1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1999
REGISTRATION NO. 333-73267
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ARDENT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of 7372 NO. 04-2818132
incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
50 WASHINGTON STREET
WESTBORO, MASSACHUSETTS 01581-1021
(508) 366-3888
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PETER GYENES
ARDENT SOFTWARE, INC.
50 WASHINGTON STREET
WESTBORO, MASSACHUSETTS 01581-1021
(508) 366-3888
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
JAMES K. WALSH, ESQ RICHARD N. HOEHN, ESQ.
ARDENT SOFTWARE, INC. CHOATE, HALL & STEWART
50 WASHINGTON STREET EXCHANGE PLACE, 53 STATE STREET
WESTBORO, MASSACHUSETTS 01581-1021 BOSTON, MA 02109
(508) 366-3888 (617) 248-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective and certain other conditions under the applicable merger agreement are
met or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
general instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[PRISM LOGO]
MERGER PROPOSED -- YOUR VOTE IS IMPORTANT
Dear Stockholder:
The boards of directors of Prism Solutions, Inc. and Ardent Software, Inc.
have agreed to a merger of their companies because they believe the resulting
combination will create an opportunity to achieve significant operating
synergies and better exploit the individual companies' complementary products in
the data warehouse market. The merger agreement provides that Prism will become
a wholly owned subsidiary of Ardent. The combined company will be headquartered
in Westboro, Massachusetts.
If the merger is completed, Prism stockholders will receive 0.13124 of a
share of Ardent common stock in exchange for each share of Prism common stock
that they own. The shares of Ardent stock to be issued to Prism stockholders
will represent approximately 15.7% of the outstanding stock of Ardent after the
merger, with the remainder being held by Ardent's existing stockholders. In
addition, each outstanding option to purchase Prism common stock will be
converted into the right to purchase Ardent common stock based on the same
0.13124 exchange ratio.
The merger cannot be completed unless Prism's stockholders adopt the merger
agreement. Prism has scheduled a special meeting of its stockholders to vote on
the merger. We encourage you to exercise your voting rights. However, several
significant stockholders of Prism, representing approximately 54% of the
outstanding common stock, have agreed to vote their shares in favor of the
merger. Therefore, regardless of other votes, the adoption of the merger
agreement is assured.
THE BOARD OF DIRECTORS OF PRISM HAS UNANIMOUSLY DETERMINED THAT THE MERGER
IS IN THE BEST INTERESTS OF ITS STOCKHOLDERS AND RECOMMENDS THAT ITS
STOCKHOLDERS VOTE IN FAVOR OF ADOPTING THE MERGER AGREEMENT.
If you sign, date and mail your proxy card without indicating how you want
to vote, your proxy will be counted as a vote in favor of the merger. If you do
not return your proxy card, the effect in most cases will be a vote against the
merger.
The date, time and place of the meeting is as follows:
April , 1999
10:00 a.m.
Prism Solutions, Inc.
1000 Hamlin Court
Sunnyvale, CA 94089
This proxy statement/prospectus provides you with detailed information
about the proposed merger. We encourage you to read this entire document
carefully.
/s/ Warren M. Weiss
Warren M. Weiss
President and Chief Executive Officer
THE MERGER INVOLVES RISKS TO PRISM STOCKHOLDERS. SEE "RISK FACTORS,"
BEGINNING ON PAGE 12.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Ardent common stock to be issued under this proxy
statement/prospectus or determined whether this proxy statement/prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated March , 1999 and is first being
mailed to stockholders on or about March , 1999.
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PRISM SOLUTIONS, INC.
