-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UjWzzmoVGyyDfH4fehhcxsS3I4YkhHbZu+XetWmf/74YMU0Y6Q1fVzJqMq1BiQvm h20o5tky56yKnAkQcFSnhg== 0000950147-99-000120.txt : 19990217 0000950147-99-000120.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950147-99-000120 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIASOFT INC /DE/ CENTRAL INDEX KEY: 0000935418 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942892506 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25472 FILM NUMBER: 99540873 BUSINESS ADDRESS: STREET 1: 3033 NORTH 44TH ST CITY: PHOENIX STATE: AZ ZIP: 85018 BUSINESS PHONE: 6029520050 MAIL ADDRESS: STREET 1: 3033 NORTH 44TH ST CITY: PHOENIX STATE: AZ ZIP: 85018 10-Q 1 QUARTERLY REPORT FOR THE QTR ENDED 12/31/98 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-Q --------------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to __________________ COMMISSION FILE NUMBER 0-25472 VIASOFT, INC. (Exact name of Registrant as specified in its charter) DELAWARE 94-2892506 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3033 NORTH 44TH STREET, PHOENIX, ARIZONA 85018 (Address of principal executive offices) (Zip Code) (602) 952-0050 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of January 31, 1999, there were outstanding 18,148,376 shares of Common Stock, par value $.001 per share, of Viasoft, Inc. VIASOFT, INC. AND SUBSIDIARIES INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 1998 and June 30, 1998 3 Consolidated Statements of Operations for the three and six months ended December 31, 1998 and 1997 4 Consolidated Statements of Cash Flows for the six months ended December 31, 1998 and 1997 5 Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 1998 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 4. Submission of Matter to a Vote of Security Holders 21 Item 6. Exhibits and Reports on Form 8-K 22 2 VIASOFT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, June 30, 1998 1998 --------- --------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 25,289 $ 37,809 Investments, at amortized cost 53,982 63,294 Accounts receivable (less allowance for doubtful accounts of $942 and $815, respectively) 34,039 33,227 Prepaid expenses and other 4,322 7,774 --------- --------- Total current assets 117,632 142,104 --------- --------- Furniture and equipment, net 8,374 7,609 Other assets: Investments, at amortized cost -- 2,502 Intangible assets, net 7,563 6,751 Other 5,440 3,411 --------- --------- Total other assets 13,003 12,664 --------- --------- Total assets $ 139,009 $ 162,377 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,126 $ 1,733 Accrued compensation 3,331 4,390 Accrued income taxes payable 1,525 5,113 Other accrued expenses 16,093 13,768 Deferred revenue 17,011 20,843 --------- --------- Total current liabilities 39,086 45,847 --------- --------- Deferred revenue, recognized after one year 413 542 --------- --------- Other long term liabilities 124 130 --------- --------- Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value, 2,000,000 shares authorized, no shares issued or outstanding -- -- Common stock, $.001 par value, 24,000,000 shares authorized, 19,456,133 shares issued at both December 31, and June 30, 1998, respectively 19 19 Capital in excess of par value 123,774 125,626 Common stock subscriptions receivable (31) (31) Accumulated deficit (12,616) (6,995) Cumulative translation adjustment (179) (580) Treasury stock, at cost, 1,311,081 and 135,000 shares at December 31, and June 30, 1998, respectively (11,581) (2,181) --------- --------- Total stockholders' equity 99,386 115,858 --------- --------- Total liabilities and stockholders' equity $ 139,009 $ 162,377 ========= ========= The accompanying notes are an integral part of these consolidated statements. 3 VIASOFT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended Six Months Ended December 31, December 31, ----------------- ------------------ 1998 1997 1998 1997 ------- ------- -------- -------- Revenue: Software license fees $13,738 $16,690 $ 23,473 $ 30,208 Maintenance fees 8,849 7,103 17,142 13,987 Professional services fees 7,091 4,343 14,379 9,962 Other 9 38 16 79 ------- ------- -------- -------- Total revenues 29,687 28,174 55,010 54,236 ------- ------- -------- -------- Operating expenses: Cost of software license and maintenance fees 4,606 2,746 8,355 4,522 Cost of professional services fees 6,107 4,327 12,099 9,092 Sales and marketing 11,239 9,866 22,344 19,187 Write-off of purchased in-process research and development -- -- 5,013 -- Research and development 3,768 3,285 8,222 6,103 General and administrative 2,477 1,864 5,139 3,902 Restructuring charge -- -- 4,790 -- ------- ------- -------- ------- Total operating expenses 28,197 22,088 65,962 42,806 ------- ------- -------- ------- Income (loss) from operations 1,490 6,086 (10,952) 11,430 ------- ------- -------- ------- Other income (expense): Interest income 1,049 1,530 2,418 2,051 Interest expense (2) (1) (2) (1) Other income (expense), net (310) 42 (103) (80) ------- ------- -------- ------- Total other income (expense) 737 1,571 2,313 1,970 ------- ------- -------- ------- Income (loss) before income taxes 2,227 7,657 (8,639) 13,400 Income tax (benefit)/provision 780 2,622 (3,019) 4,599 ------- ------- -------- ------- Net income (loss) $ 1,447 $ 5,035 $ (5,620) $ 8,801 ======= ======= ======== ======= Basic earnings (loss) per common share $ 0.08 $ 0.26 $ (0.30) $ 0.47 ======= ======= ======== ======= Weighted average number of common shares outstanding 18,311 19,342 18,633 18,632 ======= ======= ======== ======= Diluted earnings (loss) per common and common share equivalent $ 0.08 $ 0.25 $ (0.30) $ 0.45 ======= ======= ======== ======= Weighted average number of common and common share equivalents outstanding 18,481 20,005 18,633 19,370 ======= ======= ======== ======= The accompanying notes are an integral part of these consolidated statements. 4 VIASOFT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six Months Ended December 31, ---------------------- 1998 1997 -------- -------- Operating activities: Net income (loss) $ (5,620) $ 8,801 -------- -------- Adjustments to reconcile net income (loss) to net cash provided by operating activities - Write-off of purchased in-process research and development 5,013 -- Restructuring charge 4,780 -- Depreciation and amortization 2,783 1,582 Changes in operating assets and liabilities net of effect of business acquired: Increase in accounts receivable (812) (8,596) (Increase) decrease in prepaid expenses and other 3,701 (1,325) (Increase) decrease in other assets (2,929) 679 Increase (decrease) in accrued income taxes (3,588) 3,353 Decrease in accounts payable and other accrued expenses (2,844) (29) Increase (decrease) in accrued compensation (1,059) 18 Increase (decrease) in deferred revenue (3,968) 350 -------- -------- Total adjustments 1,077 (3,968) -------- -------- Net cash (used in) provided by operating activities (4,543) 4,833 -------- -------- INVESTING ACTIVITIES: Capital expenditures (2,691) (2,705) Cash paid for business, net of cash acquired (6,000) (530) Purchase of investments (48,273) (67,651) Investment maturities 59,838 11,057 -------- -------- Net cash provided by (used in) investing activities 2,874 (59,829) -------- -------- FINANCING ACTIVITIES: Purchase of treasury stock (12,074) -- Sale of treasury stock 822 -- Payments received on common stock subscriptions receivable -- 24 Proceeds from issuance of common stock -- 77,799 Payments for offering costs -- (747) -------- -------- Net cash (used in) provided by financing activities (11,252) 77,076 -------- -------- Effect of exchange rate changes on cash 401 109 -------- -------- Net increase (decrease) in cash and cash equivalents (12,520) 22,189 Cash and cash equivalents, beginning period 37,809 8,501 -------- -------- Cash and cash equivalents, end of period $ 25,289 $ 30,690 ======== ======== Supplemental cash flow information: Income taxes paid $ 2,894 $ 1,245 Disqualifying dispositions -- 2,696 The accompanying notes are an integral part of these consolidated statements. 5 VIASOFT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three Months Ended Six Months Ended December 31, 1998 December 31, 1998 ----------------- ----------------- Net Income (loss) $ 1,447 $ (5,620) Other comprehensive income, net of tax Foreign currency translation adjustments 65 261 ------- -------- Comprehensive income (loss) $ 1,512 $ (5,359) ======= ======== The accompanying notes are an integral part of these consolidated statements. 6 VIASOFT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Viasoft, Inc. and its wholly-owned subsidiaries ("Viasoft" or the "Company") after elimination of all significant intercompany balances and transactions. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles ("GAAP") for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the three and six month periods ended December 31, 1998 may not necessarily be indicative of the results for the entire year. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 1998. EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which supersedes Accounting Principles Board Opinion No. 15, the existing authoritative guidance. SFAS No. 128 is effective for financial statements for periods ending after December 15, 1997 and requires restatement of all prior-period earnings per share data presented. The new statement modifies the calculations of primary and fully diluted earnings per share and replaces them with basic and diluted earnings per share. The earnings per share calculation for the three and six months ended December 31, 1997, assumes the Company had adopted SFAS No. 128 on July 1, 1997. Shares issuable upon the exercise of employee stock options that are considered anti-dilutive are not included in the weighted average number of common and common share equivalents outstanding. 2. ACQUISITIONS AND LICENSING AGREEMENTS In July 1998, the Company acquired exclusive worldwide marketing and development rights to SHL TRANSFORM, a knowledge-driven process management and productivity software toolset and its integrated process management methodologies, from the Online Knowledge Group (OKG) of Canadian-based SHL Systemhouse Co. ("Systemhouse"). As part of the agreement, the Company had the option to hire certain employees of Systemhouse in October 1998, had the option to purchase certain furniture and equipment used by the Systemhouse development 7 employees and has the exclusive right to remarket the licensed software to Systemhouse's existing customers. As a result, the agreement was accounted for as a purchase in accordance with Accounting Principles Board Opinion Nos. 16 and 17. The transaction was structured as a worldwide perpetual source code license and is exclusive, subject to Systemhouse's retained right to use the technology for its own internal use and in its consulting business. Viasoft will also pay certain royalties to Systemhouse based on sales of methodology and training components. In connection with the acquisition of SHL, the Company allocated $5.0 million of the purchase price to in-process research and development projects, $1.2 million to developed technology and $700,000 to other intangible assets. This allocation to in-process research and development represents the estimated fair value based on risk-adjusted cash flows related to incomplete projects. A discount range of 37.5% to 42.5% was used for valuing the in-process research and development projects. Other intangible assets consisted of assembled workforce and cost in excess of net assets acquired. The purchased software, assembled workforce and cost in excess of net assets acquired are being amortized on a straight-line basis over five, six and five years, respectively. The Company plans to integrate the technology and methodology into its entire product and service lines to deliver repeatable, defined business solutions to its customers. The first of two projects was to migrate all of the Company's existing business solution processes to the process management toolset. This project was estimated to cost $500,000. The integration of the Company's existing business solution processes is substantially complete as of December 31, 1998 and did cost approximately $500,000. The second project was the re-design, development and testing necessary to migrate the underlying process management tool from 16-bit architecture to 32-bit architecture in order to integrate the tool with the Company's existing and planned products. This project was estimated to cost approximately $2.6 million and to be complete at the end of calendar 1999. Due to additional requirements identified, it is estimated that the project will now be completed in the Company's first fiscal quarter of 2001 and is estimated to cost approximately $4.1 million. The project is estimated to be approximately 15% complete at December 31, 1998. There is risk associated with the completion of any research and development project, however, management believes that there is a reasonable chance of completing these in-process projects. The Company cannot be assured that either of the in-process projects will meet with technological or commercial success. Operating results are subject to uncertain market events and risks, which are beyond the Company's control, such as trends in technology, government regulations, market size and growth, and product introduction or other actions by competitors. Thus there can be no assurance that the underlying assumptions used to estimate expected project sales, development costs or profitability, or the events associated with such projects, will transpire as estimated (see also Special Note on Forward-Looking Statements). 8 If the research and development projects are not completed as planned, the sales and profitability of the Company may be adversely affected in future periods. The failure of any particular individual in-process project would not materially impact the Company's financial condition, results of operations or cash flows. The aggregate cost of the acquisition consisted of the following (in thousands): Cash............................................... $ 6,000 Assumption of liabilities and acquisition costs.... 