-----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, EtIcwNkoWpaJYUHAfLlz6Ga/gy0BMZUIs/dUl6Qdqe/M0IRJZwSsmzGwG8y6zg5l j7La/Pl3uVWiUlHCl4Mu4g== 0001047469-99-012840.txt : 19990402 0001047469-99-012840.hdr.sgml : 19990402 ACCESSION NUMBER: 0001047469-99-012840 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTRON SOFTWARE INC CENTRAL INDEX KEY: 0000947427 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132966911 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13591 FILM NUMBER: 99581825 BUSINESS ADDRESS: STREET 1: MEADOWS OFFICE COMPLEX STREET 2: 301 RT 17 NORTH CITY: RUTHERFORD STATE: NJ ZIP: 07070 BUSINESS PHONE: 2019353400 MAIL ADDRESS: STREET 1: MEADOWS OFFICE COMPLEX STREET 2: 301 ROUTE 17 NORTH CITY: RUTHERFORD STATE: NJ ZIP: 07070 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER: 1-13591 COMPUTRON SOFTWARE, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-2966911 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 301 ROUTE 17 NORTH, RUTHERFORD, NEW JERSEY 07070 (Address of principal executive offices) (Zip Code)
201-935-3400 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE Common Stock $.01 par value ON WHICH REGISTERED American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of Common Stock on March 15, 1999 as reported on the American Stock Exchange, was approximately $12.8 million. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 15, 1999, Registrant had outstanding 23,913,557 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE ITEMS 10, 11, 12 AND 13 OF PART III ARE INCORPORATED BY REFERENCE FROM A PORTION OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FURNISHED TO STOCKHOLDERS IN CONNECTION WITH THE 1999 ANNUAL MEETING OF STOCKHOLDERS. ITEM 1. BUSINESS This Report contains statements of a forward-looking nature within the meaning of the safe harbor provisions of section 21E of the Securities Exchange Act of 1934, as amended, relating to future events or future financial results of the Company. Investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, investors should specifically consider the various factors identified in this Report which could cause actual events or results to differ materially from those indicated by such forward-looking statements, including the matters set forth in "Business--Risk Factors" below. GENERAL Computron is an innovative provider of business process and technology solutions with 20 years of experience in crafting efficient, effective, value-added systems for global organizations as well as large and mid-sized companies. Computron believes that the wealth, potential, and ultimate success of 21st century organizations will be determined by how well knowledge is used to manage, protect, and leverage their corporate assets. The Company strives to deliver knowledge-based business process solutions that empower organizations through the ability to turn information into knowledge. Computron designs, markets, and supports n-tier, Internet and workflow-enabled client/server-based business process solutions consisting of financials, workflow, desktop document access and storage, and maintenance and asset management software. Its solutions are designed to protect software application investment through the use of true n-tier architecture and a proven implementation certainty methodology. The Company's current client/server solutions are fully Year 2000 compliant and provide customers with the ability to address both the structured and unstructured data of their business, above and beyond traditional transaction-oriented accounting. Computron also offers its financial applications integrated with workflow-based modules such as Budget Cycle Management (BCM), Expense Cycle Management (ECM), and Procurement Cycle Management (PCM), designed to seamlessly manage an organization's information and knowledge throughout the end-to-end business process. Computron believes that its business process solutions empower organizations by turning all forms of information into knowledge. Its vision has been to provide the complete functionality to manage all phases of an end-to-end business process, combined with a strong technology foundation that can take organizations into the 21st century. Organizations can take advantage of significant technological innovations such as network computing, client/server, document management, imaging, COLD (Computer Output to Laser Disk), decision support, workflow, voice, the Internet and others utilizing Computron's advanced architecture. In this emerging Net economy, with the virtual office becoming more prevalent, Computron is well positioned to provide new e-business process solutions by leveraging the synergies between the Internet as a routing infrastructure, EDI and EFT over the Internet, the World Wide Web as a vast resource of business service providers, electronic mail messaging and Computron's Workflow. Computron's advanced architecture provides for the ability to leverage technology and disseminate business knowledge electronically throughout the enterprise. As a result, Computron is aggressively pursuing technology leaders with whom Computron can partner to provide customers and prospects with e-commerce procurement and bill presentment solutions using Internet technology to standardize, automate and reduce the cost and cycle time of business processes. PRODUCTS The Company designs, markets, and supports n-tier, Internet and workflow-enabled, client/server-based, business process solutions for financials, workflow, desktop document access and storage, and maintenance and asset management software. Its product line consists of Computron-Registered Trademark- Financials, Computron-Registered Trademark- Workflow, Computron-Registered Trademark- COOL-TM-, and Computron-Registered Trademark- Yorvik-TM-, and is currently supported on 1 a variety of UNIX-based platforms--Sun Microsystems, Inc. (Sun), Hewlett-Packard Corporation (HP), International Business Machines Corporation (IBM), Digital Equipment Corporation (Digital), as well as Intel-based servers running Windows NT. The most current release of Computron software, Version 5.0 for the Computron Financials, Computron Workflow, and Computron COOL solutions, debuted December 31, 1998, and is available in the English language. Previous versions are available in a number of languages including English, Bulgarian, French, Spanish, Polish, German, and Japanese. It is expected that Version 5.0 will be available in these languages in the future. The Company's products may be translated into additional languages using supported language code pages with minimal reliance on its development resources. Computron believes that Version 5.0 provides users with enhanced features, improved functionality (such as Euro dollar support), and robust performance, and is offered on CD-ROM for its full suite of business solutions and complete set of documentation. The software supports a number of Electronic Data Interchange (EDI) transactions, such as 832, 850 and 855 for Purchase Order and 820 and 823 for Accounts Receivable. The most recent release of Computron Yorvik software, Version 6.2.2, was released in January 1999. COMPUTRON FINANCIALS Computron Financials and Version 5.0 address the needs of Computron's ever growing multi-national and international client base with support for the Economic and Monetary Union (EMU) and its new currency, the Euro. Building on Computron's already strong multi-currency and multi-national functionality, Version 5.0 has added currency triangulation calculations across its financial business solutions and parent/child currency relationships for the member currencies of EMU, providing accurate accounting regardless of the currencies involved in any transaction.
MODULE FEATURES - --------------------------------------- ------------------------------------------------------------------------ GENERAL LEDGER The General Ledger (G/L) module provides comprehensive financial accounting and management information across multiple companies, currencies, and reporting calendars. It stores and maintains financial, statistical, and budgetary information for summary, comparison, calculation, inquiry, and reporting. Computron believes that the product fulfills statutory, consolidation, and management requirements and offers benefits such as complete user control of all functions and ledger structure, n-dimensions Geographical Chart of Account structure, customization of Advanced User Interface, and total integration with other Computron applications and (via its own sophisticated interfacing tool GENEX) with non-Computron software. Through the use of various standard Computron utilities, data can also be uploaded to and/or downloaded from external sources. POWER INTERACTIVE Power Interactive is a set of components used to define GL financial reports. Created in Visual Basic, Power Interactive provides a traditional Windows look and feel with standard icons, while allowing users report access and drill down capability to virtually any data available in the GL. Its components include the POWER INTERACTIVE DEFINER and POWER INTERACTIVE VIEWER. The POWER INTERACTIVE DEFINERallows the specification of a report using a graphical user interface, without having to consider the details of the actual report layout. Its POWER INTERACTIVE VIEWER component is a user-friendly tool that facilitates end-user financial report modifications and customizations. With Power Interactive, users can define financial report data lines and columns using the
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MODULE FEATURES - --------------------------------------- ------------------------------------------------------------------------ Definer, and use the Viewer to define and/or view the layout. For performance and scalability, all data is gathered on the server. BUDGET CYCLE MANAGEMENT The Budget Cycle Management (BCM) module is workflow-based and is designed to allow organizations to automate the ways in which budget information is downloaded/uploaded, disseminated and collected throughout the enterprise. It provides the ability to track the status of each form, reducing the frequent manual intervention involved in the budget cycle process. With BCM, organizations in virtually any industry can improve the overall quality and control of the budgeting process, decrease wait time by speeding the manual process, and reduce manual effort. ACCOUNTS RECEIVABLE The Accounts Receivable module provides efficient and comprehensive debtor management facilities, offering complete financial accounting and management information, in multiple currencies, to fulfill statutory and management requirements and is suitable for Internet Service Providers (ISPs), etc. because of its ability to consolidate invoice line details. It is parameter-driven for precise matching to user requirements and offers users control of many functions including the ledger structure. Users can create Call Back Queue records based on data from the customer master, customer statistics, and open item files using the Credit Manager's workbench function. Additionally, Computron Accounts Receivable has an optional Direct Invoicing module that handles goods and services, pick list generation, invoicing generation, deal pricing, pricing and discount tables. It also provides comprehensive financial accounting and management reporting and inquiry (statistical and financial), in multiple currencies. It supports the EDI 820 and 823 requirements. Through the use of various standard Computron utilities, data can be uploaded to and/or downloaded from external sources. REVENUE CYCLE MANAGEMENT In June 1999, Computron will release Phase I of its Revenue Cycle Management (RCM) module, a workflow-based, time billing and accounts receivable module that allows organizations to manage receivables more effectively. Phase I of RCM automates the bill memo routing process, which enables organizations to manage their billing process and receipting more efficiently. Phase II of RCM, scheduled for release in early 2000, will manage the ways in which cash and aged receivables are collected throughout the enterprise. With RCM, organizations in virtually any industry can improve the collection process, quality, and control of revenue. RCM enhances the credit manager's function by allowing fast and accurate access to pertinent information for clear and quick decision making. ACCOUNTS PAYABLE The Accounts Payable module is a sophisticated vendor management system. It offers an easy-to-use method of managing suppliers, vendors, and the purchasing cycle. It embraces purchasing statistics, cash management forecasting, employee advance and expense handling, EFT payment capability, built-in
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MODULE FEATURES - --------------------------------------- ------------------------------------------------------------------------ invoice logging, BACS, tracking and payment authorization procedures. It also provides comprehensive financial accounting and management reporting and inquiry (statistical and financial) in multiple currencies. Through the use of various standard Computron utilities, data can also be uploaded to and/or downloaded from external sources. EXPENSE CYCLE MANAGEMENT Expense Cycle Management (ECM) is a complete application that integrates portions of Computron's financial modules, with workflow technology delivered with a graphical process design wizard called the Process Design Workbench. It comes with all of the workflow tasks necessary for re-engineering the payment cycle, such as several scanning, faxing and invoice capture tasks, tasks for indexing documents, voucher approval routing options, EFT payments, exception handling, and full online inquiry to the workflow and financial data. PURCHASE ORDER The Purchase Order module enables automated purchase order processing, user-defined vendor evaluation and allows for blanket and standard orders, transmission of purchase orders through print, fax, or EDI 832, 850 and 855, critical delivery flagging, and "contract near limit" warnings. It provides sophisticated buyer sourcing that includes automatic pick tickets and direct requisition to purchase order processing. With the addition of Bids and Quotes in Version 5.0, the buyer can now manage competitive bids on both current and historical data and record quotes received from the vendors against the bid sent to them. PROCUREMENT CYCLE MANAGEMENT Procurement Cycle Management (PCM) is a complete application that integrates portions of Computron's financial modules with workflow technology delivered with the Process Design Workbench. It allows individual organizations to define the procurement cycle process and provides a view of the current processes, identifying areas that can be improved. By coupling the value of workflow with Computron's standard functional richness and the Internet, PCM helps organizations decrease wait time, reduce manual effort, and improve the control of the procurement process, while increasing the overall production and quality of the organizational performance. PCM can electronically create both requisitions and purchase orders, and upon completion of an online requisition, perform custom business rules, or automatically route the requisition to a supervisor for approval and release. Computron is aggressively pursuing technology leaders with whom Computron can partner to provide customers and prospects with e-commerce procurement and bill presentment solutions using Internet technology to standardize, automate and reduce the cost and cycle time of the procurement cycle. INVENTORY CONTROL The Inventory Control module is a highly flexible inventory system with full integration to both Computron Financials/Purchase Order and Computron Financials General Ledger. This system features extensive inventory transaction capabilities and detailed reporting
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MODULE FEATURES - --------------------------------------- ------------------------------------------------------------------------ functionality. Notable features include Item Master File maintenance and inquiry capability, Bill of Materials, full integration to Computron Financials/Purchase Order through Requisition and Receiving, Pick List processing, a full range of inventory transactions including warehouse moves, transfers, issues, and returns, inventory count capabilities and inventory reporting, and costing methods. Through the use of various standard Computron utilities, data can also be uploaded and/or downloaded from external sources. FIXED ASSETS The Fixed Assets (FA) module tracks fixed assets, maintains related financial and accounting records and provides for flexible, unlimited depreciation calendars, user-defined asset identification and make, model and number descriptions. It can generate fixed asset information directly for the Computron Financials/General Ledger. This will produce the data required to update asset accounts, accumulated depreciation accounts, depreciation expense accounts, disposition gain or loss accounts, and relieve the appropriate FA clearing accounts. This update can then be posted directly to the Computron Financials/General Ledger and with the integrated reconciliation of GL and FA, can be easily monitored. Through the use of various standard Computron utilities, data can also be uploaded and/or downloaded from external sources. TIME AND EXPENSE ACCOUNTING The Time and Expense Accounting (TEAM) module gives business and practice managers complete control over billing time and expenses at every level (client, engagement, project, office, responsible employee, etc.), as well as multiple options for contract billing and revenue recognition. On-line data entry, editing, and billing facilities ensure up-to-the-minute accuracy and prompt invoicing of time and expenses incurred on multiple levels of clients and/or projects. This powerful management tool can be utilized in maximizing the productivity and profitability of all chargeable time and services, as well as flexibility in defining revenue policies. Along with missing time alerts and remote time and expense logging, the TEAM solution delivers accurate and timely management of employees and billing tasks, which is particularly suitable for professional service organizations. Through the use of various standard Computron utilities, data can also be uploaded and/or downloaded from external sources, which is most beneficial in the Human Resource system interfaces to Computron ENCUMBRANCE ACCOUNTING The Encumbrance Accounting module enables public sector and not-for-profit accounting commitments to ensure that they do not exceed budgeted amounts by enforcing strict controls over disbursements and purchasing. APPLICATION DEVELOPMENT TOOLSET The Application Development Toolset module provides a graphical-based toolset enabling users to extend application data models, presentation, and business rules, and manage customization of menus, user preferences, security and other processing related characteristics.
5 Computron Financials incorporate numerous international features, including multi-currency, Economic and Monetary Union (EMU), multi-national support of various numeric and date presentations, accounting standards and tax calculations. Computron Financials is workflow and Internet-enabled. COMPUTRON WORKFLOW Computron Workflow automates various labor-intensive functions (such as customer service, accounts payable processing, accounts receivable processing and claims processing) throughout large organizations. Computron Workflow can be used as a stand-alone application or in conjunction with Computron Financials or third party applications. Computron Workflow is designed to improve the productivity and efficiency of business processes within large organizations that handle substantial quantities of transactions and activities on a proceduralized basis. Computron Workflow enables users to develop systems that automate their document processing and procedure, including on-line routing of documents or transactions and customized sequencing of processing tasks throughout an organization based on user defined processing rules. Computron Workflow is Internet-enabled. Computron Workflow consists of a series of modules including:
MODULE FEATURES - --------------------------------------- ------------------------------------------------------------------------ WORKFLOW The Workflow module enables on-line, real-time management review and optimization of business processes, allows for the fine-tuning and adjustment of process handling and the audit and supervision of productivity, and handles standard business and industry-specific processes. This is accomplished with Computron's Process Design Workbench, which utilizes Visio's graphical design tool to author and maintain a workflow process. Computron also works with Interfacing Technologies' FirstSTEP product to simulate and model the workflow process that has been designed by the Process Design Workbench. The Company is a member of the Workflow Management Coalition, and is actively working with other members to develop a common set of WfMC APIs for workflow products to promote industry-wide, cross product interoperability. RECORDS MANAGEMENT The Records Management module provides batch or individual document scanning, document attachment and storage and is able to handle document input from a variety of formats and sources, including images, spreadsheets, text, COOL, fax transmissions, and optical character recognition-based systems, and handles user-defined query and retrieval functions. These functions are a subset of the Workflow module.
COMPUTRON COOL Computron COOL software, an industry leading COLD product, enhances access to report data available throughout an enterprise by complementing on-line data with information that is typically stored off-line in the report output of various computing systems or stored on microfiche or on paper. Computron COOL accesses data that is found in reports produced by the various computer systems found in an enterprise, regardless of whether the reports were produced by a mainframe, legacy, personal computer, or client/server computer system and regardless of the application that generated the reports. Computron COOL can function as a substitute for computer output to microfiche, an on-line report viewer, a facility for downloading information from reports into spreadsheets and other applications, or a data warehousing support tool, as well as a tool kit for "relating" information extracted from disparate data sources. 6 Computron COOL software accesses data in report format produced from the user's existing systems, and then indexes, compresses, and saves the data on magnetic storage, CD, or optical disks. Computron COOL software then enables users throughout an enterprise to retrieve the data simultaneously, to search the report data on-line, as well as download selected data to spreadsheets or word processing documents for further manipulation, and to print, fax, or otherwise make available all or parts of the data on an easy-to-use basis on LAN, WAN, Intranet and Internet. Computron COOL can function on a stand-alone basis and can be integrated with Computron Financials, Computron Workflow, and Computron Yorvik, as well as with the customer's own and third-party applications through the use of APIs provided with the product. Computron COOL is Internet-enabled. Computron COOL consists of a series of modules including:
MODULE FEATURES - --------------------------------------- ------------------------------------------------------------------------ COMPUTRON COOL The original COOL solution evolved from COLD technology to replace costly, inefficient microfiche and paper-based storage of text reports with rapid storage, instant retrieval, advanced analysis and report production, and cost-effective distribution of electronic report data. This includes reports from mainframe, legacy, client/ server, and PC-based systems, which can be displayed in their original report formats. COOL I-MERGENCE This significantly enhances the COOL solution by collecting strategic information from databases, COOL reports, legacy systems, data warehouses, etc., from around the world, merging it, analyzing it, and delivering strategic information to desktops distributed throughout the company. COOL/APA-TM- This extends Computron COOL software's functionality with the ability to closely simulate the original formats and graphics of so-called "all-points-addressable" (APA) documents created in complex printer languages such as Xerox Metacode, IBM Advanced Function Printing (AFP), and Hewlett-Packard PCL5. COOL NET-TM- This Java-based solution leverages the Internet, as well as intranets and other enterprise networks, to deploy access to COOL archives to any location around the world--to remote offices and to traveling executives--and provides controlled access for vendor and client partners. COOL Net software won a 1997 AIIM Best of Show Award for its unique "hot-link" feature, through which COOL Net software integrates COOL archives with the vast information resources available across the World Wide Web. COOL Net software is automatically available to literally thousands of users having a Java-enabled Web browser such as Netscape Navigator or Microsoft Internet Explorer. COOL DISTRIBUTOR-TM- This version of COOL software leverages the compact disk medium for high-volume, low-cost distribution and viewing of massive amounts of information as processed and handled by COOL. COOL/APIS-TM- The Computron COOL suite has been designed to integrate with other business solutions on the desktop and the server as appropriate. Computron's set of COOL/APIs is used to integrate COOL with custom software.
7 COMPUTRON YORVIK Yorvik software is a knowledge-based suite of integrated business applications that address the maintenance, project management, inventory, and purchasing operations. Its purpose is to provide the necessary tools, through functional richness, to enable asset intensive, change-oriented organizations to increase profitability by maximizing equipment uptime, increasing efficiencies of large projects, reducing inventory costs and streamlining purchasing processes. In addition to satisfying the needs of the above mentioned operations, Yorvik software's internal workflow allows it to be configured to satisfy many other types of "work" bringing added value to these companies. Unlike the conventional Computerized Maintenance Management Systems available today, Yorvik's software is a knowledge-based Work Management System, which, together with Computron Financial applications, provides an integrated, single source best-of-breed, enterprise asset management solution. The added value Yorvik software offers an organization is internal workflow for easily configurable systems, the functionality to support business process reengineering, and an architecture that creates a fully integrated resource, maintenance and materials management backbone. At the heart of this backbone is a "virtual map" of the organization within the Yorvik Facility/Equipment database. Yorvik software automates the planning and management process, gathers all relevant resources, schedules multiple or individual job steps, and generates reports including those related to cost control. Computron Yorvik software consists of a series of modules including:
MODULE FEATURES - --------------------------------------- ------------------------------------------------------------------------ MAINTENANCE MANAGEMENT The Maintenance Management module helps organizations plan, schedule, and manage work requirements and maintenance tasks that are critical to keep operations running. PROJECT MANAGEMENT Project Management is best utilized for managing more complex long-term projects--those with several sub-projects, diverse resources, and thousands of tasks, such as plant shutdowns or capital projects. Project Management's powerful and sophisticated algorithms can process the related variables, determine the optimal schedule for work, and help monitor progress and costs along the way. MATERIALS MANAGEMENT Materials Management automates inventory and warehousing functions and integrates them with maintenance, project management and purchasing processes, assuring that materials are on hand when needed while maintaining minimum stock levels. PROCUREMENT Procurement helps users purchase material, services, and equipment from a competent source at a competitive price. It also provides full control over the timing of purchases because it is fully integrated with the other Yorvik applications. The tight integration with maintenance, projects and materials management supports today's Maintenance Repair Operations (MRO) requirements.
Computron Yorvik software is an open systems client/server suite of applications that is portable across major hardware and software platforms. It runs on a variety of UNIX based platforms--Sun Microsystems, Inc. (Sun), Hewlett Packard Corporation (HP), International Business Machines Corporation (IBM) and Digital Equipment Corporation (Digital), as well as Intel-based servers running Windows NT. The Yorvik software GUI client is a Microsoft Windows 95 or Microsoft Windows NT application. Yorvik software is written in C++ and includes a proprietary toolkit. The supported databases are Oracle, Sybase and SQL Server. 8 Computron Yorvik serves as the basis for full lifecycle asset management, activity based costing and continuous improvement of plant performance and efficiency. ARCHITECTURE At the heart of the Company's financial and workflow software design and technology is an open, Internet-ready, n-tier architecture designed to adapt to new technological innovation and enable executives to capitalize on these innovations quickly and cost-effectively. The architecture was created to simplify continuous process re-engineering (CPR) and allow companies to achieve their goals of increased competitiveness and reduced costs. The n-tier architecture permits enhanced scalability, application upgrade and/or migration ease, and multiple desktop presentation options including Microsoft Windows, Visual Basic, and Java, all of which position the Company as an industry leader in accurate, comprehensive, and timely application implementations. Computron's application suite supports relational database management systems (RDBMS) from vendors such as Microsoft Corporation (Microsoft SQL), Oracle Corporation (Oracle), Sybase, Inc. (Sybase), and Informix Corporation (Informix). Computron's software runs on a variety of UNIX-based platforms--Sun Microsystems, Inc. (Sun), Hewlett-Packard Corporation (HP), International Business Machines Corporation (IBM), Digital Equipment Corporation (now a unit of Compaq Computer Corporation), as well as Intel-based servers running Windows NT. Computron's products are designed to take advantage of diverse configurations and processing capabilities at the customer site. For example, a Computron installation can be configured to execute discrete application functions (components) on multiple application servers. Or, a Computron system can be used effectively in a wide area network (WAN) configuration, (Intranet or Internet) without resorting to remote Graphical User Interface (GUI) display tools, as is common with two tiered applications. Computron software can be implemented with a "thin client" extendable with Microsoft Visual Basic which provides excellent desktop integration, or with a Java based "ultra thin" Web client for unadministered/remote users. Furthermore, these configuration options can be adjusted as the customer's needs change. Additional application servers can be applied as users are added. Or, Internet and WAN access can be used together, if this type of access is more appropriate for some users. EXTENSIVE USE OF OBJECT-ORIENTED DESIGN TECHNIQUES Since 1990, Computron has relied heavily on object-oriented design techniques. The results can be seen throughout the architecture. For example, user interface controls and display components are treated as objects that can be individually manipulated, customized, and extended by user organizations. The Company believes that the benefits of object-orientation are becoming increasingly apparent. Object-oriented applications tend to be more modular than those developed with traditional methods, have cleaner interfaces, more shared code, and fewer entry points. Developers work in a simpler development environment that is less prone to error, and they produce applications that are easy to maintain, enhance, and distribute across the network. As a result, end-users get applications that are reliable and manageable. In addition, Computron's products allow developers to gain increased scalability and performance via Computron's flexible, "n-tiered" architecture. N-TIERED ARCHITECTURE First-generation client/server systems utilized a two-tier architecture in which presentation and application logic were combined on client workstations, and data was stored on one or more servers. Though its limitations have been widely acknowledged, the classic two-tier client/server architecture is surprisingly still at the heart of many enterprise solutions. For example, the two-tier model requires application logic to be executed on individual client workstations, reduces performance by dramatically 9 increasing network traffic, limits the Information Technology ("IT") organization's ability to eliminate bottlenecks by increasing server resources, and increases the complexity of applications thereby reducing their reliability. In contrast, Computron's architecture has, for many years, separated application functions into multiple logical groupings or tiers. At the heart of Computron's architecture are four tiers: PRESENTATION, PROCESS LOGIC, APPLICATION LOGIC, and INFORMATION ACCESS tiers. Computron's application logic and information access tiers may themselves be partitioned into multiple tiers, and it is also possible to integrate presentation services across the Internet or private intranets and extranets. Therefore, it is more appropriate to define the Computron architecture as N-TIER. The Company believes that for a multi-tiered product to perform efficiently in diverse network and system environments, it is critical that communication among tiers be efficient and flexible. Many first-generation client/server products rely on the database vendor's remote Structured Query Language (SQL) network software to communicate with the server. In contrast, Computron provides its own middleware, consisting of local and remote application program interface (API) libraries and protocol-specific drivers. The middleware supports a variety of popular network protocols for remote communication between software components. When client and server processes run on the same platform, local interprocess communication is employed to reduce the overhead of the network protocol. The Company believes that the API is a crucial piece of the architecture because of its performance impact and because it defines the extent to which application components can be distributed across different nodes in the network. The remote SQL APIs provided by most relational database vendors are useful for retrieving data from a remote database server, but they do not support a generalized interface for interprogram communication. The use of SQL based API calls as a basis for a multi-tiered message passing mechanism can be problematic, as this API was not designed for this purpose. In contrast, the Computron API is modeled closely on the Distributed Computing Environment (DCE) remote procedure call (RPC) API, an industry standard for remote communication between disparate software products. In addition, Computron is free to exploit the database access mechanism that is most appropriate for that database, and not use a "least common denominator" solution across RDBMS's. Computron's RDBMS interfaces are custom coded, and are focused on high function, high reliability, high security, high performance information access issues. CUSTOMIZATION AND EXTENSIBILITY With some enterprise financial packages, customers often require extensive source code changes to obtain the capabilities they desire. These changes add complexity and potential instability; there is no guarantee that customized source code versions of the product will translate to newer versions. Companies may later find themselves unable to utilize new features or technologies that could provide a competitive advantage. Computron's architecture is designed to avoid this problem by using components that can be customized and extended outside of the source code, including: - Presentation/user interface - Process logic - Application logic - Inquiry reporting - Drill-down modules - The relational information model 10 - Validation and rules - Business components for integration with other systems COMPREHENSIVE WORKFLOW INTEGRATION Workflow management is increasingly recognized as a critical element in successful business process reengineering. For years, Computron has included with its financial applications, a world-class product, Computron Workflow, as an integral part of its business solutions. Computron Workflow is the "connective tissue" that enables users to combine Computron financial rules based, user defined decision processing, and document management components, creating automated, integrated business processes. Computron Workflow is designed from the ground up as a total business solution. Since a powerful Workflow Rules Engine is integrated directly into Computron Workflow's runtime, organizations can extend the reach of workflow applications to drive all facets of their business. Computron enables companies to build high-performance production oriented workflow systems that directly access line-of-business and horizontal application database tables in real time without compromising information. Computron believes that workflow can be partitioned to a fine level of granularity, helping organizations maximize performance at low cost. It has been implemented in global environments characterized by high volumes, large user bases, complex conditional routing and extensive exception handling. MAINTAINING SECURITY Computron's architecture provides multiple levels of security, including ways to define update versus read-only access within specific transactions. An organization's security hierarchy exists both across systems and within individual applications. For information level security, Computron's applications support NO ACCESS, READ-WRITE ACCESS and READ-ONLY ACCESS for each record. This is defined in security maintenance using application security schemes. All application security is defined in a single set of system files and is managed centrally. Computron's security extend the native security mechanisms built into UNIX or Windows NT, as well as native RDBMS security on a PER USER, USER GROUP or SYSTEM-WIDE basis. LOWERING TOTAL COST OF OWNERSHIP Computron believes that there are many ways in which its products and architecture lower the total cost of ownership for an organization. For example: - Computron provides Implementation Certainty, a proven methodology for assuring a smooth transition and rapid implementation of the software. - Computron's architecture allows organizations to leverage existing development environments, and partition applications for maximum performance. - By customizing the software outside of the source code, it is easier to upgrade from one version of the software to another--a feature that should lower internal support costs. - New client forms, menus, and messages can be uploaded, reducing the maintenance required for new release implementations. - Computron supports multiple languages, including double-byte enablement using the same code. Therefore, the same product can be implemented across the company. 11 PROFESSIONAL SERVICES The Company considers its Professional Services to be a major asset and key differentiator from other vendors. With its 24-hour client support, implementation certainty methodology, standard as well as customized training, product certification, and its level of dedicated support, Computron has created a professional services program to handle the needs of its customers. As of December 31, 1998, the Company had 186 employees worldwide providing customer support and technical, consulting and training services. To maintain a high standard of service, the Company requests customer evaluations of service personnel on a quarterly basis. Bonus compensation is based, in part, on the results of these reviews. The Company's services are described below. CLIENT SUPPORT Support for domestic U.S. clients is based out of the Company's corporate headquarters in Rutherford, New Jersey. Client support centers are also based in Essen, Johannesburg, London, Melbourne, Paris, Singapore, Sydney, Toronto and Warsaw. Annual maintenance contracts are generally required for the first year of a customer's use of the Company's products, and are renewable on an annual basis. The maintenance contract entitles the customer to any product enhancements released during the term of the contract. Maintenance fees vary depending on the hours of hot-line support requested by the customer, and typically range between 17% and 20% of the fees from products under license. The Company also provides management overview and product information bulletins on an ongoing basis and periodic informational updates about installed products. These bulletins generally answer commonly asked questions and provide information about new product features. The Company also provides services for the development of customized documentation about the customer's system to reflect, among other things, user-defined modifications and specific business logic and processes. TECHNICAL SERVICES The Company offers assistance in developing interfaces with third party software or legacy systems. These services are designed to enable the development of additional client-specific functionality. The Company also provides network troubleshooting and assists its customers in deploying client/server systems, RDBMS software, operating systems and telecommunications programs. Such services are generally not directly related to the implementation of the Company's products but relate to effective company-wide solutions. CONSULTING SERVICES The Company's consulting services organization provides project assurance, business systems review, technical design, functional design, business modeling, system tailoring, system certification, change management and ongoing project support in connection with customer implementation of the Company's products. Similar services are also provided for upgrades to later versions of the software and migrations to different operating platforms. The Company also frequently works with third-party consultants and system integrators to provide customers with a full range of installation, customization and project management services. EDUCATION SERVICES The Company provides education services in North America through its Instructional Services group. This group is responsible for the development and delivery of training courses designed to familiarize users with the Company's products. A standard schedule of courses is delivered at the Company's facilities. A course catalog and schedule are provided to the Company's customers. In addition to regularly scheduled classroom training, the Company works with its customers to develop tailored training courses for delivery 12 at their site. The group also provides standard courses at the customer's location. Training courses vary in length from one to five days. Education services are also provided at the Company's international facilities including Australia, Canada, France, Germany, Poland, Singapore, South Africa and the United Kingdom. SALES AND MARKETING The Company currently markets its products and services primarily through a direct sales force in the United States and directly and indirectly in other parts of the world. The Company conducts comprehensive marketing programs in the United States, which include telemarketing, public relations, direct mail, advertising, seminars, trade shows and ongoing customer communications programs. As of December 31, 1998, the Company's sales and marketing organization consisted of 85 employees worldwide. The Company's marketing efforts in the United States are conducted by a direct sales force which is located at the Company's headquarters in Rutherford, New Jersey, and in the Atlanta, Chicago and Dallas metropolitan areas. The Company's U.S. marketing efforts are supported by independent distributors and systems integrators. In addition, the Company has established strategic alliances with hardware/database and software vendors. Outside of the United States, the Company maintains sales and support offices in Australia, Canada, France, Germany, Poland, Singapore, South Africa and the United Kingdom. In the past the Company has established distribution arrangements with third parties around the world and continually evaluates future third party arrangements. Currently the Company does not generate significant revenues from its distributors. STRATEGIC ALLIANCES The Company has established strategic alliances and relationships with a number of organizations that it believes are important to the development, sales, marketing, integration, and support of its products. The Company's relationships with software and hardware vendors, systems integrators and consulting firms provide marketing and sales leads to the Company's direct sales force and expand the distribution of its products. The Company's strategic alliances and relationships also assist the Company in keeping pace with the technological developments of major software and hardware vendors. The Company intends to continue to develop its strategic alliances with leading hardware and software vendors, consulting firms, systems integrators and distributors in the future. The Company provides education services for its strategic business partners. SYSTEMS INTEGRATORS AND CONSULTANTS The Company has established non-exclusive, formal and informal relationships with systems integrators and consultants who are active in the selection and implementation of information systems, including, but not limited to certain big five accounting firms. In addition, the Company has established relationships with independent distributors. By providing technical, consulting and integration services for the Company's products, these companies expand the ability of the Company to service and implement its products. HARDWARE VENDORS The Company has developed relationships with major hardware vendors such as Compaq Computer, Hewlett-Packard, IBM, and Sun Microsystems, Inc. These hardware vendors provide sales leads and technical support. SOFTWARE VENDORS The Company has established relationships with third-party software vendors including Informix Corporation, Microsoft Corporation, Oracle Corporation, and MIS AG. These vendors may provide sales 13 leads, assist the Company in developing the capability of the Company's products to inter-operate with third-party software and assist the Company in incorporating new technologies. PRODUCT DEVELOPMENT The Company has a dedicated product development and engineering organization and periodically releases new products and enhancements to existing products. Product development efforts are directed at increasing product functionality, improving product performance, providing support to existing products, expanding the capabilities of the products to inter-operate with third-party software and hardware and developing new products. In particular, the Company has from time to time devoted substantial development resources to develop additional modules for its products and the capability to support additional platforms, databases, GUIs, toolsets and emerging technologies, such as Intranet/Internet web-based access to applications. While the Company anticipates that certain new products and enhancements will be developed internally, the Company may acquire or license technology or software from third parties when appropriate. There can be no assurance that the Company will be successful in developing and marketing product enhancements or new products that respond to technological change, changes in customer requirements, or emerging industry standards, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of such products and enhancements, or that any new products or enhancements that it may introduce will achieve market acceptance. The inability of the Company, for technological or other reasons, to develop and introduce new products or enhancements in a timely manner in response to changing customer requirements, technological change or emerging industry standards, would have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Risk Factors--New Products and Rapid Technological Change: Risk of Product Defects, Development Delays and Lack of Market Acceptance." As of December 31, 1998, the Company had 95 employees engaged in product development and engineering. COMPETITION The financial applications and business software market is intensely competitive and rapidly changing. A number of companies offer products similar to the Company's products and target the same customers as the Company. The Company believes its ability to compete depends upon many factors within and outside its control, including the timing and market acceptance of new products and enhancements developed by the Company and its competitors, product functionality, performance, price, reliability, customer service and support, sales and marketing efforts and product distribution. The primary competition for Computron Financials are the financial applications software offered by Oracle Corporation, PeopleSoft, Inc. and others. The principal competitors for the Company's Computron Workflow and Computron COOL software are Eastman Kodak Company ("Kodak"), MicroBank, TASC, Staffware Corporation and FileNet Corporation. The principal competitors for the Company's Computron Yorvik software are Project Software Development, Inc. (PSDI), Indus International, Inc. (Indus) and others. See "Business--Risk Factors--Intense Competition." INTELLECTUAL PROPERTY The Company's success is heavily dependent upon its proprietary technologies as well as products from third parties, software vendors, hardware vendors, etc. The Company regards its software as proprietary, and relies primarily on a combination of contractual provisions and trade secrets, copyright and trademark law to protect its proprietary rights. The Company has no patents or patent applications pending, and existing trade secrets and copyright laws afford only limited protection. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the 14 Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. The Company makes source code available to certain of its customers which may increase the likelihood of misappropriation or other misuse of the Company's software. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. The Company does not believe that any of its products, trademarks or other proprietary rights infringe the proprietary rights of third parties. However, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products. As the number of software products in the industry increases and the functionality of these products further overlap, the Company believes that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, can be time consuming and expensive to defend, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty and license agreements, if required, may not be available on terms acceptable to the Company, or at all, which could have a material adverse effect on the Company's business, results of operations and financial condition. The Company also licenses software from third parties which is incorporated into its products. These licenses expire from time to time. In addition, the Company generally does not have access to source code for the software supplied by these third parties. Certain of these third parties are small companies that do not have extensive financial and technical resources. If any of these relationships were terminated or if any of these third parties were to cease doing business, the Company may be forced to expend significant time and development resources to replace the licensed software. Such an event would have a material adverse effect upon the Company's business, results of operations and financial condition. The Company has obtained Federal registrations for its trademarks "Computron" and "Yorvik". In addition, the Company has certain U.S. common law rights, and rights under foreign laws in relation to its trademarks, service marks and product names. Although the Company believes that the trademarks and service marks it uses are distinct, there can be no assurance that the Company will be able to register or protect such trademarks and service marks. See "Business--Risk Factors--Dependence on Proprietary Rights; Risks of Infringement." EMPLOYEES As of December 31, 1998, the Company had 435 full-time employees, 220 within the United States and 215 outside the United States, including 95 in product development and engineering, 186 in customer service and support, 85 in sales and marketing, and 69 in finance, administration and executive management. The Company's employees are not covered by any collective bargaining agreements. The Company believes that its relations with its employees are good. RISK FACTORS HISTORY OF NET LOSSES The Company incurred net losses of $31.8 million for 1996, $13.6 million for 1997 and $9.0 million for the year ended December 31, 1998. As of December 31, 1998, the Company had an accumulated deficit of $72.1 million. There can be no assurance that the Company will be profitable in the future. The Company has restated previously reported results for the four years ended December 31, 1995, including certain unaudited quarters therein and for each of the three unaudited quarters ended September 30, 1996. See 15 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 to the Consolidated Financial Statements. POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company has experienced, and may in the future experience, significant quarter to quarter fluctuations in revenues and results of operations. Such fluctuations may result in volatility in the price of the Company's Common Stock. Quarterly revenues and results of operations may fluctuate as a result of a variety of factors, including the proportion of revenues attributable to license fees versus services, the utilization of third parties to perform services, the amount of revenue generated by resales of third party software, changes in product mix, demand for the Company's products, the size and timing of individual license transactions, the introduction of new products and product enhancements by the Company or its competitors, changes in customer budgets, competitive conditions in the industry and general economic conditions. Further, the license of the Company's products generally involves a significant commitment of capital by the customer and may be delayed due to time-consuming authorization procedures within an organization. For these and other reasons, the sales cycles for the Company's products are typically lengthy and subject to a number of significant risks over which the Company has little or no control, including the customers' budgetary constraints and internal authorization reviews. The Company has historically operated with little backlog, since its products are generally shipped as orders are received. The Company has historically recognized a substantial portion of its revenues in the last month of a quarter, with these revenues frequently concentrated in the last week of the quarter. License fees in any quarter are substantially dependent on orders booked and shipped in the last month and last week of that quarter. Delays in the timing of recognition of specific revenues may adversely and disproportionately affect the Company's results of operations because a high percentage of the Company's operating expenses are relatively fixed, planned expenditures are based primarily on sales forecasts and only a small percentage of the Company's operating expenses vary with its revenues. Accordingly, the Company believes that period to period comparisons of results of operations are not necessarily meaningful and should not be relied upon as an indication of future results of operations. There can be no assurance that the Company will be profitable in any future quarter. The Company's business has experienced and is expected to continue to experience significant seasonality, due in part to customer buying patterns. These fluctuations are caused primarily by customer budgeting and purchasing patterns, and by the Company's sales commission policies which generally compensate sales personnel on the basis of quarterly and annual performance quotas. The Company believes this pattern may continue in the future. Due to the foregoing factors, the Company's operating results may be below the expectations of public market analysts and investors, in some future quarter. Such an event may have a material adverse effect on the price of the Company's Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." LITIGATION During 1996, the Company and certain of its current and former officers and directors were named as defendants in six civil suits filed as class actions on behalf of individuals claiming to have purchased Computron Common Stock during the time period from August 24, 1995, through January 27, 1997. The suits were filed in the United States District Court for the District of New Jersey and were consolidated by court order into one suit captioned IN RE COMPUTRON SOFTWARE, INC. SECURITIES LITIGATION, Master File No-96-1911 (AJL). See "Item 3. Legal Proceedings". On March 6, 1998, the District Court issued a final order approving the settlement of the class action securities litigation. The overall settlement included consideration totaling $15 million for the benefit of class members, including $6 million of consideration from the Company, and payments from certain of its 16 present and former officers and directors, its former auditors, and the insurance companies that provided the Company with directors and officers liability insurance. In return for the payments by the insurance companies, the settlement also resolved a separate lawsuit brought by the Company against the insurance companies. As its share of the settlement, the Company paid $1 million in cash, and issued, as noted below, one million shares of Common Stock of the Company ("Settlement Stock"). The Company recorded a charge to operations of $6 million during the quarter ended September 30, 1997, reflecting the Company's share of the settlement costs, excluding legal fees. The class members received a non-transferable right to resell the Settlement Stock to a business trust formed by the Company at a price of $5.00 per share during a period from December 1, 1998 to December 21, 1998 (the "Put Period"). The trust was capitalized by a contribution of $5 million in cash by the Company in March 1998. During the Put Period, class members exercised the put with respect to 880,798 shares of Settlement Stock. The right to put the remaining shares of Settlement Stock automatically expired as of midnight on December 21, 1998. Pursuant to the terms of the stipulation of settlement, the Company directed the trust to pay $4,403,990 in satisfaction of the timely claims made under the put, and to return to the Company the remaining balance in the trust. Shares of Settlement Stock that were not timely put according to the terms of the settlement remain freely transferable. Historically, the Company has been involved in other disputes and/or litigation encountered in its normal course of business. The Company believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company's business, financial condition and results of operations or cash flows. MANAGEMENT CHANGES The Company experienced significant turnover of executive management during 1996 and early 1997. In February 1997, the Company added a number of key officers, including its President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, and later in 1997 added its Senior Vice President of Operations and Senior Vice President of Sales and Marketing. In December 1998, a new Senior Vice President of Sales and Marketing was added. No other changes were made to the executive management. Failure to attract and maintain key management and employee personnel could have material adverse effects on the quality of the Company's products, and the Company's business and financial condition and results of operations. INTENSE COMPETITION The financial applications and business software market is intensely competitive and rapidly changing. A number of companies offer products similar to the Company's products and target the same customers as the Company. The Company believes its ability to compete depends upon many factors within and outside its control, including the timing and market acceptance of new products and enhancements developed by the Company and its competitors, product functionality, performance, price, reliability, customer service and support, sales and marketing efforts and product distribution. The primary competition for Computron Financials is the financial applications software offered by Oracle Corporation and PeopleSoft, Inc. The principal competitors for the Company's Computron Workflow and Computron COOL software are Eastman Kodak Company ("Kodak"), MicroBank, TASC, Staffware Corporation and FileNet Corporation. The principal competitors for the Company's Computron Yorvik software are Project Software Development, Inc. (PSDI), Indus International, Inc. (Indus) and others. The Company has an agreement with Kodak pursuant to which Kodak has the right to license Computron COOL software to third parties under its own private label and modify such software. Most of the Company's competitors are substantially larger than the Company and have significantly greater financial, technical, and marketing resources, and extensive direct and indirect channels of distribution. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than the Company. The 17 Company's products also compete with products offered by other vendors, and with proprietary software developed by third-party professional service organizations and management information systems departments of potential customers. Due to the relatively low barriers to entry in the software market, the Company expects additional competition from other established and emerging companies as the client/ server applications software market continues to develop and expand. The Company also expects that competition will increase as a result of software industry consolidations. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Competition." DEPENDENCE ON PRINCIPAL PRODUCTS Substantially all of the Company's revenues are derived from the licensing of Computron Financials, Computron Workflow, Computron COOL, Computron Yorvik and fees from related services. These products and services are expected to continue to account for substantially all of the Company's revenues for the foreseeable future. Accordingly, the Company's future results of operations will depend, in part, on achieving broader market acceptance of these products and services, as well as the Company's ability to continue to enhance these products and services to meet the evolving needs of its customers. A reduction in demand or increase in competition in the market for financial applications or business software, or decline in sales of such products and services, could have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Products." NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DEFECTS, DEVELOPMENT DELAYS AND LACK OF MARKET ACCEPTANCE The financial applications and business software market is characterized by rapid technological change, changes in customer requirements, frequent new product introductions and enhancements and emerging industry standards. Such changes may or may not affect the Company's software performance, customization, reporting functionality, or other business objectives, and may or may not render the Company incapable of meeting future customer software demands. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. Accordingly, the life cycles of the Company's products are difficult to estimate. The Company's future success will depend in part upon its ability to enhance its current products and to develop and introduce new products that respond to evolving customer requirements and keep pace with technological development and emerging industry standards, such as new operating systems, hardware platforms, interfaces and third party applications software. There can be no assurance that the Company will be successful in developing and marketing product enhancements or new products that respond to technological change, changes in customer requirements, or emerging industry standards, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of such products and enhancements, or that any new products or enhancements that it may introduce will achieve market acceptance. The inability of the Company, for technological or other reasons, to develop and introduce new products or enhancements in a timely manner in response to changing customer requirements, technological change or emerging industry standards, would have a material adverse effect on the Company's business, results of operations and financial condition. 18 Software products as complex as those offered by the Company often encounter development delays and may contain undetected errors or failures when introduced or when new versions are released. Such delays, errors or failures create a risk that the software will not meet its stated functionality and could cause the Company's future operating results to fall short of the published expectations of certain public market financial analysts. From time to time, the Company ports its products to various, new platforms, though no assurance can be given concerning the successful development of the Company's software products on these additional platforms or the performance characteristics of its applications. In addition, the Company and its products and technologies rely upon third-party products from hardware vendors, software vendors, RDBMS vendors, tools vendors, reporting products, etc. Such dependencies may or may not affect the Company's ability in the future to provide continued availability and/or support for all Computron products. The Company has in the past experienced delays in the development of software by third parties which software is being licensed to and implemented by customers who are simultaneously licensing and implementing the Company's products. Those delays have resulted in delays in the development and shipment of the Company's products. There can be no assurance that, despite testing by the Company and by current and potential customers, errors will not be found in new products or enhancements after commencement of commercial shipments, or that the Company will not experience development delays, resulting in loss of or delay in market acceptance of a new product or enhancement, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Product Development." DEPENDENCE ON PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT The Company's success is heavily dependent upon its proprietary technology. The Company regards its software as proprietary, and relies primarily on a combination of contractual provisions and trade secrets, copyright and trademark law to protect its proprietary rights. The Company has no patents or patent applications pending, and existing trade secrets and copyright laws afford only limited protection. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. The Company makes source code available to certain of its customers which may increase the likelihood of misappropriation or other misuse of the Company's software. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. The Company has obtained Federal registrations for its trademarks "Computron" and "Yorvik." In addition, the Company has certain U.S. common law rights, and rights under foreign laws in relation to its trademarks, service marks and product names. Although the Company believes that the trademarks and service marks it uses are distinct, there can be no assurance that the Company will be able to register or protect such trademarks and service marks. The Company does not believe that any of its products, trademarks or other proprietary rights infringe the proprietary rights of third parties. However, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products. As the number of software products in the industry increases and the functionality of these products further overlap, the Company believes that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, can be time consuming and expensive to defend, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty and license agreements, if required, may not be available on terms acceptable to the Company, or 19 at all, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Intellectual Property." SECURITY RISKS The Company's products provide security features designed to protect its users' data from unauthorized retrieval or modification. Its built in security features utilize the capabilities of its own applications, the client operating system software, as well as the security features contained in the RDBMS platforms on which the applications run. Computron's systems add additional capabilities to those provided by the underlying security systems. Though the Company is not aware of any violations of its application security architecture within its installed base, and its security features are subject to constant review and enhancement, no assurances can be given concerning the successful implementation of security features and their effectiveness within a customer's operating environment. In the event of an actual security breach, there may be a material adverse effect on the Company's business, results of operations, and financial condition. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS The Company derived approximately $21.3 million, $29.4 million and $29.9 million or, 39.2%, 43.4% and 47.1% of its total revenues, from customers outside of the United States in 1996, 1997 and 1998 respectively. The Company expects that such revenues will continue to represent a significant percentage of its total revenues in the future. The Company believes that its continued growth and profitability will require expansion of its sales in international markets. The Company intends to continue to expand its operations outside of the United States, which will require significant management attention and financial resources. There can be no assurance, however, that the Company will be able to maintain or increase international market demand for its products and services. Most of the Company's international license fees and services revenue are denominated in foreign currencies. Decreases in the value of foreign currencies relative to the U.S. dollar could result in losses from foreign currency translations. The Company does not currently hedge its foreign exchange exposure. With respect to the Company's sales that are U.S. dollar-denominated, decreases in the value of foreign currencies relative to the U.S. dollar could make the Company's products less price competitive. Additional risks inherent in the Company's international business activities generally include unexpected changes in regulatory requirements, tariffs and other trade barriers, costs of localizing products for foreign countries, lack of acceptance of localized products in foreign markets, longer accounts receivable payment cycles, difficulties in managing international operations, potentially adverse tax consequences, restrictions on repatriation of earnings, reduced legal protection of the Company's intellectual property, and the burdens of complying with a wide variety of foreign laws. There can be no assurance that such factors will not have a material adverse effect on the Company's future international revenues and, consequently, on the Company's business, results of operations and financial condition. In addition, there are risks related to the Euro Currency conversion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." RELIANCE ON CERTAIN RELATIONSHIPS The Company relies on relationships with a number of consultants, systems integrators and software and hardware vendors to enhance its product development and marketing and sales efforts, to implement the Company's software products and to support its customers. These relationships, many of which are not the subject of formal written agreements, provide marketing and sales leads to the Company's direct sales force, assistance in the Company's product development process and assistance in the service and implementation of the Company's products. There can be no assurance that these companies, most of which have significantly greater financial and marketing resources than the Company, will not develop or market software products which compete with the Company's products in the future or will not otherwise discontinue their relationships with or support of the Company. The failure by the Company to maintain its existing relationships, or to establish new relationships in the future, because of a divergence of interests, acquisition of one or more of these third parties or other reason, could have a material adverse effect on the Company's business, product development, results of operations, and financial condition. 20 The Company also licenses software from third parties which is incorporated into its products. These licenses expire from time to time. In addition, the Company generally does not have access to source code for the software supplied by these third parties. Certain of these third parties are small companies that do not have extensive financial and technical resources. If any of these relationships were terminated or if any of these third parties were to cease doing business or terminate the support of these products, the Company may be forced to expend significant time and development resources to try to replace the licensed software. Such an event would have a material adverse effect upon the Company's business, results of operations and financial condition. See "Business--Strategic Alliances," and "Intellectual Property." CONTROL BY EXISTING STOCKHOLDERS The Company's executive officers, directors and affiliates together beneficially own approximately 59% of the outstanding shares of Common Stock as of March 15, 1999. As a result, these stockholders are able to exercise control over matters requiring stockholder approval, including the election of directors, and mergers, consolidations and sales of all or substantially all of the assets of the Company. This may prevent or discourage tender offers for the Company's Common Stock unless the terms are approved by such stockholders. RELIANCE ON KEY PERSONNEL The Company's future success will depend to a significant extent upon a number of key management and technical personnel. The Company is a party to employment agreements with certain key personnel. The Company believes that its future success will also depend in large part upon its ability to attract and retain highly skilled technical, management, sales and marketing personnel. Competition for such personnel is intense, and the services of qualified personnel are difficult to obtain and replace. There can be no assurance that the Company will be successful in attracting and retaining the personnel necessary to develop, market, service and support its products and conduct its operations successfully. The inability of the Company to attract, hire, assimilate or retain such personnel, or to increase revenues at a rate sufficient to absorb the resulting increased expenses, would have a material adverse effect on the Company's business, results of operations and financial condition. POSSIBLE VOLATILITY OF STOCK PRICE The trading price of the Company's Common Stock has been, and, in the future could be, subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant contracts, changes in earning estimates by analysts, announcements of technological innovations or new products by the Company or its competitors, general conditions in the software and computer industries and other events or factors. In addition, the stock market in general has experienced extreme price and volume fluctuations which have affected the market price from many companies in industries similar or related to that of the Company and which have been unrelated to the operating performance of such companies. These market fluctuations may adversely affect the market price of the Company's Common Stock. ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW The Company's Fourth Amended and Restated Certificate of Incorporation authorizes the Board of Directors to issue, without stockholder approval, 5,000,000 shares of Preferred Stock with voting, conversion and other rights and preferences that could materially and adversely affect the voting power or other rights of the holders of Common Stock. Although the Company has no current plans to issue any shares of Preferred Stock, the issuance of Preferred Stock or of rights to purchase Preferred Stock could be used to discourage an unsolicited acquisition proposal. In addition, the possible issuance of Preferred Stock could discourage a proxy contest, make more difficult the acquisition of a substantial block of the Company's 21 Common Stock or limit the price that investors might be willing to pay in the future for shares of the Company's Common Stock. Certain provisions of the Company's by-laws and of Delaware law applicable to the Company could delay or make more difficult a merger, tender offer or proxy contest involving the Company. ABSENCE OF DIVIDENDS The Company has never paid or declared any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain any future earnings for use in its business. DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT EMPLOYEES The current directors, executive officers and key management employees of the Company as of March 6, 1999, are as follows:
NAME AGE POSITION - -------------------------------------------- --- -------------------------------------------------------------- Elias Typaldos.............................. 49 Chairman of the Board and Senior Vice President, Research and Development John A. Rade................................ 64 President, Chief Executive Officer, and Director Michael R. Jorgensen........................ 46 Executive Vice President, Chief Financial Officer and Treasurer Gennaro Vendome............................. 52 Vice President and Director Rick Hartung................................ 44 Senior Vice President, Sales and Marketing for North America Gregory Groom............................... 50 Senior Vice President of Business Operations Paul Abel................................... 45 Vice President, Secretary and General Counsel William G. Levering III..................... 38 Vice President, Corporate Controller Robert Nishi................................ 38 Vice President, Product Marketing Robert T. Hewitt............................ 51 Vice President, Product Development Thomas V. Manobianco........................ 42 Vice President, Professional Services Gregory Kopchinsky(2)....................... 47 Director Robert Migliorino(1)........................ 49 Director William E. Vogel(1)(2)...................... 61 Director Edwin T. Brondo(1).......................... 51 Director
- ------------------------ (1) Member of the Audit Committee (2) Member of the Compensation Committee ELIAS TYPALDOS, a founder of the Company, has been Senior Vice President, Research and Development and a director since the Company's formation in 1978, and Chairman of the Board since March 1997. JOHN A. RADE joined the Company as a Director, President and Chief Executive Officer in February 1997. Prior to joining the Company, Mr. Rade, was from April, 1995, a Vice President of American Management Systems, Inc. and was also still active at S-Cubed International, a company in the client server system development and consulting market, which he founded in February 1990. MICHAEL R. JORGENSEN joined the Company as Executive Vice President and Chief Financial Officer, Treasurer and Secretary in February 1997. Prior to joining the Company, from June 1993 to December 1996, Mr. Jorgensen was Senior Vice President and Chief Financial Officer of Ground Round Restaurants, Inc., a publicly-held chain of family restaurants. Prior to that, from March 1992, to April 1993, he was Vice President/Finance-Middle East of Alghanim Industries. Mr. Jorgensen was Chief Financial Officer of International Proteins Corporation from May 1988 to September 1991. Prior to 1991, 22 Mr. Jorgensen served in a financial role with several companies in the information technology/software industry. GENNARO VENDOME, a founder of the Company, has been a Vice President and director since the Company's formation in 1978. Mr. Vendome was Treasurer of the Company from 1981 until 1991 and Secretary of the Company from 1982 until 1991. RICK HARTUNG joined the Company in December 1998 as Senior Vice President of Sales and Marketing for North America. In 1998, prior to joining the Company, Mr. Hartung was Vice President of Sales for Systems Consulting Company. From 1992 to 1997, Mr. Hartung was Vice President of Sales for Marcam Corporation. GREGORY GROOM joined the Company in October 1997 as Senior Vice President of Business Operations. Mr. Groom was in charge of Channel Marketing from October 1996 to September 1997 for Healtheon, Inc., an Internet solutions provider. Prior to October 1996, Mr. Groom was the Technology and Administrative Systems Practice Leader at Watson Wyatt Worldwide, a benefits consulting firm. PAUL ABEL joined the Company in April 1997 as Secretary and Corporate Counsel and was promoted to Vice President, Secretary and General Counsel in June 1998. From October 1996 to March 1997, Mr. Abel served as Project Manager for Charles River Computers, an IT systems integrator. From 1983 to September 1996, Mr. Abel was an attorney with Matsushita Electric Corporation of America, an electronic products manufacturer/distributor. WILLIAM G. LEVERING III joined the Company as Revenue Controller in June 1996, was promoted to Corporate Controller in February 1997 and became Vice President, Corporate Controller in July 1998. Prior to joining the Company, Mr. Levering was a Senior Manager with the international accounting firm of KPMG LLP. Mr. Levering was employed by KPMG LLP from August 1982 to June 1996 and is a Certified Public Accountant. ROBERT T. HEWITT joined the Company as Vice President, Product Development in April 1996. From June 1988 to April 1996, Mr. Hewitt was Senior Vice President, Product Development at Financial Technologies International, Inc., a software development company. THOMAS V. MANOBIANCO joined the Company in January 1995 as a member of the consulting organization. In February 1999 he became Vice President of Professional Services. From January 1989 to January 1995, Mr. Manobianco was employed by Andersen Consulting as a manager in the systems integration practice. GREGORY KOPCHINSKY has been a director since 1994. Mr. Kopchinsky is a partner of the venture capital partnership Canaan Partners, which through its affiliates is a principal stockholder of the Company. Mr. Kopchinsky joined Canaan Partners as a General Partner in 1990. From 1984 to 1990, he was a Vice President at J.P. Morgan with principal responsibility for private debt and equity financing. Prior to joining J.P. Morgan, Mr. Kopchinsky was an attorney with Davis Polk & Wardwell specializing in complex financing transactions. ROBERT MIGLIORINO has been a director since 1991. Mr. Migliorino is a founding partner of the venture capital partnership Canaan Partners, which through its affiliates is a principal stockholder of the Company. Prior to establishing Canaan Partners in 1987, he spent 15 years with General Electric Co. in their Drive Systems, Industrial Control, Power Delivery, Information Services and Venture Capital businesses. WILLIAM E. VOGEL has been a director since August 1996. Since 1971, Mr. Vogel has been Chief Executive Officer of Centennial Financial Group, Inc., which is in the health insurance business. He has also been the Chief Executive Officer of W.S. Vogel Agency, Inc., a life insurance brokerage general agency, since 1961. EDWIN T. BRONDO has been a director since May 1997. Mr. Brondo is currently Executive Vice President and Chief Financial Officer of Elligent Consulting Group, Inc. Elligent may be deemed to be an affiliate of 23 the Company by virtue of the relationship of Elligent with a major stockholder of the Company. Mr. Brondo was Chief Administrative Officer and Senior Vice President of First Albany Companies, Inc. from June 1993 until December 1997. From June 1992 to June 1993 he was a Financial Management Consultant at Comtex Information Systems, Inc., a software consulting firm. He also held positions at Goldman, Sachs & Co., Morgan Stanley & Co., Inc. and Bankers Trust Company. ROBERT NISHI joined the Company in August 1986 as Manager of Consulting, was promoted in 1991 to Director of National Sales Support, and became Vice President, Product Marketing in December 1998. Each of the Directors shall be subject to re-election at the 1999 Annual Stockholders meeting. ITEM 2. PROPERTIES FACILITIES The Company's corporate headquarters are located in Rutherford, New Jersey in leased facilities consisting of 48,800 square feet of office space occupied under a lease expiring in December 2002 with an option to renew the lease for one additional three-year period. The Company leases additional facilities and offices, including facilities located in the Atlanta, Chicago, and Dallas metropolitan areas, and Mississauga, Canada. The Company also leases sales and support offices outside of North America in Australia, Bulgaria, France, Germany, Poland, Singapore, South Africa and the United Kingdom. While the Company believes that its facilities are adequate for its present needs, the Company periodically reviews its needs. The Company believes that additional space, if needed, would be available on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS On March 6, 1998 the District Court issued a final order approving a settlement in the class action securities litigation, IN RE COMPUTRON SOFTWARE, INC. SECURITIES LITIGATION, Master File No. 96-1911 (AJL), brought against the Company and certain of its present and former officers and directors in the United States District Court for the District of New Jersey. The overall settlement included consideration totaling $15 million for the benefit of class members, including consideration of $6 million from the Company, and payments from certain of its present and former officers and directors, its former auditors, and the insurance companies that provided the Company with directors and officers liability insurance. In return for the payments by the insurance companies, the settlement also resolved a separate lawsuit brought by the Company against the insurance companies. As its share of the settlement, the Company paid $1 million in cash, and issued one million shares of common stock of the Company ("Settlement Stock"). The class members received a non-transferable right to resell the Settlement Stock to a business trust formed by the Company at a price of $5.00 per share during a period from December 1, 1998 to December 21, 1998 (the "Put Period"). The trust was capitalized by a contribution of $5 million in cash by the Company in March 1998. During the Put Period, class members exercised the put with respect to 880,798 shares of Settlement Stock. The right to put the remaining shares of Settlement Stock automatically expired as of midnight on December 21, 1998. Pursuant to the terms of the stipulation of settlement, the Company directed the trust to pay $4,403,990 in satisfaction of the timely claims made under the put, and to return to the Company the remaining balance in the trust. Shares of Settlement Stock that were not timely put according to the terms of the settlement remain freely transferable. Historically, the Company has been involved in other disputes and/or litigation encountered in its normal course of business. The Company believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company's business, financial condition and results of operations or cash flows. 24 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1998. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock currently trades on the American Stock Exchange under the symbol "CFW." From January 27, 1997 until November 11, 1997, the Company's Common Stock was traded on the over-the-counter market in the "pink sheets" and on the NASD's "Electronic Bulletin Board." From August 24, 1995 until January 27, 1997, the Company's Common Stock was traded on Nasdaq under the symbol "CTRN" The following table lists the high and low sales prices for the periods set forth below:
PERIOD HIGH LOW - ------------------------------------------------------------------------------- --------- --------- 1997 First quarter.................................................................. 2 15/16 1/2 Second quarter................................................................. 2 7/8 Third quarter.................................................................. 1 13/16 1 3/8 Fourth quarter................................................................. 4 7/8 1 13/32 1998 First quarter.................................................................. 3 1/8 2 1/8 Second quarter................................................................. 2 5/8 1 5/16 Third quarter.................................................................. 1 7/16 11/16 Fourth quarter................................................................. 1 7/8 11/16
As of March 15, 1999 the approximate number of record holders of the Company's Common Stock was 739. The Company has never paid cash dividends on its capital stock. The Company currently intends to retain any earnings for use in its business and does not anticipate paying any cash dividends in the foreseeable future. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below for the years ended December 31, 1994, 1995, 1996 (as restated), 1997 and 1998 have been derived from the audited consolidated financial statements of the Company. The consolidated statement of operations data for the years ended December 31, 1996, 1997 and 1998, and the consolidated balance sheet data for the years ended December 31, 1997 and 1998 are derived from, and are qualified by reference to, the audited consolidated financial statements, and the related notes thereto included elsewhere in this report. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition 25 and Results of Operations" and the consolidated financial statements of the Company, as restated, and related notes thereto included elsewhere in this report.