1000 HAMLIN COURT
SUNNYVALE, CA 94089
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL , 1999
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To Our Stockholders:
A special meeting of stockholders of Prism Solutions, Inc. will be held at
the offices of Prism located at 1000 Hamlin Court, Sunnyvale, CA 94089, on April
, 1999, commencing at 10:00 a.m., local time, for the following purposes:
1. To consider and vote on a proposal to adopt the Agreement and Plan
of Merger and Reorganization dated as of November 19, 1998 between Ardent
Software, Inc., a Delaware corporation, and Prism. Adoption of the merger
agreement and its implementation would effect the following actions, among
other matters:
(a) a wholly owned subsidiary of Ardent will be merged into Prism,
resulting in Prism becoming a wholly owned subsidiary of Ardent,
(b) each share of Prism common stock outstanding immediately prior
to the effective time of the merger will be converted into the right to
receive, and become exchangeable for, 0.13124 of a share of Ardent
common stock, and
(c) each outstanding option to purchase Prism common stock will
become an option to purchase Ardent common stock based on the same
exchange ratio.
2. To transact such other business as may properly come before the
meeting.
Stockholders of record as of the close of business on March 19, 1999 will
be entitled to vote at the meeting and any adjournment or postponement of it.
The merger and other important matters are explained in this proxy
statement/prospectus, which you are urged to read carefully. A copy of the
merger agreement is attached as Annex I.
By order of the board of directors,
Earl C. Charles
Chief Financial Officer and Secretary
Sunnyvale, California
March , 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE FILL IN, DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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TABLE OF CONTENTS
PAGE
----
Questions and Answers About the Ardent/Prism Merger......... iii
Additional Questions and Answers About the Merger for Prism
Employees................................................. iv
Who Can Help Answer Your Questions.......................... iv
Summary..................................................... 1
The Companies............................................. 1
Reasons for the Merger.................................... 1
Prism Stockholders' Meeting............................... 1
Prism's Recommendations to Stockholders................... 1
Record Date; Voting Power................................. 2
Prism Vote Required....................................... 2
The Merger................................................ 3
Summary Historical Financial Data -- Preamble............. 6
Summary Historical Financial Data of Ardent............... 6
Summary Historical Financial Data of Prism................ 7
Summary Unaudited Pro Forma Financial Data................ 8
Comparative Per Share Data................................ 9
Market Price Information.................................. 10
Risk Factors................................................ 12
The Prism Special Meeting................................... 16
Purpose of the Meeting.................................... 16
Voting Rights............................................. 16
Independent Accountants................................... 17
The Proposed Merger......................................... 18
Summary................................................... 18
Background of the Merger.................................. 19
Recommendation of the Prism Board and Reasons for the
Merger................................................. 21
Ardent Board's Reasons for the Merger..................... 23
Opinion of Financial Advisor -- FAC/Equities.............. 23
Interests of Executive Officers and Directors of Prism in
the Merger............................................. 28
The Merger Agreement...................................... 29
Nondisclosure Agreement................................... 34
Stockholder Support Agreement............................. 34
Regulatory Filings and Approvals.......................... 34
Accounting Treatment of the Merger........................ 35
Listing of New Shares of Ardent Common Stock on The Nasdaq
Stock Market........................................... 35
Federal Income Tax Considerations........................... 35
Federal Income Tax Consequences to Prism Stockholders..... 35
Federal Income Tax Consequences to Prism and Ardent....... 37
Other Tax Issues.......................................... 37
Unaudited Pro Forma Condensed Combining Financial
Statements................................................ 38
The Business of Ardent...................................... 43
Selected Consolidated Historical Financial Data of Ardent... 49
Ardent Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 50
Ownership of Ardent Capital Stock........................... 62
The Business of Prism....................................... 64
Selected Consolidated Historical Financial Data of Prism.... 70
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PAGE
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Prism Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 71
Ownership of Prism Capital Stock............................ 77
Relationships and Related Transactions of Prism............. 79
Management of Ardent Following the Merger................... 80
Ardent Executive Officer Compensation....................... 82
Pro Forma Ownership of Ardent Capital Stock................. 84
Comparison of Rights of Holders of Prism Common Stock and
Ardent Common Stock....................................... 86
Legal Matters............................................... 87
Experts..................................................... 87
Expenses of Solicitation.................................... 87
Other Matters............................................... 87
Where You Can Find More Information......................... 88
Financial Information of Ardent and Subsidiaries............ F-1
Financial Information of Prism and Subsidiaries............. F-28
Annex I: Agreement and Plan of Merger and Reorganization
dated as of November 19, 1998............................. I-1
Annex II: Fairness Opinion of FAC/Equities.................. II-1
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QUESTIONS AND ANSWERS ABOUT THE ARDENT/PRISM MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Our companies are proposing to merge because we believe the resulting
combination will create an opportunity to achieve significant operating
synergies and better exploit the individual companies' complementary
products in the data warehouse market.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Prism stockholders will receive 0.13124 of a share of Ardent common stock
in exchange for each share of Prism common stock they own. Ardent will not
issue fractional shares. Prism stockholders who would otherwise be entitled
to receive a fractional share will instead receive cash based on the market
value of the fractional share of Ardent stock. Each share of Ardent common
stock currently outstanding will be unaffected by the merger.