885 ------- Total....................................... $ 6,885 ======= ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company derives its revenues primarily from software license fees, software maintenance fees and professional services fees. The Company's software is licensed primarily to Global 5000 companies and similarly-sized business and governmental organizations worldwide. Professional services are provided in conjunction with software products and are also provided separately to similar large organizations. The Company's products and services are marketed through its domestic and international direct sales organizations, through a number of foreign independent distributors located in Europe, the Far East, South Africa and Latin America, and through a new reseller channel established during the third quarter of fiscal 1998 primarily to sell the OnMark 2000 product line. Revenue is recognized in accordance with Statement of Position 97-2, "Software Revenue Recognition." Accordingly, revenue from software licenses is recognized when delivery of the software has occurred, a signed non-cancelable license agreement has been received from the customer or a purchase order from a reseller after receipt of an executed reseller agreement and any remaining obligations under the license agreement are insignificant. Revenue from software license fees related to the Company's obligation to provide certain post-contract customer support without charge for the second year of the license is unbundled from the license fee at its fair value and is deferred and recognized straight-line over the contract support period. Revenue from annual or other renewals of maintenance contracts (including long-term contracts) is deferred and recognized straight-line over the term of the contracts. Revenues from professional services fees are recognized generally as related services are provided. Professional services do not involve significant customization, modification or production of the licensed software. In the first quarter of fiscal 1999, the Company established and began implementing a restructuring program designed to refocus the Company on its core business and to reduce its operating expenses. The Company recorded a pre-tax restructuring charge of $4.8 million in the first quarter of fiscal 1999. This restructuring charge covered $3.1 million for severance and related costs for a reduction in workforce of approximately 10% of the Company's 550 employees 9 worldwide; $800,000 for office consolidation costs including leasehold termination payments and other facility exit costs for certain offices worldwide which were unrelated to the Company's core business; and $900,000 for the write down of intangible assets which had become impaired as determined by a net realizable value test based on future forecasted revenues. The Company expects the restructuring program to be complete within 12 months. As of December 31, 1998, approximately 67 employees were separated from the Company and $1,127,000 in severance and related costs had been paid out or incurred. The discussion of results of operations for the six months ended December 31, 1998 below excludes the effect of this restructuring charge and a purchased in-process research and development charge of approximately $5.0 million pre-tax (See Note 2 of Notes to Consolidated Financial Statements) recorded in the first quarter of fiscal 1999. Excluding these special charges, net income for the first six months of fiscal 1999 was $752,000, or $.04 per share, compared to net income of $8,801,000 or $0.45 per share diluted, in the same quarter a year ago. Including these charges, the loss for the first six months of fiscal 1999 was $5,620,000, or $.30 per share. COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997 REVENUES Total revenues were $29,687,000 for the second quarter of fiscal 1999, an increase of 5% from $28,174,000 for the second quarter of fiscal 1998. Software license fees were $13,738,000 in the second quarter of fiscal 1999, a decrease of 18% from $16,690,000 in the second quarter of fiscal 1998. Software license fees decreased both domestically and internationally primarily as a result of the slow down in the demand for the Company's year 2000 mainframe software tools. However, the decline in mainframe license fees was partially offset by desktop license revenues from OnMark 2000, which were a significant portion of the Company's license revenue during the second quarter of fiscal 1999. There were no desktop license revenues in the second quarter of fiscal 1998, as OnMark 2000 was not released until the third quarter of fiscal 1998. The Company anticipates that desktop license revenues will continue to be a significant percentage of license revenues in the near term and, as a result, mainframe license revenues may continue to decrease year over year. The Company has announced its intention to refocus its efforts on its core business, which is assisting its customers with maintaining and modernizing their mission-critical applications. Maintenance fees were $8,849,000 in the second quarter of fiscal 1999, an increase of 25% from $7,103,000 in the second quarter of fiscal 1998. The increase was due to new software licenses, customer system upgrades and increases in the fees charged for annual maintenance. With the Company's entry into the desktop software market with the OnMark 2000 product line, it has experienced that a large number of OnMark customers do not purchase maintenance services. As a result, there could be some erosion in maintenance revenue growth to the extent that license sales of OnMark 2000 continue to grow as a percentage of revenues. 10 Professional services fees were $7,091,000 in the second quarter of fiscal 1999, an increase of 63% from $4,343,000 in the second quarter of fiscal 1998. In late fiscal 1998, the Company refocused its efforts in the services area and began to offer a broad range of solutions. In addition to continuing to provide enablement services designed to assist customers to perform projects in-house, the Company refocused the services business to target large consulting projects and make its project management expertise available to customers to manage large application conversion or re-engineering projects. Management believes it is beginning to see the results of these efforts, with the increase in services revenue year over year. A significant portion of the Company's services fee revenue comes from year 2000 related projects, but with the Company's renewed focus on providing a broader range of solutions, management believes it is well positioned to assist customers in post year 2000 projects, such as application modernization. The Company is still in the process of implementing its refocused services strategy and there can be no assurance that these initial trends of services revenue increases will continue. The Company will continue to closely monitor its progress in this area from both a revenue generation and profitability standpoint. COST OF REVENUES Cost of software license and maintenance fees, which includes royalties, cost of customer support and packaging and product documentation, was $4,606,000 in the second quarter of fiscal 1999, an increase of 68% from $2,746,000 in the second quarter of fiscal 1998. Gross margins on software license and maintenance fees decreased to 80% in the second quarter of fiscal 1999 compared to 88% in the second quarter of fiscal 1998. Management anticipates that the cost of license and maintenance fees will continue to increase and the gross margin will continue to decrease year over year due to increased sales of products requiring royalties to third parties. Royalty expenses increased 118% in the second quarter of fiscal 1999 compared to the same quarter in fiscal 1998. The increase in royalty expense is primarily due to sales of the OnMark 2000 product line, representing a significant portion of the second quarter of fiscal 1999 license sales, which require payments of royalties to third parties. Other factors contributing to the increase in cost of software license and maintenance fees and decline in margins included increases in the number of customer support personnel and their related costs, increased salaries and outside consultant costs, and amortization of the purchased research and development from the January 1998 EraSoft Technologies, Inc. acquisition and the July 1998 Systemhouse product acquisition (See Note 2 of Notes to Consolidated Financial Statements). Cost of professional services fees, which consists principally of personnel costs, third party subcontracting costs, and other costs related to the professional services business, was $6,107,000 in the second quarter of fiscal 1999, an increase of 41% from $4,327,000 in the second quarter of fiscal 1998. The gross margin for professional services was 14% in the second quarter of fiscal 1999 compared to breakeven in the second quarter of fiscal 1998. The increase in expenses was primarily a result of additional subcontractor costs to support the increase in revenues, primarily from large consulting projects. Management expects that the use of subcontractors will continue in order to 11 staff large projects. The cost increase was offset in part by lower salaries and related costs as internal services headcount declined year over year. Internal consulting services staff decreased during fiscal 1998, when the Company used the enablement services model, which required less internal staff. However, the Company's new services strategy requires additional investment in internal headcount during the remainder of fiscal 1999. The increase in margins is primarily the result of increased focus on profitability and the changes in the services business model. SALES AND MARKETING Sales and marketing expenses, which consist primarily of salaries, commissions and related benefits and administrative costs allocated to the Company's sales and marketing personnel, were $11,239,000 in the second quarter of fiscal 1999, an increase of 14% from $9,866,000 in the second quarter of fiscal 1998. This increase is attributable primarily to an increase in personnel and the associated costs, higher salaries and commissions, increased marketing and promotion costs. Sales and marketing expenses as a percentage of total revenues was 38% in the second quarter of fiscal 1999 and 35% in the second quarter of 1998. This increase is due primarily to the decline in revenues year over year and the increase in marketing costs. RESEARCH AND DEVELOPMENT Research and development expenditures consist primarily of personnel costs of the research and development staff and the facilities, computing, benefits and other administrative costs allocated to such personnel and third-party development costs. Research and development expenditures were $3,768,000 in the second quarter of fiscal 1999, compared to $3,285,000 in the second quarter of fiscal 1998. Research and development expenses increased 15% year over year. Research and development expenses included approximately $480,000 in charges for third-party development during the second quarter of fiscal 1999. No third-party development costs were incurred in the second quarter for fiscal 1998. Excluding these charges, research and development charges are flat year over year primarily due to the decrease in personnel as a result of the reduction in force announced in the first quarter of fiscal 1999. This reduction lowered research and development salaries and wages and third-party consultant costs down to fiscal 1998 levels. However, lower recruiting and relocation costs were offset by higher costs of mainframe usage and increased depreciation expense related to new hardware and software purchased for development. As a percentage of total revenues, research and development costs were 13% in the second quarter of fiscal 1999 compared to 12% for the same period in fiscal 1998. The increase in research and development cost as a percentage of revenue is primarily due to the third-party development costs. 12 GENERAL AND ADMINISTRATIVE General and administrative expenses include the costs of finance and accounting, legal, human resources, corporate information systems and other administrative functions of the Company. General and administrative expenses were $2,477,000 in the second quarter of fiscal 1999, compared to $1,864,000 in the second quarter of fiscal 1998. General and administrative expenses increased 33% year over year. This increase is a result of additional administrative personnel and their related costs, general salary increases and amortization of intangibles related to the EraSoft and Systemhouse acquisitions. As a percentage of total revenues, general and administrative expenses were 8% in the second quarter of fiscal 1999 compared to 7% in the second quarter of fiscal 1998. This increase is primarily due to the overall increase in administrative personnel. INCOME TAX BENEFIT/PROVISION The Company's effective tax rate was 35% in the second quarter of fiscal 1999, compared to 34%, for the same period in fiscal 1998. COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997 REVENUES Total revenues were $55,010,000 for the first six months of fiscal 1999, an increase of 1% from $54,236,000 for the first six months of fiscal 1998. Software license fees were $23,473,000 in the first six months of fiscal 1999, a decrease of 22% from $30,208,000 in the first six months of fiscal 1998. Software license fees decreased both domestically and internationally primarily as a result of the slow down in the demand for the Company's year 2000 mainframe software tools in addition to slow desktop license revenues from OnMark 2000 sales in the first quarter of fiscal 1999. There were no desktop license revenues in the first six months of fiscal 1998, as OnMark 2000 was not released until the third quarter of fiscal 1998. The Company anticipates that desktop license revenues will continue to be a significant percentage of license revenues in the near term and, as a result, mainframe license revenues may continue to decrease year over year. Maintenance fees were $17,142,000 in the first six months of fiscal 1999, an increase of 23% from $13,987,000 in the first six months of fiscal 1998. The increase was due to new software licenses, customer system upgrades and increases in the fees charged for annual maintenance. With the Company's entry into the desktop software market with the OnMark 2000 product line, it has experienced that a large number of OnMark customers do not purchase maintenance services. As a result, there could be some erosion in maintenance revenue growth to the extent that license sales of OnMark 2000 continue to grow as a percentage of revenues. Professional services fees were $14,379,000 in the first six months of fiscal 1999, an increase of 44% from $9,962,000 in the first six months of fiscal 1998. Management believes it is beginning to see the results of its refocus on the services business and broader services offerings, with the increase in services revenue year over year. A significant portion of the 13 Company's services fee revenue comes from year 2000 related projects, but with the Company's renewed focus on providing a broader range of solutions, management believes it is well positioned to assist customers in post year 2000 projects, such as application modernization. The Company is still in the process of implementing its refocused services strategy and there can be no assurance that these initial trends of increased services revenue will continue. The Company will continue to closely monitor its progress in this area from both a revenue generation and profitability standpoint. COST OF REVENUES Cost of software license and maintenance fees was $8,355,000 in the first six months of fiscal 1999, an increase of 85% from $4,522,000 in the first six months of fiscal 1998. Gross margins on software license and maintenance fees decreased to 79% in the first six months of fiscal 1999 compared to 90% in the first six months of fiscal 1998. Management anticipates that the cost of license and maintenance fees will continue to increase and the gross margin will continue to decrease year over year due to increased sales of products requiring royalties to third parties. Royalty expenses increased 140% in the first six months of fiscal 1999 compared to the same quarter in fiscal 1998. The increase in royalty expense is primarily due to sales of the OnMark 2000 product line, representing a significant portion of the first six months of fiscal 1999 license fees, which require payments of royalties to third parties. Other factors contributing to the increase in cost of software license and maintenance fees and decline in margins, included increases in the number of customer support personnel and their related costs, increased salaries, amortization of the purchased research and development from the January 1998 EraSoft Technologies, Inc. acquisition and the July 1998 Systemhouse product acquisition (See Note 2 of Notes to Consolidated Financial Statements) and increased OnMark 2000 related costs, including outside consultants to provide customer support and product documentation and packaging. Cost of professional services fees was $12,099,000 in the first six months of fiscal 1999, an increase of 33% from $9,092,000 in the first six months of fiscal 1998. The gross margin for professional services was 16% in the first six months of fiscal 1999 compared to 9% in the first six months of fiscal 1998. The increase in expenses was primarily a result of additional subcontractor costs to support the increase in revenues, primarily from large consulting projects. Management expects that the use of subcontractors will continue in order to staff large projects. The cost increase was offset in part by lower salaries and related costs as internal services headcount declined year over year. Internal consulting services staff decreased during fiscal 1998, when the Company used the enablement services model, which required less internal staff. However, the Company's new services strategy requires additional investment in internal headcount during the remainder of fiscal 1999. The margin improvement is primarily the result of increased focus on profitability and the changes in the services business model. 