YEARS ENDED DECEMBER 31, ------------------------------------------------------- 1994 1995 1996 1997 1998 --------- --------- ---------- ---------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA(1): Revenues: License fees........................................... $ 20,615 $ 33,766 $ 17,625 $ 20,372 $ 15,273 Services............................................... 11,858 19,029 36,770 47,219 48,248 --------- --------- ---------- ---------- --------- Total revenues....................................... 32,473 52,795 54,395 67,591 63,521 Operating expenses: Cost of license fees................................... 2,447 4,673 2,634 2,004 3,824 Cost of services....................................... 7,738 12,988 28,255 28,440 28,389 Sales and marketing.................................... 11,845 19,387 24,181 16,654 14,970 Research and development............................... 6,888 9,651 11,872 10,996 10,568 General and administrative............................. 5,607 11,269 20,014 14,280 13,586 Restructuring costs.................................... -- -- -- -- 1,025 Purchased research and development..................... -- 3,797 -- -- -- --------- --------- ---------- ---------- --------- Total operating expenses............................. 34,525 61,765 86,956 72,374 72,362 --------- --------- ---------- ---------- --------- Operating loss........................................... (2,052) (8,970) (32,561) (4,783) (8,841) Other income (expense) Costs related to class action litigation............... -- -- (758) (9,591) (74) Other.................................................. (206) 742 1,572 745 (116) --------- --------- ---------- ---------- --------- Total other income (expense)............................. (206) 742 814 (8,846) (190) --------- --------- ---------- ---------- --------- Loss before income tax provision......................... (2,258) (8,228) (31,747) (13,629) (9,031) Income tax provision..................................... 150 350 100 16 12 --------- --------- ---------- ---------- --------- Net loss................................................. $ (2,408) $ (8,578) $ (31,847) $ (13,645) $ (9,043) --------- --------- ---------- ---------- --------- --------- --------- ---------- ---------- --------- Basic and diluted loss per common share (1995 pro-forma)............................................. $ (0.46) $ (1.53) $ (0.65) $ (0.38) --------- ---------- ---------- --------- --------- ---------- ---------- --------- Weighted average basic and diluted common shares outstanding............................................ 18,809 20,787 20,834 23,963 --------- ---------- ---------- --------- --------- ---------- ---------- ---------
AS OF DECEMBER 31, ----------------------------------------------------- 1994 1995 1996 1997 1998 --------- --------- --------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA(1): Cash and cash equivalents, short-term investments and restricted cash........................................... $ 16,302 $ 46,651 $ 23,884 $ 12,597 $ 8,865 Working capital (deficiency)................................ 7,688 40,450 4,358 2,767 (6,317) Total assets................................................ 35,075 71,367 56,693 35,598 28,517 Deferred revenue............................................ 12,376 13,667 18,551 9,078 9,558 Total long term debt and capital lease obligations.......... 1,036 267 97 23 2,229 Common stock subject to repurchase.......................... -- -- -- 5,000 -- Redeemable convertible preferred stock...................... 40,038 -- -- -- -- Total stockholders' equity (deficit)........................ (28,782) 46,398 14,742 6,095 (2,375)
- ------------------------ (1) The consolidated financial data for 1994 and 1995 has been restated. See Note 2 of Consolidated Financial Statements. 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto, as restated, and is qualified in its entirety by reference thereto. This Report contains statements of a forward-looking nature within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, relating to future events or the future financial performance of the Company. Investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, investors should specifically consider the various factors identified in this Report which could cause actual results to differ materially from those indicated by such forward-looking statements, including the matters set forth in "Business--Risk Factors." OVERVIEW The Company was founded in 1978 as a developer of custom financial software for mission-critical applications in large organizations, primarily financial institutions. In the early 1980's, the Company developed financial software for legacy platforms and introduced sophisticated enterprise-wide financial software. Identifying the need for client/server financial software applications in the late 1980's, the Company commenced the re-architecture of its financial software and began the development and deployment of new products, specifically a workflow and document management product. In 1993, the Company introduced Computron Financials and Computron Workflow, the client/server versions of its financial and workflow products. Computron COOL was introduced in the latter half of 1993. Since 1994, the Company has released versions of its products with the capability to interoperate with popular RDBMS software. During the fourth quarter of 1995, the Company acquired the rights to its Computron Yorvik software. In April and June 1996, respectively, the Company acquired the Financial Services Division of Generale de Service Informatique (GSI) based in Paris, France, and a portion of the business and assets of AT&T Istel and Co., GMBH, in Essen, Germany. These operations primarily provide software products and services in their respective countries. The Company's revenues are derived from license fees and services. Revenue from non-cancelable software licenses is recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectibility is probable. Revenues for consulting and implementation services, including training, are recognized upon performance of the services. When the Company enters into a license agreement requiring development or significant customization of the software products, the Company recognizes revenue relating to the agreement using contract accounting. The Company's license agreements generally do not provide a right of return. Historically, the Company's backlog has not been substantial, since products are generally shipped as orders are received. The Company has experienced, and may in the future experience, significant fluctuations in its quarterly and annual revenues and results of operations. The Company believes that domestic and international operating results will continue to fluctuate significantly in the future as a result of a variety of factors, including the timing of revenue recognition related to significant license agreements, the lengthy sales cycle for the Company's products, the proportion of revenues attributable to license fees versus services, the utilization of third parties to perform services, the amount of revenue generated by resales of third party software, changes in product mix, demand for the Company's products, the size and timing of individual license transactions, the introduction of new products and product enhancements by the Company or its competitors, changes in customers' budgets, competitive conditions in the industry and general economic conditions. For a description of certain factors which may affect the Company's operating results, see "Business--Risk Factors--Potential for Significant Fluctuations in Operating Results; Seasonality." 27 Following the audits of the Company's consolidated financial statements for 1994, 1995 and 1996 the Company received management letters from its former independent public accountants, which enumerated material weaknesses in the Company's financial and accounting processes, controls, reporting systems and procedures. The Company's former independent public accountants highlighted the Company's need for additional financial and accounting personnel with software industry experience. In response to the management letters and operating results, during 1997 the Company hired senior executives with significant experience in the software industry, and improved the financial and accounting process, controls, reporting systems and procedures, which eliminated all material weaknesses. The Company has restated its consolidated financial statements for each of the four years in the period ended December 31, 1995 and certain unaudited quarters therein and for each of the three unaudited quarters ended September 30, 1996. (See Note 2 of Consolidated Financial Statements). The Company incurred net losses of $31.8 million for 1996, $13.6 million for 1997 and $9.0 million for the year ended December 31, 1998. The 1997 results include $9.6 million of costs related to class action litigation and related legal expenses. The Company reached a final settlement in March 1998 whereby the Company was required to pay $6 million in consideration. See "Item 3. Legal Proceedings." NEW ACCOUNTING STANDARDS In the first quarter of 1998, the AICPA's Accounting Standards Executive Committee issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP requires that entities capitalize certain internal-use software cost once specific criteria are met. Currently, the Company generally expenses the costs of developing or obtaining internal-use software as incurred. The Company will adopt SOP 98-1 on January 1, 1999, as required. The Company expects that the adoption of SOP 98-1 will not have a material effect on its consolidated financial statements. In the second quarter of 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company currently does not use derivative instruments and as such believes the adoption of SFAS No. 133, beginning January 1, 2000, will have no effect on the consolidated financial statements. EURO CURRENCY On January 1, 1999, certain countries of the European Union established fixed conversion rates between their existing currencies and one common currency, the euro. The euro will then trade on currency exchanges and may be used in business transactions. Beginning in January 2002, new euro-denominated currencies will be issued and the existing local currencies will be withdrawn from circulation by July 1, 2002. The Company is in the process of arranging euro bank accounts for the conversion to the euro currency, and is evaluating other systems and business issues raised by the euro conversion. These issues include the need to adapt computer and other business systems and equipment on its suite of products. During 1998, the Company derived approximately 47.1% of its total revenues outside the United States, a significant portion of which is in Europe. The Company has not completed its assessment of the potential impact of the euro conversion. However, at present, the Company believes the euro conversion will not have a material effect on the Company's consolidated financial position or results of operations. 28 YEAR 2000 COMPLIANCE The efficient operation of the Company's business is dependent in part on its information technology ("IT") systems (which include computer software programs and operating systems) and its non-IT systems (process control and other systems which include embedded technologies), collectively the "Internal Programs and Systems". The Company has been evaluating its Internal Programs and Systems to identify potential Year 2000 compliance problems, and has primarily conducted these evaluations and assessments using the Company's information technology personnel (Phase 1). These actions are necessary to ensure that the Internal Programs and Systems will be Year 2000 compliant. It is anticipated that modification or replacement of some of the Internal Programs and Systems may be necessary to make such Programs and Systems Year 2000 compliant (Phase 2). The Company is also communicating with its suppliers, domestically and abroad, and others to coordinate Year 2000 conversion. Based on present information, the Company believes that it will be able to achieve such Year 2000 compliance through a combination of modification of some existing Internal Programs and Systems and the replacement of other Internal Programs and Systems with new programs and systems that are already Year 2000 compliant by June 30, 1999. However, there can be no assurance that these efforts will be successful or that the systems of other companies on which the Company's business relies will be timely converted. To date, costs incurred in evaluating its Internal Programs and Systems have been less than $50,000 and anticipated costs necessary to complete such evaluations, modifications and/or replacements are not expected to exceed $100,000. Most costs incurred to achieve Year 2000 compliance, have, in fact, been the same as those required as a normal part of technology upgrades, a critical part of normal operations within a technology-based organization. The Company has focused resources on the thorough review, testing, and replacement, where necessary, of Internal Programs and Systems. The Company uses its own software, which has already been Year 2000 certified, for all accounting functions. Contingency plans are currently being developed, primarily focusing on third-party deliverables and dependencies which may affect implementation of identified anomalies. With respect to software programs which the Company licenses externally to customers (collectively, the "External Programs"), the most recent versions of the Company's External Programs have been Year 2000 certified. The Company has notified its customer base that the older versions of the External Programs may not be Year 2000 compliant, and the Company encouraged these customers to upgrade to its most recent versions of the External Programs. In addition, continuing periodic communication with customers is scheduled for the remainder of 1999, focused on providing assistance and education to customers as they transition to the new century, minimizing any possibility of anomalous conditions. Costs incurred to date to evaluate and identify potential Year 2000 compliance problems contained in the Company's External Programs have not been material, and the Company expects that future expenses associated with achieving Year 2000 compliance will not have a material effect on the consolidated financial results in 1999 and 2000. 29 RESULTS OF OPERATIONS The following table sets forth for the periods indicated, certain operating data as a percentage of total revenues:
YEARS ENDED DECEMBER 31, -------------------------- 1996 1997 1998 ------ ------ ------ Revenues: License fees............................................................................ 32.4% 30.1% 24.0% Services................................................................................ 67.6 69.9 76.0 ------ ------ ------ Total revenues........................................................................ 100.0 100.0 100.0 Operating expenses: Cost of license fees.................................................................... 4.8 3.0 6.0 Cost of services........................................................................ 52.0 42.1 44.7 Sales and marketing..................................................................... 44.5 24.6 23.6 Research and development................................................................ 21.8 16.3 16.6 General and administrative.............................................................. 36.8 21.1 21.4 Restructuring costs..................................................................... -- -- 1.6 ------ ------ ------ Total operating expenses.............................................................. 159.9 107.1 113.9 ------ ------ ------ Operating loss............................................................................ (59.9) (7.1) (13.9) Other income (expense).................................................................... 1.5 (13.1) (0.3) ------ ------ ------ Loss before income tax provision.......................................................... (58.4) (20.2) (14.2) Income tax provision...................................................................... 0.1 -- -- ------ ------ ------ Net loss.................................................................................. (58.5)% (20.2)% (14.2)% ------ ------ ------ ------ ------ ------
TOTAL REVENUES The Company's revenues are derived from license fees and services. Total revenues increased from $54.4 million in 1996 to $67.6 million in 1997 and decreased to $63.5 million in 1998 representing an increase of 24.3% in 1997 and a decrease of 6.1% in 1998. Total revenue increased during 1997 as both license fees and services revenue increased and maintenance fees increased due to a larger installed base. During 1997, the Company made significant progress removing the uncertainties effecting operations, including the hiring of an experienced executive management team, restating prior period financial statements, relisting the Company's Common Stock, reaching a settlement on class action litigation (which was judicially approved in March 1998 and settled in December 1998) and raising approximately $6 million in a private placement. (See Note 9 to the Consolidated Financial Statements) During 1998, total revenues decreased primarily resulting from a decrease in license fees offset in part by an increase in services revenue. The Company derived approximately $21.3 million, $29.4 million and $29.9 million or 39.2%, 43.4% and 47.1% of its total revenues, from customers outside of the United States in 1996, 1997 and 1998 respectively. The Company expects that revenues derived from such customers will continue to represent a significant percentage of its total revenues in the future. Most of the Company's international license fees and services revenue are denominated in foreign currencies. Decreases in the value of foreign currencies relative to the U.S. dollar in the future could result in a decrease in the Company's revenue. LICENSE FEES License fees include revenues from software license agreements and hardware sales entered into between the Company and its customers with respect to both the Company's products and, to a lesser degree, third party products resold by the Company. Revenue from non-cancelable software licenses is 30 recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectibility is probable. License fees increased 15.6% from 1996 to 1997, and decreased 25.0% from 1997 to 1998. The increase in 1997 included license revenue of $3.5 million from one customer or 17.2% of total license revenue for the year. During 1998, no customer accounted for greater than 10% of total license revenues. The Company believes license revenues were, and may continue to be, adversely affected by slower system software market growth and intense competition. SERVICES REVENUE Services revenue includes fees from software maintenance agreements, training, installation and consulting services. Maintenance fees, including first year maintenance, are billed separately and are recognized ratably over the period of the maintenance agreement. Training and consulting service revenues are recognized as the services are performed. Services revenue increased 28.4% from 1996 to 1997, and 2.2% from 1997 to 1998. The increase in services revenue in 1997 was attributable primarily to increased training and consulting services which resulted from the increased number of customers licensing the Company's products and increased maintenance revenues related to a larger installed base of the Company's products. The increase in 1998 was attributed primarily to a higher demand for implementation services for the Company's core products in the U.S. offset by declines in legacy product service revenues in the Company's France operations. COST OF LICENSE FEES Cost of license fees consists primarily of amounts paid to third parties with respect to products resold by the Company in conjunction with licensing of the Company's products, amortization of capitalized software development costs, and, to a lesser extent, the costs of documentation. The first two elements can vary substantially from period to period while the third element remains relatively stable as a percentage of license fees. Cost of license fees decreased from $2.6 million in 1996 to $2.0 million in 1997 and increased to $3.8 million in 1998. These costs represented 14.9%, 9.8% and 25.0% of license fees in 1996, 1997 and 1998, respectively. The decrease from 1996 to 1997 resulted mainly from a decrease of the third party software resold to customers. The increase from 1997 to 1998 was a result of the increased cost of documentation and the purchase of additional third party hardware and software products resold to customers. COST OF SERVICES Cost of services consists primarily of personnel costs for product quality assurance, training, installation, consulting and customer support. Total service costs increased from $28.3 million in 1996 to $28.4 million in 1997 and 1998 and represented 76.8%, 60.2% and 58.8% of service revenues in 1996, 1997, and 1998, respectively. During 1997, the cost of services as a percentage of service revenues decreased as a result of higher utilization rates, efficiencies obtained through the outsourcing of training services and significant increase in maintenance revenue for which there are lower associated customer support costs as compared to implementations and consulting activities. In 1998, the cost of services as a percent of service revenue decreased due to continued high utilization rates as demand for services increased, and a decrease in lower margin outsourcing revenue in the Company's France operations. SALES AND MARKETING Sales and marketing expenses consist primarily of salaries, commissions and bonuses paid to sales and marketing personnel and travel and promotional expenses. Sales and marketing expenses decreased from $24.2 million in 1996 to $16.7 million in 1997, and $15.0 million in 1998, and represented 137.2%, 81.7% and 98.0% of total license fee revenues, respectively. Sales and marketing expenses decreased substantially during 1997 and 1998 due primarily to a decrease in personnel and advertising programs, as well as decreased commission expense in 1998. The Company continues to place significant emphasis, both domestically and internationally, on client sales through its own sales force. 31 RESEARCH AND DEVELOPMENT Research and development expenses consist primarily of personnel costs, costs of equipment, facilities and third party software development costs. Research and development expenses are generally charged to operations as incurred. However, certain software development costs are capitalized in accordance with Statement of Financial Accounting Standards No. 86. Such capitalized software development costs are generally amortized on a straight line basis over periods not exceeding three years. Research and development expenses (net of capitalized software development costs) decreased from $11.9 million in 1996 to $11.0 million in 1997 and $10.6 million in 1998, and represented 21.8%, 16.3% and 16.6% of total revenues, respectively. The Company capitalized software development costs of $1.1 million, none and $0.3 million in 1996, 1997, and 1998, respectively. Research and development expenses decreased during 1997 due to a decrease in the number of personnel costing approximately $.7 million and decreased slightly in 1998 mainly as a result of decreased costs for the Yorvik product, partially offset by increased personnel costs for its Financial, Workflow and COOL products. The rate of capitalization of software development costs may fluctuate depending on the mix and stage of development of the Company's research and development projects. GENERAL AND ADMINISTRATIVE General and administrative expenses consist primarily of salaries of administrative, executive and financial personnel and outside professional fees. General and administrative expenses decreased from $20.0 million in 1996 to $14.3 million in 1997 and $13.6 million in 1998, representing 36.8%, 21.1% and 21.4% of total revenues in those years, respectively. General and administrative expenses decreased $5.7 million from 1996 to 1997, primarily due to decreases in the provisions for doubtful accounts of $4.5 million, taxes of $1.2 million and professional fees of $1.7 million, partially offset by a full year of operations in France and Germany, and increased severance and costs related to senior management turnover. General and administrative expenses decreased $0.7 million in 1998 primarily due to cost reductions in certain foreign subsidiaries as well as a decrease in insurance expense. RESTRUCTURING COSTS During its fiscal second quarter of 1998, the Company committed itself to a plan whereby it eliminated 32 positions in the United States, which were rendered redundant through a reengineering process, and eliminated 16 positions outside the United States, which were servicing legacy products. Of the 48 positions eliminated, all were terminated prior to December 31, 1998 except as follows: six people resigned prior to being terminated and one position was terminated subsequent to December 31, 1998. Accordingly, the Company recorded a net charge to operations in 1998 totaling approximately $1.0 million ($1.3 million in the second quarter of 1998, reduced in the third quarter of 1998 by $0.3 million for anticipated savings attributable to resignations) reflecting the termination costs of those personnel. As of December 31, 1998 the Company had incurred cash outlays of $0.8 million. It is expected that the remaining $0.2 million included in accrued expenses will be satisfied through cash outlays during 1999. OPERATING LOSS As a consequence of the above, the Company incurred operating losses of $32.6 million, $4.8 million and $8.8 million 1996, 1997 and 1998, respectively. COSTS RELATED TO SETTLEMENT OF CLASS ACTION LITIGATION Litigation and settlement costs of $.8 million in 1996 and $9.6 million in 1997 were associated with the class action civil suit, and increased primarily due to the charge to operations of $6 million during the quarter ended September 30, 1997, reflecting the Company's share of the settlement costs, excluding legal fees (see Item 3). 32 Costs for 1998 were minimal. OTHER INCOME (EXPENSE) Other income (expense), net decreased to ($8.8 million) in 1997, due to lower invested balances of cash, cash equivalents and short-term investments, and increased costs related to the proposed settlement of the class action litigation. Other income (expense) decreased to ($0.2 million) in 1998 representing minimal costs for the class action litigation, as well as a decrease in interest income of $0.4 million from lower cash balances and an increase of $0.4 million of interest expense related to the bank term loan (see Note 4 to the Consolidated Financial Statements). INCOME TAX PROVISION The Company's income tax provision was immaterial in each of the years ended 1996, 1997 and 1998. RESULTS OF OPERATIONS As a consequence of the above, the Company incurred a net loss of $31.8 million in 1996, $13.6 million in 1997 and $9.0 million in 1998. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, the Company had cash and cash equivalents of $4.0 million and restricted cash of $4.9 million and a working capital deficit of $6.3 million. Included in the deficit is $9.6 million of deferred revenue. On March 31, 1998, the Company entered into a three-year Loan and Security Agreement ("Agreement") which provides maximum borrowings of up to $10 million. The Agreement contains a revolving line of credit and a term loan. The term loan provided for $5 million available in one drawdown which the Company borrowed on the closing date. The term loan is repayable in 36 monthly installments beginning May 1, 1998. Under the revolving line of credit the Company currently has available the lesser of $5 million or 85% of eligible receivables, as defined. Such available amount is reduced further by a $.6 million letter of credit outstanding at December 31, 1998. The net available amount under the revolving line of credit at December 31, 1998 is approximately $2 million, of which no amounts were outstanding. On March 8, 1999, the Company amended its credit facility with its bank in order to increase amounts available under the term loan portion of the agreement by the lesser of $1 million or eligible maintenance revenue, as defined, through September, 2001, to extend the termination date of the credit facility to March 31, 2002, and to establish financial restrictive covenants for 1999. (see note 4 to the Consolidated Financial Statements). The Company is required to comply with quarterly and annual financial statement reporting requirements, as well as certain financial restrictive covenants. The ability to continue to borrow under the Agreement is dependent upon future compliance with such covenants and available collateral. Management believes that the Company's projected operating results over the next twelve months will result in compliance under the Agreement, although there can be no assurances that such operating results will be achieved. The Company's operating activities used cash of $17.3 million in 1996, $13.9 million in 1997 and $4.5 million in 1998. Net cash used in 1997 was primarily the result of the class action litigation settlement and related legal expenses totaling approximately $9.6 million of which $5.0 million was non-cash, combined with the Company's operating loss of $4.8 million, the net change in current assets and liabilities of $8.9 million offset by depreciation and amortization of $3.3 million. Net cash used in operating activities in 1998 was primarily the result of the net loss offset by non-cash depreciation and amortization charges. Net cash flows used in operating activities during the 6 months ended June 30, 1998 totaled $7.2 million; net cash flows provided by operating activities during the 6 months ended December 31, 1998 totaled approximately $2.7 million. Management believes that cost reductions realized during the fiscal second half 33 which are associated with the restructuring charge recognized during the Company's second fiscal quarter, combined with substantially higher service utilization rates during the Company's third and fourth fiscal 1998 quarters, and approximately $1 million received from customers for prepaid consulting in the fourth fiscal 1998 quarter, are primarily responsible for the improvements in net cash flows from operating activities. Management also believes that expense levels experienced by the Company during the third and fourth fiscal 1998 quarters are indicative of the future expense running rates at current revenue levels. The Company's investing activities used cash of $1.0 million in 1997 and $1.2 million in 1998, respectively. Investing activities in 1998 were principally for purchases of equipment totaling $1.7 million and capitalized software costs totaling $300 thousand, offset in part by a decrease in other assets. Cash provided by financing activities was $2.1 million and $3.6 million in 1997 and 1998, respectively. During 1997, cash provided by financing activities included net proceeds of $5.5 million from the sale of 2,937,500 shares of Common Stock and warrants to purchase 734,375 shares of Common Stock (see Note 9 of Consolidated Financial Statements) offset by debt repayments associated with acquisitions. During 1998, cash provided by financing activities included loan proceeds of $5.0 million from a three-year loan agreement offset by repayments of the term portion of the agreement. The Company has no significant capital commitments. Planned capital expenditures for 1999 total approximately $1.2 million. The Company's aggregate minimum operating lease payments for 1999 will be approximately $2.4 million. The Company expects that its operating cash flow will be sufficient to fund the Company's working capital requirements through 1999. However, the Company's ability to achieve this result is affected by the extent of cash generated from operations and the pace at which the Company utilizes its available resources. Accordingly, the Company may in the future be required to seek additional sources of financing including the issuance of debt and/or sale of equity securities. No assurance can be given that any such additional sources of financing will be available on acceptable terms or at all. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company is exposed to fluctuations in interest rates and equity market risks as the Company seeks debt and equity capital to sustain its operations. The Company is also exposed to fluctuations in foreign currency exchange rates as the financial results of its foreign subsidiaries are translated into U.S. dollars in consolidation. The Company does not use derivative instruments or hedging to manage its exposures and does not currently hold any market risk sensitive instruments for trading purposes. The information below summarizes the Company's market risk associated with its debt obligation as of December 31, 1998. Fair value included herein has been estimated taking into consideration the nature and term of the debt instrument and the prevailing economic and market conditions at the balance sheet date. The table below presents principal cash flows by year of maturity based on the terms of the debt. The variable interest rate disclosed represents the rate at December 31, 1998. Changes in the prime interest rate during fiscal 1999 will have a positive or negative effect on the Company's interest expense. Each 1% fluctuation in the prime interest rate will increase or decrease annual interest expense for the Company by approximately $39,000, based on the debt outstanding as of December 31, 1998. Further information specific to the Company's debt is presented in Note 4 to the consolidated financial statements.
YEAR OF MATURITY ESTIMATED CARRYING ------------------------------- DESCRIPTION FAIR VALUE AMOUNT 1999 2000 2001 - ---------------------------------------------------------------- ----------- ----------- --------- --------- --------- (IN THOUSANDS) Term loan....................................................... $ 3,888 $ 3,888 $ 1,667 $ 1,667 $ 554 Variable Interest rate.......................................... 9.25% -- --
34 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference herein from Part IV Item 14(a) (1) and (2). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company incorporates herein by reference the information concerning directors and executive officers in its Notice of Annual Stockholders' Meeting and Proxy Statement to be filed within 120 days after the end of the Company's fiscal year (the "1999 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The Company incorporates herein by reference the information concerning executive compensation contained in the 1999 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company incorporates herein by reference the information concerning security ownership of certain beneficial owners and management contained in the 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company incorporates herein by reference the information concerning certain relationships and related transactions contained in the 1999 Proxy Statement. 35 PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K (A) CONSOLIDATED FINANCIAL STATEMENTS:
PAGE NO. ----------- Reports of Independent Public Accountants........................................................... 39-40 Consolidated Balance Sheets at December 31, 1997 and 1998........................................... 41 Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998.......... 42 Consolidated Statements of Comprehensive Loss for the years ended December 31, 1996, 1997 and 1998............................................................................................... 43 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and 1998...................................................................................... 44 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998.......... 45 Notes to Consolidated Financial Statements.......................................................... 46 (B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES: Reports of Independent Public Accountants On Schedule............................................... 60-61 Schedule II--Valuation and Qualifying Accounts: Years Ended December 31, 1996, 1997 and 1998........................................................ 62
(C) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1998: None (D) EXHIBITS. 3.1* Fourth Amended and Restated Certificate of Incorporation. 3.2* Amended and Restated Bylaws of the Company. 4.1* Specimen Common Stock Certificate. 4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the Company defining rights of holders of Common Stock of the Company. 4.3# Form of Warrant 10.1* Series B Preferred Stock Purchase Agreement, as amended. 10.3* Employment Agreement between the Company and Elias Typaldos, as amended. 10.4* Employment Agreement between the Company and Gennaro Vendome, as amended. 10.6* 1995 Stock Option Plan. 10.7* Lease Agreement between the Company and Enterprise Development Corporation. 10.8* Loan and Security Agreement between the Company and PNC Bank (formerly Midlantic National Bank), as amended. 10.9* License Agreement between the Company and Pfizer, Inc., as amended. 10.10* OEM Software License and Distribution Agreement between the Company and Wang Laboratories, Inc. 10.11* Amendment and Clarification Agreement between the Company and Wang Laboratories, Inc. 10.12* Contract between the Company and Polish State Railways Central Office of Purchasing and Sales Ferpol, a division of Polish State Railways. 10.13* Program License Contract between the Company and Deutsche Bank AG. 10.14* General Agreement between the Company and Canaan Capital Limited Partnership and Canaan Capital Offshore Limited Partnership, C.V.
36 10.15** Severance Agreement between the Company and Joseph Esposito. 10.16** Employment Agreement between the Company and Michael Jorgensen. 10.17*** Termination Agreement between the Company and Andreas Typaldos. 10.18*** Consulting Agreement between the Company and Andreas Typaldos. 10.19**** 1995 Stock Option Plan, as amended. 10.20# Securities Purchase Agreement. 10.21**** Employment Agreement between the Company and John Rade. 10.22**** Employment Agreement between the Company and William H. Burke. 10.23**** Employment Agreement between the Company and Robert Hewitt. 10.24**** Amendment to Securities Purchase Agreement 10.25**** Amendment to Lease Agreement between the Company and Enterprise Development Corporation. 10.26***** Loan and Security Agreement with Foothill Capital Corporation dated March 31, 1998 10.27***** 1998 Stock Option Plan 10.28****** Amendment No. 1 to the Loan and Security Agreement. 10.29******* Amendment No. 2 to the Loan and Security Agreement. 10.30 Amendment No. 3 to the Loan and Security Agreement. 10.31 Amendment No. 4 to the Loan and Security Agreement. 10.32 Amendment to the Employment Agreement between the Company and John Rade. 10.33 Employment Agreement between the Company and Rick Hartung. 10.34 Employment Agreement between the Company and Gregory Groom. 10.35 Software Assignment Agreement between the Company and S-Cubed International Corporation. 10.36 OEM License Agreement between the Company and S-Cubed International Corporation. 10.37 Consulting Services Agreement between the Company and S-Cubed International Corporation. 10.38 Value added Reseller Agreement between the Company and S-Cubed International Corporation. 10.39 Amendment No. 5 to the Loan and Security Agreement 21.1 List of Subsidiaries. 23.1 Consent of Arthur Andersen LLP 23.2 Consent of KPMG LLP 27.1 Financial Data Schedule.
# Incorporated by reference to the Exhibits filed with the Company's Form 8-K filed on January 8, 1998. * Incorporated by reference to the Exhibits filed with the Company's Registration Statement on Form S-l, File No. 33-93990. ** Incorporated by reference to the Exhibits filed with the Company's March 31, 1997 Form 10-Q. *** Incorporated by reference to the Exhibits filed with the Company's September 30, 1997 Form 10-Q. **** Incorporated by reference to the Exhibits filed with the Company's 1997 Form 10-K ***** Incorporated by reference to the Exhibits filed with the Company's March 31, 1998 Form 10-Q ****** Incorporated by reference to the Exhibits filed with the Company's June 30, 1998 Form 10-Q ******* Incorporated by reference to the Exhibits filed with the Company's September 30, 1998 Form 10-Q
37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Rutherford, State of New Jersey, on this 30 th day of March 1999. COMPUTRON SOFTWARE, INC. By: /s/ JOHN A. RADE ----------------------------------------- John A. Rade CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities indicated on March 30, 1999.