Example:
If you currently own 100 shares of Prism common stock, then after the
merger you will be entitled to receive 13 shares of Ardent common stock and
a check for the market value of the 0.124 fractional share.
Although the ratio of Ardent shares to which you are entitled for your
Prism shares will not change, the dollar value of the shares you receive in
the exchange will vary depending on the price of Ardent shares at the
completion of the merger.
Example:
As stated in the previous example, if you own 100 shares of Prism common
stock, you would be entitled to receive 13 shares of Ardent common stock
and a check for the residual fractional amount. If the trading price of
Ardent's common stock at the time of the merger is $20 per share, your 13
new Ardent shares will be worth $260. If the trading price of Ardent's
common stock at the time of the merger instead is $15 per share, you will
still be entitled to receive 13 new Ardent shares, but they will then be
worth $195.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares will be counted at the special meeting of
Prism's stockholders.
Q: DOES PRISM'S BOARD RECOMMEND VOTING IN FAVOR OF THE MERGER?
A: Yes. The board of directors of Prism unanimously recommends voting in favor
of the adoption of the merger agreement.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, HOW DO I VOTE MY
SHARES?
A: Your broker should have forwarded this proxy statement/prospectus and
instructions on how to vote your shares. Your broker will vote your shares
only if you provide the broker with instructions as to how to vote your
shares. If you do not instruct your broker to vote your shares, your shares
will not be voted. You should follow the directions provided by your broker
regarding how to vote your shares.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this three different ways. First, you can send
a written notice stating that you would like to revoke your proxy. Second,
you can complete and submit a new proxy card. Prism stockholders choosing
either of these options should send their revocation letter or new proxy
card to the Prism corporate secretary at the address provided on page iv.
The third way you may change your vote is to attend the special meeting and
vote in person. Simply attending the meeting, however, will not revoke your
proxy. If you have instructed a broker to vote your shares, you must follow
the directions provided by your broker to change those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Ardent's exchange agent will send Prism
stockholders written instructions for exchanging their share certificates.
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Q: WHEN WILL I RECEIVE MY ARDENT SHARES?
A: If the stockholders of Prism vote to adopt the merger agreement at its
special meeting, we expect the merger will be completed by April , 1999.
Upon the completion of the merger, Ardent's exchange agent will send Prism
stockholders written instructions for exchanging their share certificates.
ADDITIONAL QUESTIONS AND ANSWERS ABOUT THE MERGER FOR PRISM EMPLOYEES
Q: WHAT WILL HAPPEN TO STOCK OPTIONS HELD BY PRISM EMPLOYEES?
A: The outstanding options will become options to purchase Ardent common
stock, at the same 0.13124 exchange ratio that applies to Prism common
stock. Thus, for each share of Prism common stock on which you have an
option, you will receive an option to purchase 0.13124 shares of Ardent
common stock, rounded down to the nearest whole share. In addition, the
exercise price per share will be adjusted by dividing the current exercise
price by 0.13124.
Example:
An option to purchase 1,000 shares of Prism common stock at an exercise
price of $3.00 per share will convert to an option to purchase 131 shares
of Ardent common stock (1,000 x 0.13124) at an exercise price of $22.86 per
share ($3.00/0.13124).