14 SALES AND MARKETING Sales and marketing expenses were $22,344,000 in the first six months of fiscal 1999, an increase of 16% from $19,187,000 in the first six months of fiscal 1998. This increase is attributable primarily to an increase in personnel and the associated costs, higher salaries, increased travel, marketing and promotion costs and a $1.0 million bad debt provision. These increases were offset in part by decreases in commissions and bonuses due to the decrease in license revenues. Sales and marketing expenses as a percentage of total revenues was 41% in the first six months of fiscal 1999 and 35% in the first six months of 1998. This increase is due primarily to the decline in total revenues year over year. RESEARCH AND DEVELOPMENT Research and development expenditures were $8,222,000 in the first six months of fiscal 1999, compared to $6,103,000 in the first six months of fiscal 1998. Research and development expenses increased 35% year over year. Research and development expenses included approximately $1,474,000 in charges for third-party development of certain technologies acquired during the first six months of fiscal 1999 (See Note 2 of Notes to Consolidated Financial Statements). This increase also was due to the increase in research and development personnel and salary increases prior to the reduction in force announced in the first quarter of fiscal 1999. This reduction lowered research and development salaries and wages and third-party consultant costs down to fiscal 1998 levels. As a percentage of total revenues, research and development costs were 15% in the first six months of fiscal 1999 compared to 11% for the same period in fiscal 1998. The increase in research and development cost as a percentage of revenue is primarily due to the overall decrease in revenues year over year and the third-party development costs. GENERAL AND ADMINISTRATIVE General and administrative expenses were $5,139,000 in the first six months of fiscal 1999, compared to $3,902,000 in the first six months of fiscal 1998. General and administrative expenses increased 32% year over year. This increase is a result of additional administrative personnel and their related costs, general salary increases and amortization of intangibles related to the EraSoft and Systemhouse acquisitions, offset by lower legal and consulting fees. As a percentage of total revenues, general and administrative expenses were 9% in the first six months of fiscal 1999 compared to 7% in the first six months of fiscal 1998. This increase is primarily due to the overall decrease in revenues year over year and the additional personnel costs. INCOME TAX BENEFIT/PROVISION The Company's effective tax rate was 35% in the first six months of fiscal 1999, compared to 34%, for the same period in fiscal 1998. 15 LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, the Company had cash and cash equivalents and investments of $79,271,000, representing a decrease of $24,334,000 from $103,605,000 at June 30, 1998. The decrease is primarily a result of the cost of the Systemhouse acquisition (See Note 2 of Notes to Consolidated Financial Statements), cash used in operations and the share purchases under the Company's stock repurchase program. The Company's net cash used in operating activities for the first six months of fiscal 1999 was $4,543,000 compared to cash provided by operations of $4,833,000 for the first six months of fiscal 1998. Net cash used in operations for the first six months of fiscal 1999 was composed primarily of the net loss and a net decrease in working capital offset by non-cash charges for the purchased in-process research and development charge, the restructuring charge and depreciation and amortization. For the first six months of fiscal 1998, net cash provided from operations was comprised primarily of net income and non-cash adjustments and a net increase in working capital. The Company's investing activities provided cash of $2,874,000 and used cash of $59,829,000, in the first six months of fiscal 1999 and 1998, respectively. In fiscal 1999, cash was provided by investment maturities offset by the purchase of investments, the Systemhouse acquisition and the purchase of furniture, fixtures and equipment. In fiscal 1998, the primary use of cash was for investment purchases. The Company's financing activities used cash of $11,252,000 and provided cash of $77,076,000 in the first six months of fiscal 1999 and 1998, respectively. In fiscal 1999, cash was used for the purchase of 1,356,500 shares of treasury stock through the Company's stock repurchase program. In fiscal 1998, cash was primarily provided by the completion of the Company's public offering of common stock net of payments for offering costs. As of December 31, 1998, the Company did not have any material commitments for capital expenditures. For the remainder of fiscal 1999, the Company anticipates capital expenditures of approximately $3.1 million, of which $1.0 million is estimated to be spent for completion of two internal software systems projects and the remainder is for computer hardware and software to continue to update the Company's network infrastructure. As of December 31, 1998, the Company had repurchased 1,491,500 shares of its common stock of the 1,500,000 shares authorized by the Board of the Directors. In January 1999, the Board of Directors authorized the purchase of an additional 1,000,000 shares, subject to a continuing evaluation of market conditions. The Company expects that its existing working capital will be sufficient for the foreseeable future to meet its capital and liquidity needs for existing operations and general corporate purposes, as well as the addition of direct sales and services personnel, strategic marketing initiatives, and potential acquisitions of products, technologies and businesses. 16 EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS The results of operations of the Company for the periods discussed above have not been significantly affected by inflation or foreign currency fluctuations. Sales made through the Company's foreign distributors are denominated in U.S. dollars except in Italy and Spain, where they are denominated in lira and pesetas, respectively. Sales by the Company's foreign subsidiaries are principally denominated in the currencies of the countries where sales are made. The Company experienced losses of approximately $122,000 from foreign currency fluctuations in the six months ended December 31, 1998. The Company has not to date sought to hedge the risks associated with fluctuations in foreign exchange rates. The Company continues to evaluate the relative costs and benefits of hedging and may seek to hedge these risks in the future, if appropriate. Gains and losses relating to translation of the financial statements of the Company's foreign subsidiaries are included as a separate component of stockholders' equity in the Company's Consolidated Financial Statements. YEAR 2000 CONSIDERATIONS The Company is aware of the problems associated with the year 2000 date change and has established and continues to evaluate and update its program to address any potential year 2000 compliance issues relating to its (i) internal operating systems, (ii) vendors, facilities and other third parties, and (iii) software products that it licenses to customers. INTERNAL OPERATING SYSTEMS The Company has completed its assessment of all of its major internal operating systems (including non-IT assets) and is continuing to monitor any new additions to its internal operating systems for year 2000 compliance. As a result of such assessment and because of changing business requirements as well, the Company is currently installing new enterprise-wide systems relating to the Company's accounting and customer relationship management needs, each of which has been warranted by the vendor to be year 2000 compliant. To date, the Company has incurred approximately $3.0 million in costs of the $6.5 million budgeted by the Company for these two projects. The customer support and order processing portions of the customer relationship management system are currently up and operational, on a worldwide basis, as of December 31, 1998. Work on this project continues, with plans to add new functionality and integration between components within the system, but the previous non-year 2000 compliant customer relationship management systems have already been replaced. The business needs of the Company required that the installation of the new accounting system be implemented in several phases. The Company expects the first phase, which will include the installation of an upgraded and year 2000 compliant system, to be completed by June 30, 1999. The Company is also reviewing its desktop year 2000 concerns, which include software packages and PC hardware. The Company is using its own product suite, OnMark 2000, to assess its desktop concerns. The Company expects this assessment to be completed by June 30, 1999, and anticipates that 17 all required remediation and testing of its internal operating systems for year 2000 compliance will be completed by October 31, 1999. If the Company's major internal operating systems are not year 2000 compliant in a timely manner, the Company's business operations would be materially and adversely affected and the Company may be required to incur unanticipated expenses to remedy any problems not addressed by these compliance efforts. VENDORS, FACILITIES AND OTHER THIRD PARTIES The Company continues to evaluate the year 2000 readiness of its material vendors, facilities and distributors and resellers with respect to IT, as well as non-IT, assets. The Company has forwarded questionnaires to many of its material vendors, distributors and resellers, is checking information made publicly available by these parties and is evaluating responses on a case-by-case basis. The Company will place the emphasis of its vendor review on its primary vendors, such as payroll services, computer services and phone systems. The Company has also started to assess the year 2000 readiness of each of its facilities. As part of this assessment, the Company is contacting each of the landlords of its primary office locations to determine (i) the status of year 2000 compliance at each property, (ii) contingency plans at each property in the event that the year 2000 compliance issues are not resolved on a timely basis and (iii) associated costs of year 2000 compliance that may affect the Company. In the event that the Company's distributors and resellers are not year 2000 compliant in a timely manner, the Company could experience material adverse consequences with respect to the marketing and sale of its products and, as a result, the Company's business, results of operations and financial condition would be materially and adversely affected. If the Company's major vendors or facilities are not year 2000 compliant in a timely manner, the Company's business operations would be materially and adversely affected and the Company may be required to incur unanticipated expenses to remedy any problems. PRODUCTS The Company's development of products and technology is accomplished through (i) in-house development, and (ii) acquisition or license from third parties. The Company has completed and continues to evaluate and update its assessment of all of its internally developed and third-party developed products for year 2000 readiness, and believes that all of such products have been designed to satisfy the Company's year 2000 specifications. The Company now provides information on its Web page to update customers and other interested parties on the year 2000 status of its software products. As part of its ongoing evaluation, the Company has developed an internal project plan that contemplates the re-testing of its software products pursuant to a methodology designed specifically for the purpose of detecting year 2000 errors. Actual testing is scheduled to begin in February and is currently estimated to be completed in July. The Company will continue to monitor and test newly developed or acquired products for year 2000 compliance. In the event that any of the Company's developed or acquired products are not year 2000 compliant in a timely manner, the Company's sales may decline materially, customers and those with whom they do business may assert product liability and other claims, and the 18 Company's business, results of operations and financial condition would be materially and adversely affected. CONTINGENCY PLANS To date, the Company has not completed its contingency plans in the event that its internal operating systems, vendors, facilities, distributors, resellers or products, or any other components of its business operations, fail to operate in compliance with the year 2000 century date change. The Company expects to develop its contingency plans by June 30, 1999. BUDGET FOR YEAR 2000 COMPLIANCE PROJECT The Company has budgeted approximately $7.6 million for its year 2000 compliance program and has incurred approximately $3.2 of these expenses to date. These costs include internal staff to the extent they are dedicated to the project, a portion of which are expensed in the Company's general and administrative expenses line item and the remainder are expensed in its research and development expenses line item. The Company started incurring these expenses in 1995, when the Company first began the assessment and remediation of internally developed products, and expenses are expected to continue through fiscal year 2000. A very large portion of this budget, $6.5 million of the $7.6 million budgeted, represents the cost of designing and implementing both the new customer relationship management and accounting systems. The Company decided to replace these systems several years ago primarily because of business requirements, but the replacement also served the purpose of eliminating two major systems that would otherwise have had to be remediated and tested to become year 2000 compliant. As a result, the costs of these new systems has been included in the year 2000 compliance budget for purposes of this disclosure. The estimated costs of the Company's year 2000 compliance program have not had and are not expected to have a material effect on the Company's financial position, results of operations or liquidity. However, there can be no assurance that the Company will not experience material adverse consequences in the event that the Company's year 2000 compliance program is not successful or its vendors, facilities, distributors or resellers are unable to resolve their year 2000 compliance issues in a timely manner. SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS Except for historical information contained herein, this Form 10-Q contains express or implied forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Included in such forward-looking statements are those statements in "Year 2000 Considerations" regarding the Company's plans and expectations relating to the Company's year 2000 compliance. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission, in its press releases, quarterly conference calls or otherwise. The words "believes", "expects", "anticipates", "intends", 19 "forecasts", "projects", "plans", "estimates" and similar expressions identify forward-looking statements. Such statements reflect the Company's current views with respect to future events and financial performance or operations and speak only as of the date the statements are made. Such forward-looking statements involve risks and uncertainties and readers are cautioned not to place undue reliance on forward-looking statements. The Company's actual results may differ materially from such statements. Factors that cause or contribute to such differences include, but are not limited to, the Company's dependence on the year 2000 century date conversion market, both mainframe and desktop, and dependence on its ESW primary product line, the volatility of the Company's common stock price, fluctuations in revenues and operating results, fluctuations in market demand and product mix, the Company's ability to manage changes in its professional services business and risks associated with a professional services business, including volatility of workload, ability to successfully manage consulting projects, proper allocation of resources and hiring, training and retaining qualified personnel, risks associated with international operations including longer payment cycles and exchange rate fluctuations, the Company's ability to manage rapid change in its business and industry, the Company's ability to enhance existing products and develop or acquire new products and technology to keep pace with technological developments and evolving industry standards and to respond to changes in customer needs, the Company's ability to identify, complete, manage and integrate acquisitions of businesses, products and technologies, charges, costs and uncertainties related to acquisitions, intense competition in the Company's markets, the performance of the Company's distributors, resellers and solution providers, the Company's dependence on key management and technical personnel and increasing competition to attract skilled personnel, the adequacy of the Company's program to address year 2000 compliance issues and general economic and business conditions, as well as factors discussed elsewhere in this Form 10-Q, in "Factors That May Affect Future Results" in the Company's Form 10-K for the year ended June 30, 1998 and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in such forward-looking statements will be realized. The inclusion of such forward-looking information should not be regarded as a representation by the Company or any other person that the future events, plans or expectations contemplated by the Company will be achieved. The Company undertakes no obligation to publicly update, review or revise any forward-looking statements to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements is based. 