SIGNATURE TITLE(S) - ------------------------------ -------------------------- /s/ ELIAS TYPALDOS Chairman of the Board, - ------------------------------ Senior Vice President (Elias Typaldos) Research and Development Chief Executive Officer, /s/ JOHN A. RADE President and Director - ------------------------------ (Principal (John A. Rade) Executive Officer) Executive Vice President, Chief Financial Officer, /s/ MICHAEL R. JORGENSEN and - ------------------------------ Treasurer (Principal (Michael R. Jorgensen) Financial and Accounting Officer) /s/ GENNARO VENDOME - ------------------------------ Vice President, and (Gennaro Vendome) Director /s/ GREGORY KOPCHINSKY - ------------------------------ Director (Gregory Kopchinsky) /s/ ROBERT MIGLIORINO - ------------------------------ Director (Robert Migliorino) /s/ WILLIAM E. VOGEL - ------------------------------ Director (William E. Vogel) /s/ EDWIN T. BRONDO - ------------------------------ Director (Edwin T. Brondo)
38 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders: Computron Software, Inc.: We have audited the accompanying consolidated balance sheets of Computron Software, Inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Computron Software, Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. KPMG LLP Short Hills, New Jersey January 29, 1999, except as to note 4, which is as of March 8, 1999 39 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO COMPUTRON SOFTWARE, INC.: We have audited the accompanying consolidated statements of operations, comprehensive loss, stockholders' equity (deficit) and cash flows of Computron Software, Inc. (a Delaware Corporation) and subsidiaries for the year ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Computron Software, Inc. and subsidiaries for the year ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts April 16, 1997 (except with respect to the matter discussed in Note 6, as to which the date is March 6, 1998) 40 COMPUTRON SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, -------------------- 1997 1998 --------- --------- ASSETS Current assets: Cash and cash equivalents................................................................... $ 6,280 $ 4,009 Restricted cash............................................................................. 6,124 4,856 Accounts receivable, net of allowance for doubtful accounts of $3,056 and $2,192 at December 31, 1997 and 1998, respectively........................................................... 11,420 11,172 Prepaid expenses and other current assets................................................... 3,423 2,309 --------- --------- Total current assets...................................................................... 27,247 22,346 --------- --------- Equipment and leasehold improvements, at cost: Computer and office equipment............................................................... 11,844 12,641 Furniture and fixtures...................................................................... 1,298 1,510 Leasehold improvements...................................................................... 592 976 --------- --------- 13,734 15,127 Less--accumulated depreciation and amortization............................................. 9,670 11,957 --------- --------- 4,064 3,170 --------- --------- Capitalized software development costs, net of accumulated amortization of $3,734 and $4,439 at December 31, 1997 and 1998, respectively................................................. 1,429 1,024 Goodwill, net of accumulated amortization of $1,072 and $1,607 at December 31, 1997 and 1998, respectively................................................................................ 1,732 1,291 Other assets.................................................................................. 1,126 686 --------- --------- $ 35,598 $ 28,517 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt and capital lease obligations............................. $ 71 $ 1,685 Accounts payable............................................................................ 4,375 4,513 Accrued expenses............................................................................ 10,956 8,503 Due to shareholders......................................................................... -- 4,404 Deferred revenue............................................................................ 9,078 9,558 --------- --------- Total current liabilities................................................................. 24,480 28,663 --------- --------- Long-term liabilities: Long-term debt and capital lease obligations, net of current portion.......................... 23 2,229 --------- --------- Common stock subject to repurchase............................................................ 5,000 -- --------- --------- Commitments and contingencies Stockholders' equity (deficit): Preferred stock, $.01 par value, authorized 5,000 shares, no shares issued and outstanding............................................................................... -- -- Common stock, $.01 par value, authorized 50,000 shares; 23,777 shares and 23,913 shares issued and outstanding at December 31, 1997 and 1998, respectively........................ 238 239 Additional paid-in capital.................................................................. 69,373 70,122 Accumulated deficit......................................................................... (63,016) (72,059) Accumulated other comprehensive loss........................................................ (500) (677) --------- --------- Total stockholders' equity (deficit)...................................................... 6,095 (2,375) --------- --------- $ 35,598 $ 28,517 --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 41 COMPUTRON SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 ---------- ---------- --------- Revenues: License fees................................................................. $ 17,625 $ 20,372 $ 15,273 Services..................................................................... 36,770 47,219 48,248 ---------- ---------- --------- Total revenues............................................................. 54,395 67,591 63,521 ---------- ---------- --------- Operating expenses: Cost of license fees......................................................... 2,634 2,004 3,824 Cost of services............................................................. 28,255 28,440 28,389 Sales and marketing.......................................................... 24,181 16,654 14,970 Research and development..................................................... 11,872 10,996 10,568 General and administrative................................................... 20,014 14,280 13,586 Restructuring costs.......................................................... -- -- 1,025 ---------- ---------- --------- Total operating expenses................................................... 86,956 72,374 72,362 ---------- ---------- --------- Operating loss................................................................. (32,561) (4,783) (8,841) ---------- ---------- --------- Other income (expense): Costs related to settlement of class action litigation....................... (758) (9,591) (74) Interest income.............................................................. 1,654 847 453 Interest expense............................................................. (100) (61) (439) Other........................................................................ 18 (41) (130) ---------- ---------- --------- Other income (expense) net................................................. 814 (8,846) (190) ---------- ---------- --------- Loss before income tax provision............................................... (31,747) (13,629) (9,031) Income tax provision........................................................... 100 16 12 ---------- ---------- --------- Net loss....................................................................... $ (31,847) $ (13,645) $ (9,043) ---------- ---------- --------- ---------- ---------- --------- Basic and diluted net loss per common share.................................... $ (1.53) $ (0.65) $ (0.38) ---------- ---------- --------- ---------- ---------- --------- Weighted average basic and diluted common shares outstanding................... 20,787 20,834 23,963 ---------- ---------- --------- ---------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 42 COMPUTRON SOFTWARE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 ---------- ---------- --------- Net loss.................................................... $ (31,847) $ (13,645) $ (9,043) Translation adjustment...................................... 107 (526) (177) ---------- ---------- --------- Comprehensive loss........................................ $ (31,740) $ (14,171) $ (9,220) ---------- ---------- --------- ---------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 43 COMPUTRON SOFTWARE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
COMMON ACCUMULATED TOTAL STOCK ADDITIONAL OTHER STOCKHOLDERS' ---------------------- PAID-IN ACCUMULATED COMPREHENSIVE EQUITY SHARES AMOUNT CAPITAL DEFICIT LOSS (DEFICIT) --------- ----------- ----------- ------------ --------------- ------------ BALANCE--DECEMBER 31, 1995(1)................. 20,744 $ 207 $ 63,796 $ (17,524) $ (81) $ 46,398 Net loss...................................... -- -- -- (31,847) -- (31,847) Translation adjustment........................ -- -- -- -- 107 107 Exercise of stock options..................... 57 1 83 -- -- 84 --------- ----- ----------- ------------ ----- ------------ BALANCE--DECEMBER 31, 1996.................... 20,801 208 63,879 (49,371) 26 14,742 Net loss...................................... -- -- -- (13,645) -- (13,645) Translation adjustment........................ -- -- -- -- (526) (526) Sale of common stock net of related expenses.................................... 2,937 30 5,478 -- -- 5,508 Issuance of common stock...................... 25 -- -- -- -- -- Exercise of stock options..................... 14 -- 16 -- -- 16 --------- ----- ----------- ------------ ----- ------------ BALANCE--DECEMBER 31, 1997.................... 23,777 238 69,373 (63,016) (500) 6,095 Net loss...................................... -- -- -- (9,043) -- (9,043) Translation adjustment........................ -- -- -- -- (177) (177) Decrease in liability relating to sale of common stock................................ -- -- 131 -- -- 131 Issuance of common stock...................... 119 1 595 -- -- 596 Exercise of stock options..................... 17 -- 23 -- -- 23 --------- ----- ----------- ------------ ----- ------------ BALANCE--DECEMBER 31, 1998.................... 23,913 $ 239 $ 70,122 $ (72,059) $ (677) $ (2,375) --------- ----- ----------- ------------ ----- ------------ --------- ----- ----------- ------------ ----- ------------
- ------------------------ (1) The consolidated financial data for 1995 has been restated. See Note 2 of these Consolidated Financial Statements. The accompanying notes are an integral part of these consolidated financial statements. 44 COMPUTRON SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 --------- --------- --------- Cash flows from operating activities: Net loss............................................................................. $ (31,847) $ (13,645) $ (9,043) Adjustments to reconcile net loss to net cash flows used in operating activities: Non-cash class action litigation settlement costs.................................. -- 5,000 -- Depreciation and amortization...................................................... 4,634 3,340 3,733 Provision for doubtful accounts.................................................... 4,803 300 114 Loss on sale of equipment and leasehold improvements............................... 72 27 9 Changes in current assets and liabilities, net of acquisitions-- Restricted cash.................................................................... (2,330) (3,043) 1,274 Accounts receivable................................................................ (7,329) 8,406 185 Prepaid expenses and other current assets.......................................... 487 (1,321) 1,261 Accounts payable and accrued expenses.............................................. 9,604 (3,872) (2,518) Deferred revenue................................................................... 4,615 (9,046) 510 --------- --------- --------- Net cash flows used in operating activities.......................................... (17,291) (13,854) (4,475) --------- --------- --------- Cash flows from investing activities: Other assets....................................................................... (324) 223 705 Capitalized software development costs............................................. (1,088) -- (300) Purchase of equipment and leasehold improvements................................... (2,162) (2,121) (1,739) Proceeds from sale of equipment and leasehold improvements......................... -- 75 112 Acquisitions of businesses, net of cash acquired................................... (2,116) -- -- Proceeds from redemption of short-term investments................................. 105 868 -- --------- --------- --------- Net cash flows used in investing activities.......................................... (5,585) (955) (1,222) --------- --------- --------- Cash flows from financing activities: Net proceeds from the sale of common stock......................................... -- 5,508 -- Proceeds from exercise of stock options............................................ 84 16 23 Proceeds from long term debt....................................................... -- -- 5,000 Payments of long-term debt and capital lease obligations........................... (617) (461) (1,177) Payments related to acquisitions................................................... (1,042) (2,946) -- Decrease in liabilities related to sale of common stock............................ -- -- 131 Payment of deferred financing costs................................................ -- -- (350) Decrease in other long-term liabilities............................................ (1,000) -- -- --------- --------- --------- Net cash provided by (used in) financing activities.................................. (2,575) 2,117 3,627 --------- --------- --------- Foreign currency exchange rate effects............................................... 62 (758) (201) --------- --------- --------- Net decrease in cash and cash equivalents.......................................... (25,389) (13,450) (2,271) Cash and cash equivalents, beginning of year......................................... 45,119 19,730 6,280 --------- --------- --------- Cash and cash equivalents, end of year............................................... $ 19,730 $ 6,280 $ 4,009 --------- --------- --------- --------- --------- --------- Supplemental disclosures of cash flow information and noncash financing activities: Cash paid during the year for-- Interest......................................................................... $ 89 $ 38 $ 373 Income taxes..................................................................... 38 34 12 Capital lease obligations incurred................................................. 43 -- --
The accompanying notes are an integral part of these consolidated financial statements. 45 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES The Company was incorporated under the laws of the State of Delaware in September 1978. The name of the Company was changed from Computron Technologies Corporation to Computron Software, Inc. in May 1995. The Company designs, markets and supports n-tier, Internet-enabled client/ server financial, workflow, desktop data access and storage, and maintenance and asset management software. The Company also offers consulting, education and support services in support of its customers' use of its software products. (A) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Computron Software, Inc.; its wholly owned subsidiaries located in Australia, Canada, France, Germany, Poland, Singapore, South Africa and the United Kingdom (collectively, the "COMPANY"). All significant intercompany transactions and balances have been eliminated. (B) REVENUE RECOGNITION The Company recognizes revenue in accordance with Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"). Revenue from non-cancelable software licenses is recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectibility is probable. Post contract support (maintenance) fees are typically billed separately and are recognized on a straight line basis over the life of the applicable agreement. The Company recognizes service revenues from consulting and implementation services, including training, provided by both its own personnel and by third parties, upon performance of the services, pursuant to a professional services agreement. When the Company enters into a license agreement requiring development or significant customization of the software products, the Company recognizes revenue relating to the agreement using contract accounting. Anticipated losses, if any, are charged to operations in the period such losses are determined. The adoption in 1998 of SOP 97-2, which is effective for transactions entered into in fiscal years beginning after December 15, 1997, did not have a significant impact on the Company's revenue recognition policies. (C) USE OF MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. Significant assets and liabilities with reported amounts based on estimates include accounts receivable, capitalized software development costs, goodwill, accrued expenses and pro forma compensation expense. (D) REPORTING, OPERATING AND CONTROL ENVIRONMENT Following the audits of the Company's consolidated financial statements for 1994, 1995 and 1996 the Company received management letters from its former independent public accountants, which enumerated material weaknesses in the Company's financial and accounting processes, controls, reporting systems 46 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) and procedures. The Company's former independent public accountants highlighted the Company's need for additional financial and accounting personnel with software industry experience. In response to the management letter and recent operating results, during 1997 the Company hired senior executives with significant experience in the software industry, and improved financial and accounting processes, controls, reporting systems and procedures, which eliminated all material weaknesses. As discussed in Note 2, the Company restated its consolidated financial statements for each of the four years in the period ended December 31, 1995, and certain unaudited quarters therein and for each of the three unaudited quarters ended September 30, 1996. (E) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH Cash equivalents are stated at cost, which approximates market, and consists of short-term, highly liquid investments with original maturities of less than three months. Restricted cash represents the amount of certificates of deposit used as collateral for outstanding letters of credit in the same amount, and also includes $5,000 and $4,404 at December 1997 and 1998 respectively, which will be used in connection with the trust fund described in Note 6. (F) COMPREHENSIVE LOSS Effective January 1, 1998 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," a new accounting rule on reporting comprehensive income (loss). SFAS No. 30 requires reporting of comprehensive income (loss), which includes net income (loss) and all other non-owner changes in equity (deficit) during a period. (G) EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets (three to five years). Leasehold improvements are amortized using the straight-line method over the lesser of the remaining term of the lease or their estimated useful lives. (H) SOFTWARE DEVELOPMENT COSTS The Company capitalizes internally generated software development costs upon the establishment of technological feasibility until the time when the product is available for general release to customers. Research and development costs are expensed as incurred. During 1996, 1997 and 1998 capitalized software development costs amounted to $1,088, $0 and $300, respectively. Annual amortization of software development costs of $863, $639 and $705 for 1996, 1997 and 1998 respectively was calculated as the greater of the amount computed using (a) the ratio of actual revenue from a product to the total of current and anticipated related revenues from the product or (b) the economic life of the product, estimated to be three years, on a straight-line basis. 47 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (I) GOODWILL Goodwill is the result of the two acquisitions in 1996 and is amortized to operations on a straight-line method over the periods estimated to be benefited, currently not exceeding five years from the date of acquisitions. (J) IMPAIRMENT OF LONG-LIVED ASSETS In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company monitors events or changes in circumstances that may indicate carrying amounts of its long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of its assets by determining whether the carrying amount of its assets will be recovered through undiscounted, expected future cash flows. Should the Company determine that the carrying values of specific long-lived assets are not recoverable, the Company would record a charge to reduce the carrying value of such assets to their fair values. (K) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. (L) CONCENTRATION OF CREDIT RISK SFAS No. 105, "Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk," requires disclosure of any significant off-balance sheet and credit risk concentrations. The Company has no significant off-balance sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company maintains the majority of cash balances with three financial institutions and its accounts receivable credit risk is not concentrated within any geographic area. One customer represented 13.0% of accounts receivable at December 31, 1997. As of December 31 1998, no one customer represented more than 10% of accounts receivable. There was no single customer accounting for more than 10% of revenues in 1996, 1997 or 1998. (M) FOREIGN CURRENCY TRANSLATION The functional currency for most foreign subsidiaries is the local currency. The cumulative effects of translating the balance sheet accounts from the functional currency into the U.S. dollar at current exchange rates are included in the cumulative translation adjustment in stockholders' equity (deficit). The U.S. dollar is used as the functional currency for the subsidiary in Poland. 48 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (N) ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation in accordance with the provisions of the Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation, which is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 establishes a fair-value-based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123, which requires the disclosure of the pro forma effects on earnings and earnings per share as if the accounting prescribed by SFAS No. 123 had been adopted, as well as certain other information. (O) BASIC AND DILUTED NET LOSS PER COMMON SHARE Basic and diluted net loss per common share is presented in accordance SFAS No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 was effective for financial statements for both interim and annual periods ended after December 15, 1997. The Company has restated the net loss per common share for all periods presented to give effect to SFAS No. 128. Basic net loss per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share since the effect of stock options, warrants and contingently issuable shares in connection with the December 1997 private placement of common stock and the Settlement Stock, as defined in Note 6, is anti-dilutive for all periods presented. The following represents the calculations of the basic and diluted net loss per common share for the years ended December 31, 1996, 1997 and 1998.
YEARS ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 ---------- ---------- --------- Net loss........................................................................ $ (31,847) $ (13,645) $ (9,043) ---------- ---------- --------- ---------- ---------- --------- Weighted average basic and diluted common shares outstanding during the year.... 20,787 20,834 23,963 ---------- ---------- --------- Basic and diluted net loss per common share..................................... $ (1.53) $ (0.65) $ (0.38) ---------- ---------- --------- ---------- ---------- ---------
(P) RECLASSIFICATIONS Certain reclassifications have been made to prior year financial statements to conform to current year presentations. (Q) FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and debt reported in the consolidated balance sheets equal or approximate fair values. 49 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (R) DEFERRED REVENUE Deferred Revenues primarily relate to customer support agreements that have been paid for by customers prior to the performance of those services and, to a lesser extent, prepaid consulting and deferred license fees. (2) RESTATED FINANCIAL RESULTS On January 27, 1997, the Company announced that certain new information had come to the attention of its Board of Directors and its independent public accountants that may impact previously reported financial results. As a result, the Company restated its consolidated financial statements for each of the four years in the period ended December 31, 1995, and certain unaudited quarters therein and for each of the three unaudited quarters ended September 30, 1996. In the opinion of management, all material adjustments necessary to correct the financial statements have been recorded. The restatements reflect revenue reversals and deferrals of sales previously recognized in the periods from the fourth quarter of 1992 through the third quarter of 1996. These revenue adjustments resulted in reductions of previously reported bad debt provisions and increases in deferred revenue. Also included in the restated consolidated financial statements are certain operating expenses not previously recorded by the Company and the recording of certain expenses in different accounting periods. A summary of the impact of such restatements on the financial statements for the years ended December 31, 1992, 1993, 1994, 1995 and the unaudited nine months ended September 30, 1996 is as follows:
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------- 1992 1993 1994 ---------------------- ---------------------- ---------------------- PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED ----------- --------- ----------- --------- ----------- --------- Total Revenue......................................... $ 20,513 $ 19,645 $ 24,282 $ 23,588 $ 34,958 $ 32,473 Income (Loss) from Operations......................... (2,750) (3,618) (2,644) (3,338) 433 (2,052) Net Income (Loss)..................................... (2,479) (3,347) (3,170) (3,864) 77 (2,408) Total Assets.......................................... 16,453 15,585 17,302 16,119 36,681 35,075 Deferred Revenue...................................... 1,934 1,934 3,137 3,516 9,935 12,376
YEAR ENDED NINE MONTHS ENDED DECEMBER 31, 1995 SEPTEMBER 30, 1996 ---------------------- ----------------------- PREVIOUSLY AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED ----------- --------- ----------- ---------- (UNAUDITED) Total Revenue...................................................... $ 55,519 $ 52,795 $ 36,846 $ 34,677 Loss from Operations............................................... (7,704) (8,970) (22,905) (24,786) Net Loss........................................................... (7,312) (8,578) (21,333) (23,214) Net Loss per Common Share.......................................... (.39) (.46) (1.03) (1.12) Total Assets....................................................... 73,045 71,367 60,542 58,483 Deferred Revenue................................................... 10,474 13,667 11,423 16,404
50 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (3) ACQUISITIONS On April 10, 1996, the Company acquired the Financial Service Division of Generale de Service Informatique (GSI) based in Paris, France. The acquisition was effective April 1, 1996. The purchase price of 15,463 French Francs (approximately $3,000) was payable $1,500 at closing and the remainder in a non-interest bearing note payable in nine equal monthly installments beginning April 30, 1996. In addition, approximately $101 of acquisition related costs were capitalized. On June 30, 1996, the Company acquired AT&T ISTEL and Co. GmbH, in Essen, Germany. The purchase price was approximately $1,200 payable $400 at closing and the balance payable in six months. Approximately $110 of acquisition related costs were capitalized. These acquisitions have been accounted for using the purchase method of accounting. Accordingly, the 1996 financial statements include the accounts of these companies since the dates of acquisition. Pro forma results of operations have not been presented, as the amounts would not be significant. The following is additional supplemental cash flow information relating to the aforementioned acquisitions: Fair value of assets acquired....................................... $ 7,221 Liabilities assumed................................................. 2,887 --------- Net value of assets acquired........................................ 4,334 Cash paid at closing................................................ 1,895 --------- Notes and other payables as of closing date......................... $ 2,439 --------- ---------
(4) LONG-TERM DEBT The Company's long term debt consists of the following:
DECEMBER 31, -------------------- 1997 1998 --------- --------- Term loan.................................................................... $ -- $ 3,888 Various installment loans.................................................... 12 3 --------- --------- Subtotal................................................................... 12 3,891 Less: current portion...................................................... 12 1,670 --------- --------- Long-term debt, net of current portion....................................... $ -- $ 2,221 --------- --------- --------- ---------
On March 31, 1998, the Company entered into a Loan and Security Agreement ("Agreement") which provides for maximum borrowings of up to $10 million. The Agreement contains a revolving line of credit and a term loan. The term loan provided for $5 million available in one drawdown which the Company borrowed on the closing date. The term loan bears interest at prime rate (7.75% at December 31, 1998) plus 1.5%, and is repayable in 36 monthly installments beginning May 1, 1998. Under the revolving line of credit the Company currently has available the lesser of $5 million or 85% of eligible receivables, as defined. Such available amount is reduced further by a $600 letter of credit outstanding at December 31, 1998. The net available amount under the revolving line of credit at December 31, 1998 is approximately $2 million of which no amounts were outstanding. 51 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (4) LONG-TERM DEBT (CONTINUED) Borrowings under the revolving line of credit bears interest at prime rate plus 1.25%. The Agreement provides for yearly fees as follows: (i) $111 in year one, $86 in years two and three and (ii) an unused revolving line of credit fee of .375% per annum. The Agreement is secured by substantially all domestic assets of the Company together with a pledge of 65% of the stock of its foreign subsidiaries, and contains certain financial restrictive covenants. The Company was in compliance with the covenants as of December 31, 1998. On March 8, 1999, the Company amended the Agreement ("Amended Agreement") in order to increase amounts available under the term loan portion of the facility by the lesser of $1 million or eligible maintenance revenue, as defined, through September, 2001, to extend the termination date of the credit facility to March, 2002, and to establish financial restrictive covenants for 1999. Additional amounts under the Amended Agreement are available in as many as two one-time borrowings of $500, and are subject to the limitation that the total outstanding balance of term loans under the credit line may not exceed 50% of eligible maintenance revenues through March 2000, 40% of eligible maintenance revenues from April 1, 2000 through March 31, 2001, and 30% of eligible maintenance revenues from April 1, 2001 to September 30, 2001. Additional term loans borrowed are repayable in equal monthly principal installments from the date of borrowing to March 31, 2002. As of December 31, 1998, eligible maintenance revenues totaled approximately $8,044. The amounts of long-term debt outstanding at December 31, 1998 maturing during the next three years are as follows: 1999................................................................ $ 1,670 2000................................................................ 1,667 2001................................................................ 554
(5) LEASE OBLIGATIONS The Company has equipment under capital leases, which is included in equipment and leasehold improvements. Additionally, the Company leases office space and equipment under non-cancelable operating leases. Rent expense charged to operations in the accompanying consolidated statements of operations for office space, vehicles and equipment under operating leases was $2,669, $2,703 and $2,562 for the years ended December 31, 1996, 1997 and 1998, respectively. 52 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (5) LEASE OBLIGATIONS (CONTINUED) Scheduled future minimum payments required for all non-cancelable leases are as follows:
CAPITAL OPERATING YEARS ENDING DECEMBER 31 LEASES LEASES - ------------------------------------------------------------------------- ----------- ----------- 1999..................................................................... $ 20 $ 2,443 2000..................................................................... 7 1,713 2001..................................................................... 2 1,251 2002..................................................................... -- 1,017 2003..................................................................... -- 2 --- ----------- Total future minimum lease payments...................................... 29 $ 6,426 ----------- ----------- Less-amount representing interest at rate of 15.285%..................... 6 --- Present value of future minimum lease payments........................... 23 Less current portion..................................................... 15 --- Capital lease obligations, net of current portion........................ $ 8 --- ---
(6) CONTINGENCIES On March 6, 1998, the District Court issued a final order approving the settlement of the class action securities litigation. The overall settlement included consideration totaling $15 million for the benefit of class members, including $6 million of consideration from the Company, and payments from certain of its present and former officers and directors, its former auditors, and the insurance companies that provided Computron with directors and officers liability insurance. In return for the payments by the insurance companies, the settlement also resolved a separate lawsuit brought by the Company against the insurance companies. As its share of the settlement, the Company paid $1 million in cash, and issued one million shares of Common Stock of the Company ("Settlement Stock"). The Company recorded a charge to operations of $6 million during the quarter ended September 30, 1997, reflecting the Company's share of the settlement costs, excluding legal fees. The class members received a non-transferable right to resell the Settlement Stock to a business trust formed by the Company at a price of $5.00 per share during a period from December 1, 1998 to December 21, 1998 (the "Put Period"). The trust was capitalized by a contribution of $5 million in cash by the Company in March 1998. During the Put Period, class members exercised the put with respect to 881 shares of Settlement Stock. The right to put the remaining shares of Settlement Stock automatically expired as of midnight on December 21, 1998. Pursuant to the terms of the stipulation of settlement, the Company directed the trust to pay $4,404 in satisfaction of the timely claims made under the put, and to return to the Company the remaining balance of the trust. Shares of Settlement Stock that were not timely put according to the terms of the settlement remain freely transferable. Historically, the Company has been involved in other disputes and/or litigation encountered in its normal course of business. The Company believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company's business, consolidated financial condition, results of operations or cash flows. 53 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (7) RELATED PARTY TRANSACTIONS The Company has certain business relationships with an entity that was founded by the President and Chief Executive Officer. The President and Chief Executive Officer owns a majority beneficial equity interest in such entity. During the years ended December 31, 1996, 1997 and 1998 the Company recorded as expense approximately $675, $641 and $513 respectively, related to work performed by this entity on behalf of the Company. The Company entered into a Consulting Agreement dated September 29, 1997 with the Company's former chairman and principal stockholder. The Agreement provides for consulting services during the period of December 1, 1997 through November 30, 2000, in exchange for $300 for each of the first two years and $250 for the third year. On December 24, 1997, the Company loaned $175 on a secured basis to a significant stockholder and director of the Company. Principal and interest at a per annum rate of 8% were paid in full on March 31, 1998, pursuant to the terms of the loan agreement. (8) INCOME TAXES The components of loss before provision for income taxes is as follows:
YEARS ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 ---------- ---------- --------- Domestic.................................................... $ (22,933) $ (6,517) $ (4,896) Foreign..................................................... (8,814) (7,112) (4,135) ---------- ---------- --------- Total..................................................... $ (31,747) $ (13,629) $ (9,031) ---------- ---------- --------- ---------- ---------- ---------
The provision for income taxes is as follows:
YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1997 1998 --------- ----- ----- State................................................................... $ 73 $ 16 $ -- Foreign................................................................. 27 -- 12 --------- --- --- Total................................................................. $ 100 $ 16 $ 12 --------- --- --- --------- --- ---
54 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (8) INCOME TAXES (CONTINUED) A reconciliation of Federal income tax benefit at the statutory rate of 34% to income taxes reflected in the accompanying consolidated statements of operations is as follows:
YEARS ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 ---------- --------- --------- Federal income tax benefit at 34%............................ $ (10,794) $ (4,634) $ (3,071) State income taxes, net of Federal tax benefit............... (1,289) (83) (283) Change in valuation allowance................................ 12,869 3,278 3,891 Foreign tax rate differential................................ (713) (284) (569) Non-deductible expenses...................................... -- 1,700 -- Other, net................................................... 27 39 44 ---------- --------- --------- $ 100 $ 16 $ 12 ---------- --------- --------- ---------- --------- ---------
The principal components of the Company's deferred taxes are as follows:
DECEMBER 31, -------------------- 1997 1998 --------- --------- Deferred tax assets: Non-deductible accruals and other..................................... $ 808 $ 773 Depreciation.......................................................... 135 120 Allowance for doubtful accounts....................................... 1,077 753 Purchased research and development.................................... 1,537 1,426 Research and development credit carry-forwards........................ 2,800 2,895 Net operating loss carry-forwards..................................... 19,916 24,035 --------- --------- Deferred tax asset.................................................. 26,273 30,002 Less valuation allowance................................................ 25,701 29,592 --------- --------- Net deferred tax asset................................................ 572 410 Deferred tax liability: Software development costs............................................ 572 410 --------- --------- Net deferred taxes...................................................... $ -- $ -- --------- --------- --------- ---------