Q: MAY I EXERCISE STOCK OPTIONS AND SELL PRISM COMMON STOCK BETWEEN NOW AND
THE COMPLETION OF THE MERGER?
A: Yes, subject to the timing limitations included in the Prism insider
trading policy, the restrictions on repriced stock options and limitations
on trading under the federal securities laws.
Q: WHAT WILL HAPPEN TO PRISM'S EMPLOYEE STOCK PURCHASE PLAN?
A: The current payment period under the Prism Employee Stock Purchase Plan
will continue after the merger until its scheduled termination on July 30,
1999. The funds that are accumulated through payroll deductions up until
that time will be applied to purchase shares of Ardent common stock. Under
the provisions of the plan, participants whose employment terminates prior
to the end of the payment period under the plan will not have the right to
purchase shares and will be repaid all payroll deductions that have been
taken.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger or would like additional copies
of this proxy statement/ prospectus, you should contact:
Prism Solutions, Inc.
1000 Hamlin Court
Sunnyvale, CA 94089
Attention: Corporate Secretary
(408) 752-1888
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SUMMARY
This summary only highlights selected information from this document and
may not contain all of the information that is important to you. To understand
the merger fully and for a more complete description of the legal terms of the
merger, you should carefully read this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
88.
THE COMPANIES
ARDENT SOFTWARE, INC.
50 Washington Street
Westboro, MA 01581-1021
(508) 366-3888
Ardent designs, develops, markets and supports computer software and
services for developing, deploying and maintaining business applications and
data warehouse solutions. Its primary products are as follows:
1. Data warehouse products which allow users to extract and organize
data from different database management systems, and
2. Database management systems which allow users to build and run
business software applications.
Ardent products are employed by over two million users worldwide.
PRISM SOLUTIONS, INC.
1000 Hamlin Court
Sunnyvale, CA 94089
(408) 752-1888
Prism designs, develops, markets and supports data warehouse management
software that assists its customers in implementing data warehouse applications
at the enterprise or department level. Prism's products are delivered through an
information architecture of data warehouses, data marts, and/or operational data
stores. Prism's primary products are the Prism(R) Warehouse Executive(TM) and
the Prism Warehouse Directory(TM).
------------------------
PRISM STOCKHOLDERS' MEETING (PAGE 16)
THE PRISM SPECIAL MEETING
The Prism special meeting will be held at Prism's offices at 1000 Hamlin
Court, Sunnyvale, CA 94089, at 10:00 a.m., local time, on April , 1999. At the
Prism special meeting, Prism stockholders will be asked to adopt the merger
agreement.
PRISM'S RECOMMENDATION TO STOCKHOLDERS
The Prism board believes that the merger is fair to you and in your best
interest and unanimously recommends that you vote FOR the proposal to adopt the
merger agreement. For more information on why the Prism board recommends the
merger and possible conflicts of interest of the Prism directors, see pages 21
and 28, respectively.
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RECORD DATE; VOTING POWER
You are entitled to vote at the special meeting if you owned shares of
Prism as of the close of business on March 19, 1999, which is the record date.
On the record date, there were 18,772,256 shares of Prism common stock
entitled to vote at the Prism special meeting. Prism stockholders will have one
vote for each share of Prism common stock they owned on the record date.
PRISM VOTE REQUIRED
In order to approve the merger, a majority of the outstanding shares of
Prism common stock must vote in favor of adopting the merger agreement. Several
Prism stockholders, which together hold a total of 10,247,554 shares of Prism
common stock, representing over 54% of the outstanding shares of Prism common
stock, have agreed to vote their shares in favor of the merger. Accordingly,
adoption of the merger agreement by Prism stockholders is assured. For more
information on the Prism special meeting, see page 16. No vote of the Ardent
stockholders is required.
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THE MERGER
THE MERGER AGREEMENT IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS
ANNEX I. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT CAREFULLY, AS IT IS THE
LEGAL DOCUMENT WHICH GOVERNS THE MERGER OF ARDENT AND PRISM.