20 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on November 18, 1998. The stockholders of the Company voted on and approved the following proposals: 1. Election of directors: The election of five directors, each to serve until the next Annual Meeting of Stockholders and until his successor has been elected and qualified. NAME FOR AGAINST ---- --- ------- John J. Barry III 15,416,637 1,695,122 Alexander S. Kuli 15,422,017 1,689,742 J. David Parrish 15,421,642 1,690,117 Arthur C. Patterson 15,425,498 1,686,261 Steven D. Whiteman 15,405,123 1,706,636 2. Approval of amendments to the Viasoft, Inc. 1997 Equity Incentive Plan to increase the number of shares that may be issued pursuant to future grants of awards under the 1997 Plan by 850,000 shares. FOR AGAINST WITHHELD NON-VOTE --- ------- -------- -------- 5,112,803 4,061,731 62,510 7,874,715 3. Approval of an amendment to Viasoft, Inc.'s Employee Stock Purchase Plan to increase the number of shares that may be issued under the Purchase Plan by an additional 400,000 shares. FOR AGAINST WITHHELD NON-VOTE --- ------- -------- -------- 6,436,681 2,742,178 58,185 7,874,715 4. Ratification of the selection of Arthur Andersen LLP as independent auditors of the Company for its fiscal year ending June 30, 1999. FOR AGAINST WITHHELD --- ------- -------- 16,435,214 615,605 60,940 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS NUMBER DESCRIPTION 10.1(1)(2) Form of Outside Director Stock Option Agreement between Viasoft, Inc. and each of its outside directors. 10.2(1)(2) Confidential Severance Agreement between Viasoft, Inc. and Robert K. Young. 10.3(1)(2) Confidential Severance Agreement between Viasoft, Inc. and Abbott H. Ezrilov. 10.4(1)(2) Confidential Severance Agreement between Viasoft, Inc. and Jean-Luc Guy Valente. 10.5(1)(2) Confidential Severance and Consulting Agreement between Viasoft, Inc. and Kevin M. Hickey. 11(1) Computation of Earnings Per Share for the three and six month periods ended December 31, 1998 and 1997. 27(1) Financial Data Schedule (b) REPORTS ON FORM 8-K None (1) Filed herewith. (2) Management contract or compensation plan or arrangement. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Viasoft, Inc. Date: February 12, 1999 By /s/ Steven D. Whiteman ----------------------------- Steven D. Whiteman President Date: February 12, 1999 By /s/ Mark R. Schonau ----------------------------- Mark R. Schonau Chief Financial Officer 23 EX-10.1 2 NON-QUALIFIED STOCK OPTION AGREEMENT THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS. NON-QUALIFIED STOCK OPTION AGREEMENT VIASOFT, INC. Viasoft, Inc., a Delaware corporation (the "Company"), hereby grants to ________________________ (the "Optionee") an Option to purchase a total of 6,000 shares of Common Stock of the Company, at the price specified herein. I. NATURE OF THE OPTION. This Option is a Non-Qualified Stock Option and is not intended to qualify as an Incentive Stock Option as defined in Section 422 of the Internal Revenue Code. II. EXERCISE PRICE. The exercise price is 6.75 for each share of Common Stock. III. EXERCISE OF OPTION. This Option shall be exercisable during its term as follows: A. TERM OF OPTION. Notwithstanding any other provision to the contrary, this Option may not be exercised more than five (5) years from the date of grant of this Option, shall expire automatically at the close of business of the Company on the fifth anniversary of such date of grant and may be exercised during such term only in accordance with the terms of this Option. B. VESTING. Subject to the terms and conditions of this Agreement, this Option shall vest in three (3) equal annual installments commencing on the date twelve months after the Date of Grant of the Option. C. TERMINATION. Notwithstanding any other provision of this Agreement to the contrary, this Option shall be subject to the following provisions: (1) In the event the Optionee ceases to be a member of the Board for any reason other than death or disability, any then unexercised Options granted to Optionee, to the extent not then exercisable pursuant to Section III(B) above, shall be immediately terminated and become void, and any Options which are then exercisable but have not been exercised at the time the Optionee ceases to be a member of the Board may be exercised, but only to the extent they are then exercisable, by the Optionee within a period of three months following the time the Optionee so ceases to be a member of the Board. (2) In the event the Optionee ceases to be a member of the Board by reason of disability or death, any then unexercised Options granted to Optionee, to the extent not then exercisable pursuant to Section III(B) above, shall be immediately terminated and become void, and any Options which are then exercisable but have not been exercised at the time the Optionee ceases to be a member of the Board may be exercised, but only to the extent they are then exercisable, by the Optionee (or by the Optionee's Page 1 personal representative, heir or legatee, in the event of death) during the period ending on the earlier of (i) six (6) months from the date the Optionee so ceases to be a member of the Board or (ii) the expiration date of the Option. (3) This Option shall terminate to the extent not exercised in accordance with (1) and (2) of this Section III(D), if applicable. D. NO FRACTIONAL SHARES. This Option may not be exercised for a fraction of a share. E. METHOD OF EXERCISE. This Option shall be exercisable by written notice which shall state the election to exercise the Option and the number of shares in respect of which the Option is being exercised. Such written notice shall be made together with payment of the full exercise price in the manner provided herein and in accordance with the terms hereof, shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. No shares will be issued pursuant to the exercise of any Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock market or exchange upon which the shares may then be traded or listed. IV. OPTIONEE'S REPRESENTATIONS. By receipt of this Option, by its execution, and by its exercise in whole or in part, Optionee represents to the Company that: (i) Optionee understands that both this Option and any shares purchased upon its exercise are securities, the issuance by the Company of which requires compliance with federal and state securities laws; and that these securities are made available to Optionee only on the condition the Optionee makes the representations contained in this Section IV to the Company; (ii) Optionee has made a reasonable investigation of the affairs of the Company sufficient to be well informed as to the rights and value of these securities; (iii) Optionee understands that the securities have not been registered under the Securities Act of 1933, as amended (the "Act"), or the securities laws of any state; that the securities have not been registered under the Act in reliance upon a specific exemption contained in the Act which depends upon Optionee's bona fide investment intention in acquiring these securities; that Optionee's intention is to hold these securities for Optionee's own benefit for an indefinite period; that Optionee has no present intention of selling or transferring any part thereof (recognizing that the Option is not transferable except as provided for in this Agreement) and that there may be certain restrictions on transfer of the shares subject to the Option; (iv) Optionee understands that Optionee has no rights to require that the securities be registered under the Act or applicable state securities laws; and (v) Optionee understands that the certificate representing the shares will bear a legend prohibiting their transfer in the absence of their registration or the opinion of counsel for the Company that registration is not required. V. METHOD OF PAYMENT. Payment of the exercise price shall be made (i) by cash or by bank-certified, cashier's or personal check, (ii) by Page 2 delivery to the Company of shares of Common Stock having a fair market value equal to the option exercise price at the time of such exercise, (iii) by delivery of instructions to the Company to withhold from the option shares that would otherwise be issued on the exercise that number of option shares having a fair market value equal to the option exercise price at the time of such exercise, (iv) or by some combination of the above; provided, however, that the purchase price and/or withholding tax may not be paid, in whole or in part, by the delivery of shares of Common Stock more frequently than once every six months. VI. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance of such shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. VII. TRANSFERABILITY OF OPTION. This Option may be transferred only in accordance with the terms of this Agreement. This Option may be transferred by will or by the laws of descent and distribution. In addition, this Option may be transferred by Optionee to a Permitted Transferee. It shall be a condition precedent to any transfer permitted under the preceding sentence that the Permitted Transferee execute and deliver to the Company an agreement acceptable to the Company acknowledging that this Option remains subject to all provisions of this Agreement, including without limitation the vesting and termination provisions of Section 3, which shall continue to be applied as if Optionee had not transferred this Option. A "Permitted Transferee" means (A) any member of Optionee's Immediate Family, including any child of a deceased or living spouse of Optionee or the child or children of such child, or (B) any trust created for the benefit of Optionee and/or any of his or her Immediate Family, or (C) any corporation, partnership or other entity of which all the equity owners are Optionee and/or members of his or her Immediate Family. A Permitted Transferee may transfer this Option to another Permitted Transferee of the Optionee, only with the prior written consent of the Company. "Immediate Family" has the meaning given such term in the regulations promulgated under Section 16 of the Securities Exchange Act of 1934, as amended. VIII. TAXATION UPON EXERCISE OF OPTION. The Company shall have the authority and the right to deduct or withhold, or require Optionee to remit to the Company, an amount sufficient to satisfy federal, state and local taxes required by law to be withheld with respect to any taxable event arising as a result of this Option. Optionee may elect, by irrevocable written notice delivered to the Committee six (6) months prior to the date of exercise, subject to any rules or policies of the Committee and any restrictions under applicable law, to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares of Common Stock having a fair market value on the date of withholding equal to the amount to be withheld for tax purposes. IX. NOT AN AGREEMENT TO CONTINUE SERVICE. Nothing in this Agreement shall imply or be construed to confer any right to continue in the service of the Company, nor shall it affect any right of the Company, its Board or shareholders to terminate the service of Optionee with or without cause. X. GOVERNING LAW. This Agreement and the Option granted hereunder are governed by, and shall be interpreted according to, the laws of the State of Delaware. XI. ELIGIBILITY. By acceptance of this Option, Optionee certifies to the Company that the receipt of this Option is not contrary to any policy or agreement of Optionee's employer. Page 3 XII. ADJUSTMENT. The number of shares subject to this Option and the exercise price of such Option are subject to appropriate adjustment by the Board for stock splits, recapitalization and other similar transactions affecting the Company's Common Stock. XIII. ACCEPTANCE OF OPTION. By acceptance of this Option, Optionee (A) represents that Optionee is familiar with the terms and provisions of this Agreement, (B) agrees that this Agreement represents a binding agreement between Optionee and the Company and accepts this Option subject to all of the terms and provisions of this Agreement, (C) agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions arising with respect to this Option, and (D) acknowledges Optionee's representations as set forth in Section IV of this Agreement. DATE OF GRANT: December 4, 1998 VIASOFT, INC. ACCEPTED: - ------------------------------------- ------------------------------------ Steven D. Whiteman, President Page 4 CONSENT OF SPOUSE I, the undersigned spouse of have read and approve the foregoing Stock Option Agreement. In consideration of the granting of the right to my spouse to purchase shares of Viasoft, Inc., as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact with respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement (including the Company's right of first refusal therein) insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws of the State of Arizona or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement or otherwise. Dated as of . ---------------------- (Officers form) Page 5 SCHEDULE A TO EXHIBIT 10.1 Identical Stock Option Agreements under the same terms and conditions were entered into as of December 4, 1998, with the following Outside Directors: John J. Barry III Alexander S. Kuli J. David Parrish Arthur C. Patterson Page 6 EX-10.2 3 CONFIDENTIAL SEVERANCE AGREEMENT - YOUNG CONFIDENTIAL SEVERANCE AGREEMENT This Confidential Severance Agreement ("Agreement") is made in the State of Arizona by and between Robert K. Young ("Employee"), and Viasoft, Inc., a Delaware corporation, its direct and indirect subsidiaries and affiliates, and its and their respective businesses (the "Company"). RECITALS WHEREAS, Employee is employed by the Company; and WHEREAS, the parties have mutually agreed that Employee will resign as an officer and employee of the Company; and WHEREAS, the parties desire to express in a written agreement their mutual agreements, covenants, promises, and understanding with respect to the termination of Employee's employment relationship. AGREEMENT NOW THEREFORE, in consideration of the premises and the mutual agreements, covenants, and provisions contained in this Agreement, the parties agree and declare as follows: 1. TERMINATION OF EMPLOYMENT. Employee shall deliver his resignation as an employee and officer of the Company to be effective as of November 20, 1998 (the "Termination Date"), and the Company shall accept such resignation. The Company shall pay Employee on or before November 30, 1998, for (a) his regular existing salary through November 20, 1998, (b) a bonus of $26,100 accrued for performance in the quarter ended September 30, 1998, and (c) his accrued but unused vacation time, all net of applicable withholding taxes. Employee acknowledges that following payment of the amounts set forth in the previous sentence, the Company will have paid Employee all wages and compensation to which he was entitled as an employee of the Company. The Company agrees not to make any claim for or otherwise set off the signing bonus previously paid to Employee. The parties acknowledge and agree that Employee shall not be an employee of the Company after the Termination Date, notwithstanding Employee's continued receipt of certain sums as described in this Agreement. 