has recently experienced
significant growth in revenue, operations and personnel as it has made
strategic acquisitions, added subscribers to the Harbinger VAN and IVAS and
increased the number of licensees of its software products. This growth could
continue to place a significant strain on the Company's management and
operations, including its sales, marketing, customer support, research and
development, finance and administrative operations. Maintaining profitability
during a period of expansion will depend, among other things, on the Company's
ability to successfully expand its products, services and markets and to manage
its operations and acquisitions effectively. Difficulties in managing
continued growth, including difficulties in obtaining and retaining talented
management and product development personnel, especially following an
acquisition, could have a material adverse effect on the Company.
Investment in International Subsidiaries; International Growth and
Operations. The Company believes that its continued growth and profitability
will require expansion of its international operations through NTEX in the
Netherlands and INOVIS in Germany as well as the international operations of
SupplyTech in the United Kingdom, Italy, Australia and Mexico (the
"International Subsidiaries"). This expansion will require financial resources
and significant management attention, particularly by certain members of the
management of the Company. The Company's ability to successfully expand its
services business internationally will also depend upon its ability to attract
and retain both talented and qualified managerial, technical and sales
personnel and electronic commerce services customers outside the United States
and its ability to continue to effectively manage its domestic operations while
focusing on international expansion. Each of the International Subsidiaries has
experienced significant operating losses to date. To the extent that the
International Subsidiaries are unable to penetrate international markets in a
timely and profitable manner, the Company's growth, if any, in international
sales will be limited, and the Company could be materially adversely affected.
Moreover, the Company's ability to successfully implement its international
strategy may require installation and operation of a value-added network and
implementation of its IVAS software in other countries, as well as additional
improvements to its infrastructure and management information systems,
including its international customer support systems. In addition, there can
be no assurance that the Company will be able to maintain or increase
international market demand for the Company's products or services.
International operations are subject to certain inherent risks,
including unexpected changes in regulatory requirements and tariffs, longer
payment cycles, increased difficulties in collecting accounts receivable and
potentially adverse tax consequences. To the extent international sales are
denominated in foreign currencies, gains and losses on the conversion to U.S.
dollars of accounts receivable and accounts payable arising from international
operations may contribute to fluctuations in the Company's results of
operations. The Company has not entered into any hedging or other arrangements
for the purpose of guarding against the risk of currency fluctuation. In
addition, sales in Europe and certain other parts of the world typically are
adversely affected in the third calendar quarter of each year because many
customers reduce their business activities in the summer months.
Dependence on Key Management and Personnel; Ability to Attract and
Retain Qualified Personnel. The Company's success is largely dependent upon
its executive officers and key sales and technical personnel, the loss of one
or more of whom could have a material adverse effect on the Company. The
future success of the Company will depend in large part upon its ability to
attract and retain talented and qualified personnel. In particular, the
Company believes that it will be important for the Company to hire experienced
product development and sales personnel. Competition in the recruitment of
highly-qualified personnel in the computer software and electronic commerce
industries is intense. The inability of the Company to locate and retain such
personnel may have a material adverse effect on the Company. No assurance can
be given that the Company can retain its key employees or that it can attract
qualified personnel in the future. The Company currently carries key-person
life insurance policies on the lives of Messrs. Howle, Leach and Hart.
Dependence Upon Major Customer. The Company has an agreement with
System Software Associates, Inc. ("SSA") for the distribution and marketing of
certain software products of the Company. SSA is to pay the Company royalties
representing a percentage of annual net fees generated by SSA from the sale of
software licensed from the Company. For the years ended December 31, 1995 and
1996, revenues from SSA represented approximately 7% and 14%, respectively of
the Company's total revenues for such periods. SSA had minimum royalty
obligations of $1.4 million in 1995 and $5.7 million in 1996, which accounted
for the revenues received by the Company. There is no minimum royalty
obligation after 1996, and the Company expects that revenues from
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SSA may decline in 1997 and subsequent years. In the event that SSA ceases to
perform under its agreement with the Company or fails to generate product sales
consistent with 1996 royalty levels, or the agreement with SSA is terminated,
the Company may be adversely affected.
Risks of Product Development. Software products as complex as those
offered by the Company may contain undetected errors or failures when first
introduced or when new versions are released. If software errors are
discovered after introduction, the Company could experience delays or lost
revenues during the period required to correct these errors. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, additional and unexpected expenses to fund further product
development or to add programming personnel to complete a development project,
and loss of revenue because of the inability to sell the new product on a
timely basis, any one or more of which could have a material adverse effect on
the Company.
Dependence on Data Centers. The network service operations of the
Company are dependent upon the ability to protect computer equipment and the
information stored in the Company's data centers against damage that may be
caused by fire, power loss, telecommunication failures, unauthorized intrusion,
computer viruses and disabling devices and other similar events.