OWNERSHIP OF ARDENT FOLLOWING THE MERGER
Immediately following the merger, former Prism stockholders will own
approximately 15.7% of the combined company.
MANAGEMENT AND BOARD OF DIRECTORS OF ARDENT FOLLOWING THE MERGER (PAGE 80)
If the merger is completed, the current directors and executive officers of
Ardent will continue to be the directors and executive officers of Ardent. None
of the Prism directors will serve as a director of Ardent after the merger.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF PRISM IN THE MERGER (PAGE 28)
In considering the Prism board's recommendation that you vote in favor of
the merger, you should be aware that officers of Prism have benefits that
provide them with interests in the merger that are different from the interests
of Prism stockholders. Please refer to pages 28 and 29 for more information.
CONDITIONS TO THE MERGER (PAGE 32)
The completion of the merger depends upon meeting a number of conditions,
including the following:
- - Prism's stockholders shall have voted in favor of the merger;
- - at the closing, the representations and warranties of each of Ardent and Prism
shall be true in all material respects and each of the companies shall have
performed their covenants in the merger agreement;
- - there shall have been no governmental action which prohibits the merger or
limits the rights of Ardent because of the merger; and
- - each company has received letters from their respective legal counsel
regarding significant possible federal income tax consequences of the merger.
Each of the conditions to the merger may be waived by the company entitled
to assert the condition.
TERMINATION OF THE MERGER AGREEMENT (PAGE 32)
Prism and Ardent can mutually agree to terminate the merger agreement
without completing the merger, and either of them can terminate the merger
agreement if any of the following events occur:
- - the merger is not completed by April 30, 1999;
- - a court or other governmental authority permanently prohibits the merger;
- - the stockholders of Prism do not approve the merger;
- - the other company breaches or fails to comply with any of its material
representations or warranties or obligations under the merger agreement,
unless (1) such breach or failure to comply can be cured prior to April 30,
1999 and (2) the other company continues to use its reasonable efforts to
remedy such breach or failure to comply; or
- - the board of directors of Prism
- withdraws or modifies in any adverse manner its recommendation of the
merger;
- fails to reconfirm its recommendation upon written request from Ardent
after it receives a proposal to be acquired by a third party;
- recommends an alternative transaction;
- approves or recommends any tender offer for shares of its capital stock
by a third party; or
- fails to hold its special stockholder meeting by April 30, 1999.
TERMINATION FEES (PAGE 33)
The merger agreement requires Prism to pay Ardent a termination fee of $5
million if the
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merger agreement terminates under one of the following circumstances:
- - Prism or Ardent terminates the merger agreement because the Prism stockholders
fail to adopt the merger agreement after the announcement of an alternative
transaction for the sale of Prism and Prism agrees to or completes that
alternative transaction within 18 months;
- - Ardent terminates the merger agreement because the Prism board failed, in one
of several ways, to promote or support the merger with Ardent or favors a
similar transaction with another company; or
- - Prism or Ardent terminates the merger agreement because the Prism stockholders
fail to adopt the merger agreement.
Please refer to page 33 for a more detailed explanation of these
termination circumstances or refer to the merger agreement attached as Annex I.
WHEN THE MERGER TAKES EFFECT (PAGE 18)
The merger will become effective when all necessary documentation has been
filed in Delaware. Ardent plans on filing these documents immediately after the
satisfaction or waiver of the conditions to the merger.
EXCHANGE OF STOCK CERTIFICATES (PAGE 18)
After completion of the merger, Prism stockholders will no longer have any
rights as Prism stockholders. Prism stockholders who turn in their Prism stock
certificates will receive Ardent stock certificates from the exchange agent as
quickly as is feasible.
OPINION OF FINANCIAL ADVISOR (PAGE 23)
In deciding to approve the merger, the Prism board considered the opinion
of FAC/Equities, its financial advisor, as to the fairness to the Prism
stockholders from a financial point of view of the consideration to be paid to
the Prism stockholders. The fee payable to FAC/Equities is not contingent upon
completion of the merger. FAC/ Equities' opinion is attached as Annex II to this
proxy statement/prospectus, and we encourage you to read it.