2. SEVERANCE BENEFITS. a. SEVERANCE PAY. The Company will: (1) continue paying Employee his existing salary, net of applicable withholding, through February 20, 1999, on the Company's regular pay days; and (2) continue Employee's group health plan coverage through February 20, 1999, with Employee's portion of the premium for such coverage deducted from the severance payments described above. The Company also shall reimburse Employee for any valid business expenses he incurred on or prior to November 20, 1998, in accordance with the Company's Travel and Expense policy, provided the expenses are submitted to the Company on or before December 15, 1998. The Company also shall reimburse Employee for amounts, if any, for which Employee is entitled to reimbursement under the Company's Employee Stock Purchase Plan through and including the Termination Date. The Company will not require reimbursement by Employee of any relocation expenses. b. CONSIDERATION. Employee acknowledges that it is not the Company's usual policy to provide all of the severance benefits and other consideration set forth in this Agreement, and that he would not be entitled to those benefits and consideration if he were not releasing his Claims under this Agreement. 3. WAIVER AND RELEASE OF CLAIMS. Employee covenants not to sue for, and waives and releases all of his existing rights to, any relief of any kind from the Company, its insurers, affiliates, divisions, directors, officers, shareholders, employees, agents, successors, assigns, and members ("the Employer"), including without limitation all claims that arise out of or that relate to his employment or the termination of his employment with the Company, all claims that arise out of or that relate to the statements or actions of the Employer or any contract or agreement with the Employer, all claims that arise under the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Arizona Employment Protection Act, the Americans with Disabilities Act, and the Arizona Civil Rights Act, all claims for relief or other benefits under any federal, state, or local statute, ordinance, regulation, or rule of decision, all claims that Employer engaged in conduct prohibited on any basis under any federal, state, or local statute, ordinance, regulation, or rule of decision, and all claims for attorneys' fees, liquidated damages, punitive damages, costs, and disbursements ("Claims"). If Employee breaches the covenant not to sue described in this paragraph, Employee agrees to indemnify, hold harmless, and reimburse the Employer for attorneys' fees and costs the Employer incurs defending Employee's action. 4. INDEMNIFICATION. Notwithstanding any other provision of this Agreement, the Company agrees to indemnify Employee in accord with Article IX of the Company's Restated Certificate of Incorporation dated February 23, 1995 as the same may be amended from time to time. 5. MUTUAL CONFIDENTIALITY. a. GENERAL STANDARD. The parties intend that the terms and conditions upon which this matter has been settled, including the provisions of this Agreement ("Confidential Information"), will be forever treated as confidential. Employee and the Company will not disclose Confidential Information to any person or entity at any time, except as provided herein. b. EXCEPTIONS. (1) It will not be a violation of this Agreement for Employee to disclose Confidential Information to his attorneys. (2) It will not be a violation of this Agreement for Employee to disclose Confidential Information to his spouse, to his accountants or to his tax planners, provided that if Employee discloses Confidential 2 Information to any such person, he must simultaneously inform that person that the information is considered confidential, and that the person cannot disclose the information to any other person without the advance written consent of Employee and the Company. Any disclosure of Confidential Information by any such person will be considered a disclosure by Employee. (3) It will not be a violation of this Agreement for the Company to disclosure Confidential Information to its attorneys, to its auditors, to its insurers, to its accountants, to its tax planners, to the Securities and Exchange Commission, National Association of Securities' Dealers, or other governmental entities or self-regulatory organizations, to its affiliates, divisions, directors, officers, shareholders, employees, representatives, or other agents who have a legitimate reason to obtain the Confidential Information in the course of performing their duties or responsibilities for the Company, or as necessary or advisable in compliance with its disclosure obligations under applicable law or accounting rules. (4) It will not be a violation of this Agreement for either party to give truthful testimony in response to direct questions asked pursuant to an enforceable court order obtained after providing notice to the other party, which order pays due regard to the concerns for confidentiality expressed by the parties herein. 6. NON-DISPARAGEMENT. Employee will not disparage, defame, or besmirch the reputation, character, image, or services of the Company, its affiliates, divisions, directors, officers, shareholders, employees, or agents. 7. CLAIMS INVOLVING THE COMPANY. Employee will not recommend or suggest to any potential claimants or plaintiffs or their attorneys or agents that they initiate claims or lawsuits against the Company or any of its affiliates, divisions, directors, officers, shareholders, employees, agents, successors, or assigns, nor will Employee voluntarily aid, assist, or cooperate with any such claims or lawsuits; provided, however, that this paragraph will not be construed to prevent Employee from giving truthful testimony in response to direct questions asked pursuant to a lawful subpoena during any future legal proceedings. 8. TIME TO CONSIDER AGREEMENT. Employee understands that the Company's offer as set forth in this Agreement shall expire on December 4, 1998 at 5:00 p.m. unless Employee executes the Agreement and the Company receives it prior to that time. 9. RETURN OF COMPANY PROPERTY. Employee agrees to promptly return to the Company all property that belongs to the Company, including without limitation all equipment, supplies, documents, files, computer disks, and Employee agrees to remove from any person computer all data files containing Company information. 10. CONFIDENTIALITY AGREEMENT. Employee acknowledges and reaffirms his obligations under the Company's Employment Confidentiality and Proprietary Information Agreement dated June 1, 1998, except as noted in Section 14. 3 11. FULL COMPENSATION. The payments made and other consideration provided under this Agreement constitute full compensation for and extinguish all Employee's Claims, including, but not limited to, all Claims for attorneys' fees, costs, and disbursements, and all Claims for any type of legal or equitable relief. 12. AGREEMENT NOT TO SOLICIT CUSTOMERS. Employee agrees that for a period of six (6) months after the Termination Date, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or appropriate, or attempt to solicit, divert or appropriate, to any competing business (a) any person or entity whose account with the Company was sold or serviced (including maintenance) by the Company during the twelve (12) months preceding the Termination Date, or (b) any person or entity whose account with the Company has been directly solicited at least twice by the Company within the twelve (12) month period prior to the Termination Date. 13. AGREEMENT NOT TO SOLICIT EMPLOYEES AND CONTRACTORS. Employee agrees that for a period of six (6) months after the Termination Date, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert or hire away, any person then employed by the Company or then serving as a consultant, sales representative or distributor or reseller of the Company. 14. SUPERSEDES PRIOR OBLIGATIONS. The parties agree that Sections 12 and 13 specifically supersede the obligations of Employee under Section 2(c) of his Employment Confidentiality and Proprietary Information Agreement. 15. EMPLOYEE COOPERATION. Employee agrees to cooperate in all reasonable requests of the Company, in connection with any litigation, administrative proceeding or any other claim of a third party against the Company relating to acts or omissions of Employee or of which Employee would have personal knowledge or other information, including, without limitation, providing information, deposition testimony, appearing in court, etc. The Company agrees to pay Employee all reasonable out-of-pocket expenses in connection with such assistance. 16. NO ADMISSION OF WRONGDOING. This Agreement does not constitute an admission that any person or entity violated any local, state, or federal ordinance, regulation, ruling, statute, rule of decision, or principle of common law, or that any person or entity engaged in any improper or unlawful conduct or wrongdoing. Employee will not characterize this Agreement or the payment of any money or other consideration in accord with this Agreement as an admission or indication that any person or entity engaged in any improper or unlawful conduct or wrongdoing. 17. LEGAL REPRESENTATION. Employee acknowledges that the Company has advised him to consult a lawyer regarding this Agreement before signing it. Employee acknowledges that he has had a full opportunity to consider this Agreement, that he has had a full opportunity to ask any questions that he may have concerning this Agreement, and that in deciding whether to sign this Agreement he has not relied upon any statements made by the Company or its 4 attorneys, other than the statements made in this Agreement. Employee further acknowledges that he has read and understands the contents to this Agreement and that he executes this Agreement knowingly and voluntarily and based upon and with the opportunity to obtain independent legal advice of his own choosing. 18. AUTHORITY. Employee represents and warrants that he has the authority to enter into this Agreement, and that he has not assigned any Claims to any person or entity. 19. INVALIDITY. In the event that a court of competent jurisdiction determines that any provision of this Agreement is invalid, illegal, or unenforceable in any respect, such a determination will not affect the validity, legality, or enforceability of the remaining provisions of this Agreement, and the remaining provisions of this Agreement will continue to be valid and enforceable. 20. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties and their respective heirs, representatives, successors, and assigns. 21. ENTIRE AGREEMENT. This Agreement and the other agreements referenced herein are intended to and do define the full extent of the legally enforceable undertakings of the parties, and no promises or representations, written or oral, that are not set forth explicitly in this Agreement are intended by any party to be legally binding, and all other agreements and understandings between Employee and the Company relating to Employee's employment with the Company are hereby superseded. No provision of this Agreement shall be amended, waived, or modified except by an instrument in writing, signed by all parties hereto. 22. HEADINGS. The descriptive headings of the paragraphs and subparagraphs of this Agreement are intended for convenience only, and do not constitute parts of this Agreement. 23. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 24. GOVERNING LAW. This Agreement will be construed in accord with, and any dispute or controversy arising from any breach or asserted breach of this Agreement will be governed by, the laws of the State of Arizona. IN WITNESS WHEREOF, the parties have executed this Agreement on the dates indicated below. DATED this 3RD day of December, 1998. /s/ Robert K. Young ----------------------------------------- Robert K. Young 5 DATED this 3RD day of December, 1998. Viasoft, Inc. By: /s/ Steven D. Whiteman ------------------------------------- Steven D. Whiteman Chairman, President and CEO STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 3RD day of December, 1998, by STEVEN D. WHIEMAN. /s/ Joni K. Summers ----------------------------------------- Notary Public My Commission Expires: MARCH 30, 2000 STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 3RD day of December, 1998, by BOB YOUNG . /s/ Joni K. Summers ----------------------------------------- Notary Public My Commission Expires: MARCH 30, 2000 EX-10.3 4 SEVERANCE LETTER - EZRILOV Hand Delivered October 20, 1998 (Revised) Abbott Ezrilov 11458 E. Bella Vista Scottsdale, AZ 85259 Dear Abbott: This letter confirms the revised agreement we have reached with you regarding separation of your employment with Viasoft, Inc. ("Viasoft" or the "Company") effective November 2, 1998. The Company is offering severance payments to you and other employees who are departing the Company at the same time as you in the "October Reduction in Force." You acknowledge receipt of the attached "October 1998 Reduction in Force," which provides additional information about the reduction in force, including a list of job titles and ages of Company employees who were and were not selected for termination. The Company will (1) pay you the amount of $65,000, less applicable withholding (federal tax, state tax, FICA, etc.) within 5 business days after November 2 and (2) provide outplacement assistance to help you prepare for other, provided you have signed this letter and returned it to Human Resources-Phoenix after the expiration of the seven-day revocation period described below. Your final payroll will include compensation for any vacation you have accrued and not used. Any health and dental, life insurance or other benefit plans you currently participate in will end in accordance with your current policies. Continuation rights of group health coverages under COBRA regulations will be explained in a separate letter. Any valid business expenses you may have incurred but have not yet submitted the request for reimbursement shall be reimbursed provided the expenses are submitted to the Company within 45 days of your last day of active employment and are reimbursable according to Company policy. In exchange for what the Company has agreed to do as identified above, you agree to (1) return all company materials and equipment, including keys, credit cards, files, etc. currently in your possession, (2) assist with the orderly transition of work in progress until November 2, 1998, and (3) waive and release the Company, its affiliates, divisions, officers, directors, shareholders, agents and employees from all claims, demands, and liabilities, whether known or unknown, past or present, suspected or unsuspected, including, without limitation: (a) all claims that arise out of or that relate to your employment or the termination of your employment with the Company, (b) all claims that arise out of or that relate to the statements or actions of the Company or any contract or agreement with the Company, (c) all claims that arise under the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Arizona Civil Rights Act, (d) all claims for relief or other benefits under any federal, state, or local statute, ordinance, regulation, or rule of decision, (e) all claims that the Company engaged in conduct prohibited on any basis under any federal, state, or local statute, ordinance, regulation, or rule of decision, and (f) all claims for attorneys' fees, liquidated damages, punitive damages, costs, and disbursements. You represent that you have not assigned any of these claims to any person or entity. You further agree that you will forever keep the terms and conditions of this separation agreement ("Confidential Information") confidential. You will not disclose Confidential Information to any person or entity except your attorneys, Page 2 spouse, accountant, or tax planner, and if you disclose Confidential Information to these individuals, you must