At December 31, 1998, the Company had United States net operating loss carry-forwards of approximately $34,900 which are available to offset future Federal taxable income, if any, and which begin to expire in 2007. In addition, foreign net operating loss carry-forwards aggregated approximately $26,000 at December 31, 1998. The asset and liability method requires that deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of such assets will not be realized. The Company has recorded a valuation allowance for its net deferred tax assets and will continue to monitor the realizability of such assets. The change in the valuation allowance was $2,369 in 1998. Foreign subsidiaries have paid, and are expected to continue to pay, appropriate taxes to their respective taxing authorities. It is the intention of the Company to reinvest the earnings of its non-U.S. 55 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (8) INCOME TAXES (CONTINUED) subsidiaries in those operations. Accordingly, no Federal taxes have been provided on undistributed foreign earnings. (9) STOCKHOLDERS' EQUITY (DEFICIT) (A) PRIVATE PLACEMENT On December 31, 1997, the Company sold through a private placement, 2,937 shares of Common Stock and warrants to purchase 734 shares of the Company's Common Stock, raising net proceeds of $5,508. These shares were subsequently registered with the SEC. The registration was declared effective on May 7, 1998. The warrants are exercisable at $3.00 per share, subject to adjustment, until December 31, 2002. Terms of the private placement require the Company to register the shares of Common Stock and warrants "the securities" and the Company could be required to issue additional consideration if certain conditions are not met. In the event that sales under the Registration Statement are unavailable to the Investors for any period, in excess of 75 consecutive days or 100 total days, during the period from the date of effectiveness until December 31, 1999, for each 30 days or portion thereof in excess of either of such amounts, whichever is greater, the Company shall either (at the Company's election) (i) issue, at no additional cost, to each of the Original Investors additional shares of Common Stock and Warrants equal to one percent (1%) of the amounts issued under the Securities Purchase Agreement (SPA) and held by each such Original Investor as of the date of the Company's obligation to issue additional securities or (ii) pay to each Original Investor an amount in cash equal to $81.8 multiplied by such Original Investor's pro rata share. To the extent an Original Investor no longer holds shares of Common Stock originally issued under the SPA, the number of additional shares of Common Stock or Warrants to be issued, or the amount of any cash to be paid, by the Company shall be proportionately reduced. The SPA also contains anti-dilution provisions and piggyback registration rights. (B) STOCK OPTION PLAN Pursuant to the 1995 Stock Option Plan (the 1995 Plan), the Company may grant statutory and non-statutory options to purchase an aggregate of up to 1,500 shares of Common Stock. During 1997 the Board of Directors and stockholders amended and restated the 1995 Plan to increase the number of shares issuable under the 1995 Plan to a total of 4,500 and the Company has specifically reserved such shares. Options may be granted under the discretionary option program to employees, consultants, independent advisors and non-employee directors. Options are automatically granted to non-employee directors under the automatic option grant programs. Options granted under the discretionary grant program would have an exercise price of not less than 85% of the fair market value of the Common Stock on the grant date. Options granted under the automatic grant program would have an exercise price of 100% of the fair market value on the grant date. All options granted under the 1995 Plan expire ten years from the date of grant (or five years for statutory options granted to 10% stockholders), unless terminated earlier. Options generally vest over a four-year period, however, options to purchase 1,000 shares of common stock were granted in 1997 and such options become immediately vested upon the occurrence of certain events. In April 1998, the Company adopted the 1998 Stock Option Plan (the 1998 Plan). Pursuant to the 1998 Plan, the Company may grant stock options or stock appreciation rights to purchase an aggregate of up to 1,500 shares of Common Stock. Options may be granted under the discretionary option program to employees and consultants of the Company and its subsidiaries not to exceed 200 shares during any 56 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (9) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) calendar year except that in the first year of employment, the maximum grant will not exceed 400 shares. Non-employee directors will receive an automatic grant of stock options to purchase 20 shares of Common Stock upon date of commencement of service as a non-employee director and; thereafter, 10 shares on the date of each annual meeting of stockholders, provided that on, and as of, such date, such individual has been a non-employee director for the previous twelve month period. No option may have an exercise price less than the fair market value of the Common Stock at the time of grant. As of December 31, 1998, no stock options have been granted under the 1998 Plan. A summary of stock option activity under the 1995 Plan is as follows:
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE SHARES PER SHARE EXERCISE PRICE --------- ----------------- ---------------- BALANCE, DECEMBER 31, 1995...................................................... 930 $1.17 - 13.00 $2.79 Exercised....................................................................... (58) 1.17 - 1.90 1.43 Canceled........................................................................ (110) 1.17 - 13.00 6.33 --------- ----------------- ----- BALANCE, DECEMBER 31, 1996...................................................... 762 1.17 - 13.00 2.27 Granted......................................................................... 3,209 1.00 - 3.62 1.89 Exercised....................................................................... (14) 1.17 1.17 Canceled........................................................................ (124) 1.17 - 13.00 4.95 --------- ----------------- ----- BALANCE, DECEMBER 31, 1997...................................................... 3,833 1.00 - 13.00 1.84 Granted......................................................................... 1,853 0.87 - 2.75 2.03 Exercised....................................................................... (17) 1.17 - 1.90 1.42 Canceled........................................................................ (1,485) 0.87 - 13.00 2.62 --------- ----------------- ----- BALANCE, DECEMBER 31, 1998...................................................... 4,184 0.87 - 13.00 1.75 --------- ----------------- ----- Exercisable, December 31, 1998.................................................. 1,269 $0.94 - 13.00 $1.62 --------- ----------------- -----
The Company has computed the pro forma disclosures required under SFAS No. 123 for all stock options granted in 1996, 1997 and 1998 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The assumptions used and the weighted average information for the years ended December 31, 1996, 1997 and 1998 are as follows:
YEARS ENDED DECEMBER 31, ------------------------------------ 1996 1997 1998 ----------- ---------- ----------- Risk-free interest rates................................................... 6.01% 6.01% 5.50% Expected dividend yield.................................................... -- -- -- Expected lives............................................................. 5 years 7 years 7 years Expected volatility........................................................ 50% 50% 105% Weighted-average grant date fair value of options granted during the period................................................................... -- $1.17 $1.50 Weighted-average remaining contractual life of options outstanding......... 7.25 years 9.0 years 7.33 years Weighted-average exercise price of 455,646 and 1,269 options exercisable at December 31, 1996, 1997 and 1998, respectively........................... $1.82 $1.61 $1.62
57 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (9) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) The effect of applying SFAS No. 123 would be as follows:
1996 1996 1997 1997 1998 1998 AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- ----------- ----------- ----------- ----------- ----------- Net loss..................................... $ (31,847) $ (32,059) $ (13,645) $ (13,987) $ (9,043) $ (9,972) Basic and diluted net loss per common share...................................... $ (1.53) $ (1.54) $ (0.65) $ (0.67) $ (0.38) $ (0.42)
(10) PROFIT SHARING PLAN The Company's Profit Sharing Plan (the Plan) is a defined contribution plan. All employees with three months of service and who are at least 21 years of age are eligible to become participants in the Plan and to make voluntary contributions based on a percentage of their compensation within certain Plan limitations. The Plan falls under the provisions of Section 401(k) of the Internal Revenue Code. Employees may elect to contribute a percentage of their pretax salary, subject to statutory limitations, as well as certain percentages of their after-tax salary, to the Plan. The Company was obligated to contribute 25% of the employees' first 6% of pretax salary contribution through November 30, 1997. Beginning December 1, 1997, the Company increased its matching percentage from 25% to 50% of the employees first 6% of pretax salary contribution. The Company's contributions charged to operations in the accompanying consolidated statements of operations were approximately $242, $160 and $378 for the years ended December 31, 1996, 1997, and 1998, respectively In addition, the Company may make additional contributions at the discretion of the Board of Directors, which would be allocated among all participants in proportion to each participant's compensation, as defined. As of December 31, 1998, no additional contributions were made under the Plan. (11) FINANCIAL INFORMATION BY GEOGRAPHIC AREA In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about reporting segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS 131 is effective for financial statements for fiscal years beginning after December 15, 1997. Financial statement disclosures for prior periods are required to be restated. Domestic and export sales by destination as a percentage of total revenues are as follows:
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 --------- --------- --------- United States........................................................ 60.8% 56.6% 52.9% Europe............................................................... 27.6 33.1 34.0 Other................................................................ 11.6 10.3 13.1 --------- --------- --------- 100.0% 100.0% 100.0% --------- --------- --------- --------- --------- ---------
58 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (11) FINANCIAL INFORMATION BY GEOGRAPHIC AREA (CONTINUED) The Company's operations are conducted in one business segment. Revenues and long-lived assets for the Company's United States, United Kingdom and other international operations are as follows:
UNITED UNITED STATES KINGDOM OTHER CONSOLIDATED --------- ----------- --------- ------------ 1996 - ------------------------------------------------------------------- Revenues(1)........................................................ $ 35,121 $ 5,342 $ 13,932 $ 54,395 Long-lived assets.................................................. 2,790 350 1,247 4,387 1997 - ------------------------------------------------------------------- Revenues(1)........................................................ $ 39,733 $ 8,554 $ 19,304 $ 67,591 Long-lived assets.................................................. 2,422 355 1,287 4,064 1998 - ------------------------------------------------------------------- Revenues(1)........................................................ $ 34,958 $ 7,903 $ 20,660 $ 63,521 Long-lived assets.................................................. 1,947 271 952 3,170
- ------------------------ (1) Revenues are attributed to locations based on location of sales office. The Company does not believe there are any legal or other restrictions upon the repatriation of international earnings to the parent company. (12) RESTRUCTURING COSTS During its fiscal second quarter of 1998, the Company committed itself to a plan whereby it eliminated 32 positions in the United States, which were rendered redundant through a reengineering process, and eliminated 16 positions outside the United States, which were servicing legacy products. Of the 48 positions eliminated, all were terminated prior to December 31, 1998 except as follows: six people resigned prior to being terminated and one position was terminated subsequent to December 31, 1998. Accordingly, the Company recorded a net charge to operations in 1998 totaling approximately $1.0 million ($1.3 million in the second quarter of 1998 reduced in the third quarter of 1998 by $0.3 million for anticipated savings attributable to resignations) reflecting the termination costs of those personnel. As of December 31, 1998 the Company had incurred cash outlays of $0.8 million. It is expected that the remaining $0.2 million included in accrued expenses will be satisfied through cash outlays during 1999. 59 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE TO COMPUTRON SOFTWARE, INC.: We have audited, in accordance with generally accepted auditing standards, the consolidated statements of operations, comprehensive loss, stockholders' equity (deficit) and cash flows for the year ended December 31, 1996 of Computron Software, Inc. included in this Form 10-K, and have issued our report thereon dated April 16, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(b) of the index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in all material respects, the supplemental financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts April 16, 1997 (except with respect to the matter discussed in Note 6, as to which the date is March 6, 1998) 60 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders: Computron Software, Inc.: Under date of January 29, 1999, except as to note 4, which is as of March 8, 1999, we reported on the consolidated balance sheets of Computron Software, Inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for the years then ended, as contained in the 1998 annual report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule for 1997 and 1998 as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule for 1997 and 1998 based on our audits. In our opinion, such financial statement schedule for 1997 and 1998, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Short Hills, New Jersey January 29, 1999, except as to Note 4, which is as of March 8, 1999 61 SCHEDULE II COMPUTRON SOFTWARE, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
BALANCE AT CHARGED TO AMOUNTS BALANCE BEGINNING COSTS AND WRITTEN AT END ALLOWANCE FOR DOUBTFUL ACCOUNTS: OF YEAR EXPENSES OFF OF YEAR - --------------------------------------------------------------------- ----------- ----------- --------- --------- YEAR ENDED DECEMBER 31, 1996......................................... $ 2,028 $ 4,803 $ (1,747) $ 5,084 YEAR ENDED DECEMBER 31, 1997......................................... $ 5,084 $ 300 $ (2,328) $ 3,056 YEAR ENDED DECEMBER 31, 1998......................................... $ 3,056 $ 114 $ (978) $ 2,192 RESTRUCTURING RESERVE: - --------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1998......................................... $ -- $ 1,025 $ 858(a) $ 167
(a) Cash payments to effect restructuring 62 EX-10.30 2 AMENDMENT #3 TO LOAN AND SEC. AGT. Exhibit 10.30 EXECUTION VERSION AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT AMENDMENT NO. 3, dated as of October 27, 1998, to the LOAN AND SECURITY AGREEMENT, dated as of March 31, 1998, (the "LOAN AND SECURITY AGREEMENT"), between FOOTHILL CAPITAL CORPORATION, a California corporation, with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 ("FOOTHILL"), and COMPUTRON SOFTWARE, INC., a Delaware corporation, with its chief executive offices located at 301 Route 17 North, Rutherford, New Jersey 07070 (the "BORROWER"). PREAMBLE The Borrower has requested Foothill to amend the Loan and Security Agreement to change the amount set forth in the Loan and Security Agreement as a limitation on loans and advances permitted to be made by the Borrower to its wholly-owned Subsidiaries. Accordingly, the Borrower and Foothill hereby agree as follows: 1. DEFINITIONS. All terms used herein which are defined in the Loan and Security Agreement and not otherwise defined herein are used herein as defined therein. 2. INVESTMENTS. Section 7.13 of the Loan and Security Agreement, as previously amended by Amendment No. 2 to the Loan and Security Agreement, is hereby further amended to change the amount of $4,250,000 set forth in the tenth line of such Section to $4,750,000. 3. CONDITIONS. This Amendment shall become effective (and the covenants set forth in Section 2 above shall be applicable as of the date of this Amendment) only upon satisfaction in full of the following conditions precedent (the date upon which all such conditions have been satisfied being herein called the "Effective Date"): (a) The representations and warranties contained in this Amendment and in Section 5 of the Loan and Security Agreement and each other Loan Document shall be correct on and as of the Effective Date as though made on and as of such date (except where such representations and warranties relate to an earlier date in which case such representations and warranties shall be true and correct as of such earlier date); no Default or Event of Default shall have occurred (assuming Section 7.13 is amended as set forth above) and be continuing on the Effective Date or result from this Amendment becoming effective in accordance with its terms. (b) Foothill shall have received a counterpart of this Amendment, duly executed by the Borrower. (c) All legal matters incident to this Amendment shall be satisfactory to Foothill and its counsel. 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to Foothill as follows: (a) The Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and (ii) has all requisite corporate power, authority and legal right to execute, deliver and perform this Amendment, and to perform the Loan and Security Agreement, as amended hereby. (b) The execution, delivery and performance of this Amendment by the Borrower, and the performance by the Borrower of the Loan and Security Agreement, as amended hereby (i) have been duly authorized by all necessary corporate action, (ii) do not and will not contravene its charter or by-laws or any applicable law, and (iii) except as provided in the Loan Documents, do not and will not result in the creation of any Lien upon or with respect to any of its respective properties. (c) This Amendment and the Loan and Security Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with its terms. (d) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required in connection with the due execution, delivery and performance by the Borrower of this Amendment and the performance by the Borrower of the Loan and Security Agreement as amended hereby. (e) The representations and warranties contained in Section 5 of the Loan and Security Agreement and each other Loan Document, after giving effect to this Amendment, are correct on and as of the Effective Date as though made on and as of the Effective Date (except to the extent such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct as of such earlier date), and no Default or Event of Default has occurred and is continuing on and as of the Effective Date or will result from this Amendment becoming effective in accordance with its terms. 5. CONTINUED EFFECTIVENESS OF THE LOAN AND SECURITY AGREEMENT AND LOAN DOCUMENTS. The Borrower hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Effective Date of this Amendment all references in any such Loan Document to "the Loan and Security Agreement", the "Agreement", "thereto", "thereof", "thereunder" or words of like import referring to the Loan and Security Agreement shall mean the Loan and Security Agreement as amended by this Amendment; and (ii) confirms -2- and agrees that to the extent that any such Loan Document purports to assign or pledge to Foothill, or to grant a security interest in or Lien on, any collateral as security for the obligations of the Borrower from time to time existing in respect of the Loan and Security Agreement and the Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. 6. MISCELLANEOUS. (a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. (b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. (c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of California. (d) The Borrower will pay on demand all reasonable fees, costs and expenses of Foothill in connection with the preparation, execution and delivery of this Amendment including, without limitation, reasonable fees disbursements and other charges of Schulte Roth & Zabel LLP, counsel to Foothill. COMPUTRON SOFTWARE, INC., a Delaware corporation By: MICHAEL JORGENSEN -------------------------------- EVP AND CFO FOOTHILL CAPITAL CORPORATION, a California corporation By: ERIK SAWYER -------------------------------- VICE PRESIDENT -3- EX-10.31 3 AMENDMENT #4 TO LOAN AND SEC. AGT. Exhibit 10.31 AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT AMENDMENT NO. 4, dated as of January 21, 1999, to the LOAN AND SECURITY AGREEMENT, dated as of March 31, 1998, (the "LOAN AND SECURITY AGREEMENT"), between FOOTHILL CAPITAL CORPORATION, a California corporation, with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 ("FOOTHILL"), and COMPUTRON SOFTWARE, INC., a Delaware corporation, with its chief executive offices located at 301 Route 17 North, Rutherford, New Jersey 07070 (the "BORROWER"). PREAMBLE The Borrower has requested Foothill to amend the Loan and Security Agreement to change the amount set forth in the Loan and Security Agreement as a limitation on loans and advances permitted to be made by the Borrower to its wholly-owned Subsidiaries. Accordingly, the Borrower and Foothill hereby agree as follows: 1. DEFINITIONS. All terms used herein which are defined in the Loan and Security Agreement and not otherwise defined herein are used herein as defined therein. 2. INVESTMENTS. Section 7.13 of the Loan and Security Agreement, as previously amended by Amendment No. 3 to the Loan and Security Agreement, is hereby further amended to change the amount of $4,750,000 set forth in the tenth line of such Section to $5,750,000. 3. CONDITIONS. This Amendment shall become effective (and the covenants set forth in Section 2 above shall be applicable as of the date of this Amendment) only upon satisfaction in full of the following conditions precedent (the date upon which all such conditions have been satisfied being herein called the "Effective Date"): (a) The representations and warranties contained in this Amendment and in Section 5 of the Loan and Security Agreement and each other Loan Document shall be correct on and as of the Effective Date as though made on and as of such date (except where such representations and warranties relate to an earlier date in which case such representations and warranties shall be true and correct as of such earlier date); no Default or Event of Default shall have occurred (assuming Section 7.13 is amended as set forth above) and be continuing on the Effective Date or result from this Amendment becoming effective in accordance with its terms. (b) Foothill shall have received a counterpart of this Amendment, duly executed by the Borrower. (c) All legal matters incident to this Amendment shall be satisfactory to Foothill and its counsel. 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to Foothill as follows: (a) The Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and (ii) has all requisite corporate power, authority and legal right to execute, deliver and perform this Amendment, and to perform the Loan and Security Agreement, as amended hereby. (b) The execution, delivery and performance of this Amendment by the Borrower, and the performance by the Borrower of the Loan and Security Agreement, as amended hereby (i) have been duly authorized by all necessary corporate action, (ii) do not and will not contravene its charter or by-laws or any applicable law, and (iii) except as provided in the Loan Documents, do not and will not result in the creation of any Lien upon or with respect to any of its respective properties. (c) This Amendment and the Loan and Security Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with its terms. (d) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required in connection with the due execution, delivery and performance by the Borrower of this Amendment and the performance by the Borrower of the Loan and Security Agreement as amended hereby. (e) The representations and warranties contained in Section 5 of the Loan and Security Agreement and each other Loan Document, after giving effect to this Amendment, are correct on and as of the Effective Date as though made on and as of the Effective Date (except to the extent such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct as of such earlier date), and no Default or Event of Default has occurred and is continuing on and as of the Effective Date or will result from this Amendment becoming effective in accordance with its terms. 5. CONTINUED EFFECTIVENESS OF THE LOAN AND SECURITY AGREEMENT AND LOAN DOCUMENTS. The Borrower hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Effective Date of this Amendment all references in any such Loan Document to "the Loan and Security Agreement", the "Agreement", "thereto", "thereof", "thereunder" or words of like import referring to the Loan and Security Agreement shall mean the Loan and Security Agreement as amended by this Amendment; and (ii) confirms and agrees that to the extent that any such Loan Document purports to assign or pledge to Foothill, or to grant a security interest in or Lien on, any collateral as security for the obligations of the Borrower from time to time existing in respect of the Loan and Security Agreement and -2- the Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. 6. MISCELLANEOUS. (a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. (b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. (c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of California. (d) The Borrower will pay on demand all reasonable fees, costs and expenses of Foothill in connection with the preparation, execution and delivery of this Amendment including, without limitation, reasonable fees disbursements and other charges of Schulte Roth & Zabel LLP, counsel to Foothill. COMPUTRON SOFTWARE, INC., a Delaware corporation By: MICHAEL JORGENSEN -------------------------------- EVP & CFO FOOTHILL CAPITAL CORPORATION, a California corporation By: ERIK SAWYER -------------------------------- VICE PRESIDENT -3- EX-10.32 4 AMENDMENT TO EMPLOYMENT AGREEMENT Exhibit 10.32 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment ("Amendment") is entered into as of November 4, 1998 by and between Computron Software, Inc., a Delaware corporation (the "Company"), and John A. Rade ("Executive"). W I T N E S S E T H WHEREAS, the parties have previously entered into an Employment Agreement dated as of February 1, 1997 (the "Employment Agreement"); and WHEREAS, the parties desire to clarify the compensation arrangements for renewal terms of the Employment Agreement. NOW, THEREFORE, in consideration of the continued employment of Executive by the Company, the Company and Executive agree as follows: 1. Section 4 of the Employment Agreement ("Compensation and Benefits") is hereby modified to provide that, in any renewal term of the Employment Agreement (as contemplated in Section 1 ("Term of the Agreement") therein), the compensation and benefits granted the Executive may be increased over that provided to the Executive in the immediately preceding term by action of the Board of Directors of the Company or of the Compensation Committee thereof. 2. Except as otherwise provided herein, the Employment Agreement shall remain in full force and effect in accordance with its terms and conditions. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date set forth above. COMPUTRON SOFTWARE, INC. EXECUTIVE: - ------------------------ ------------------------ By: Michael R. Jorgensen John A. Rade Title: EVP & CFO EX-10.33 5 HARTUNG EMPLOYMENT AGREEMENT Exhibit 10.33 COMPUTRON SOFTWARE HUMAN RESOURCES Computron Software, Inc. 301 Route 17 North Rutherford, New Jersey 07070 November 16, 1998 Telephone 201-935-3400 Facsimile 201-935-5431 Internet http://www.ctronsoft.com Mr. Rick Hartung 367 Lawrence Court Wyckoff, N.J. 07481 Dear Rick: This letter is to confirm our offer of employment to you under the following terms and conditions to join Computron Software, Inc. as Senior Vice President, Sales, North America, reporting directly to me. This position is based out of our Rutherford, NJ office, starting employment on Tuesday, December 1, 1998. This offer is open for a period of 7 days. During this 7 day period, in my absence, you may contact Michael Jorgensen, Senior Vice President, Finance and Administration, or Marcia Altman, Director of Human Resources, with any questions you may have. SALARY: Starting salary will be $7,500.00 semi-monthly, paid on the 15th and last business day of each month, which equates to 24 pay periods. BONUS: You will be eligible for a bonus potential of $180,000.00, based on achieving targets to be agreed upon. For 1998, your bonus potential will be pro-rated (1/12th of the $180,000.00). For 1999, the criteria to earn and exceed your bonus potential will be agreed upon during the month of January, 1999. For 1999 only, fifty percent (50%) of the bonus will be guaranteed. CAR ALLOWANCE: You will also be entitled to an automobile allowance of $400.00 per month. STOCK OPTIONS: We will recommend to the Board of Directors of Computron Software, Inc. that you be awarded a stock option grant of 200,000 shares at the price of the stock on the day granted; 100,000 options will vest over a four (4) year period. The remaining 100,000 options will vest #1), on the eighth year anniversary of the grant date, or #2) 1/4 of 100,000 options will vest A) when annual US License revenue exceeds 1998 US license revenue by 50%; 1/4 of 100,000 options will vest B) when annual US license revenue exceeds 1998 US license revenue by 100%; 1/4 of 100,000 options will vest C) when the annual US License revenue exceeds 1998 US license revenue by 200%; 1/4 of 100,000 options will vest D) when annual US license revenue exceeds 1998 US license revenue by 300%. In the event that the vesting contingencies in #2) are not met by 12/31/02 they will expire on 12/31/02 and only vesting option #1) will apply to 100,000 options. The options, if approved, are subject to the terms and conditions as outlined in the Computron Software Stock Option Plan. BENEFITS: Computron provides its employees with medical, dental, vision and prescription insurance coverage effective date of hire. Optional dependent coverage is available at a cost split by Computron and the employee. Life insurance, long term disability and short term disability are also effective date of hire. Please see attached Outline of Benefit Summary for details, which includes all benefits offered at this time, including holidays, vacation and other time off. In addition, the Company offers a 401(k) savings plan which includes a 50% employer match (subject to certain restrictions), also explained in the Summary. COMPUTRON SOFTWARE, INC. Mr. Rick Hartung November 16, 1998 Page 2 EMPLOYMENT: Computron Software, Inc. is an equal opportunity employer. In addition, it should be understood that employment is "at will", as defined under the laws of New Jersey, and thus such employment can be terminated with or without cause, at the option of either party. In the event, after a change of control (described below), you are terminated within twelve months of your hire date, such termination will be considered without cause. CHANGE OF CONTROL: Upon the occurrence of a Change of Control of the Company (as defined in the Stock Option Plan), all Options which are unvested at the time of the Change of Control will be immediately vested. As used herein, a "Change of Control" of the Company shall be deemed to have occurred: IV. Upon the consummation, in one transaction or a series of related transactions, (A) of the sale or other transfer of voting power (including voting power exercisable on a contingent of deferred basis as well as immediately exercisable voting power) representing control of over 30% of the total voting power of the Company to a person or a group of related persons, who, on the date of this Agreement, does not have effective voting control of the Company, whether such sale or transfer results from a tender offer or otherwise; or (B) by which any person or group of related persons who becomes, after the Commencement Date, the "beneficial owner" of more than 70% of the total voting power of the Company, whether as a result of a tender offer or otherwise; or V. Upon the consummation of a merger or consolidation in which the Company is a constituent corporation and in which the Company's shareholders immediately prior thereto will beneficially own, immediately thereafter, securities of the Company or any surviving or new corporation resulting therefrom having less than a majority of the voting power of the Company or any such surviving or new corporation: or VI. Upon the consummation of a sale, lease, exchange or other transfer or disposition by the Company of all or substantially all of its assets to any person or group or related persons. SEVERANCE PACKAGE: If, at any time, the Company decides to terminate your position for any reason other than for cause, then the Company will provide severance equal to 6 months of your base salary payable in 12 semi-monthly installments. COMPUTRON SOFTWARE, INC. Mr. Rick Hartung November 16, 1998 Page 3 CONFIDENTIALITY: You agree that any confidential information that becomes available to you in the course of employment is the sole property of Computron and shall not be used by you for any purpose other than fulfilling your position's objectives. This applies while an active or inactive employee. A partial list of items covered by Confidentiality include: o Employee Lists o Technical Product Knowledge o Customer Lists o Confidential Financial Data o Prospect Lists o Product Price Lists o Product Materials o Sales/Marketing Strategy The above information and any other confidential material will remain confidential for a period of two years after employment at Computron, except for customer lists and possible other technical data, which remains confidential in perpetuity unless Computron makes it available to the public. Please countersign this offer and Non-Disclosure Agreement and return to me to officially indicate your acceptance. This offer is contingent upon your review and acceptance of our Offer Letter, a favorable response from your references, and our review of verification of your identity and employment authorization documents as set forth in the Immigration Reform and Control Act. It is understood that legal fees associated with obtaining these documents are solely your responsibility. Sincerely, John Rade President and Chief Executive Officer I ACCEPT: RICK HARTUNG 11/17/98 - --------------------------------------- -------------------- Name Date EX-10.34 6 GROOM EMPLOYMENT AGREEMENT Exhibit 10.34 [COMPUTRON LETTERHEAD] September 8, 1997 Dear Greg: This letter is to confirm our offer of employment to you under the following terms and conditions to join Computron Software, Inc. as the Senior Vice President of Operations, reporting directly to me, with responsibility for the entire fulfillment cycle for products and services, including professional services, development and operations. This position works out of the Rutherford, New Jersey office. You will start employment as soon as possible after October 2, 1997. SALARY: Starting salary will be $7,291.67 semi-monthly, paid on the 15th and last business day of each month, which equates to 24 pay periods. BONUS: You will be eligible for a potential bonus of $100,000 per annum. For the balance of 1997, your bonus potential will be prorated based on your start date. 50% of your bonus is guaranteed. The remaining 50% will be earned by achieving objectives to be agreed upon. For 1998, your bonus plan will be similar to that of the CEO and CFO, but against agreed upon objectives tailored to your responsibilities. CAR ALLOWANCE: You will also be entitled to an automobile allowance of $400.00 (four hundred dollars) per month and reimbursement of the insurance costs for your vehicle. STOCK OPTIONS: We will recommend to the Board of Directors of Computron Software, Inc. that you be awarded a stock option grant of 150,000 shares at the price of the stock on the day granted; 75,000 of which shares will vest over a four (4) year period. The remaining 75,000 shares will vest in 25,000-share increments based on the company achieving its goals. In the event of sale of all or a substantial part of the company, your options will vest immediately. REVIEWS: A performance review will be conducted on or about your one year anniversary, then annually thereafter. BENEFITS: Computron provides its employees with Medical, Dental and Life Insurance coverage effective date of hire. Optional dependent coverage is available at a cost split by Computron and the employee. Please see attached Outline of Benefit Summary for details, which includes benefits offered at this time, including holidays, vacation and other time off. In addition, the Company offers a 401(k) savings plan which includes a 25% employer match (subject to certain restrictions), also explained in the Summary. EMPLOYMENT: Computron Software, Inc. is an equal opportunity employer. During your first twelve (12) months of employment, the Company agrees that it can terminate your employment only for cause. Thereafter, your employment will be "at will", as defined under the laws of New Jersey, and thus such employment can be terminable, with or without cause at the option of either party. SEVERANCE PACKAGE: If; at any time, during the first twelve (12) months of your employment, the Company decides to terminate your position for any reason other than for cause, or in the event of a "Change in Control", as defined below, at any time during your employment, then the Company will provide severance equal to twelve (12) months of your then current base salary payable in 24 semi-monthly installments. As used here-in, a "Change in Control" of the Company shall be deemed to have occurred: (1) Upon the consummation, in one transaction or a series of related transactions, of the sale or other transfer of voting power (including voting power exercisable on a contingent or deferred basis as well as immediately exercisable voting power) representing effective control of the Company to a person or group of related persons who, on the date of this agreement, does not have effective voting control of the Company, whether such sale or transfer results from a tender offer or otherwise; or (2) Upon the consummation of a merger or consolidation in which the Company is a constituent corporation and in which the Company's shareholders immediately prior thereto will beneficially own, immediately thereafter, securities of the Company or any surviving or new corporation resulting therefrom having less than a majority of the voting power of the Company or any such surviving or new corporation; or (3) Upon the consummation of a sale, lease, exchange or other transfer or disposition by the Company of all or substantially all of its assets to any person or group of related persons. In the event of change of control of the Company, you have the option to continue employment in accordance with this agreement, or to request the above severance payment of one year base compensation. CONFIDENTIALITY: You agree that any confidential information that becomes available to you in the course of employment is the sole property of Computron and shall not be used by you for any purpose other than fulfilling your position's objectives. This applies while an active or inactive employee. A partial list of items covered by Confidentiality include: * Employee Lists * Technical Product Knowledge * Customer Lists * Confidential Financial Data * Prospect Lists * Product Price Lists * Product Materials * Sales/Marketing Strategy The above information and any other confidential material will remain confidential for a period ending two years after termination of your employment at Computron, except for customer lists and technical data, which remains confidential in perpetuity unless Computron makes it available to the public. Please countersign this offer and Non-Disclosure Agreement and return to me to officially indicate your acceptance. This offer is contingent upon your review and acceptance of our Offer Letter, a favorable response from your references, and our review of verification of your identity and employment authorization documents as set forth in the Immigration Reform and Control Act. Sincerely, JOHN RADE John Rade Chief Executive Officer I ACCEPT: GREG GROOM 10/2/97 ---------- ------- Name Date EX-10.35 7 SOFTWARE LICENSE AGREEMENT Exhibit 10.35 SOFTWARE ASSIGNMENT AGREEMENT THIS AGREEMENT is made by and between S-CUBED INTERNATIONAL CORPORATION ("S-CUBED"), P.O. Box 8163, Stamford, Connecticut 06905 and COMPUTRON SOFTWARE, INC. ("COMPUTRON"), 301 Route 17 North, Rutherford, New Jersey 07070. WHEREAS, the parties have previously entered into certain agreements, including, without limitation, the Marketing Agreement for Computer Software with a Contract Effective Date of January 23, 1995, the Addendum thereto and the amendatory letter dated May 26, 1998 (collectively, the "Prior Agreements"), providing for, among other things, S-CUBED's provision to COMPUTRON of the software programs identified in EXHIBIT A, attached hereto and made a part of this Agreement (the "Software"). WHEREAS, the parties wish to terminate the Prior Agreements and make final provisions relating to the Software. NOW, THEREFORE, for good and valuable consideration, the parties hereby agree as follows: 1. Upon execution of this Agreement, S-CUBED shall deliver to COMPUTRON one (1) master copy of both the object code and source code of the Software, and any related documentation. 