Notwithstanding precautions the Company has taken, there can be no assurance
that a fire or other natural disaster, including national, regional or local
telecommunications outages, would not result in a prolonged outage of the
Company's network services. In the event of a disaster, and depending on the
nature of the disaster, it may take from several hours to several days before
the Company's off-site computer system can become operational for all of the
Company's customers, and use of the alternative off-site computer would result
in substantial additional cost to the Company. In the event that an outage of
the Company's network extends for more than several hours, the Company will
experience a reduction in revenues by reason of such outage. In the event that
such outage extends for one or more days, the Company could potentially lose
many of its customers which may have a material adverse effect on the Company.
Dependence upon Certain Licenses. The Company relies on certain
technology that it licenses from third parties and other products that are
integrated with internally developed software and used in the Company's
products to perform key functions or to add important features. There can be no
assurance that the Company will be successful in negotiating third-party
technology licenses on suitable terms or that such licenses will not be
terminated in the future. Moreover, any delay or product problems experienced
by such third party suppliers could result in delays in introduction of the
Company's products and services until equivalent technology, if available, is
identified, licensed and integrated, which could have a material adverse effect
on the Company's business, operating results and financial condition.
Limited Protection of Proprietary Technology; Risks of Infringement.
The Company relies primarily on a combination of copyright, patent and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials principally under trade
secret and copyright laws, which afford only limited protection. The Company
presently has one patent for an electronic document interchange test facility
and a patent application pending for an EDI communication system. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology. In distributing many of its products, the Company relies primarily
on ''shrink wrap'' licenses that are not signed by licensees and, therefore,
may be unenforceable under the laws of certain jurisdictions. In addition, the
Company has licensed it products to users and distributors in other countries,
and the laws of some foreign countries do not protect the Company's proprietary
rights to as great an extent as the laws of the United States. The Company
does not believe that any of its products infringe the proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company with respect to current or future products,
and the Company has agreed to indemnify many of its customers against such
claims. The Company expects that software product developers will increasingly
be subject to infringement claims as the number of products and competitors in
electronic commerce grows and the functionality of products in different
industry segments overlaps. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment
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delays or require the Company to enter into royalty or licensing agreements and
indemnify its customers against resulting liability, if any. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect on the
Company.
Government Regulatory and Industrial Policy Risks. The Company's
network services are transmitted to its customers over dedicated and public
telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for communications. Changes in the legislative
and regulatory environment relating to online services, EDI or the Internet
access industry, including regulatory or legislative changes which directly or
indirectly affect telecommunication costs or increase the likelihood of
competition from regional telephone companies or others, could have an adverse
effect on the Company's business. The Telecommunications Act of 1996 ("Act")
amended the federal telecommunications laws by lifting restrictions on regional
telephone companies and others competing with the Company and imposed certain
restrictions regarding obscene and indecent content communicated to minors over
the Internet or through interactive computer services. The Act lifted
restrictions on regional telephone companies providing transport between
defined geographic boundaries associated with the provision of its own
information services. This enables regional telephone companies to more
readily compete with the Company by packaging information service offerings
with other services. Additionally, the Act imposes fines and other criminal
liability on any entity that knowingly uses a telecommunications device or
interactive computer service to send obscene or indecent material to minors or
permits any telecommunications facility under such entity's control to be used
for such a purpose. The Act provides a defense for persons providing access or
a connection, such as the Company, so long as the access or connection provider
is not involved in the creation of content. Litigation has been filed in U.S.
federal court challenging the constitutionality of certain provisions of the
Act. A temporary restraining order has been issued by a federal court
enjoining the U.S. Attorney General from enforcing the Act's "indecency"
prohibition. This case is currently on appeal to the U.S. Supreme Court. The
ability and likelihood of state regulators and/or the FCC, or the governments
of foreign countries, to impose regulations on the Internet is unclear. At
present the Internet is treated by the FCC as an unregulated enhanced service,
but the FCC is currently considering whether to regulate certain aspects of the
Internet. Also, some countries such as Germany have adopted laws regulating
aspects of the Internet, and there are a number of bills currently being
considered in the United States at the federal and state levels involving
encryption and digital signatures, all of which may impact the Company. The
Company cannot predict the impact, if any, that the Act and future court
opinions, legislation, regulations or regulatory changes in the United States
or other countries may have on its business. Management believes that the
Company is in compliance with all material applicable regulations.
Anti-Takeover Provisions. The Board of Directors has authority to
issue up to 20,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of the
preferred stock without further vote or action by the Company's shareholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that
may be issued in the future. While the Company has no present intention to
issue additional shares of preferred stock, such issuance, while providing
desired flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Company's Amended and Restated Articles of
Incorporation and Bylaws contain provisions that may discourage proposals or
bids to acquire the Company. This could limit the price that certain investors
might be willing to pay in the future for shares of Common Stock. The
Company's Amended and Restated Articles of Incorporation provide for a
classified Board of Directors with three-year, staggered terms for its members.
The classification of the Board of Directors could have the effect of making it
more difficult for a third party to acquire control of the Company.
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