COMPARISON OF RIGHTS UNDER APPLICABLE LAWS (PAGE 86)
Each company is organized in the State of Delaware. Therefore, the rights
of each company's stockholders under Delaware law are the same. After the
merger, however, the rights of Prism stockholders will be governed by Ardent's
certificate of incorporation and bylaws. There are important differences between
Ardent's and Prism's governing documents of which you should be aware.
ACCOUNTING TREATMENT (PAGE 35)
We intend to account for the merger as a purchase transaction. This means
that for financial accounting purposes Ardent will allocate the value of the
shares it is issuing to the fair value of the assets of Prism, including
goodwill and other intangible assets. Ardent anticipates that the value it will
allocate to goodwill and other intangible assets will be approximately $34
million. This amount will be amortized over the next 3 to 10 years, depending on
the particular asset. This amortization will reduce Ardent's earnings during
those years.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 35)
We have structured the merger so that Ardent, Prism and their stockholders
should not recognize any gain or loss for federal income tax purposes as a
result of the merger, except for taxes on cash received by Prism stockholders
for fractional shares.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
APPRAISAL RIGHTS
Under Delaware law, Prism stockholders have no right to an appraisal of the
value of their shares in connection with the merger.
LISTING OF ARDENT COMMON STOCK (PAGE 35)
Prior to the merger, Ardent will obtain approval to have the shares of
Ardent stock to be issued in the merger listed on The Nasdaq Stock Market.
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TRADEMARKS
UniData, DataStage, RedBack, and the O2 System are registered trademarks
and Ardent, UniVerse and wIntegrate are trademarks of Ardent. Prism and
Iterations are registered trademarks and Prism Executive Suite, Prism Warehouse
Executive, Prism Warehouse Directory, Prism Quality Manager, Prism Schedule
Manager, Prism Web Access, FastLoad, FastUpdate, Changed Data Capture and
Campaign Advisor are trademarks of Prism.
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SUMMARY HISTORICAL FINANCIAL DATA
Ardent and Prism are providing the following financial information to aid
you in your analysis of the financial aspects of the merger. This information is
only a summary and you should read it in conjunction with the historical
financial statements and related notes contained elsewhere in this proxy
statement/ prospectus and in the annual reports and other information that
Ardent and Prism have filed with the SEC. See "Where You Can Find More
Information" on page 88.
Each of Ardent and Prism prepares its financial statements on the basis of
a fiscal year ending on December 31. The financial data of Ardent for each of
the five years ended December 31, 1998 are derived from consolidated financial
statements of Ardent audited by Deloitte & Touche LLP. The financial data of
Prism for each of the five years ended December 31, 1998 are derived from
consolidated financial statements of Prism audited by PricewaterhouseCoopers
LLP.
Ardent's financial information reflects the effects of recent acquisitions,
non-recurring charges, extraordinary losses and a renegotiation of its primary
headquarters lease. Prism's financial information also reflects several recent
acquisitions. For more details in each case, please refer to each company's
complete financial statements and the related notes beginning on page F-1 of
this proxy statement/prospectus.