2. In consideration for the payment by COMPUTRON to S-CUBED of $125,000.00 (the "Fee"), COMPUTRON and S-CUBED agree that the Software, and any related documentation, shall belong exclusively to COMPUTRON, whether or not COMPUTRON uses such material, and S-CUBED hereby irrevocably assigns, and shall cause its employees and subcontractors (including, without limitation, Software Brewers Inc.) to irrevocably assign, all rights of every kind, including, without limitation, copyrights, in the Software to COMPUTRON. No rights to or in the Software are reserved to S-CUBED or to S-CUBED's employees or subcontractors. COMPUTRON shall have the right to use, in any media, and by any means or methods, now known or hereafter known, all of the Software, any part or parts thereof, or none of the Software, as COMPUTRON sees fit, and COMPUTRON may alter the Software, add to it, or combine the Software with any other work or works, in COMPUTRON's sole discretion. 3. COMPUTRON shall pay the Fee to S-CUBED as follows: $50,000.00 upon signing of this Agreement by the last party to do so and $75,000.00 within ninety (90) days following such signing. 4. S-CUBED hereby warrants and represents to COMPUTRON that the Software, and any related documentation, has not been copied, without permission, from the work of any third party, that COMPUTRON will own, pursuant to this Agreement, all necessary proprietary rights (including, without limitation, patent, trademark, trade secrets and copyright rights) in the Software and such documentation, and that the Software and such documentation do not, and will not, infringe upon the proprietary rights of third parties. S-CUBED hereby agrees to execute 1 and deliver, and to cause its employees and subcontractors to execute and deliver, all further instruments and documents as COMPUTRON shall deem necessary or advisable to evidence, establish, maintain or defend COMPUTRON's rights in or to the Software and such material (for example, any forms required by the Copyright Office). 5. S-CUBED hereby agrees to and shall defend, indemnify and hold COMPUTRON and its affiliates, successors, assigns and licensees harmless from and against any and all claims, liabilities, losses, judgements, suits, damages, costs, charges, awards and counsel fees relating to any claim of patent, copyright, trade secret or other intellectual property right infringement made by third parties with respect to the Software, as provided to COMPUTRON by S-CUBED. Without limiting the generality of the foregoing, S-CUBED, its principals, employees and subcontractors shall fully cooperate in any defense by COMPUTRON of any such infringement claims. 6. COMPUTRON shall be solely responsible for maintaining and supporting the Software for COMPUTRON's end users at COMPUTRON's sole expense. COMPUTRON may purchase from S-CUBED support services with respect to the Software upon terms and conditions, including fees, hereafter agreed to by the parties. 7. (a) The Prior Agreements, and all remaining obligations of the parties hereunder, are hereby terminated. Without limiting the generality of the foregoing, (i) S-CUBED has no further obligations to deliver the "Report Interplay" (also referred to as the "Report Interlink") product (i.e., the file named ri.exe) to COMPUTRON and COMPUTRON has no further right or license to sublicense or distribute earlier versions of the "Report Interplay" product which were delivered to COMPUTRON (COMPUTRON to return all copies of the "Report Interplay" product in its possession to S-CUBED within thirty (30) days after its signing of this Agreement), and (ii) neither party has any further obligations to the other party under the "level of effort" arrangements under the Prior Agreements. (b) S-CUBED hereby grants to COMPUTRON and its affiliates a paid up license to sublicense, whether in the past or in the future, any software product (other than (i) the Software assigned herein, and (ii) the "Report Interplay" product referred to in Paragraph 7(a) above) previously provided to COMPUTRON by S-CUBED under the Addendum, and the amendatory letter dated May 26, 1998, included as part of the Prior Agreements. COMPUTRON has no rights to receive support for, or further enhancements of, the software referred to in this paragraph from S-CUBED. 8. This Agreement will be governed by the laws of the State of New York, without regard to its conflict-of-laws rules. 9. The invalidity or unenforceability of any term or condition of this Agreement shall in no way affect the remaining terms or conditions. As used in this Agreement, the singular of any term includes the plural and the plural includes the singular, whenever the context so requires. 2 10. This Agreement sets forth the entire understanding, and hereby supersedes any and all prior agreements (including, without limitation, the Prior Agreements), oral or written, heretofore made, between the parties with respect to the subject matter of this Agreement, and there are no representations, warranties, covenants, agreements or understandings, oral or otherwise, express or implied, affecting this Agreement not expressly set forth herein. No delay on the part of either party in exercising any of its respective rights hereunder or the failure to exercise the same, nor the acquiescence in or waiver of a breach of any term, provision or condition of this Agreement shall be deemed or construed to operate as a waiver of such rights or acquiescence thereto, except in the specific instance for which given. None of the terms, conditions or provisions of this Agreement shall have been held to have been changed, varied, waived, modified or altered, except by a statement in writing signed by duly authorized representatives of both parties. S-CUBED INTERNATIONAL CORPORATION COMPUTRON SOFTWARE, INC. By: By: --------------------------------- --------------------------------- J. Scott Rade Michael R. Jorgensen Vice President Executive Vice President and Chief Financial Officer Date: Date: -------------------------------- -------------------------------- 3 EXHIBIT A SOFTWARE COOL PAINTER COMPONENTS consist of "sbrcopgr.dll" and "sbrprset.dll". These components are responsible for the screen display of the overlay form, and the management of the end-user's interaction with the display. POWER INTERACTIVE COMPONENTS consist of "Rep.OCX", which includes most of the source code from the earlier DLLs used in the COOL Painter Components, but adds an OLE interface and some new features to handle interfaces to a charting component and some other additional functions. EX-10.36 8 OEM LICENSE AGREEMENT Exhibit 10.36 OEM LICENSE AGREEMENT THIS AGREEMENT is made by and between S-CUBED INTERNATIONAL CORPORATION ("LICENSOR"), P.O. Box 8163, Stamford, Connecticut 06905 and COMPUTRON SOFTWARE, INC. ("LICENSEE"), 301 Route 17 North, Rutherford, New Jersey 07070. This Agreement sets forth the terms and conditions under which LICENSOR authorizes LICENSEE to incorporate LICENSOR software products (the "Software") described in EXHIBIT A attached to this Agreement into application software programs developed and licensed by LICENSEE ("LICENSEE Applications") and then market and sublicense, whether directly or through LICENSEE's resellers, the LICENSEE Applications, including the incorporated Software, to customers who will use the Software for their own operations ("End Users"). In consideration of the mutual agreements set forth below, LICENSOR and LICENSEE agree: I. DEFINITIONS 1.1 "Affiliate" shall mean an entity controlled by, controlling or under common control with, a party to this Agreement. 1.2 "Collective Work" shall mean an application in executable form that results from the combination of a LICENSEE Application with the Software's object code. II. LICENSE GRANTED TO LICENSEE 2.1 No later than the execution of this Agreement, LICENSOR shall deliver to LICENSEE one (1) master copy of the object code and related documentation for the 32-bit Windows 9X and NT version of the Software, conforming to the mutually agreed upon specifications. LICENSEE shall have thirty (30) days after such delivery to acceptance test the delivered version, and LICENSOR shall promptly correct all errors reported by LICENSEE as a result of such acceptance testing. If LICENSEE does not report any errors within such thirty (30) day period, the Software shall be deemed accepted by LICENSEE. 2.2 In consideration for the payment by LICENSEE to LICENSOR of the applicable license fees therefor in accordance with Article III below, LICENSOR hereby grants to LICENSEE a non-transferable and non-exclusive right and license to (a) use the Software's object code, in conjunction with each LICENSEE Application, to create one or more Collective Works, (b) copy, modify, demonstrate, market, furnish and sub-license such Collective Works, either directly or indirectly through Affiliates and resellers, to other parties anywhere in the world (subject to applicable government import/export regulations, with which LICENSEE agrees to comply), and (c) use the Software for the internal business purposes of LICENSEE and its Affiliates, including, without limitation, development, demonstration, and processing of its own business data as part of a Collective Work. 1 2.3 LICENSEE may not sub-license the Software to others, except (a) as an integral, non-extractable element of a Collective Work together with a LICENSEE Application, or (b) by itself to an existing End User of a LICENSEE Application for use with said LICENSEE Application. 2.4 LICENSEE acknowledges that LICENSEE is receiving only the foregoing LIMITED LICENSE to the Software's object code and related documentation and that LICENSEE shall obtain no title, ownership nor any other rights in or to the Software and related documentation, all of which title, ownership and rights shall remain with LICENSOR or LICENSOR's licensors. LICENSEE acknowledges and agrees that the Software and related documentation is a valuable, confidential and proprietary asset of LICENSOR or LICENSOR's licensors, and that LICENSEE and LICENSEE's employees and agents are required to protect the confidentiality of the Software. Without limiting the generality of the foregoing, LICENSEE shall maintain all copies of the Software in a manner so that the Software files are not publicly readable and so that only those employees of LICENSEE that need access to the Software shall be able to access it. 2.5 LICENSEE and its Affiliates shall only sub-license the Software/Collective Works pursuant to LICENSEE's standard written license agreement signed by the End User. LICENSEE and its Affiliates will use their best efforts to cause their resellers to license the Software/Collective Works pursuant to a written license agreement, signed by the End User, that contains, at a minimum, the provisions set forth in EXHIBIT B attached hereto and made a part hereof. The parties agree that LICENSOR and LICENSOR's licensors shall be deemed to be third party beneficiaries of, but shall incur no liability under, such End User license agreements. LICENSEE's fees to End Users and resellers for the sub-licensing of the Software shall be determined by LICENSEE in its sole discretion. 2.6 For each End User to which LICENSEE sub-licenses the Software/Collective Works hereunder, LICENSEE will provide LICENSOR with the following information: (a) the name and address of the End User, (b) the number of servers licensed for each Software product, (c) the name and phone number of the End User employee responsible for administering the license, and (d) the effective date of the license/maintenance contract. This information will be reported by LICENSEE to LICENSOR together with the quarterly royalty payments provided for in EXHIBIT C. 2.7 LICENSOR shall not distribute any materials containing LICENSEE proprietary information, except as LICENSEE may approve in advance in writing. LICENSOR shall protect the confidentiality of confidential or proprietary information of LICENSEE with which LICENSOR comes into contact, using the same standard of care that LICENSOR uses to protect its own confidential information of a similar nature, but in no event less than a reasonable standard of care. 2.8 LICENSEE may market and package the Software as LICENSEE, in its sole discretion, deems appropriate; provided, however that LICENSEE is not permitted to use the names "Mergence," "Recycler" or "Recycler Lite". 2 2.9 LICENSEE agrees that it shall not use the Software, including the Software components used to integrate the Software with the LICENSEE Applications, licensed from LICENSOR hereunder to develop its own business intelligence products competitive with said Software nor to promote LICENSEE's relationships with competitors of LICENSOR. 2.10 (a) If, at any time during the term of this Agreement, or subsequent period during which LICENSEE is continuing to purchase support pursuant to Paragraph 7.5 below, LICENSOR or its successor or assign shall at any time cease to actively be in the software business on a daily basis in the United States or shall at any time fail to provide to LICENSEE, in a timely manner, any support services provided for in Paragraph 5.2 below, or if any of the events specified in Paragraph 7.3(b) below shall occur with respect to LICENSOR or its successor or assign, then, in addition to any other rights or remedies which LICENSEE may have as a result thereof under this Agreement or otherwise, LICENSEE shall have the right to obtain, and, upon LICENSEE's written request therefor, LICENSOR or its successor or assign shall, within fifteen (15) days, deliver to LICENSEE, a single copy of the then current version of the source code for the Software, together with a single copy of the documentation (including, without limitation, all technical notes, manuals, internal comments and annotations) associated therewith, which LICENSEE agrees to hold in confidence and to use only in connection with the support and maintenance of the Software sublicensed to End Users hereunder. (b) In order to protect the rights granted to LICENSEE in Paragraph 2.10(a), LICENSOR agrees, promptly upon LICENSEE's acceptance of the Software pursuant to Paragraph 2.1 above, to place the then current version of the material specified in said Paragraph 2.10(a), and any and all subsequent modifications thereto, into escrow with a reputable software escrow agent, reasonably acceptable to both parties. The escrow agreement shall provide for the release of the escrowed material upon LICENSOR's failure to directly provide such materials to LICENSEE pursuant to Paragraph 2.10(a) above. The parties shall split equally the fees of the escrow agent. III. LICENSE FEES 3.1 In consideration for the licenses to the Software granted hereunder, LICENSEE agrees to pay LICENSOR the license fees set forth in EXHIBIT C, in US dollars. All license and support fees hereunder are exclusive of any applicable sales, use, property and other taxes and import or other duties, however designated or levied, which taxes and duties LICENSEE shall pay separately to LICENSOR, unless LICENSEE provides satisfactory evidence of tax exemption to LICENSOR. 3.2 The license fees for the Software set forth in EXHIBIT C were established on the basis of that Software being sublicensed only with LICENSEE's COOL software. Upon the parties mutually agreeing to the intent to sublicense the Software with LICENSEE's Financials software (without COOL), the parties agree to negotiate in good faith new license fees for the Software (no higher than the license fees currently set forth in EXHIBIT C) taking into account the increased utilization thereof by LICENSEE. 3 IV. WARRANTY; DISCLAIMER OF LIABILITY 4.1 LICENSOR warrants to the benefit of LICENSEE, its Affiliates and resellers and their End Users that, for a period of six (6) months from the date the Software is delivered to LICENSEE under Paragraphs 2.1 above or 5.2(c) below, the Software will perform substantially in accordance with LICENSOR's documentation for the Software. In the event that the Software fails to so perform, LICENSOR's sole and exclusive obligation shall be to remedy such non-conforming performance as expeditiously as possible. LICENSOR does not warrant that the operation of the Software will be uninterrupted or error free. Additionally, LICENSOR represents and warrants that; (i) the use of the Software as contemplated hereby by LICENSEE, its Affiliates and resellers and their End Users will not infringe any patent, copyright, trade secret or other proprietary right of any third party; (ii) LICENSOR is not currently bound by any other agreements, restrictions or obligations, nor will LICENSOR assume any such obligations, which do, or in any way would, interfere or be inconsistent with this Agreement; and (iii) it has the corporate authority to enter into and fulfill this Agreement. 4.2 EXCEPT FOR THE WARRANTIES SPECIFICALLY SET FORTH IN PARAGRAPH 4.1 ABOVE, LICENSOR MAKES NO WARRANTIES OR REPRESENTATIONS OF ANY NATURE WHATEVER, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXCLUDED AND DISCLAIMED BY LICENSOR. 4.3 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR OTHER DAMAGES OR LOSS OF REVENUES, LOSS OF INCOME, LOSS OF PROFITS OR OTHER FINANCIAL REMEDIES. V. MAINTENANCE AND SUPPORT 5.1 The parties agree that LICENSEE shall be solely responsible, at LICENSEE's sole cost and expense, for providing to End Users of the Software/Collective Works all maintenance and technical support with respect thereto. LICENSOR shall refer all requests for assistance it receives from LICENSEE's resellers or End Users to LICENSEE. As part of its support activities under this paragraph, LICENSEE will log all calls and reported issues, use its best efforts to determine that the reported issues do not relate to the LICENSEE Applications, and assign a severity level to each issue LICENSEE cannot resolve on its own. 5.2 In exchange for LICENSEE's payment to LICENSOR of the annual support fees provided for in EXHIBIT C, LICENSOR shall provide to LICENSEE and Affiliates, but not their resellers or End Users, the following support with respect to the Software as originally provided to LICENSEE by LICENSOR, during the term of this Agreement: (a) Appropriate support (e.g., telephone, fax, e-mail or other, as agreed to by the parties) to address functional problem resolution with respect to the Software, in 4 accordance with LICENSEE support policies and based on the severity level assigned to an issue by LICENSEE under Paragraph 5.1 above; (b) "Bug-fixes" - LICENSOR shall remedy or repair, as soon as reasonably practicable, any failure of the Software to substantially conform to LICENSOR's then current published user documentation for the Software; provided, however, that LICENSEE gives LICENSOR written notice of such alleged failure and LICENSOR is in good faith able to reproduce such failure; and (c) LICENSOR shall provide such enhancements and upgrades to the Software products as shall be mutually agreed to by the parties, including, without limitation, enhancements and upgrades necessary to keep the Software current with (a) newly issued versions of both server and client operating system software, (b) then current versions of development tools used to create the Software (e.g., Visual Basic), and (c) enhancements and upgrades that LICENSOR incorporates in the versions of the Software that LICENSOR distributes through its marketing channels independent of LICENSEE. LICENSOR shall promptly deliver to LICENSEE a copy of each new version of the Software. (d) LICENSOR shall provide to LICENSEE's employees, at LICENSEE's Rutherford facility and at no charge to LICENSEE, appropriate training on any enhancements and upgrades to the Software provided under Paragraph 5.2(c) above since the last such training session. 5.3 If it is determined, after good faith discussions, that either party hereto (the "Fixing Party") resolved a support issue that was in fact the responsibility of the other party (the "Responsible Party") to resolve under this Article V, then the Fixing Party may invoice the Responsible Party, on a time and materials basis at the Fixing Party's then current standard rates, for such resolution, and the Responsible Party shall pay such invoice within thirty (30) days after receipt thereof. VI. PROPERTY RIGHTS; INDEMNIFICATION 6.1 Notwithstanding LICENSEE's creation of Collective Works hereunder, LICENSEE shall continue to own the LICENSEE Applications, and LICENSOR or LICENSOR's licensors shall continue to own the Software. LICENSEE shall own the Collective Works, except for those portions of the Software embedded therein, which shall continue to be owned solely by LICENSOR or LICENSOR's licensors. 6.2 In the event of a claim against LICENSEE, its resellers or Affiliates or their End Users (i) for infringement of any patent, copyright or trademark, trade secret or other proprietary right of the Software delivered by LICENSOR to LICENSEE for any reason; or (ii) for LICENSOR's negligence or willful misconduct in connection with its performance under this Agreement, LICENSOR shall promptly, and at its expense and option, either, as applicable (1) secure for LICENSEE, its resellers or Affiliates or their End Users the right to continue marketing and/or using the infringing matter, or (2) replace or modify the infringing matter as to make it non- 5 infringing (provided there is no loss of features or functionality) with LICENSEE to promptly provide the non-infringing replacement to its resellers, Affiliates and End Users, provided, however, that if commercially reasonable efforts to achieve the foregoing are unsuccessful, LICENSOR may instead elect to refund to LICENSEE all amounts LICENSOR received from LICENSEE for such Software under this Agreement. In addition, LICENSOR will defend, indemnify and hold LICENSEE, its resellers or Affiliates or their End Users harmless from any and all claim, losses, liabilities, costs (including reasonable attorneys' fees), damages and expenses for such claims, provided LICENSEE promptly informs LICENSOR of the claim, gives LICENSOR complete control of the defense of such claims and reasonably cooperates in its defense and settlement. 6.3 In the event of a claim against LICENSOR (i) for infringement of any patent, copyright, trademark, trade secret or other proprietary right by the Collective Works (other than the Software in the exact form supplied by LICENSOR hereunder); or (ii) for LICENSEE's negligence or willful misconduct in connection with its performance under this Agreement, LICENSEE shall defend, indemnify and hold LICENSOR harmless from any and all claims, losses, liabilities, costs (including reasonable attorneys' fees), damages and expenses, provided: (1) LICENSEE has control of the defense and/or settlement of, and shall defend or settle at its own expense, any claim or litigation to which this indemnity relates; and (2) LICENSOR shall notify LICENSEE promptly of any such claim or litigation, and shall cooperate with LICENSEE in every reasonable way to facilitate the defense of such claim or litigation. 6.4 This Article VI states the entire obligations of the parties with respect to claims of infringement or violation of any intellectual property rights of any third party. VII. TERM; TERMINATION 7.1 This Agreement shall commence upon the date of its execution by the last party to sign this Agreement and shall remain in full force and effect until terminated by either party as provided for below. 7.2 After the second (2nd) year anniversary of the effective date of this Agreement, LICENSEE may terminate this Agreement at any time, without cause, upon at least ninety (90) days prior written notice to LICENSOR. After the fifth (5th) year anniversary of the effective date of this Agreement, LICENSOR may terminate this Agreement at any time, without cause, upon at least ninety (90) days prior written notice to LICENSEE; provided, however, that such termination shall not take effect until one hundred eighty (180) days following LICENSOR's notice only with respect to potential End Users of the Software specifically identified in a written notice from LICENSEE to LICENSOR (to be given by LICENSEE within thirty (30) days following LICENSEE's receipt of LICENSOR's termination notice) as being a potential End User for the Software to whom LICENSEE made, on or before the date of LICENSEE's notice, a definitive proposal to license the Software, which proposal was still being considered by the potential End User. 6 7.3 Either party may terminate this Agreement, effective upon thirty (30) days prior written notice, if (a) the other party materially breaches any provision of this Agreement (including, without limitation, LICENSOR's breach of its obligations under Paragraph 5.2 above), but such termination shall not take effect if such party cures such breach prior to the expiration of the notice period, or (b) the other party enters into liquidation, whether voluntarily or compulsory, or has a receiver appointed, or commits an act of bankruptcy, or becomes insolvent, or enters into any arrangement with its creditors, or takes or suffers any similar action in consequence of debt, or ceases, or threatens to cease, to carry on its business. 7.4 Upon any termination of this Agreement, LICENSEE shall (a) immediately pay to LICENSOR all fees owed to LICENSOR hereunder by virtue of LICENSEE's activities hereunder prior to such termination, (b) cease thereafter to demonstrate, market, furnish and sub-license the Software and/or Collective Works, and (c) use copies of the Software, and any related materials supplied to LICENSEE by LICENSOR, then in its possession, which LICENSEE shall maintain in the strictest of confidence, only to (i) process the internal business data of LICENSEE and its Affiliates as part of a Collective Work, and (ii) support copies of the Software and/or Collective Works licensed to End Users prior to such termination. Termination of this Agreement shall not affect any LICENSEE sub-licenses of the Software and/or Collective Works to others made prior to the effective date of such termination if all license fees with respect thereto have been paid by LICENSEE to LICENSOR and such sub-licenses comply with the terms and conditions of this Agreement. 7.5 In order to permit LICENSEE, after any termination of this Agreement, to continue to support copies of the Software and/or Collective Works licensed to End Users prior thereto, as permitted under Paragraph 7.4(c)(ii) above, the parties agree that LICENSEE may, if it so chooses, continue to make the support fee payments provided for in Paragraph 5.2 above, whereupon LICENSOR shall continue to provide the Software support provided for in said Paragraph 5.2, even after this Agreement is terminated, for a period of twenty-four (24) months following such termination. 7.6 Neither party shall, by reason of the termination of this Agreement in accordance with the terms hereof, be liable to the other for compensation, reimbursement or for any damages on account of the loss of profits or prospective profits on anticipated business, or on commitments in connection with the business or goodwill of either party or otherwise or for direct, special, incidental, indirect or consequential damages. 7.7 The expiration or termination of this Agreement shall not release either party from any liability, obligation or agreement which, pursuant to any provision of this Agreement, is to survive or be performed after any such expiration or termination. 7 VIII. GENERAL 8.1 Each party agrees not to, without the prior written consent of the other party, knowingly solicit for employment, hire or utilize the services of any employee, agent, representative or consultant of the other party, or assist any third party in so doing, for a period ending one year after termination of this Agreement. In the event of a breach of this paragraph, the breaching party shall pay to the other party a sum equal to one hundred fifty percent (150%) of the annual compensation agreed to be paid by the breaching party to such person. This remedy is in addition to any other remedies available at law or in equity. 8.2 It is expressly understood and agreed that the parties are, and shall at all times during the term of this Agreement be deemed to be, independent contractors, and nothing in this Agreement shall in any way be deemed or construed to constitute either party as an agent or employee of the other, nor shall either party have the right or authority to act for, incur, assume or create any obligation, responsibility or liability, express or implied, in the name of, or on behalf of, the other party, or to bind the other party in any manner whatsoever. The employees of one party shall be deemed to be the agents, servants and employees of that party only, and the other party shall incur no obligations or liabilities of any kind, nature or sort, express or implied, by virtue of, or with respect to, the conduct of such employees. 8.3 (a) Neither this Agreement, nor any of the rights or interests of either party hereunder, may be assigned, transferred or conveyed by that party, by operation of law or otherwise, other than to an Affiliate of that party or to a successor ("Successor") to all, or substantially all, of the properties, business or capital stock of that party, except upon the express prior written consent of the other party. Any Successor to LICENSOR will continue to be bound by the terms and conditions of this Agreement, including, without limitation, Paragraph 5.2 above. (b) In the event that any Successor to LICENSEE exercises its right to terminate this Agreement under Paragraph 7.2 above within twelve (12) months following the closing of the transaction in which the Successor acquires the properties, business or capital stock of LICENSEE, then such Successor shall pay LICENSOR a one-time only payment of $75,000 to compensate LICENSOR for lost anticipated revenues, unless otherwise agreed by LICENSOR and such Successor to LICENSEE. (c) LICENSOR may subcontract its Software development and/or maintenance and support obligations under this Agreement to Software Brewers Inc.; provided that (i) when and if Software Brewers Inc. establishes a U.S. presence, then the support referenced in Paragraph 5.2(a) above will be provided during normal business hours (U.S. Eastern Time), and (ii) LICENSOR remains fully responsible and liable to LICENSEE for the proper performance of the obligations so subcontracted. 8.4 All notices (other than routine business communications) will be in writing and will be sent by reputable "overnight" courier to the addresses on the first page of this Agreement (until such time as one party provides change of address to the other party). Notices to LICENSOR shall be to the attention of J. Scott Rade, Vice President; notices to LICENSEE shall be to the 8 attention of its General Counsel. Notice shall be deemed given when sent in accordance with the foregoing. 8.5 Neither party shall be liable for delay or failure in the performance of its obligations under this Agreement arising from any one or more events which are beyond its reasonable control. Upon such delay or failure affecting one party, that party shall notify the other party and use all reasonable endeavors to cure or alleviate the cause of such delay or failure with a view to resuming performance of its contractual obligations as soon as practicable. 8.6 This Agreement will be governed by the laws of the State of New York, without regard to its conflict-of-laws rules. 8.7 The invalidity or unenforceability of any term or condition of this Agreement shall in no way affect the remaining terms or conditions. As used in this Agreement, the singular of any term includes the plural and the plural includes the singular, whenever the context so requires. The paragraph headings in this Agreement are inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement. 8.8 This Agreement sets forth the entire understanding, and hereby supersedes any and all prior agreements, oral or written, heretofore made, between the parties with respect to the subject matter of this Agreement, and there are no representations, warranties, covenants, agreements or understandings, oral or otherwise, express or implied, affecting this Agreement not expressly set forth herein. No delay on the part of either party in exercising any of its respective rights hereunder or the failure to exercise the same, nor the acquiescence in or waiver of a breach of any term, provision or condition of this Agreement shall be deemed or construed to operate as a waiver of such rights or acquiescence thereto, except in the specific instance for which given. None of the terms, conditions or provisions of this Agreement shall have been held to have been changed, varied, waived, modified or altered, except by a statement in writing signed by duly authorized representatives of both parties. S-CUBED INTERNATIONAL CORPORATION COMPUTRON SOFTWARE, INC. By: By: --------------------------------- --------------------------------- J. Scott Rade Michael R. Jorgensen Vice President Executive Vice President and Chief Financial Officer Date: Date: -------------------------------- -------------------------------- 9 EXHIBIT A LICENSOR SOFTWARE RECYCLER "LITE" is an embeddable software product that contains the following components from LICENSOR's full Recycler product: o Reader and modeler to extract data from (most) report print files, generate an outline, and store it in a reporting-oriented database (ROD) file o Analyzer and reprocessor to define new reports from a single original report, where the new reports may: o Contain new fields defined as expressions o Delete or re-organize the order of appearance of the fields o Sort and group the data differently o Contain new sub-totals and other statistics o Graphical report viewer The capabilities and features of each of those components are specified by the documentation and software provided as part of the full Recycler product, version 1.6.23, as delivered to LICENSEE. Recycler "Lite" will specifically NOT contain the following components and features that are reserved only for Recycler-based products that will be sold as separately priced products or line items: o Those that allow appending of data from one ROD to another o An Excel add-in for viewing RODs o Those that allow analyzer definitions to be saved and reused in future sessions o Those that allow sequences of operations to be defined and executed on demand or according to a pre-set schedule o Those that produce text-file output that can be archived in document-management tools such as COOL o Those that combine and process data from multiple RODs o Those that access data from SQL databases or other sources, other than a text file o Those that implement user and group authorization and security o Those that generate HTML, DHTML, XML, or other Internet file types directly from a ROD o ODBC driver for RODs o Those that allow multiple Recycler servers to communicate with each other and operate together Recycler "Lite" will function correctly with the following server platforms: Windows NT 4.0 and later RS 6000 AIX 4.0 and later HP-UX 10.0 and later Sun Solaris 2.6 and later Subject to LICENSEE providing agreed upon access to operating systems and hardware, LICENSOR will deliver one (1) of the foregoing server platforms each forty-five (45) days starting from the date of the aforesaid access, commencing with Sun Solaris. EXHIBIT B MANDATORY TERMS OF RESELLER SUB-LICENSES TO END USERS All Reseller sub-licenses with End Users shall include substantially the following provisions: 1. Only a non-exclusive, non-transferable, non-assignable right to use the Collective Work, in object code form only, on the expressly identified operating platform (including number of servers and users) is granted to the End User; 2. No title to the Collective Work, or any intellectual property therein, is transferred to the End User; 3. The End User may not copy the Collective Work, except for backup and archival purposes only, and the End User shall include on all copies or the Collective Work all copyright and other proprietary notices or legends included on the Collective Work when it was shipped to such End User; 4. The End User agrees not to reverse assemble, decompile or otherwise attempt to derive source code from the Collective Work; 5. The End User agrees to comply with all applicable export and re-export restrictions and regulations; 6. The End User will hold the Collective Work in confidence and shall protect the Collective Work with at least the same degree of care with which the End User protects its own similar confidential information; 7. Reseller's licensors [LICENSEE, LICENSOR and LICENSOR's licensors] are direct and intended third party beneficiaries of the license agreement and may enforce it directly against the End User; provided however that such licensors shall not be liable to the End User for any warranties or guarantees, express or implied, or general, special, direct, indirect, consequential, incidental or other damages arising out of or related to the Collective Work; 8. Upon termination of the license for the Collective Work, the End User shall return to Reseller all copies of the Collective Work and documentation, and certify to Reseller that such return has occurred; 9. Reseller and/or Reseller's licensors shall have the right to direct a recognized auditing firm to conduct, during normal business hours, an audit of (and to copy) the appropriate records of the End User to verify the number of copies of the Collective Work in use by the End User, the computer systems on which such copies are installed and, the number of users using such copies. Representatives of the auditing firm shall protect the confidentiality of the End User's confidential information and abide by the End User's reasonable security regulations while on End User's premises. If the number of copies or users is found to be greater than that contracted for or the computer system on which the Collective Work is in use differs from the single computer system for which license rights have been granted to the End User, the End User shall be invoiced for the additional copies, users or computer systems at the price quoted in the then current price list of Reseller (subject to any applicable discounts to which Reseller may have agreed); and 11. The End User shall not release the results of any benchmark of the Collective Work to any third party without the prior written approval of Reseller and Reseller's licensor for each such release. EXHIBIT C LICENSE AND SUPPORT FEES LICENSE FEES 1. Existing Computron COOL End User Base LICENSEE will pay LICENSOR a license fee of $225.00/server (unlimited users) for each sub-license of the Software by LICENSEE or an Affiliate to an existing End User (as of the effective date of this Agreement) of Computron COOL. LICENSEE agrees to acquire a minimum of 500 servers for this purpose, which number will be finalized upon LICENSEE providing LICENSOR, as soon as practicable but no later than February 15, 1999, a detailed analysis of the existing customer base. The aggregate amount of license fees calculated pursuant to the preceding paragraph will be paid by LICENSEE to LICENSOR as follows: $28,125.00 (representing 25% of the aggregate fees payable based on 500 servers) will be paid by LICENSEE concurrently with its execution of this Agreement, and the remaining amount will be paid in three (3) equal installments on March 1, May 1 and July 1, 1999; provided that no such installment need be paid prior to LICENSOR's delivery to LICENSEE, pursuant to Paragraph 2.1 of this Agreement, of the object code, and related documentation, reasonably acceptable to LICENSEE, of the Software. The initial support fees, calculated pursuant to the provisions set forth below, for the actual number of existing End Users of Computron COOL set forth in the detailed analysis provided for above, shall be paid by LICENSEE to LICENSOR together with the March 1, 1999 license fee installment referenced above. Renewal support fees shall be paid pursuant to the support fee payment terms set forth below. To the extent that LICENSEE requires fewer than 500 servers under this Section 1, then LICENSEE may use (on a 1 license for 1 server basis) the excess licenses purchased under this Section for new End Users or resellers of Computron COOL, who would otherwise be covered by Section 2 below. 