inform them that the information is to be kept in strict confidence and may not be disclosed to other parties without the written permission of you and Viasoft. You also may provide truthful testimony regarding Confidential Information in response to direct questions asked pursuant to an enforceable court order or subpoena, after you notify Viasoft of the order or subpoena and cooperate with Viasoft in responding to the order or subpoena. You also agree not to disparage, defame or besmirch the reputation, character, image or services of the Company, its affiliates, divisions, directors, officers, shareholders, employees or agents. You agree that you will not recommend or suggest to any potential claimants or plaintiffs or their attorneys or agents that they initiate claims or lawsuits against Viasoft or any of its affiliates, divisions, directors, officers, shareholders, employees or agents, successors, or assigns, and you further agree that you will not voluntarily aid, assist or cooperate with any such claims or lawsuits. Again, this does not prevent you from giving truthful testimony in response to direct questions asked pursuant to a lawful subpoena during any future legal proceedings, after you notify Viasoft of the order or subpoena and cooperate with Viasoft in responding to the order or subpoena. You reaffirm your obligations under any confidentiality agreement you signed during your employment with Viasoft. The matters discussed in this letter are legally binding and this letter supersedes all other agreements and understandings between you and the Company related to your employment, except for any confidentiality agreement you signed during your employment with Viasoft. The terms of this letter cannot be changed or amended except in a written document, signed by both you and Viasoft. Nothing in this letter constitutes an admission that any person or entity violated any local, state, or federal ordinance, regulation, ruling, statute, rule of decision, or principal of common law, or that any person or entity engaged in any improper or unlawful conduct or wrongdoing. Any disputes or controversy arising from any breach or asserted breach of this Agreement will be governed by the laws of the State of Arizona, and any lawsuit between you and Viasoft must be brought only in Maricopa County Superior Court or the United States District Court for the District of Arizona. You may take up to 45 (forty-five) calendar days to decide whether to sign this letter, and you are advised to consult with your own attorney prior to signing the letter. The Company's offer as outlined in this letter will expire on December 4, 1998 at 5:00 p.m. MST. If the contents of this letter are agreeable to you, please sign in the presence of a notary and return this letter to Nancy Mattson, Viasoft, 3033 N. 44th Street, Suite 101, Phoenix, AZ 85018 by December 4, 1998, thereby noting your knowing and voluntary acceptance of the terms and conditions in this letter. You will then have 7 (seven) days from the date of your signature to revoke your acceptance of this letter. If you do not revoke your acceptance, please send us a letter AFTER this seven-day period has expired, confirming your decision not to revoke your acceptance of this letter (see sample enclosed). Viasoft will then process your severance pay. Sincerely, /s/ Kevin M. Hickey Kevin M. Hickey President and Chief Operating Officer Enclosure Page 3 EMPLOYEE ACKNOWLEDGEMENT AND AGREEMENT I acknowledge that I have been advised to consult with an attorney prior to executing this agreement and that I have had a full opportunity to consider this Agreement and ask any questions concerning this Agreement. I have not relied upon any statements made by the Company or its attorney other than the statements in this Agreement. I have read and understand the contents of this Agreement and execute this Agreement knowingly and voluntarily, of my own free will and choice. /s/ Abbott Ezrilov Date: 10/21/98 - ---------------------------------- -------------------- Abbott Ezrilov The foregoing instrument was acknowledged before me this 21ST day of OCTOBER, 1998, by Abbott Ezrilov. Notary Public Joni K. Summers --------------------------- My commission expires March 30, 2000 ------------------- RECEIPT AND ACKNOWLEDGEMENT BY VIASOFT, Inc. /s/ Kevin M. Hickey Date: 10/29/98 - ---------------------------------- -------------------- Kevin M. Hickey President and Chief Operating Officer The foregoing instrument was acknowledged before me this 29TH day of OCTOBER, 1998, by Kevin M. Hickey. Notary Public Joni K. Summers --------------------------- My commission expires March 30, 2000 ------------------- EX-10.4 5 CONFIDENTIAL SERVERANCE AGREEMENT - VALENTE CONFIDENTIAL SEVERANCE AGREEMENT This Confidential Severance Agreement ("Agreement") is made in the State of Arizona by and between Jean-Luc Guy Valente ("Employee"), and Viasoft, Inc., a Delaware corporation, its direct and indirect subsidiaries and affiliates, and its and their respective businesses (the "Company"). RECITALS WHEREAS, Employee is employed by the Company; and WHEREAS, the parties have mutually agreed that Employee will resign as an officer and employee of the Company; and WHEREAS, the parties desire to express in a written agreement their mutual agreements, covenants, promises, and understanding with respect to the termination of Employee's employment relationship. AGREEMENT NOW THEREFORE, in consideration of the premises and the mutual agreements, covenants, and provisions contained in this Agreement, the parties agree and declare as follows: 1. TERMINATION OF EMPLOYMENT. Employee shall deliver his resignation as an employee and officer of the Company to be effective as of September 30, 1998 (the "Termination Date"), and the Company shall accept such resignation. The Company shall pay Employee on or before September 30, 1998, for his regular existing salary through September 30, 1998 and his accrued but unused vacation time, all net of applicable withholding taxes. Employee acknowledges that following payment of the amounts set forth in the previous sentence, the Company will have paid Employee all wages and compensation to which he was entitled as an employee of the Company. The parties acknowledge and agree that Employee shall not be an employee of the Company after the Termination Date, notwithstanding Employee's continued receipt of certain sums as described in this Agreement. 2. SEVERANCE BENEFITS. a. SEVERANCE PAY. The Company will: (1) continue paying Employee his existing salary, net of applicable withholding, through March 31, 1999, on the Company's regular pay days; and (2) continue Employee's group health plan coverage through March 31, 1999, with Employee's portion of the premium for such coverage deducted from the severance payments described above. The Company's payment of the employer portion of group health plan coverage during this severance period shall not affect Employee's rights to eighteen months of COBRA insurance after March 31, 1998, upon payment of appropriate amounts and on terms and conditions set forth under the laws and regulations governing COBRA insurance benefits. The Company also shall reimburse Employee for any valid business expenses he incurred on or prior to September 30, 1998, in accordance with the Company's Travel and Expense policy, provided the expenses are submitted to the Company on or before October 15, 1998. The Company also shall reimburse Employee for amounts, if any, for which Employee is entitled to reimbursement under the Company's Employee Stock Purchase Plan through and including the Termination Date. b. CONSIDERATION. Employee acknowledges that it is not the Company's usual policy to provide all of the severance benefits and other consideration set forth in this Agreement, and that he would not be entitled to those benefits and consideration if he were not releasing his Claims under this Agreement. 3. WAIVER AND RELEASE OF CLAIMS. Employee covenants not to sue for, and waives and releases all of his existing rights to, any relief of any kind from the Company, its insurers, affiliates, divisions, directors, officers, shareholders, employees, agents, successors, assigns, and members ("the Employer"), including without limitation all claims that arise out of or that relate to his employment or the termination of his employment with the Company, all claims that arise out of or that relate to the statements or actions of the Employer or any contract or agreement with the Employer, all claims that arise under the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Arizona Civil Rights Act, all claims for relief or other benefits under any federal, state, or local statute, ordinance, regulation, or rule of decision, all claims that Employer engaged in conduct prohibited on any basis under any federal, state, or local statute, ordinance, regulation, or rule of decision, and all claims for attorneys' fees, liquidated damages, punitive damages, costs, and disbursements ("Claims"); provided, however, that this release does not apply to any rights of Employee accrued through and including the Termination Date under the Employee's stock option agreements. If Employee breaches the covenant not to sue described in this paragraph, Employee agrees to indemnify, hold harmless, and reimburse the Employer for attorneys' fees and costs the Employer incurs defending Employee's action. 4. INDEMNIFICATION. Notwithstanding any other provision of this Agreement, the Company agrees to indemnify Employee in accord with Article IX of the Company's Restated Certificate of Incorporation dated February 23, 1995. 5. MUTUAL CONFIDENTIALITY. a. GENERAL STANDARD. The parties intend that the terms and conditions upon which this matter has been settled, including the provisions of this Agreement ("Confidential Information"), will be forever treated as confidential. Employee and the Company will not disclose Confidential Information to any person or entity at any time, except as provided herein. b. EXCEPTIONS. (1) It will not be a violation of this Agreement for Employee to disclose Confidential Information to his attorneys. 2 (2) It will not be a violation of this Agreement for Employee to disclose Confidential Information to his spouse, to his accountants or to his tax planners, provided that if Employee discloses Confidential Information to any such person, he must simultaneously inform that person that the information is considered confidential, and that the person cannot disclose the information to any other person without the advance written consent of Employee and the Company. Any disclosure of Confidential Information by any such person will be considered a disclosure by Employee. (3) It will not be a violation of this Agreement for the Company to disclosure Confidential Information to its attorneys, to its auditors, to its insurers, to its accountants, to its tax planners, to the Securities and Exchange Commission, National Association of Securities' Dealers, or other governmental entities or self-regulatory organizations, to its affiliates, divisions, directors, officers, shareholders, employees, representatives, or other agents who have a legitimate reason to obtain the Confidential Information in the course of performing their duties or responsibilities for the Company, or as necessary or advisable in compliance with its disclosure obligations under applicable law or accounting rules. (4) It will not be a violation of this Agreement for either party to give truthful testimony in response to direct questions asked pursuant to an enforceable court order obtained after providing notice to the other party, which order pays due regard to the concerns for confidentiality expressed by the parties herein. 6. NON-DISPARAGEMENT. Employee will not disparage, defame, or besmirch the reputation, character, image, or services of the Company, its affiliates, divisions, directors, officers, shareholders, employees, or agents. 7. CLAIMS INVOLVING THE COMPANY. Employee will not recommend or suggest to any potential claimants or plaintiffs or their attorneys or agents that they initiate claims or lawsuits against the Company or any of its affiliates, divisions, directors, officers, shareholders, employees, agents, successors, or assigns, nor will Employee voluntarily aid, assist, or cooperate with any such claims or lawsuits; provided, however, that this paragraph will not be construed to prevent Employee from giving truthful testimony in response to direct questions asked pursuant to a lawful subpoena during any future legal proceedings. 8. TIME TO CONSIDER AGREEMENT. Employee understands that the Company's offer as set forth in this Agreement shall expire on September 18, 1998 at 5:00 p.m. unless Employee executes the Agreement and the Company receives it prior to that time. 9. RETURN OF COMPANY PROPERTY. Employee agrees to promptly return to the Company all property that belongs to the Company, including without limitation all equipment, supplies, documents, files, computer disks, and Employee agrees to remove from any person computer all data files containing Company information. 3 10. CONFIDENTIALITY AGREEMENT. Employee acknowledges and reaffirms his obligations under the Company's Employment Confidentiality and Proprietary Information Agreement dated April 11, 1996. 11. AGREEMENT NOT TO SOLICIT CUSTOMERS. Employee agrees that for a period of twelve (12) months after the Termination Date, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or appropriate, or attempt to solicit, divert or appropriate, to any competing business (a) any person or entity whose account with the Company was sold or serviced (including maintenance) by the Company during the twelve (12) months preceding the Termination Date, or (b) any person or entity whose account with the Company has been directly solicited at least twice by the Company within the twelve (12) month period prior to the Termination Date. 12. AGREEMENT NOT TO SOLICIT EMPLOYEES AND CONTRACTORS. Employee agrees that for a period of twelve (12) months after the Termination Date, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert or hire away, any person then employed by the Company or then serving as a consultant, sales representative or distributor or reseller of the Company. 13. FULL COMPENSATION. The payments made and other consideration provided under this Agreement constitute full compensation for and extinguish all Employee's Claims, including, but not limited to, all Claims for attorneys' fees, costs, and disbursements, and all Claims for any type of legal or equitable relief. 14. EMPLOYEE COOPERATION. Employee agrees to cooperate in all reasonable requests of the Company, in connection with any litigation, administrative proceeding or any other claim of a third party against the Company relating to acts or omissions of Employee or of which Employee would have personal knowledge or other information, including, without limitation, providing information, deposition testimony, appearing in court, etc. The Company agrees to pay Employee all reasonable out-of-pocket expenses in connection with such assistance. 15. NO ADMISSION OF WRONGDOING. This Agreement does not constitute an admission that any person or entity violated any local, state, or federal ordinance, regulation, ruling, statute, rule of decision, or principle of common law, or that any person or entity engaged in any improper or unlawful conduct or wrongdoing. Employee will not characterize this Agreement or the payment of any money or other consideration in accord with this Agreement as an admission or indication that any person or entity engaged in any improper or unlawful conduct or wrongdoing. 16. LEGAL REPRESENTATION. Employee acknowledges that he has retained and consulted with his own attorneys prior to executing this Agreement. Employee acknowledges that he has had a full opportunity to consider this Agreement, that he has had a full opportunity to ask any questions that he may have concerning this Agreement, and that in deciding whether to sign this Agreement he has not relied upon any statements made by the Company or its attorneys, other than the statements made in this Agreement. Employee further acknowledges that he has 4 read and understands the contents to this Agreement and that he executes this Agreement knowingly and voluntarily and based upon and with the opportunity to obtain independent legal advice of his own choosing. 