SUMMARY HISTORICAL FINANCIAL DATA OF ARDENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue.............................................. $119,260 $102,728 $110,499 $92,721 $81,888
Other charges........................................ 14,895 3,642 9,222 7,381 5,562
Income (loss) from operations........................ 4,578 (5,788) (4,079) (3,019) 2,525
Income (loss) before extraordinary item.............. 1,637 (8,921) (5,259) (2,626) (148)
Net income (loss).................................... 1,637 (8,921) (9,993) (2,626) (148)
Diluted income (loss) per share:
Income (loss) before extraordinary item............ $ 0.10 $ (0.65) $ (0.40) $ (0.21) $ (0.01)
Net income (loss).................................. 0.10 (0.65) (0.76) (0.21) (0.01)
Shares used in calculation......................... 16,724 13,751 13,071 12,623 12,474
CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments...................... $ 24,167 $ 24,155 $ 15,545 $12,654 $16,293
Working capital...................................... 13,087 12,531 18,314 18,873 24,800
Total assets......................................... 82,804 94,043 94,516 79,833 78,779
Total long-term liabilities.......................... -- 21,190 21,704 12,085 12,091
Stockholders' equity................................. 43,790 32,082 35,851 41,134 41,983
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SUMMARY HISTORICAL FINANCIAL DATA OF PRISM
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue.................................................. $ 52,090 $ 51,391 $36,167 $21,401 $ 8,227
Other charges............................................ -- 8,558 -- -- --
Loss from operations..................................... (18,785) (17,445) (3,848) (2,957) (2,497)
Net loss................................................. (18,651) (16,184) (2,437) (2,914) (2,538)
Basic and diluted net loss per share:.................... $ (1.01) $ (0.94) $ (0.17) $ (0.45) $ (0.90)
Shares used in calculation............................. 18,485 17,291 14,640 6,467 2,814
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments..... $ 5,069 $ 21,706 $34,915 $ 2,068 $ 3,205
Working capital.......................................... 5,420 22,252 35,562 1,355 3,247
Total assets............................................. 21,512 43,185 48,894 12,487 7,257
Total long-term liabilities.............................. 329 364 193 438 --
Stockholders' equity..................................... 10,566 27,604 38,022 2,767 3,623
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SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Ardent and Prism intend that the merger be accounted for as a purchase
transaction, which means that Ardent will allocate the value of the stock it is
issuing to the assets acquired for financial accounting purposes in accordance
with generally accepted accounting principles. For a more detailed description
of purchase transactions, see "The Proposed Merger -- Accounting Treatment of
the Merger" at page 35. Ardent and Prism have presented below the summary
unaudited pro forma financial data that reflects the purchase method of
accounting.
Each of Ardent and Prism prepares its financial statements on the basis of
a fiscal year ending on December 31. The unaudited pro forma financial statement
data below combines Ardent's and Prism's respective audited results of
operations for their fiscal year ended December 31, 1998, giving effect to the
merger as if it had occurred as of January 1, 1998. The pro forma balance sheet
data combines Ardent's and Prism's unaudited financial positions as of December
31, 1998 and gives effect to the acquisition of Prism as if it occurred on
December 31, 1998.
The unaudited pro forma condensed combined financial data set forth below
does not purport to represent what the consolidated results of operations or
financial position of Ardent would actually have been if the Prism acquisition
had in fact occurred on such dates or to project the future consolidated results
of operations or financial condition of Ardent. See "Unaudited Pro Forma
Condensed Combining Financial Statements" on page 38.
YEAR ENDED
DECEMBER 31,
1998
------------
STATEMENT OF OPERATIONS:
Revenue..................................................... $166,191
Other charges............................................... 14,895
Loss from operations........................................ (19,034)
Net loss.................................................... (21,511)
Basic loss per share........................................ $ (1.25)
Basic shares used in calculation............................ 17,216
BALANCE SHEET:
Cash and short-term investments............................. $ 29,236
Working capital............................................. 18,871
Total assets................................................ 145,972
Total long-term liabilities................................. 329
Stockholders' equity........................................ 88,401
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COMPARATIVE PER SHARE DATA
The following table sets forth selected per share data of Ardent and Prism
on a historical, pro forma combined and pro forma equivalent basis. Each of
Ardent and Prism prepares its financial statements on the basis of a fiscal year
ending on December 31. This table combines Ardent's and Prism's respective
audited results of operations for fiscal year ended December 31, 1998, adjusted
for the effects of the merger. The information presented in this table is
derived from the financial information of Ardent and Prism. The information set
forth below is only a summary and you should read it in conjunction with the
complete financial statements of Ardent and Prism. This table is not necessarily
indicative of the results of future operations of Ardent or actual results that
would have occurred if the merger had taken place prior to the period indicated.