2. New COOL End Users/Resellers For all sub-licenses of the Software by LICENSEE or an Affiliate to resellers or End Users of Computron COOL (other than End Users covered under Section 1 of this EXHIBIT C), LICENSEE will pay LICENSOR the following license fees: Per Server or Site Licenses: $300.00/server (unlimited users) Enterprise-wide Licenses: TO BE ADDRESSED IN AN AMENDMENT TO THIS AGREEMENT If, prior to January 1, 2001, LICENSEE has not paid for at least 100 servers under this Section 2, then, on the first business day in January 2001, LICENSEE shall pre-pay LICENSOR for the remaining licenses, needed to aggregate 100 servers, which may then be used by LICENSEE as required. 3. General Provisions LICENSEE and its Affiliates may use an unlimited number of copies of the Software, without obligation to pay any license fees hereunder, for the internal business purposes of LICENSEE and its Affiliates, including, without limitation, development, demonstration, and processing of its own business data as part of a Collective Work. LICENSEE shall pay LICENSOR the license fees due LICENSOR under Section 2 of this EXHIBIT C on a quarterly basis, in the first month of each calendar quarter during the term of this Agreement, based on sub-licenses of the Software and/or Collective Works signed by End Users with LICENSEE or its Affiliates during the immediately preceding calendar quarter. Such payment will be accompanied by the information required in Paragraph 2.6 of this Agreement. Late payments will incur a late fee of 1.5%/month. In the event that LICENSEE or an Affiliate is required to make a refund of sub-license fees for Software and/or Collective Works previously paid by End Users and rescind the subject sub-license, upon which LICENSEE had already paid LICENSOR a license fee hereunder, then such rescinded sub-license shall be credited against current or future Software and/or Collective Work sub-licenses for which LICENSOR is entitled to receive payment of a license fee hereunder. SUPPORT FEES Whenever an End User purchases annual maintenance from LICENSEE or an Affiliate for the Software and/or Collective Works (either on an initial or a renewal basis), LICENSEE will pay LICENSOR a support fee in the following amounts: Per Server or Site Licenses: 17% of the license fee payment made by LICENSEE to LICENSOR for the subject Software. Enterprise-wide Licenses: TO BE ADDRESSED IN AN AMENDMENT TO THIS AGREEMENT Except as provided above with respect to existing End Users of Computron COOL, LICENSEE shall pay LICENSOR the support fees due hereunder on a quarterly basis, in the first month of each calendar quarter during the term of this Agreement, based on annual maintenance policies for the Software and/or Collective Works purchased by End Users from LICENSEE or its Affiliates (either on an initial or a renewal basis) during the immediately preceding calendar quarter. Such payments will be accompanied by a report showing how such fees were calculated. Late payments will incur a late fee of 1.5%/month. In the event that LICENSEE or an Affiliate is required to make a refund of maintenance fees for Software and/or Collective Works previously paid by End Users and rescind the subject maintenance agreement, upon which LICENSEE had already paid LICENSOR a support fee hereunder, then such rescinded maintenance agreement shall be credited against current or future Software and/or Collective Work maintenance agreements for which LICENSOR is entitled to receive payment of a support fee hereunder. EX-10.37 9 CONSULTING SERVICES AGREEMENT Exhibit 10.37 CONSULTING SERVICES AGREEMENT THIS AGREEMENT is made by and between S-CUBED INTERNATIONAL CORPORATION ("S-Cubed"), P.O. Box 8163, Stamford, Connecticut 06905 and COMPUTRON SOFTWARE, INC. ("Computron"), 301 Route 17 North, Rutherford, New Jersey 07070. WITNESSETH: WHEREAS, Computron licenses computer software products ("Product") to third party users ("End Users"); and WHEREAS, Computron, in connection with each licensing agreement, often contracts to provide the End User with professional services ("Client Services") including, without limitation, consulting, installation, implementation, data entry and conversion services, related to the Product to address the needs and requirements expressed by the End User; and WHEREAS, Computron from time to time acquires from third parties programming and related services ("Programming Services"; Client Services and Programming Services hereinafter sometimes collectively referred to as "Services"); and WHEREAS, S-Cubed is in the business of providing Services; and WHEREAS, Computron desires to have S-Cubed provide (a) Client Services to Computron's End Users under the direction of Computron's personnel ("Client Manager") and (b) Programming Services to Computron; and WHEREAS, S-Cubed desires to provide Services to Computron as required by Computron from time to time, in accordance with the terms and conditions set forth hereinafter. NOW, THEREFORE, Computron and S-Cubed hereto, intending to be legally bound, hereby agree as follows: 1. AUTHORIZATION 1.1 From time to time during the term of this Agreement, the specific Services to be performed by S-Cubed shall be designated in a separate writing ("Work Order") signed by Computron and S-Cubed authorized representatives (for purposes of this Agreement, Computron's authorized representatives with respect to (a) Client Services shall only be Computron's national director of professional services, and (b) Programming Services shall only be either Computron's Senior Vice President of Research & Development or Director, Product Management, and, in either case, his/her supervisor(s), and any other Computron employee so designated in writing by one of the foregoing). A suggested form of Work Order for Client Services is attached to this Agreement as EXHIBIT A and a suggested form of Work Order for Programming Services is attached to this Agreement as EXHIBIT B. Each Work Order shall be governed by this Agreement. However, in the event of any conflict between this Agreement and a Work Order, the provisions of the Work Order shall prevail. 1 1.2 Except as evidenced by actual Work Orders executed, in their sole discretion, by both parties hereunder, (a) Computron does not, by entering into this Agreement, guarantee to S-Cubed any minimum amount of Services to be referred to S-Cubed under this Agreement; and (b) S-Cubed does not guarantee to Computron the availability of S-Cubed to perform any particular Services under this Agreement. 2. COMPUTRON'S OBLIGATIONS Subject to the terms and conditions of this Agreement, Computron shall, during the term of this Agreement: 2.1 Provide to S-Cubed's employees training sessions relating to Product owned by Computron ("Computron Product") in order to familiarize said employees with the Computron Product and enable such employees to earn appropriate Computron certification with respect to specific Computron Product modules. The fee for any such training and certification shall be charged by Computron to S-Cubed at Computron's then current price list rates. S-Cubed shall bear the cost of transportation, living accommodations and meals for its employees. Training sessions shall be held at Computron's facilities, or other location designated by Computron, in accordance with Computron's normal published schedules. 2.2 Grant, pursuant to the terms and conditions set forth herein, to S-Cubed, without charge, and S-Cubed accepts, a non-exclusive, non-transferable, royalty free license to use the Computron Product, and related documentation, solely as follows: 2.2.1 One (1) copy of the Computron Product may be installed at the S-Cubed location set forth above. S-Cubed shall make no copies of the Computron Product except for one (1) backup copy. Employees or permitted subcontractors of S-Cubed performing Services hereunder may access and use the Computron Product from any remote location. The parties may also agree in writing to have the Computron Product installed at additional S-Cubed or subcontractor locations. 2.2.2 S-Cubed shall have the limited right to use the Computron Product only as necessary to perform the Services under this Agreement. No other rights with respect to the Computron Product are granted to S-Cubed. Without limiting the generality of the foregoing, S-Cubed shall not (a) use the Computron Product to process its own business data, nor (b) give the Computron Product to, nor install the Computron Product with, any third parties, including, without limitation, prospective customers or licensees for testing or evaluation purposes. 2.2.3 Computron shall, during the term of this Agreement, maintain and support the Computron Product installed at the S-Cubed location in good operating condition and at a performance level in accordance with the current published documentation. 2 3. S-CUBED'S OBLIGATIONS Subject to the terms and conditions of this Agreement, S-Cubed shall, during the term of this Agreement: 3.1 At all times maintain such number of qualified employees as the parties shall agree, from time to time during the term of this Agreement, are sufficient to enable S-Cubed to adequately provide the Services under then outstanding Work Orders. 3.2 Render the Client Services referenced in any applicable Work Order hereunder to Computron's End User in cooperation with Computron and Computron's designated Client Manager and in accordance with this Agreement and Computron's standard rules of engagement, as provided to S-Cubed from time to time. Unless otherwise agreed to by Computron's Client Manager, S-Cubed shall only use qualified employees, appropriately certified by Computron with respect to the applicable Product modules as provided under Paragraph 2.1 above (appropriate qualifications and certification to be determined by Computron's Client Manager), to provide Client Services hereunder to End Users. 3.3 Accurately complete, in a prompt and timely manner, all records reasonably required by Computron in the performance of the Client Services for End Users, which records shall be (a) retained by S-Cubed for a period of at least two (2) years following completion of the applicable Client Services, and (b) subject to inspection by Computron and/or the End User at any time during that period, upon reasonable prior notice to S-Cubed. 3.4 Together with its employees, agents and representatives, perform the Client Services in a courteous, professional and skilled manner, follow the directives of Computron's Client Manager and timely report to Computron's Client Manager all concerns communicated by the End User. S-Cubed shall not directly respond to any non-routine communications received from the End User unless and until S-Cubed has so informed Computron of such communication and Computron's authorized representative directs S-Cubed to so respond. 3.5 Unless otherwise agreed to in writing by an authorized representative of Computron, not provide Client Services with respect to Computron Product to any End User, except (a) as a subcontractor of Computron under a Work Order in accordance with Paragraph 1.1 above; or, but only with the prior written consent of an authorized representative of Computron, (b) under direct contract with an End User which S-Cubed knows has separately contracted with Computron for Computron to provide project management in connection with the Client Services to be provided by S-Cubed, in which case S-Cubed shall follow the directives of Computron's Client Manager in performing said Client Services. 3.6 Together with its employees, agents and representatives, at all times promote the good will of Computron, Computron's personnel and the Computron Product. 4 4. OWNERSHIP OF WORK PRODUCT OF PROGRAMMING SERVICES 4.1 Computron and S-Cubed agree that, unless otherwise expressly specified in the applicable Work Order, all work product created by S-Cubed pursuant to the Programming Services under this Agreement (collectively, the "Work Product") shall belong exclusively to Computron, whether or not Computron uses such material, and S-Cubed hereby irrevocably assigns and shall cause its employees, agents and subcontractors to irrevocably assign, all rights of every kind in the Work Product to Computron, including, without limitation, all copyrights. No rights in or to the Work Product are reserved to S-Cubed or its employees, agents or subcontractors. Computron shall have the right to use, in any media, and by any means and methods, now or hereafter known, all of the Work Product, any part or parts thereof, or none of the Work Product, as Computron sees fit, and Computron may alter the Work Product, add to it, or combine the Work Product with any other work or works, in Computron's sole discretion. 4.2 S-Cubed hereby warrants and represents to Computron that the Work Product will not be copied, without permission, from the work of any third party, that Computron will own, pursuant to this Agreement, all necessary proprietary rights (including, without limitation, patent, trademark, trade secrets and copyright rights) in the Work Product, and that the Work Product will not infringe upon the proprietary rights of third parties. S-Cubed hereby agrees to execute and deliver, and to cause its employees and subcontractors to execute and deliver, all further instruments and documents as Computron shall deem necessary or advisable to evidence, establish, maintain or defend Computron's rights in or to the Work Product (for example, any forms required by the Copyright Office). 5. INDEMNITIES 5.1 Computron shall defend, indemnify and hold harmless S-Cubed from and against any claims by an End User relating to (a) the Computron Product's failure to perform in accordance with Computron's End User documentation, other than as a result of changes or modifications made to the Computron Product, or Client Services provided to the End User, by anyone other than Computron personnel; or (b) a breach by Computron of the Product license agreement with the End User, which breach is not attributable to the negligence or performance of S-Cubed's personnel. 5.2 S-Cubed shall defend, indemnify and hold harmless Computron from and against any claims relating to the negligence or willful misconduct of S-Cubed or any breach by S-Cubed of this Agreement, including, without limitation, (a) the Services provided by S-Cubed, its agents, or its employees; and/or (2) any statements, actions, or services of S-Cubed not expressly authorized by this Agreement. S-Cubed shall defend, indemnify and hold harmless Computron from and against any claims relating to any claim of patent, copyright, trade secret or other intellectual property right infringement made by third parties with respect to the Work Product of the Programming Services, as the same is provided to Computron by S-Cubed. Without limiting the generality of the foregoing, S-Cubed, its principals, employees and subcontractors shall fully cooperate in any defense by Computron of any such infringement claims. 5 5.3 Without limiting the generality of Paragraph 5.2 above, S-Cubed shall reimburse Computron for the costs and expenses incurred in connection with Computron's remedying of Product performance issues raised by the End User which are reasonably determined by Computron to be attributable to the Client Services provided by S-Cubed rather than to attributes of the Product itself. 5.4 The indemnities provided for in Paragraphs 5.1 and 5.2 above are conditioned upon (a) prompt written notice of an applicable claim to the indemnifying party by the indemnified party; (b) sole control of the defense and/or settlement of the claim, demand, or action by the indemnifying party; and (c) the indemnified party's cooperation in the defense of the claim, demand, or action. Further, the indemnification shall include reimbursement for reasonable attorney fees and costs associated with the defense of a claim. 5.5 The provisions of this Article 5 shall survive the termination of this Agreement. 6. CONFIDENTIALITY 6.1 Each party agrees to keep confidential all non-public technical, product, business, financial and other information of the other party ("Confidential Information"), and to use the Confidential Information solely for the purpose of carrying out its obligations under this Agreement. For purposes of this Agreement, the Product (other than Product owned by S-Cubed), the Work Product of the Programming Services, and related documentation, shall be deemed to be Confidential Information of Computron. 6.2 The provisions of this Article 6 shall survive the termination of this Agreement. 7. PRICE AND PAYMENT 7.1 Services provided hereunder by S-Cubed shall be paid for by Computron at the pricing set forth in the rate schedule included in the applicable Work Order. 7.2 S-Cubed will submit documented invoices for charges and reimbursable expenses hereunder on a semi-monthly basis (unless otherwise provided in the Work Order), and Computron will pay each invoice within thirty (30) days following the receipt by Computron of (a) the invoice (and any associated deliverable), with respect to Programming Services, or (b) payment from the End User for the applicable Client Services provided by S-Cubed. Any payment hereunder may be withheld by Computron for so long as S-Cubed is delinquent in submitting to Computron any documentation required by Computron in order to receive payment from any End User. 7.3 If, as a result of End User dissatisfaction with the Client Services provided by S-Cubed under this Agreement, Computron, in the exercise of its reasonable business judgment, reduces, or issues a credit for all or any portion of, the fee paid or to be paid by the End User to Computron for said Client Services, then Computron shall be entitled to make a pro-rata reduction in, or receive from S-Cubed a pro-rata credit for, the fees paid or to be paid by Computron to S-Cubed, under the applicable Work Order, for said Client 6 Services; and Computron shall be entitled to offset any such pro-rata reduction or credit against future amounts payable to S-Cubed under this Agreement or otherwise. 7.4 When so provided in the applicable Work Order, S-Cubed will be reimbursed for all necessary and reasonable travel, lodging and other authorized out-of-pocket expenses incurred in the performance of the Services, in accordance with Computron's policies for the reimbursement of such expenses for its own employees. 8. TERM AND TERMINATION 8.1 This Agreement shall become effective on the date it has been executed by the last party to sign this Agreement and shall continue until terminated as provided below. 8.2 Either party may terminate this Agreement at any time, without cause, upon at least thirty (30) days prior written notice to the other party, in which case, unless otherwise agreed to in writing by the parties, the parties shall wind up all joint activities with respect to Services being performed by S-Cubed under existing Work Orders within ninety (90) days of such termination. 8.3 Either party may terminate this Agreement at any time, for cause, upon written notice to the other party, which termination shall be immediately effective unless provided otherwise in such written notice, in the event that such other party breaches a material obligation under this Agreement. In the event of such a termination for cause, the aggrieved party terminating this Agreement shall have the right to determine whether or not S-Cubed shall continue providing Services under any Work Order then outstanding, which determination shall promptly be communicated to the other party in writing. 8.4 The provisions of this Agreement shall continue to apply to any Services performed after the termination of this Agreement pursuant to Paragraph 8.2 or 8.3 above. 8.5 Upon any termination of this Agreement, unless a temporary extension is otherwise agreed to in writing by Computron to permit S-Cubed to perform "wind-down" Client Services after said termination, the license granted under Paragraph 2.2 above shall terminate and S-Cubed shall deliver to Computron all copies of the Computron Product and any and all documentation relating thereto and certify in writing to Computron that the aforementioned has occurred. 8.6 For a period of one (1) year following termination of this Agreement by (1) S-Cubed under Paragraph 8.2 above; or (2) Computron under Paragraph 8.3 above, S-Cubed shall not, without the prior written consent of Computron's authorized representative (which consent may be conditioned upon, among other things, payment to Computron by S-Cubed of a mutually agreed to commission on the fees to be paid to the S-Cubed by the End User), provide Client Services with respect to the Computron Product to any End User for which S-Cubed provided Client Services under this Agreement. 9. LIMITATION OF LIABILITIES 7 9.1 Unless otherwise expressly provided in this Agreement, each party shall bear its own costs and expenses relating to activities under this Agreement. 9.2 Except in connection with Article 5, or breaches of Article 6, in no event shall either party have a right to recover from the other party any indirect, special, incidental, or consequential damages, including lost profits. 10. STATUS OF THE PARTIES The parties to this Agreement are independent contractors, and neither party is authorized to act on behalf of the other or to bind the other to any third party. This Agreement does not establish any relationship of partnership or joint venture. S-Cubed is not considered a dealer or distributor of the Product by virtue of this Agreement. Each party shall bear responsibility for its own employees, including terms of employment, wages, hours and required insurance. S-Cubed and its employees, agents and legal representatives are not authorized to make any statements concerning the Product, except statements that are contained in the End User documentation or in other written literature furnished to S-Cubed for the express purpose of public disclosure or dissemination. 11. NON-RESTRICTION Nothing in this Agreement shall prevent either party, or its agents, representatives, or assigns, from entering into a similar agreement with any other party. This Agreement shall not be construed to restrict either party from engaging in any activities with respect to competitive software products or services. 12. NON-SOLICITATION OF EMPLOYEES Each party agrees not to, without the prior written consent of the other party, knowingly solicit for employment, hire or utilize the services of any employee, agent, representative or consultant of the other party, or assist any third party in so doing, for a period ending one year after termination of this Agreement. In the event of a breach of this paragraph, the breaching party shall pay to the other party a sum equal to one hundred fifty percent (150%) of the annual compensation agreed to be paid by the breaching party to such person. This remedy is in addition to any other remedies available at law or in equity. 13. GENERAL TERMS 13.1 This Agreement will be governed by the laws of the State of New York, without regard to its conflict-of-laws rules. 13.2 This Agreement sets forth the entire understanding, and hereby supersedes any and all prior agreements, oral or written, heretofore made, between the parties with respect to the subject matter of this Agreement, and there are no representations, warranties, covenants, agreements or understandings, oral or otherwise, express or implied, affecting this Agreement not expressly set forth herein. No delay on the part of either party in exercising any of its respective rights hereunder or the failure to exercise the 8 same, nor the acquiescence in or waiver of a breach of any term, provision or condition of this Agreement shall be deemed or construed to operate as a waiver of such rights or acquiescence thereto, except in the specific instance for which given. None of the terms, conditions or provisions of this Agreement shall have been held to have been changed, varied, waived, modified or altered, except by a statement in writing signed by duly authorized representatives of both parties. 13.3 Neither this Agreement, nor any of the rights or interests of either party hereunder, may be assigned, transferred or conveyed by that party, by operation of law or otherwise, other than to an affiliate of that party or to a successor to all, or substantially all, of the properties, business or capital stock of that party, except upon the express prior written consent of the other party. Notwithstanding the foregoing, S-Cubed may subcontract its responsibilities under any Work Order herein to Software Brewers Inc. ("SBI"); provided that S-Cubed remains fully responsible and liable to Computron for the proper performance of the obligations so subcontracted and for full compliance with the terms and conditions of this Agreement by SBI. 13.4 This Agreement may be executed simultaneously in two counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. Facsimile signatures are as legally effective as original signatures. 13.5 All notices (other than routine business communications) will be in writing and will be sent by reputable "overnight" courier to the addresses on the first page of this Agreement (until such time as one party provides change of address to the other party). Notices to S-Cubed shall be to the attention of J. Scott Rade, Vice President; notices to Computron shall be to the attention of its General Counsel. Notice shall be deemed given when sent in accordance with the foregoing. 13.6 The invalidity or unenforceability of any term or condition of this Agreement shall in no way affect the remaining terms or conditions. As used in this Agreement, the singular of any term includes the plural and the plural includes the singular, whenever the context so requires. The paragraph headings in this Agreement are inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement. 13.7 Neither party shall be liable for delay or failure in the performance of its obligations under this Agreement arising from any one or more events which are beyond its reasonable control. Upon such delay or failure affecting one party, that party shall notify the other party and use all reasonable endeavors to cure or alleviate the cause of such delay or failure with a view to resuming performance of its contractual obligations as soon as practicable. IN WITNESS WHEREOF, the parties have executed this Agreement as set forth below. S-CUBED INTERNATIONAL CORPORATION COMPUTRON SOFTWARE, INC. By: By: --------------------------------- --------------------------------- J. Scott Rade Michael R. Jorgensen Vice President Executive Vice President and Chief Financial Officer Date: Date: -------------------------------- -------------------------------- 9 EXHIBIT A COMPUTRON SOFTWARE, INC. CLIENT SERVICES WORK ORDER This definition of professional services to be provided is made pursuant to the Consulting Services Agreement dated ____________ between Computron Software, Inc. (Computron) and S-Cubed International Corporation (S-Cubed). In consideration for professional services to be performed for: _______________________________________________________________, located at _______________________________________________________________________________, (End User) this Work Order is created and executed. A. SCOPE OF SERVICES B. EXPECTED DELIVERABLES TO END USER C. TIME TABLE D. PAYMENT TERMS AND CONDITIONS E. CONSULTING FEES SCHEDULE AND REIMBURSABLE EXPENSES F. EMPLOYEE NAME(S) FOR THIS WORK ORDER: THIS WORK ORDER APPROVED BY: S-CUBED INTERNATIONAL COMPUTRON SOFTWARE, INC. CORPORATION Signature:_______________________ Signature:_______________________ Name:____________________________ Name:____________________________ Title:___________________________ Title:___________________________ Date:____________________________ Date:____________________________ 10 EXHIBIT B COMPUTRON SOFTWARE, INC. PROGRAMMING SERVICES WORK ORDER This definition of professional services to be provided is made pursuant to the Consulting Services Agreement dated ____________ between Computron Software, Inc. (Computron) and S-Cubed International Corporation (S-Cubed). A. SCOPE OF SERVICES B. EXPECTED DELIVERABLES C. TIME TABLE D. PAYMENT TERMS AND CONDITIONS E. FEES AND REIMBURSABLE EXPENSES F. EMPLOYEE NAME(S) FOR THIS WORK ORDER G. LOCATION OF SERVICES THIS WORK ORDER APPROVED BY: S-CUBED INTERNATIONAL COMPUTRON SOFTWARE, INC. CORPORATION Signature:_______________________ Signature:_______________________ Name:____________________________ Name:____________________________ Title:___________________________ Title:___________________________ Date:____________________________ Date:____________________________ 12 EX-10.38 10 VALUE ADDED RESELLER AGREEMENT Exhibit 10.38 VALUE ADDED RESELLER AGREEMENT THIS AGREEMENT is made by and between S-CUBED INTERNATIONAL CORPORATION ("LICENSOR"), P.O. Box 8163, Stamford, Connecticut 06905 and COMPUTRON SOFTWARE, INC. ("VAR"), 301 Route 17 North, Rutherford, New Jersey 07070. W I T N E S S E T H: WHEREAS, VAR develops and licenses financial, workflow and data archival software ("Computron Software"); and WHEREAS, LICENSOR has developed and licenses certain report mining software (the "Software"), as more fully described in EXHIBIT A attached hereto and made a part hereof; and WHEREAS, the parties wish to provide for VAR's distribution and licensing of the Software, upon the terms and conditions set forth below. NOW, THEREFORE, in consideration of the mutual promises set forth below and for other good and valuable consideration, the parties agree as follows: I. LICENSE 1.1 LICENSOR hereby grants to VAR a non-transferable and non-exclusive (except to the extent otherwise provided in Paragraph 1.3 below) worldwide license for the reproduction, distribution, sublicense and demonstration of the Software, in object code form, either together with the Computron Software, or, in the case of iMergence, as a stand-alone product. VAR may, in its sole discretion, distribute, sublicense and demonstrate the Software to end users either directly or through its affiliates and/or authorized resellers. 1.2 LICENSOR hereby grants to VAR a non-transferable and non-exclusive worldwide license for VAR's own internal use, including without limitation, in connection with the development and testing of the Computron Software, of the Software, in object code form. 1.3 Concurrently with VAR's execution of this Agreement, VAR will give LICENSOR a written list of the existing end user licensees of the Computron Software on a global basis. LICENSOR agrees that neither LICENSOR, nor any other distributor or reseller of the Software appointed by LICENSOR, will license or attempt to license the Software to any end user on such list before December 31, 1999, and LICENSOR will ensure that any distributor, reseller or similar agreement entered into by LICENSOR with respect to the Software will contain provisions giving effect to this sentence. In addition, if, during the term of this Agreement, VAR gives LICENSOR written notice that VAR is attempting to license the Software to a potential customer therefor identified in such notice, then LICENSOR agrees that LICENSOR will not license or attempt to license the Software to such identified customer for a period of six (6) months following the date of VAR's notice unless LICENSOR, within five (5) days following the date of VAR's notice, provides VAR with evidence that said customer has already been in direct contact with LICENSOR 1 regarding the potential licensing of the Software by that customer. For purposes of this paragraph, LICENSOR shall include Software Brewers Inc. II. DISTRIBUTION AND SOURCE CODE 2.1 Upon execution of this Agreement, LICENSOR shall provide VAR with one (1) master copy of the object code of each of the Software, and of the user and administration documentation for each of the Software, which VAR shall use to make copies, at VAR's sole expense, for distribution and sublicensing to VAR's and its affiliates' customers. With respect to the documentation for the Software, VAR is permitted to change the name of the Software in such documentation and to accurately translate such documentation into languages other than English; any other change to the documentation will require LICENSOR's prior consent. 2.4 VAR acknowledges that VAR is receiving only the foregoing LIMITED LICENSE to the Software's object code and related documentation and that VAR shall obtain no title, ownership nor any other rights in or to the Software and related documentation, all of which title, ownership and rights shall remain with LICENSOR or LICENSOR's licensors. VAR acknowledges and agrees that the Software and the related documentation is a valuable, confidential and proprietary asset of LICENSOR or LICENSOR's licensors, and that VAR and VAR's employees and agents are required to protect the confidentiality of the Software. Without limiting the generality of the foregoing, VAR shall maintain all copies of the Software in a manner so that the Software files are not publicly readable and so that only those employees of VAR that need access to the Software shall be able to access it. 2.5 VAR and its affiliates shall only sub-license the Software pursuant to VAR's standard written license agreement signed by the end user. VAR and its affiliates will use their best efforts to cause their resellers to license the Software pursuant to a written license agreement, signed by the end user, that contains, at a minimum, the provisions set forth in EXHIBIT B attached hereto and made a part hereof. The parties agree that LICENSOR and LICENSOR's licensors shall be deemed to be third party beneficiaries of, but shall incur no liability under, such end user license agreements. VAR shall, in its sole and absolute discretion, determine, from time to time, VAR's own license fees for the Software. Nothing herein shall be deemed to limit VAR's freedom, in its sole and absolute discretion, to modify, replace or discontinue the Computron Software, or to license Computron Software without the Software. Nothing herein shall be deemed to require VAR to license any minimum quantities of the Software hereunder, and VAR shall not be obligated to pay to LICENSOR any fees other than the fees provided for herein with respect to copies of the Software actually sublicensed and distributed by VAR hereunder. 2.6 For each end user to which VAR or its affiliates sublicenses the Software hereunder, VAR will provide LICENSOR with the following information: (a) the name and address of the end user, (b) the number of servers licensed for the Software, (c) the name and phone number of the end user employee responsible for administering the license, and (d) the effective date of the license/maintenance contract. This information will be reported by VAR to LICENSOR together with the quarterly payments provided for in EXHIBIT C attached hereto and made a part hereof. 2 2.7 LICENSOR shall not distribute any materials containing VAR proprietary information, except as VAR may approve in advance in writing. LICENSOR shall protect the confidentiality of confidential or proprietary information of VAR with which LICENSOR comes into contact, using the same standard of care that LICENSOR uses to protect its own confidential information of a similar nature, but in no event less than a reasonable standard of care. Without limiting the generality of the foregoing, LICENSOR agrees that, for a period of twenty-four (24) months following the effective date of this Agreement, LICENSOR will not develop a Computer Output to Laser Disk (COLD) product competitive with Computron COOL software. During the remainder of the term of this Agreement following expiration of said twenty-four (24) month period, LICENSOR will give VAR prompt written notice of any decision by LICENSOR to develop, market and/or distribute a COLD product competitive with Computron COOL software. 2.8 VAR agrees that it shall not use the Software to develop its own business intelligence products competitive with the Software nor to promote VAR's relationships with competitors of LICENSOR. 2.9 (a) If, at any time during the term of this Agreement, or subsequent period during which VAR is continuing to purchase support pursuant to Paragraph 8.5 below, LICENSOR or its successor or assign shall at any time cease to actively be in the software business on a daily basis in the United States or shall at any time fail to provide to VAR, in a timely manner, any support services provided for in Paragraph 6.3 below, or if any of the events specified in Paragraph 8.3(b) below shall occur with respect to LICENSOR or its successor or assign, then, in addition to any other rights or remedies which VAR may have as a result thereof under this Agreement or otherwise, VAR shall have the right to obtain, and, upon VAR's written request therefor, LICENSOR or its successor or assign shall, within fifteen (15) days, deliver to VAR, a single copy of the then current version of the source code for the Software, together with a single copy of the documentation (including, without limitation, all technical notes, manuals, internal comments and annotations) associated therewith, which VAR agrees to hold in confidence and to use only in connection with the support and maintenance of the Software sublicensed to end users hereunder. (b) In order to protect the rights granted to VAR in Paragraph 2.9(a), LICENSOR agrees, promptly upon execution of this Agreement, to place the then current version of the material specified in said Paragraph 2.9(a), and any and all subsequent modifications thereto, into escrow with a reputable software escrow agent, reasonably acceptable to both parties. The escrow agreement shall provide for the release of the escrowed material upon LICENSOR's failure to directly provide such materials to VAR pursuant to Paragraph 2.9(a) above. The parties shall split equally the fees of the escrow agent. III. LICENSE FEES 3.1 In consideration for the licenses to the Software granted hereunder, VAR agrees to pay LICENSOR the license fees set forth in EXHIBIT C, in US dollars. All license and support fees hereunder are exclusive of any applicable sales, use, property and other taxes and import or other duties, however designated or levied, which taxes and duties VAR shall pay separately to LICENSOR, unless VAR provides satisfactory evidence of tax exemption to LICENSOR. LICENSOR represents to VAR that the license fees payable by VAR under this Agreement are, and 3 shall be, the most favorable license fees offered by LICENSOR to its other resellers of the Software. If, during the term of this Agreement, LICENSOR shall offer to license, or license, the Software to any other reseller on more favorable terms than that being offered to VAR hereunder, then LICENSOR shall make such more favorable terms available to VAR; provided that VAR agrees to the same special commitments, if any, which were agreed to by the other reseller in order to obtain such more favorable terms from LICENSOR. 3.2 The prices set forth in EXHIBIT C are based on discounts (35% in Column A and 50% in Column B of said Exhibit) off of LICENSOR's current published price list license fees for the Software. LICENSOR agrees that such discounts will not be reduced during the term of this Agreement without the written consent of VAR. However, in each January during the term of this Agreement, LICENSOR may revise its published price list license fees upon which said discounts are applied by giving VAR at least thirty (30) days prior written notice of such revisions (during such notice period the existing prices will remain in effect). However, such price change shall not take effect for an additional ninety (90) days following the otherwise effective date thereof only with respect to potential end users of the Software specifically identified in a written notice from VAR to LICENSOR (to be given by VAR no later than thirty (30) days following VAR's receipt of LICENSOR's price change notice) as being a potential end user for the Software to whom VAR made, on or before the date of VAR's notice, a definitive proposal to license the Software, which proposal was still being considered by the potential end user. IV. LABELS AND INSIGNIA; PROPRIETARY RIGHTS 4. The trademarks "iMergence" and "iMiner" are the exclusive property of LICENSOR. VAR is hereby granted the right, but is not required, to use such LICENSOR trademarks when marketing the Software and the Computron Software, provided that VAR includes due acknowledgment that such trademarks are owned by LICENSOR. VAR is free to use other names of its own choosing for the Software products, including, without limitation, "COOL iMergence" and "COOL iMiner". Except as expressly provided above, neither party shall acquire any proprietary or other rights with respect to any trademarks, trade names, or other identifying symbols, insignia or designs of the other party pursuant to this Agreement. V. WARRANTY; DISCLAIMER OF LIABILITY 5.1 LICENSOR warrants to the benefit of VAR, its affiliates and resellers and their end users that, for a period of six (6) months from the date the Software is delivered to VAR under Paragraphs 2.1 above or 6.3 below, the Software will perform substantially in accordance with LICENSOR's documentation for the Software. In the event that the Software fails to so perform, LICENSOR's sole and exclusive obligation shall be to remedy such non-conforming performance as expeditiously as possible. LICENSOR does not warrant that the operation of the Software will be uninterrupted or error free. 5.2 LICENSOR represents and warrants that; (i) the use of the Software as contemplated hereby by VAR, its affiliates and resellers and their end users will not infringe any patent, copyright, trade secret or other proprietary right of any third party; (ii) LICENSOR is not currently bound by any other agreements, restrictions or obligations, nor will LICENSOR 4 assume any such obligations, which do, or in any way would, interfere or be inconsistent with this Agreement; and (iii) it has the corporate authority to enter into and fulfill this Agreement. 