17. AUTHORITY. Employee represents and warrants that he has the authority to enter into this Agreement, and that he has not assigned any Claims to any person or entity. 18. INVALIDITY. In the event that a court of competent jurisdiction determines that any provision of this Agreement is invalid, illegal, or unenforceable in any respect, such a determination will not affect the validity, legality, or enforceability of the remaining provisions of this Agreement, and the remaining provisions of this Agreement will continue to be valid and enforceable. 19. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties and their respective heirs, representatives, successors, and assigns. 20. ENTIRE AGREEMENT. This Agreement and the other agreements referenced herein are intended to and do define the full extent of the legally enforceable undertakings of the parties, and no promises or representations, written or oral, that are not set forth explicitly in this Agreement are intended by any party to be legally binding, and all other agreements and understandings between Employee and the Company relating to Employee's employment with the Company are hereby superseded. No provision of this Agreement shall be amended, waived, or modified except by an instrument in writing, signed by all parties hereto. 21. HEADINGS. The descriptive headings of the paragraphs and subparagraphs of this Agreement are intended for convenience only, and do not constitute parts of this Agreement. 22. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 23. GOVERNING LAW. This Agreement will be construed in accord with, and any dispute or controversy arising from any breach or asserted breach of this Agreement will be governed by, the laws of the State of Arizona. IN WITNESS WHEREOF, the parties have executed this Agreement on the dates indicated below. DATED this 17TH day of September, 1998. /s/ Jean-Luc Guy Valente ------------------------------------- Jean-Luc Guy Valente 5 DATED this 17TH day of September, 1998. Viasoft, Inc. By: /s/ Kevin M. Hickey ------------------------------------- Kevin M. Hickey President and Chief Operating Officer STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 17TH day of September, 1998, by JEAN-LUC GUY VALENTE. /s/ Joni K. Summers ------------------------------------- Notary Public My Commission Expires: MARCH 30, 2000 STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 17TH day of September, 1998, by KEVIN M. HICKEY. /s/ Denene A. Till ------------------------------------- Notary Public My Commission Expires: DECEMBER 31, 2001 6 EX-10.5 6 SEVERANCE AND CONSULTING AGREEMENT - HICKEY CONFIDENTIAL SEVERANCE AND CONSULTING AGREEMENT This Confidential Severance and Consulting Agreement ("Agreement") is entered into as of the 2nd day of November, 1998 (the "Termination Date") in the State of Arizona by and between Kevin M. Hickey ("Employee"), and Viasoft, Inc., a Delaware corporation, (the "Company"). RECITALS WHEREAS, Employee is currently employed by the Company as President and Chief Operating Officer; and WHEREAS, Employee desires, as of the Termination Date, to resign as an officer and employee of the Company; and WHEREAS, the Company is willing to accept such resignations but desires, commencing on the Termination Date, to retain the services of Employee to provide for a smooth transition of the duties of his office and for the purpose of providing consulting advice in the areas of general operations and strategic partnerships; and WHEREAS, the parties desire to express in a written agreement their mutual agreements, covenants, promises, and understandings with respect to the termination of Employee's employment relationship and the terms of the consulting relationship. AGREEMENT NOW THEREFORE, in consideration of the premises and the mutual agreements, covenants, and provisions contained in this Agreement, the parties agree and declare as follows: 1. TERMINATION OF EMPLOYMENT. Employee hereby resigns as an employee and officer of the Company, effective as of November 2, 1998, and the Company accepts such resignation. Employee acknowledges that the Company paid Employee on or before October 31, 1998, for his regular existing salary through October 31, 1998 and his accrued but unused vacation time, all net of applicable withholding taxes. Employee acknowledges that the Company has paid Employee all wages and compensation to which he was entitled as an employee of the Company. The parties acknowledge and agree that Employee shall not be an employee of the Company after the Termination Date, notwithstanding Employee's continued receipt of certain sums as described in this Agreement. 2. SEVERANCE BENEFITS. a. SEVERANCE PAY. The Company will: (1) continue paying Employee his existing salary, net of applicable withholding, through April 30, 1999, on the Company's regular pay days; and (2) continue Employee's group health plan coverage through April 30, 1999, with Employee's portion of the premium for such coverage deducted from the severance payments described above. The Company also shall reimburse Employee for any valid business expenses he incurred on or prior to October 31, 1998, in accordance with the Company's Travel and Expense policy, provided the expenses are submitted to the Company on or before November 30, 1998. The Company also shall reimburse Employee for amounts, if any, for which Employee is entitled to reimbursement under the Company's Employee Stock Purchase Plan through and including the Termination Date. b. CONDITIONS. Employee will be entitled to receive the severance benefits and other consideration set forth in this Agreement provided that: (1) Employee has not revoked this Agreement within the applicable revocation period described in Section 9 below; and (2) The Company has received written confirmation from Employee, in the form attached hereto as Exhibit A, dated not earlier than the day after the expiration of the applicable revocation period described in Section 9 below, that Employee has not revoked and will not revoke this Agreement; and (3) Employee fulfills his obligations as a consultant, as reasonably requested by the Company, as set forth in Section 4 below. c. CONSIDERATION. Employee acknowledges that it is not the Company's usual policy to provide all of the severance benefits and other consideration set forth in this Agreement, and that he would not be entitled to those benefits and consideration if he were not releasing his Claims under this Agreement. 3. WAIVER AND RELEASE OF CLAIMS. Employee covenants not to sue for, and waives and releases all of his existing rights to, any relief of any kind from the Company, its insurers, affiliates, divisions, directors, officers, shareholders, employees, agents, successors, assigns, and members ("the Employer"), including without limitation all claims that arise out of or that relate to his employment or the termination of his employment with the Company, all claims that arise out of or that relate to the statements or actions of the Employer or any oral or written contract or agreement with the Employer, all claims that arise under the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Arizona Employment Protection Act, the Americans with Disabilities Act, and the Arizona Civil Rights Act, all claims for relief or other benefits under any federal, state, or local statute, ordinance, regulation, or rule of decision, all claims that Employer engaged in conduct prohibited on any basis under any federal, state, or local statute, ordinance, regulation, or rule of decision, and all claims for stock options or other rights with respect to the Company's equity securities, attorneys' fees, liquidated damages, punitive damages, costs, and disbursements ("Claims"); provided, however, that this release does not apply to any rights of Employee accrued through and including the Termination Date under the Employee's stock option agreements listed in Exhibit C. If Employee breaches the covenant not to sue described in this paragraph, Employee agrees to indemnify, hold harmless, and reimburse the Employer for attorneys' fees and costs the Employer incurs defending Employee's action. 2 4. CONSULTING SERVICES. a. ENGAGEMENT AS A CONSULTANT. Employee agrees to provide the consulting services described on Exhibit B during the period commencing on the Termination Date and ending on April 30, 1999 (the "Consulting Term"). Employee shall devote such time, attention and energies to the business of the Company as is reasonably necessary in order to provide the services described herein. b. EXPENSES. During the Consulting Term, the Company shall reimburse Employee for all reasonable out-of-pocket business expenses incurred in performing the consulting services as documented in accordance with Company policies. Single item expenses over $300 shall be approved by the Company prior to Employee incurring those charges. c. AMENDMENT OF EXISTING STOCK RIGHTS. Employee agrees, and the Company hereby confirms, that as of immediately prior to the Termination Date, all of Employee's vested and unvested rights to acquire stock or other equity securities of the Company are accurately and completely set forth on Exhibit C hereto. After this Agreement becomes effective in accordance with Section 9 hereof, each stock option agreement described on Exhibit C, and attached to Exhibit C, is hereby amended to provide that during the Consulting Term, the options thereunder shall continue to vest and shall continue to be exercisable, in accordance with the terms and conditions thereof, as if Employee's employment with the Company had not terminated, except as set forth in Section 4(e) below. Termination or expiration of this Agreement or the Consulting Term shall be treated in the same manner as termination of employment under such stock option agreements. Employee acknowledges and agrees that as a result of the foregoing amendments, any incentive stock options described on Exhibit C shall hereafter be treated as non-qualified stock options. d. NATURE OF RELATIONSHIP. Employee acknowledges and agrees that he is an independent contractor and will not act as an agent of the Company nor be deemed an employee of the company for any purpose, including without limitation for the purposes of any employee benefit programs, income tax withholding, F.I.C.A. taxes, unemployment benefits, or otherwise. Employee shall not enter into any agreement or incur any obligations on behalf of the Company, or commit the Company in any manner without the Company's prior written consent. Employee agrees to timely pay any and all taxes that may be owed to state and federal taxing authorities related to the payments and other consideration paid by the Company during the Consulting Term. In the event any person or entity, including, without limitation, any governmental entity or any taxing authority, challenges the characterization of the payments made by the Company under the Consulting Term or the treatment of those items for tax purposes, or if it is alleged or determined by any of the foregoing persons or entities that withholding or other taxes are due and owing with respect to the payments made by the Company under the Consulting Term, Employee agrees to indemnify, hold harmless, and defend the Company on demand for, from, and against all liability, loss, damage, or other allegations directly or indirectly arising from or related to any such challenge, determination, or allegation, including without limitation any and all state and federal taxes, interest, penalties, attorneys' fees, and costs. The parties further agree that they will not challenge the 3 characterization of any payments and withholding treatment made by the Company under the Consulting Term. e. TERMINATION. (1) TERMINATION BY EMPLOYEE FOR BREACH. The Consulting Term may be terminated by Employee if the Company commits a material breach of the terms and conditions of this Agreement and the Company fails to cure such breach within thirty (30) days after delivery of Employee to the Company of a written notice setting forth the nature and extent of such breach. If the Consulting Term is terminated for Company breach, the Company shall accelerate the vesting of all options that would have otherwise vested during the Consulting Term in accordance with Section 4(c) above and shall reimburse Employee in accordance with Section 4(b) above for all expenses reimbursable thereunder incurred by Employee through the date of termination. (2) TERMINATION BY COMPANY FOR BREACH. The Consulting Term may be terminated by the Company if the Employee commits a material breach of the terms and conditions of this Agreement or habitually neglects his duties hereunder and the Employee fails to cure such breach within ten (10) days after delivery of Company to the Employee of a written notice setting forth the nature and extent of such breach. If the Consulting Term is terminated for Employee breach, the Company shall continue to pay to Employee all severance and insurance benefits hereunder through April 30, 1999, but all vesting of stock options hereunder shall cease as of the date of the termination of the Consulting Term. f. EXCLUSIVE REMEDY. Except as expressly provided in this Section 4, upon the expiration or termination of the Consulting Term, the Company shall not have any liability or obligation of any kind or character to Employee under the terms of this Agreement or in connection with the expiration or termination hereof. 5. INDEMNIFICATION. Notwithstanding any other provision of this Agreement, the Company agrees to indemnify Employee in accord with Article IX of the Company's Restated Certificate of Incorporation dated February 23, 1995 as the same may be amended from time to time. 6. MUTUAL CONFIDENTIALITY. a. GENERAL STANDARD. The parties intend that the terms and conditions upon which this matter has been settled, including the provisions of this Agreement ("Confidential Information"), will be forever treated as confidential. Employee and the Company will not disclose Confidential Information to any person or entity at any time, except as provided herein. 4 b. EXCEPTIONS. (1) It will not be a violation of this Agreement for Employee to disclose Confidential Information to his attorneys. (2) It will not be a violation of this Agreement for Employee to disclose Confidential Information to his spouse, to his accountants or to his tax planners, provided that if Employee discloses Confidential Information to any such person, he must simultaneously inform that person that the information is considered confidential, and that the person cannot disclose the information to any other person without the advance written consent of Employee and the Company. Any disclosure of Confidential Information by any such person will be considered a disclosure by Employee. (3) It will not be a violation of this Agreement for the Company to disclosure Confidential Information to its attorneys, to its auditors, to its insurers, to its accountants, to its tax planners, to the Securities and Exchange Commission, National Association of Securities' Dealers, or other governmental entities or self-regulatory organizations, to its affiliates, divisions, directors, officers, shareholders, employees, representatives, or other agents who have a legitimate reason to obtain the Confidential Information in the course of performing their duties or responsibilities for the Company, or as necessary or advisable in compliance with its disclosure obligations under applicable law or accounting rules. (4) It will not be a violation of this Agreement for either party to give truthful testimony in response to direct questions asked pursuant to an enforceable court order obtained after providing notice to the other party, which order pays due regard to the concerns for confidentiality expressed by the parties herein. 7. NON-DISPARAGEMENT. Employee will not disparage, defame, or besmirch the reputation, character, image, or services of the Company, its affiliates, divisions, directors, officers, shareholders, employees, or agents. 8. CLAIMS INVOLVING THE COMPANY. Employee will not recommend or suggest to any potential claimants or plaintiffs or their attorneys or agents that they initiate claims or lawsuits against the Company or any of its affiliates, divisions, directors, officers, shareholders, employees, agents, successors, or assigns, nor will Employee voluntarily aid, assist, or cooperate with any such claims or lawsuits; provided, however, that this paragraph will not be construed to prevent Employee from giving truthful testimony in response to direct questions asked pursuant to a lawful subpoena during any future legal proceedings. 9. TIME TO CONSIDER AGREEMENT AND RIGHT TO REVOKE. a. TIME TO CONSIDER AGREEMENT. Employee understands that he may take at least 21 (twenty-one) calendar days to decide whether to sign this Agreement, provided, however, that Employee has requested and the Company has 5 agreed that Employee may execute this Agreement before the expiration of that period if he so chooses. Employee further understands that the Company's offer as set forth in this Agreement shall expire on December 4, 1998 at 5:00 p.m. unless Employee executes the Agreement and the Company receives it prior to that time. b. RIGHT TO REVOKE. Employee understands that he has the right to revoke this Agreement for any reason within 7 (seven) calendar days after he signs it by signing and delivering to the Company within this 7 (seven) day period a letter indicating his intention to revoke this Agreement. Employee understands that this Agreement will not become effective or enforceable unless and until he has not revoked it and the applicable revocation period has expired. 10. RETURN OF COMPANY PROPERTY. Employee agrees to promptly return to the Company all property that belongs to the Company, including without limitation all equipment, supplies, documents, files, computer disks, and Employee agrees to remove from any personal computer all data files containing Company information. 11. CONFIDENTIALITY AGREEMENT. Employee acknowledges and reaffirms his obligations under the Company's Employment Confidentiality and Proprietary Information Agreement dated January 18, 1993, a copy of which is attached as Exhibit D hereto, and such obligations shall continue to apply during the Consulting Term, and shall survive the consulting relationship, except as noted in Section 12(f) below. 12. NON-COMPETITION AND SOLICITATION OF CUSTOMERS AND EMPLOYEES a. NON-COMPETITION. Employee agrees that for a period of twelve (12) months after the Termination Date, he shall not, alone or with others, directly or indirectly, own, manage, operate, control, participate in, or be connected in any way whatsoever (including without limitation as an officer, agent, representative, consultant, employee, service provider, partner, creditor, or guarantor) with any person or entity that is engaged or about to become engaged in the business of providing any product or service which is then competitive with, or substantially similar to, a product or service provided by the Company anywhere in the world (a "Competing Business"). Ownership by Employee, as a passive investment, of less than 1% of the outstanding shares of capital stock of any corporation listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a breach of this Section 12. Employee further agrees that for a period of twelve (12) months from the Termination Date, he will not, directly or indirectly, assist or encourage any other person in carrying out, directly or indirectly, any activity that would be prohibited by this Section 12 if such activity were carried out by Employee. b. AGREEMENT NOT TO SOLICIT CUSTOMERS. Employee agrees that for a period of twelve (12) months after the Termination Date, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or appropriate, or attempt to solicit, divert or appropriate, to any Competing Business (a) any person or entity whose account with the Company was sold or serviced (including maintenance) by the Company 6 during the twelve (12) months preceding the Termination Date, or (b) any person or entity whose account with the Company has been directly solicited at least twice by the Company within the twelve (12) month period prior to the Termination Date. c. AGREEMENT NOT TO SOLICIT EMPLOYEES AND CONTRACTORS. Employee agrees that for a period of twelve (12) months after the Termination Date, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert or hire away, any person then employed by the Company or then serving as a consultant, sales representative or distributor or reseller of the Company. This Section 12(c) shall not prohibit Employee from hiring Charlotte Klein only. d. REFORMATION. In the event that any provision in this Section 12 is held to be over broad as written, such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable to the fullest extent allowable. Employee and the Company hereby agree that such amendment shall be accomplished as follows: (1) In the case of duration, the length of the covenant or provision shall be reduced in increments of one (1) month each until it is of the greatest duration as may be enforceable under applicable law; and (2) In the case of geographic scope, the geographic scope of the covenant or provision shall be reduced until it is of the greatest geographic scope as may be enforceable under applicable law, which reduction shall be effected by eliminating in the following order, one by one, countries outside the United States, beginning with the country in which the Company received the least volume of gross revenue over the prior six (6) months, and continuing in the inverse order ranked by the Company's gross revenue over the prior six (6) months within each country until such scope is enforceable, and then, if necessary, by eliminating in the following order, one by one, individual States within the United States, beginning with the State in which the Company received the least volume of gross revenue over the prior six (6) months, and continuing in the inverse order ranked by the Company's gross revenue over the prior six (6) months within each State until such scope is enforceable, and then, if necessary and applicable, by eliminating in the following order the counties in the State of Arizona, beginning with the county in which the Company received the least gross revenue over the prior six (6) months, and continuing in the inverse order ranked by the Company's gross revenue over the prior six (6) months within each county in Arizona until such scope is enforceable. e. REASONABLENESS. Employee and the Company agree that the covenants set forth in this Section 12 are appropriate and reasonable when considered in light of the nature and extent of the Company's business and the scope of Employee's responsibilities while employed by the Company. Employee acknowledges that: (i) the Company has a legitimate interest in protecting the Company's business activities; (ii) the covenants set forth herein are not oppressive to Employee and contain reasonable limitations as to time, scope, geographical area and activity; (iii) the covenants do not harm in any manner whatsoever the public interest; (iv) Employee can earn a livelihood without violating any of the covenants set forth herein; and (v) Employee has received 7 and will receive substantial consideration for agreeing to such covenants, including without limitation the consideration received and to be received by Employee under this Agreement. f. SUPERSEDES PRIOR OBLIGATIONS. The parties agree that the provisions of this Section 12 specifically supersede the obligations of Employee under Section 2(c) of his Employment Confidentiality and Proprietary Information Agreement, which is attached hereto as Exhibit D. 13. FULL COMPENSATION. The payments made and other consideration provided under this Agreement constitute full compensation for and extinguish all Employee's Claims, including, but not limited to, all Claims for attorneys' fees, costs, and disbursements, and all Claims for any type of legal or equitable relief. Without limiting the foregoing, termination of the Consulting Term in accordance with Section 4(e) above shall not reinstate any extinguished Claims. 14. EMPLOYEE COOPERATION. Employee agrees to cooperate in all reasonable requests of the Company, in connection with any litigation, administrative proceeding or any other claim of a third party against the Company relating to acts or omissions of Employee or of which Employee would have personal knowledge or other information, including, without limitation, providing information, deposition testimony, appearing in court, etc. The Company agrees to pay Employee all reasonable out-of-pocket expenses in connection with such assistance. 15. NO ADMISSION OF WRONGDOING. This Agreement does not constitute an admission that any person or entity violated any local, state, or federal ordinance, regulation, ruling, statute, rule of decision, or principle of common law, or that any person or entity engaged in any improper or unlawful conduct or wrongdoing. Employee will not characterize this Agreement or the payment of any money or other consideration in accord with this Agreement as an admission or indication that any person or entity engaged in any improper or unlawful conduct or wrongdoing. 16. LEGAL REPRESENTATION. Employee acknowledges that the Company has advised him to consult a lawyer regarding this Agreement before signing it, and that Employee has retained and consulted with his own attorneys prior to executing this Agreement. Employee acknowledges that he has had a full opportunity to consider this Agreement, that he has had a full opportunity to ask any questions that he may have concerning this Agreement, and that in deciding whether to sign this Agreement he has not relied upon any statements made by the Company or its attorneys, other than the statements made in this Agreement. Employee further acknowledges that he has read and understands the contents to this Agreement and that he executes this Agreement knowingly and voluntarily and based upon and with the opportunity to obtain independent legal advice of his own choosing. The parties acknowledge and agree that each party has participated in the drafting of this Agreement and that this document has been reviewed by the respective legal counsel for the parties hereto, or have had the opportunity for such counsel to review this Agreement, and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be applied to the interpretation 8 of this Agreement. No inference in favor of, or against, any party shall be drawn from the fact that one party has drafted any portion hereof. 17. AUTHORITY. Employee represents and warrants that he has the authority to enter into this Agreement, and that he has not assigned any Claims to any person or entity. 18. INVALIDITY. In the event that a court of competent jurisdiction determines that any provision of this Agreement is invalid, illegal, or unenforceable in any respect, such a determination will not affect the validity, legality, or enforceability of the remaining provisions of this Agreement, and the remaining provisions of this Agreement will continue to be valid and enforceable. 19. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties and their respective heirs, representatives, successors, and assigns. 20. ENTIRE AGREEMENT. This Agreement and the other agreements referenced herein are intended to and do define the full extent of the legally enforceable undertakings of the parties, and no promises or representations, written or oral, that are not set forth explicitly in this Agreement are intended by any party to be legally binding, and all other agreements and understandings between Employee and the Company relating to Employee's employment with the Company are hereby superseded. No provision of this Agreement shall be amended, waived, or modified except by an instrument in writing, signed by all parties hereto. 21. HEADINGS. The descriptive headings of the Sections and paragraphs of this Agreement are intended for convenience only, and do not constitute parts of this Agreement. 22. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 23. GOVERNING LAW. This Agreement will be construed in accord with, and any dispute or controversy arising from any breach or asserted breach of this Agreement will be governed by, the laws of the State of Arizona. 24. DISPUTE RESOLUTION. If there shall be any dispute between the Company and Employee whatsoever, the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Exhibit E hereto, the provisions of which are incorporated as a part hereof, and the parties hereto agree that such dispute resolution procedures shall be the exclusive method for resolution of disputes under this Agreement. Notwithstanding anything herein to the contrary, nothing in this Section 24 or Exhibit E shall preclude either party from seeking interim or provisional relief, in the form of a temporary restraining order, preliminary injunction or other interim equitable relief concerning a dispute, either prior to or during any of the negotiations or proceedings provided for herein, if deemed necessary by the party, in its discretion, to protect its interests. Further, this Section 24 shall be specifically enforceable. IT IS EXPRESSLY UNDERSTOOD THAT BY SIGNING THIS 9 AGREEMENT, WHICH INCORPORATES BINDING ARBITRATION, THE COMPANY AND EMPLOYEE AGREE TO WAIVE COURT OR JURY TRIAL AND TO WAIVE PUNITIVE, STATUTORY, CONSEQUENTIAL AND ANY DAMAGES, OTHER THAN COMPENSATORY DAMAGES, TO THE FULLEST EXTENT ALLOWED BY LAW. IN WITNESS WHEREOF, the parties have executed this Agreement on the dates indicated below. DATED this 28th day of December, 1998. /s/ Kevin M. Hickey ---------------------------------------- Kevin M. Hickey STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 28TH day of DECEMBER, 1998, by KEVIN M. HICKEY . /s/ Joni K. Summers ---------------------------------------- Notary Public My Commission Expires: MARCH 30, 2000 DATED this 5th day of February, 1999. Viasoft, Inc. By: /s/ Steven D. Whiteman ------------------------------------ Steven D. Whiteman Chairman and Chief Executive Officer 10 STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 5TH day of February,1999, by STEVEN D. WHITEMAN. /s/ Joni K. Summers --------------------------------------- Notary Public My Commission Expires: MARCH 30, 2000 11 List of Exhibits Exhibit A Form of Non-Revocation Letter Exhibit B Description of Consulting Services Exhibit C Existing Stock Rights Exhibit D Employee Proprietary Rights Agreement Exhibit E Dispute Resolution Procedures 12 EX-11 7 COMPUTATION OF EARNINGS (LOSS) PER SHARE VIASOFT, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS(LOSS) PER SHARE Exhibit 11 (in thousands, except per share data) THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------ ---------------- 1998 1997 1998 1997 ---- ---- ---- ---- BASIC EARNINGS (LOSS) PER SHARE Common Shares Outstanding, beginning of period 18,463 19,318 19,321 17,723 Effect of Weighting of Shares: Employee stock options exercised 5 19 47 96 Shares issued in secondary offering -- -- -- 804 Shares purchased 66 5 33 9 Treasury shares (223) -- (768) -- ------- ------- ------- ------- Weighted average number of common shares outstanding 18,311 19,342 18,633 18,632 ======= ======= ======= ======= Net income (loss) $ 1,447 $ 5,035 $(5,620) $ 8,801 ======= ======= ======= ======= Earnings (loss) per common share $ 0.08 $ 0.26 $ (0.30) $ 0.47 ======= ======= ======= ======= DILUTED EARNINGS (LOSS) PER SHARE Common Shares Outstanding, beginning of period 18,463 19,318 19,321 17,723 Effect of Weighting of Shares: Warrants and employee stock options outstanding 170 663 -- 738 Employee stock options exercised 5 19 47 96 Shares issued in secondary offering -- -- -- 804 Shares purchased 66 5 33 9 Treasury shares (223) -- (768) -- ------- ------- ------- ------- Weighted average number of common and common share equivalents outstanding 18,481 20,005 18,633 19,370 ======= ======= ======= ======= Net income (loss) $ 1,447 $ 5,035 $(5,620) $ 8,801 ======= ======= ======= ======= Earnings (loss) per common and common share equivalent $ 0.08 $ 0.25 $ (0.30) $ 0.45 ======= ======= ======= ======= EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF THE COMPANY AND ITS SUBSIDIARIES AS OF DECEMBER 31, 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 1 25,289 53,982 34,039 942 0 117,632 15,125 6,751 139,009 39,086 0 0 0 19 99,367 139,009 54,994 55,010 20,454 65,962 103 0 (2,416) (8,639) (3,019) (5,620) 0 0 0 (5,620) (0.30) (0.30)
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