5.3 LICENSOR represents and warrants that the Software shall be able to accurately process date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year calculations to the extent that other information technology, used in combination with the Software, properly exchanges date/time data with it. In the event that the Software fails to so perform, LICENSOR's sole and exclusive obligation shall be to remedy such non-conforming performance as expeditiously as possible. 5.4 EXCEPT FOR THE WARRANTIES SPECIFICALLY SET FORTH IN PARAGRAPHS 5.1 THROUGH 5.3 ABOVE, LICENSOR MAKES NO WARRANTIES OR REPRESENTATIONS OF ANY NATURE WHATEVER, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXCLUDED AND DISCLAIMED BY LICENSOR. 5.5 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR OTHER DAMAGES OR LOSS OF REVENUES, LOSS OF INCOME, LOSS OF PROFITS OR OTHER FINANCIAL REMEDIES. VI. MAINTENANCE AND SUPPORT 6.1 LICENSOR will supply to VAR's employees, at VAR's Rutherford facility, detailed training (the scope and duration of which shall be mutually agreed to by the parties) on the operation, installation and support of the Software as part of the start up of the transactions contemplated by this Agreement. LICENSOR shall not charge VAR an additional charge for this initial training. 6.2 The parties agree that VAR shall be solely responsible, at VAR's sole cost and expense, for providing to its end users of the Software all maintenance and technical support with respect thereto. LICENSOR shall refer all requests for assistance it receives from VAR's resellers or end users to VAR. As part of its support activities under this paragraph, VAR will log all calls and reported issues, use its best efforts to determine that the reported issues do not relate to the Computron Software, and assign a severity level to each issue VAR cannot resolve on its own. 6.3 In exchange for VAR's payment to LICENSOR of the annual support fees provided for in Paragraph 6.4 below, LICENSOR shall provide to VAR and its affiliates, but not their resellers or end users, the following support with respect to the Software as originally provided to VAR by LICENSOR, during the term of this Agreement: (a) Appropriate support (e.g., telephone, fax, e-mail or other, as agreed to by the parties) to address functional problem resolution with respect to the Software, in 5 accordance with VAR support policies and based on the severity level assigned to an issue by VAR under Paragraph 6.2 above; (b) "Bug-fixes" - LICENSOR shall remedy or repair, as soon as reasonably practicable, any failure of the Software to substantially conform to LICENSOR's then current published user documentation for the Software; provided, however, that VAR gives LICENSOR written notice of such alleged failure and LICENSOR is in good faith able to reproduce such failure; and (c) LICENSOR shall provide such enhancements and upgrades to the Software products as shall be mutually agreed to by the parties, including, without limitation, enhancements and upgrades necessary to keep the Software current with (a) newly issued versions of both server and client operating system software, (b) then current versions of development tools used to create the Software (e.g., Visual Basic), and (c) enhancements and upgrades that LICENSOR incorporates in the versions of the Software that LICENSOR distributes through its marketing channels independent of VAR. LICENSOR shall promptly deliver to VAR a master copy of the object code of each new version of the Software. (d) LICENSOR shall provide to VAR's employees, at VAR's Rutherford facility and at no charge to VAR, appropriate training on any enhancements and upgrades to the Software provided under Paragraph 6.3(c) above since the last such training session. 6.4 Whenever an end user purchases annual maintenance from VAR or its affiliate for the Software (either on an initial or a renewal basis), VAR will pay LICENSOR a support fee equal to 17% of the license fee payable by VAR to LICENSOR for the subject Software pursuant to Column A of EXHIBIT C (notwithstanding the fact that VAR may have actually paid the Column B price to LICENSOR), after applying the appropriate country multiplier provided for in EXHIBIT C, and as adjusted annually pursuant to Paragraph 3.2 above. VAR shall pay LICENSOR the support fees due hereunder on a quarterly basis, within thirty (30) days following the end of each calendar quarter, based on annual maintenance policies for the Software purchased by end users from VAR or its affiliates (either on an initial or a renewal basis) during the immediately preceding calendar quarter. Such payments will be accompanied by a report showing how such fees were calculated. Late payments will incur a late fee of 1.5%/month. In the event that VAR or an affiliate is required to make a refund of maintenance fees for the Software previously paid by end users and rescind the subject maintenance agreement, upon which VAR had already paid LICENSOR a support fee hereunder, then such rescinded maintenance agreement shall be credited against current or future the Software maintenance agreements for which LICENSOR is entitled to receive payment of a support fee hereunder. 6.5 If it is determined, after good faith discussions, that either party hereto (the "Fixing Party") resolved a support issue that was in fact the responsibility of the other party (the "Responsible Party") to resolve under this Article VI, then the Fixing Party may invoice the Responsible Party, on a time and materials basis at the Fixing Party's then current standard rates, for such resolution, and the Responsible Party shall pay such invoice within thirty (30) days after receipt thereof. 6 VII. INDEMNIFICATION 7.1 In the event of a claim against VAR, its resellers or affiliates or their end users (i) for infringement for any reason of any patent, copyright or trademark, trade secret or other proprietary right by the Software, as delivered by LICENSOR to VAR hereunder; or (ii) for LICENSOR's negligence or willful misconduct in connection with its performance under this Agreement, LICENSOR shall promptly, and at its expense and option, either, as applicable (1) secure for VAR, its resellers or affiliates or their end users the right to continue marketing and/or using the infringing matter, or (2) replace or modify the infringing matter as to make it non-infringing (provided there is no loss of features or functionality) with VAR to promptly provide the non-infringing replacement to its resellers, affiliates and end users, provided, however, that if commercially reasonable efforts to achieve the foregoing are unsuccessful, LICENSOR may instead elect to refund to VAR all amounts LICENSOR received from VAR for the Software under this Agreement. In addition, LICENSOR will defend, indemnify and hold VAR, its resellers or affiliates or their end users harmless from any and all claim, losses, liabilities, costs (including reasonable attorneys' fees), damages and expenses for such claims, provided VAR promptly informs LICENSOR of the claim, gives LICENSOR complete control of the defense of such claims and reasonably cooperates in its defense and settlement. 7.2 In the event of a claim against LICENSOR (i) for infringement of any patent, copyright, trademark, trade secret or other proprietary right by the Computron Software; or (ii) for VAR's negligence or willful misconduct in connection with its performance under this Agreement, VAR shall defend, indemnify and hold LICENSOR harmless from any and all claims, losses, liabilities, costs (including reasonable attorneys' fees), damages and expenses, provided: (1) VAR has control of the defense and/or settlement of, and shall defend or settle at its own expense, any claim or litigation to which this indemnity relates; and (2) LICENSOR shall notify VAR promptly of any such claim or litigation, and shall cooperate with VAR in every reasonable way to facilitate the defense of such claim or litigation. 7.3 This Article VII states the entire obligations of the parties with respect to claims of infringement or violation of any intellectual property rights of any third party. VIII. TERM; TERMINATION 8.1 This Agreement shall commence upon the date of its execution by the last party to sign this Agreement and shall remain in full force and effect until terminated by either party as provided for below. 8.2 After the second (2nd) year anniversary of the effective date of this Agreement, VAR may terminate this Agreement at any time, without cause, upon at least ninety (90) days prior written notice to LICENSOR. After the fifth (5th) year anniversary of the effective date of this Agreement, LICENSOR may terminate this Agreement at any time, without cause, upon at least ninety (90) days prior written notice to VAR; provided, however, that such termination shall not take effect until one hundred eighty (180) days following LICENSOR's notice only with respect to potential end users of the Software specifically identified in a written notice from VAR to LICENSOR (to be given by VAR within thirty (30) days following VAR's receipt of 7 LICENSOR's termination notice) as being a potential end user for the Software to whom VAR made, on or before the date of VAR's notice, a definitive proposal to license the Software, which proposal was still being considered by the potential end user.. 8.3 Either party may terminate this Agreement, effective upon thirty (30) days prior written notice, if (a) the other party materially breaches any provision of this Agreement (including, without limitation, LICENSOR's breach of its obligations under Paragraph 6.3 above), but such termination shall not take effect if such party cures such breach prior to the expiration of the notice period, or (b) the other party enters into liquidation, whether voluntarily or compulsory, or has a receiver appointed, or commits an act of bankruptcy, or becomes insolvent, or enters into any arrangement with its creditors, or takes or suffers any similar action in consequence of debt, or ceases, or threatens to cease, to carry on its business. 8.4 Upon any termination of this Agreement, VAR shall (a) immediately pay to LICENSOR all fees owed to LICENSOR hereunder by virtue of VAR's activities hereunder prior to such termination, (b) cease thereafter to demonstrate, market, furnish and sublicense the Software, and (c) use copies of the Software, and any related materials supplied to VAR by LICENSOR, then in its possession, which VAR shall maintain in the strictest of confidence, only to (i) process the internal business data of VAR and its affiliates, and (ii) support copies of the Software licensed to end users prior to such termination. Termination of this Agreement shall not affect any VAR sub-licenses of the Software to others made prior to the effective date of such termination if all license fees with respect thereto have been paid by VAR to LICENSOR and such sublicenses comply with the terms and conditions of this Agreement. 8.5 In order to permit VAR, after any termination of this Agreement, to continue to support copies of the Software licensed to end users prior thereto, as permitted under Paragraph 8.4(c)(ii) above, the parties agree that VAR may, if it so chooses, continue to make the support fee payments provided for in Paragraph 6.4 above, whereupon LICENSOR shall continue to provide the Software support provided for in said Paragraph 6.3, even after this Agreement is terminated, for so long as LICENSOR (or Software Brewers Inc.) continues to provide such Software support to its other customers. 8.6 Neither party shall, by reason of the termination of this Agreement in accordance with the terms hereof, be liable to the other for compensation, reimbursement or for any damages on account of the loss of profits or prospective profits on anticipated business, or on commitments in connection with the business or goodwill of either party or otherwise or for direct, special, incidental, indirect or consequential damages. 8.7 The expiration or termination of this Agreement shall not release either party from any liability, obligation or agreement which, pursuant to any provision of this Agreement, is to survive or be performed after any such expiration or termination. IX. GENERAL 9.1 Each party agrees not to, without the prior written consent of the other party, knowingly solicit for employment, hire or utilize the services of any employee, agent, representative or 8 consultant of the other party, or assist any third party in so doing, for a period ending one year after termination of this Agreement. In the event of a breach of this paragraph, the breaching party shall pay to the other party a sum equal to one hundred fifty percent (150%) of the annual compensation agreed to be paid by the breaching party to such person. This remedy is in addition to any other remedies available at law or in equity. 9.2 It is expressly understood and agreed that the parties are, and shall at all times during the term of this Agreement be deemed to be, independent contractors, and nothing in this Agreement shall in any way be deemed or construed to constitute either party as an agent or employee of the other, nor shall either party have the right or authority to act for, incur, assume or create any obligation, responsibility or liability, express or implied, in the name of, or on behalf of, the other party, or to bind the other party in any manner whatsoever. The employees of one party shall be deemed to be the agents, servants and employees of that party only, and the other party shall incur no obligations or liabilities of any kind, nature or sort, express or implied, by virtue of, or with respect to, the conduct of such employees. 9.3 (a) Neither this Agreement, nor any of the rights or interests of either party hereunder, may be assigned, transferred or conveyed by that party, by operation of law or otherwise, other than to an affiliate of that party or to a successor ("Successor") to all, or substantially all, of the properties, business or capital stock of that party, except upon the express prior written consent of the other party. Any Successor to LICENSOR will continue to be bound by the terms and conditions of this Agreement, including, without limitation, Paragraph 6.3 above. (b) LICENSOR may subcontract its Software development and/or maintenance and support obligations under this Agreement to Software Brewers Inc.; provided that (i) when and if Software Brewers Inc. establishes a U.S. presence, then the support referenced in Paragraph 6.3(a) above will be provided during normal business hours (U.S. Eastern Time), and (ii) LICENSOR remains fully responsible and liable to VAR for the proper performance of the obligations so subcontracted. 9.4 All notices (other than routine business communications) will be in writing and will be sent by reputable "overnight" courier to the addresses on the first page of this Agreement (until such time as one party provides change of address to the other party). Notices to LICENSOR shall be to the attention of J. Scott Rade, Vice President; notices to VAR shall be to the attention of its General Counsel. Notice shall be deemed given when sent in accordance with the foregoing. 9.5 Neither party shall be liable for delay or failure in the performance of its obligations under this Agreement arising from any one or more events which are beyond its reasonable control. Upon such delay or failure affecting one party, that party shall notify the other party and use all reasonable endeavors to cure or alleviate the cause of such delay or failure with a view to resuming performance of its contractual obligations as soon as practicable. 9.6 This Agreement will be governed by the laws of the State of New York, without regard to its conflict-of-laws rules. 9 9.7 The invalidity or unenforceability of any term or condition of this Agreement shall in no way affect the remaining terms or conditions. As used in this Agreement, the singular of any term includes the plural and the plural includes the singular, whenever the context so requires. The paragraph headings in this Agreement are inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement. 9.8 This Agreement sets forth the entire understanding, and hereby supersedes any and all prior agreements (excluding the OEM License and Software Assignment Agreements between the parties dated January 21, 1999), oral or written, heretofore made, between the parties with respect to the subject matter of this Agreement, and there are no representations, warranties, covenants, agreements or understandings, oral or otherwise, express or implied, affecting this Agreement not expressly set forth herein. No delay on the part of either party in exercising any of its respective rights hereunder or the failure to exercise the same, nor the acquiescence in or waiver of a breach of any term, provision or condition of this Agreement shall be deemed or construed to operate as a waiver of such rights or acquiescence thereto, except in the specific instance for which given. None of the terms, conditions or provisions of this Agreement shall have been held to have been changed, varied, waived, modified or altered, except by a statement in writing signed by duly authorized representatives of both parties. S-CUBED INTERNATIONAL CORPORATION COMPUTRON SOFTWARE, INC. By: By: --------------------------------- --------------------------------- J. Scott Rade Michael R. Jorgensen Vice President Executive Vice President and Chief Financial Officer Date: Date: -------------------------------- -------------------------------- 10 EXHIBIT A THE SOFTWARE iMERGENCE FUNCTIONAL FEATURES The product delivers all the user functionality provided for in iMiner (described below) with the additional functionality for specific modules: MODELER + EXTRACTOR - - Define pre-processing (to support data collection and access to real-time databases) DEVELOPER - - Join and merge reports (to support merging and combining data across applications) REPORT READER - - Search for data across multiple reports - Collage ("bind" several reports together) SEQUENCER - - Schedule merge operation SERVER - - Support brokering OTHERS - ODBC Driver, to allow 3rd-party applications to use iM reports SERVER PLATFORM INFORMATION - - Windows NT 4.0 and later - - RS 6000 AIX 4.0 and later - - HP-UX 10.0 and later - - Sun Solaris 2.6 and later. iMINER FUNCTIONAL FEATURES INTEGRATED DEVELOPMENT ENVIRONMENT (IDE) - - Work with all iMiner Development Components and Viewers from one integrated interface MODELER + EXTRACTOR - - Model print files - - Extract data from print files DEVELOPER/ANALYZER - - Analyze data - - Reprocess reports (i.e.: create custom variations, with new groupings, statistics, computed fields) - - Save reprocessing rules, to apply on other report runs REPORT READER - - View reports graphically - - Interact with reports: search for values, hide or summarize topics, modify layouts - - Support for Mail - - Subscription notification EXCEL VIEWER - - View reports as Excel Spreadsheets - - Interact with reports: search for values, hide or summarize topics - - Use all of Excel's functions to enhance and work with reports HTML VIEWER - - View reports as HTML Pages - - Interact with reports: search for values , hide or summarize topics - - Customize templates and specific HTML pages - - With built-in Internet Gate SEQUENCER - - Schedule standard operations - - Append like reports - - Save reports as text files, that can be imported back into COOL SERVER - - Basic multi-user management - - Own security with API for synch with other applications - - Recycle text file output back into COOL SERVER PLATFORM INFORMATION - - Windows NT 4.0 and later - RS 6000 AIX 4.0 and later - - HP-UX 10.0 and later - - Sun Solaris 2.6 and later. EXHIBIT B MANDATORY TERMS OF RESELLER SUB-LICENSES TO END USERS All Reseller sub-licenses with End Users shall include substantially the following provisions: 1. Only a non-exclusive, non-transferable, non-assignable right to use the Collective Work, in object code form only, on the expressly identified operating platform (including number of servers and users) is granted to the End User; 2. No title to the Collective Work, or any intellectual property therein, is transferred to the End User; 3. The End User may not copy the Collective Work, except for backup and archival purposes only, and the End User shall include on all copies or the Collective Work all copyright and other proprietary notices or legends included on the Collective Work when it was shipped to such End User; 4. The End User agrees not to reverse assemble, decompile or otherwise attempt to derive source code from the Collective Work; 5. The End User agrees to comply with all applicable export and re-export restrictions and regulations; 6. The End User will hold the Collective Work in confidence and shall protect the Collective Work with at least the same degree of care with which the End User protects its own similar confidential information; 7. Reseller's licensors [VAR, LICENSOR and LICENSOR's licensors] are direct and intended third party beneficiaries of the license agreement and may enforce it directly against the End User; provided however that such licensors shall not be liable to the End User for any warranties or guarantees, express or implied, or general, special, direct, indirect, consequential, incidental or other damages arising out of or related to the Collective Work; 8. Upon termination of the license for the Collective Work, the End User shall return to Reseller all copies of the Collective Work and documentation, and certify to Reseller that such return has occurred; 9. Reseller and/or Reseller's licensors shall have the right to direct a recognized auditing firm to conduct, during normal business hours, an audit of (and to copy) the appropriate records of the End User to verify the number of copies of the Collective Work in use by the End User, the computer systems on which such copies are installed and, the number of users using such copies. Representatives of the auditing firm shall protect the confidentiality of the End User's confidential information and abide by the End User's reasonable security regulations while on End User's premises. If the number of copies or users is found to be greater than that contracted for or the computer system on which the Collective Work is in use differs from the single computer system for which license rights have been granted to the End User, the End User shall be invoiced for the additional copies, users or computer systems at the price quoted in the then current price list of Reseller (subject to any applicable discounts to which Reseller may have agreed); and 11. The End User shall not release the results of any benchmark of the Collective Work to any third party without the prior written approval of Reseller and Reseller's licensor for each such release. EXHIBIT C LICENSE FEES
Column A Column B -------- -------- iMergence 1 Server + 25 seats $ 32,500 $ 25,000 iMiner 1 Server + 25 Seats $ 6,500 $ 5,000 Additional Seats 25 $ 1,625 $ 1,250 (either product) 100 $ 4,875 $ 3,750 250 $ 9,750 $ 7,500 1000 $ 32,500 $ 25,000
In each calendar year during the term of this Agreement, Column A fees are used until VAR pays LICENSOR aggregate license fees of $500,000 under this Agreement during that year. Thereafter, for the remainder of that calendar year, Column B fees are used. The foregoing license fees will be multiplied by the applicable multiplier set forth below, based on which of VAR or its affiliates actually sublicenses the Software to a reseller or end user: Computron US, Computron UK and any other affiliate not listed below 1.0 Computron Singapore 0.4 Computron Australia, Computron Poland and Computron South Africa 0.5 Computron France 0.675 Computron Canada 0.8 GENERAL PROVISIONS VAR and its affiliates may use an unlimited number of copies of the Software, without obligation to pay any license fees hereunder, for the internal business purposes of VAR and its affiliates, including, without limitation, development, demonstration, and processing of its own business data. VAR shall pay LICENSOR the license fees due LICENSOR under this EXHIBIT C on a quarterly basis, in the first month of each calendar quarter during the term of this Agreement, based on sub-licenses of the Software signed by resellers or end users with VAR or its affiliates during the immediately preceding calendar quarter. Such payment will be accompanied by the information required in Paragraph 2.6 of this Agreement. Late payments will incur a late fee of 1.5%/month. In the event that VAR or an affiliate is required to make a refund of sub-license fees for Software previously paid by end users and rescind the subject sub-license, upon which VAR had already paid LICENSOR a license fee hereunder, then such rescinded sub-license shall be credited against current or future Software sub-licenses for which LICENSOR is entitled to receive payment of a license fee hereunder. EX-10.39 11 AMENDMENT #5 TO LOAN AND SEC. AGT. Exhibit 10.39 AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT AMENDMENT NO. 5, dated as of March 8, 1999, to the LOAN AND SECURITY AGREEMENT, dated as of March 31, 1998, (the "LOAN AND SECURITY AGREEMENT"), between FOOTHILL CAPITAL CORPORATION, a California corporation, with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 ("FOOTHILL"), and COMPUTRON SOFTWARE, INC., a Delaware corporation, with its chief executive offices located at 301 Route 17 North, Rutherford, New Jersey 07070 (the "BORROWER"). PREAMBLE The Borrower has requested Foothill to amend the Loan and Security Agreement to (i) extend the termination date of the Loan and Security Agreement to March 31, 2002, (ii) change the amount set forth in the Loan and Security Agreement as a limitation on loans and advances permitted to be made by the Borrower to its wholly owned Subsidiaries, (iii) revise the Financial Covenants in Section 7.20 of the Loan and Security Agreement, and (iv) increase the amount of the term loan and amend the amortization schedule of the term loan. Accordingly, the Borrower and Foothill hereby agree as follows: 1. DEFINITIONS. All terms used herein which are defined in the Loan and Security Agreement and not otherwise defined herein are used herein as defined therein. 2. TERM. Section 3.4 of the Loan and Security Agreement is hereby amended to change the Renewal Date from March 31, 2001 to March 31, 2002. 3. INVESTMENTS. Section 7.13(b) of the Loan and Security Agreement is hereby amended as follows: "(ii) loans and advances by Borrower made after the Closing Date to its wholly-owned Subsidiaries (and (A) Subsidiaries in which Borrower owns all but director qualifying shares or a nominal ownership interest required to be held by other Persons due to foreign law ownership requirements and (B) the joint venture involving Computron Canada, either before or after it is no longer a wholly-owned Subsidiary of the Borrower) not to exceed $7,000,000 in the aggregate over the term of this Agreement, so long as at the time of making any such loan or advance no Default or Event of Default shall have occurred and be continuing, and provided further that, commencing January 1, 1999, no more than $1,300,000 is invested by the Borrower in the proposed joint venture involving Computron Canada between the Borrower and Resource Management Group, a company incorporated in the United Kingdom." 4. FINANCIAL COVENANTS. Sections 7.20 (a) and (b) of the Loan and Security Agreement are hereby amended to read in their entirety as follows: "(a) OPERATING INCOME. Operating Income of at least the following amounts, measured on a cumulative basis for the period from the beginning of a calendar year to each calendar quarter end set forth below: 3/31/99 ($4,500,000) 6/30/99 ($6,000,000) 9/30/99 ($7,100,000) 12/31/99 ($6,400,000) provided that, thereafter, upon receipt of the financial projections required to be delivered to Foothill pursuant to Section 6.3 (fourth paragraph) hereof for each fiscal year, the Borrower and Foothill shall negotiate in good faith to determine the minimum Operating Income as of the end of each fiscal quarter covered by such financial projections and, in the event that the Borrower and Foothill are unable to agree upon the amounts of such Operating Income on or before the date that is 30 days after the date that Foothill has received such projections, the Operating Income at the end of each fiscal quarter of the fiscal year covered by such financial projections shall not be less than the amount set forth for the corresponding fiscal quarter end set forth above PLUS 10% of such amount. (b) TANGIBLE NET WORTH. Tangible Net Worth of at least the following amounts, measured on a fiscal quarter-end basis, as of the following dates: 3/31/99 ($10,600,000) 6/30/99 ($12,100,000) 9/30/99 ($13,200,000) 12/31/99 ($12,500,000) provided that, thereafter, upon receipt of the financial projections required to be delivered to Foothill pursuant to Section 6.3 (fourth paragraph) hereof for each fiscal year, the Borrower and Foothill shall negotiate in good faith to determine the minimum Tangible Net Worth as of the end of each fiscal quarter covered by such financial projections and, in the event that the Borrower and Foothill are unable to agree upon the amounts of such Tangible Net Worth on or before the date that is 30 days after the date that Foothill has received such projections, the Tangible Net Worth at the end of each fiscal quarter of the fiscal year covered by such financial projections shall not be less than the amount set forth for the corresponding quarter end set forth above PLUS 10% of such amount." 5. TERM LOAN. Sections 2.3 (a), (b), (c) and (d) of the Loan and Security Agreement are hereby amended in their entirety to read as follows: "2.3 TERM LOAN. (a) On the Closing Date, Foothill made a term loan (the "Initial Term Loan") to Borrower in the original principal amount of $5,000,000, of which $3,472,222.22 is outstanding as of March 8, 1999. On March 8, 1999, Foothill will make available an additional term loan (the "Additional Term Loan" and together with the Initial Term Loan, the "Term Loan") to Borrower in the original principal amount of the lesser of (i) $1,000,000 and (ii) the applicable Net Lendable Value (as hereinafter defined). -2- For drawings made by the Borrower between and including (i) March 8, 1999 and March 31, 2000, "Net Lendable Value" shall mean 50% of the Eligible Recurring Maintenance Revenues at the time of such drawing, (ii) April 1, 2000 and March 31, 2001, "Net Lendable Value" shall mean 40% of the Eligible Recurring Maintenance Revenues at the time of such drawing, and (iii) April 1, 2001 and September 30, 2001, "Net Lendable Value" shall mean 30% of the Eligible Recurring Maintenance Revenues at the time of such drawing. (b) The Additional Term Loan shall be made upon Borrower's request (pursuant to the terms of SECTION 2.9), at any time on or after March 8, 1999 but before October 1, 2001, specifying (i) the amount of the requested Additional Term Loan, which must be in increments of at least $500,000; (ii) the requested funding date of the Additional Term Loan; (iii) whether the Additional Term Loan is to constitute a Eurodollar Rate Loan or a Reference Rate Loan; and (iv) if the Additional Term Loan is to constitute a Eurodollar Rate Loan, the requested Interest Period therefor; provided, however, that such request shall be irrevocable except as set forth in SECTION 2.12. If the requested Additional Term Loan constitutes a Eurodollar Rate Loan, such request must be delivered to Foothill no later than 11:00 a.m. (California time) 10 Business Days prior to the requested funding date therefor. (c) The aggregate outstanding principal amount of the Term Loan shall be repaid in equal monthly installments of principal plus accrued interest over the remaining term of the Loan and Security Agreement. Each such installment shall be due and payable on the first day of each month commencing on May 1, 1998 and continuing on the first day of each succeeding month until and including the date on which the aggregate unpaid balance of the Term Loan is paid in full. In the event that, and on each occasion that, the Term Loan is prepaid and reborrowed pursuant to paragraph (e) of this Section 2.3, the aggregate outstanding principal amount of the Term Loan shall be repaid in equal monthly installments of principal plus accrued interest commencing on the first day of the month following the date of reborrowing and continuing on the first day of each month thereafter until and including March 31, 2002, the date on which the aggregate unpaid principal amount of the Term Loan and all accrued interest thereon shall be paid in full. In any event, the outstanding principal balance and all accrued and unpaid interest under the Term Loan shall be due and payable upon the termination of this Agreement, whether by its terms, by prepayment, by acceleration, or otherwise. Except upon the termination of this Agreement and as provided in paragraph (d) below, the unpaid principal balance of the Term Loan may not be prepaid in whole or in part. All amounts outstanding under the Term Loan shall constitute Obligations. (d) Notwithstanding anything herein to the contrary, if the aggregate outstanding principal amount of the Term Loan exceeds (i) from and after March 8, 1999 until and including March 31, 2000, an amount equal to 50% of Eligible Recurring Maintenance Revenues at such time, (ii) from and after April 1, 2000 until and including March 31, 2001, an amount equal to 40% of Eligible Recurring Maintenance Revenues at such time, and (iii) from and after April 1, 2001 until and including September 30, 2001, an amount equal to 30% of Eligible Recurring Maintenance Revenues at such time, then the Borrower shall prepay the principal amount of the Term Loan in an amount sufficient to -3- cause the aggregate principal amount of the Term Loan to be less than or equal to the relevant amounts set forth in clauses (i) through (iii) above. All such prepaid amounts shall be applied to the installments due on the Term Loan in the inverse order of their maturity; PROVIDED that, if the aggregate principal amount of the Term Loan outstanding prior to giving effect to such prepayment is less than $3,000,000 then such prepaid amounts shall be applied to the installments due on the Term Loan in the order of their maturity." 6. FEE. Section 2.11 of the Loan and Security Agreement is hereby amended by adding the following new paragraph (f): "(f) TERM LOAN DRAWING FEE. On the date of each advance of the Term Loan after March 8, 1999, a fee in an amount equal to 1% of the amount of each such advance shall be charged to the Borrower." 7. CONDITIONS. This Amendment shall become effective (and the covenants set forth in Section 2 above shall be applicable as of the date of this Amendment) only upon satisfaction in full of the following conditions precedent (the date upon which all such conditions have been satisfied being herein called the "Effective Date"): (a) The representations and warranties contained in this Amendment and in Section 5 of the Loan and Security Agreement and each other Loan Document, after giving effect to this Amendment, shall be correct on and as of the Effective Date as though made on and as of such date (except where such representations and warranties relate to an earlier date in which case such representations and warranties shall be true and correct as of such earlier date); no Default or Event of Default shall have occurred (assuming Sections 7.13 and 7.20 are amended as set forth above) and be continuing on the Effective Date or result from this Amendment becoming effective in accordance with its terms. (b) Foothill shall have received a counterpart of this Amendment, duly executed by the Borrower. (c) All legal matters incident to this Amendment shall be satisfactory to Foothill and its counsel. 8. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to Foothill as follows: (a) The Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and (ii) has all requisite corporate power, authority and legal right to execute, deliver and perform this Amendment, and to perform the Loan and Security Agreement, as amended hereby. (b) The execution, delivery and performance of this Amendment by the Borrower, and the performance by the Borrower of the Loan and Security Agreement, as amended hereby (i) have been duly authorized by all necessary corporate action, (ii) do not and will not contravene its charter or by-laws or any applicable law, and (iii) except as provided in the Loan Documents, do not and will not result in the creation of any Lien upon or with respect to any of its respective properties. -4- (c) This Amendment and the Loan and Security Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. (d) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required in connection with the due execution, delivery and performance by the Borrower of this Amendment and the performance by the Borrower of the Loan and Security Agreement as amended hereby. (e) The representations and warranties contained in Section 5 of the Loan and Security Agreement and each other Loan Document, after giving effect to this Amendment, are correct on and as of the Effective Date as though made on and as of the Effective Date (except to the extent such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct as of such earlier date), and no Default or Event of Default has occurred and is continuing on and as of the Effective Date or will result from this Amendment becoming effective in accordance with its terms. 9. CONTINUED EFFECTIVENESS OF THE LOAN AND SECURITY AGREEMENT AND LOAN DOCUMENTS. The Borrower hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Effective Date of this Amendment all references in any such Loan Document to "the Loan and Security Agreement", the "Agreement", "thereto", "thereof", "thereunder" or words of like import referring to the Loan and Security Agreement shall mean the Loan and Security Agreement as amended by this Amendment; and (ii) confirms and agrees that to the extent that any such Loan Document purports to assign or pledge to Foothill, or to grant a security interest in or Lien on, any collateral as security for the obligations of the Borrower from time to time existing in respect of the Loan and Security Agreement and the Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. 10. MISCELLANEOUS. (a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. (b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. (c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. -5- (d) The Borrower will pay on demand all reasonable fees, costs and expenses of Foothill in connection with the preparation, execution and delivery of this Amendment including, without limitation, reasonable fees disbursements and other charges of Schulte Roth & Zabel LLP, counsel to Foothill. COMPUTRON SOFTWARE, INC., a Delaware corporation By: MICHAEL JORGENSEN -------------------------------- EVP & CFO FOOTHILL CAPITAL CORPORATION, a California corporation By: ERIK SAWYER -------------------------------- VICE PRESIDENT -6- EX-21.1 12 LIST OF SUBSIDIARIES EXHIBIT 21.1 COMPUTRON SOFTWARE, INC. List of Subsidiaries (as of March 1, 1999) Computron Holdings, Inc. (incorporated in the State of Delaware) Computron Software Pty Limited (incorporated in Australia) Computron Software (SA) (Proprietary) Limited (incorporated in South Africa) Computron Software (Canada) Inc. (incorporated in Canada) Computron Software S.A. (incorporated in France) Computron Software (Germany) GmbH. (incorporated in Germany) Computron Poland Sp. z o.o. (incorporated in Poland) Computron Software Asia Pte Ltd (incorporated in Singapore) Computron Software Europe Limited (incorporated in England and Wales) EX-23.1 13 CONSENT OF ARTHUR ANDERSEN Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated April 16, 1997, (except with respect to the matter discussed in Note 6, as to which the date is March 6, 1998) included in the Company's previously filed Registration Statements (No.'s 333-11681, 333-49733 and 333-61125) on Form S-8 and (No. 333-49731) on Form S-3. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Boston, Massachusetts March 29, 1999 EX-23.2 14 CONSENT OF KPMG Exhibit 23.2 INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors and Stockholders Computron Software, Inc. We consent to the incorporation by reference in the registration statements (Nos. 333-11681, 333-49733, and 333-61125) on Form S-8 and (No. 333-49731) on Form S-3 of Computron Software, Inc. of our reports dated January 29, 1999, except as to note 4, which is as of March 8, 1999, relating to the consolidated balance sheets of Computron Software, Inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 1998, and related schedules for 1997 and 1998, which reports appear in the December 31, 1998 annual report on Form 10-K of Computron Software, Inc. KPMG LLP Short Hills, New Jersey March 30, 1999 EX-27.1 15 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 8,865 0 13,364 2,192 0 22,346 15,127 11,957 28,517 28,663 0 0 0 70,361 (72,736) 28,517 15,273 63,521 3,824 43,359 25,383 0 439 (9,031) 12 (9,043) 0 0 0 (9,043) (0.38) (0.38)
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