See "Where You Can Find More Information" on page 88.
PRO FORMA
HISTORICAL HISTORICAL PRO FORMA PRISM
ARDENT PRISM COMBINED EQUIVALENT
---------- ---------- ----------- -------------
Book value per common share:
December 31, 1998............................ $ 2.78 $ 0.56 $ 4.85 $ 0.64
Cash dividends per common share............ -- -- -- --
Loss per common share before extraordinary
items:
Year ended December 31, 1998............... $ 0.11 $(1.01) $(1.25) $(0.16)
Year ended December 31, 1997............... (0.65) (0.94)
Year ended December 31, 1996............... (0.40) (0.17)
Year ended December 31, 1995............... (0.21) (0.45)
- ---------------
To assist you in interpreting the table above, we used the following
methods:
1. We computed historical book value per share by dividing Ardent's total
stockholders' equity as of December 31, 1998 by the number of common shares
outstanding as of that date and Prism's total stockholders' equity as of
December 31, 1998 by the number of common shares outstanding as of that date.
2. We computed the Pro Forma Combined book value per share amounts by
dividing pro forma stockholders' equity, including pro forma adjustments, by the
pro forma number of shares of Ardent common stock which would have been
outstanding had the merger been completed as of December 31, 1998, without
including outstanding options. For more detailed information, refer to the
Unaudited Pro Forma Condensed Combining Balance Sheet on page 39.
3. We calculated the pro forma number of shares of common stock by
totalling all Ardent shares outstanding and Prism shares outstanding as adjusted
for the exchange ratio of 0.13124.
4. We computed the Pro Forma Prism Equivalent per share amounts by
multiplying the Pro Forma Combined per share amounts by the exchange ratio of
0.13124.
5. We computed the pro forma combined net loss per share using the weighted
average number of shares of common stock outstanding after the issuance of
Ardent common stock to acquire the outstanding shares of Prism common stock.
6. We excluded dilutive options from the computation during these loss
periods as their effect is anti-dilutive.
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MARKET PRICE INFORMATION
The table below sets forth the high and low sales prices of Ardent common
stock as reported on The Nasdaq Stock Market for the calendar periods indicated.
Ardent has never paid any cash dividends on its common stock, and it has a line
of credit agreement with a bank which limits its ability to pay cash dividends.
$PER SHARE OF
ARDENT
COMMON STOCK
------------------
HIGH LOW
------- -------
1997:
First Quarter............................................. 7.875 5.750
Second Quarter............................................ 8.625 5.875
Third Quarter............................................. 10.875 7.750
Fourth Quarter............................................ 11.750 6.625
1998:
First Quarter............................................. 15.125 7.000
Second Quarter............................................ 15.875 10.250
Third Quarter............................................. 15.375 10.000
Fourth Quarter............................................ 23.875 11.125
1999:
First Quarter (through March , 1999)....................
On November 18, 1998, the last trading day prior to the public announcement
of the merger agreement, the reported high and low sales prices per share of
Ardent common stock on The Nasdaq Stock Market were $18.125 and $17.25,
respectively. On March , 1999, the last practicable trading date for which
results were available for inclusion in this proxy statement/prospectus, the
reported high and low sales prices per share of Ardent common stock on The
Nasdaq Stock Market were $ and $ , respectively.
The market price of Ardent common stock is subject to fluctuation.
Therefore, the market value of the shares of Ardent common stock which Prism
stockholders will receive in the merger may increase or decrease prior to the
merger.
As of March , 1999, there were approximately stockholders of record of
Ardent.
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The table below sets forth the high and low sales prices of Prism common
stock as reported on The Nasdaq Stock Market for the calendar periods indicated.
Prism has never paid any cash dividends on its common stock and does not
anticipate paying any cash dividends in the foreseeable future. The merger
agreement prohibits the payment of cash dividends by Prism to its stockholders.
$PER SHARE OF
PRISM
COMMON STOCK
----------------
HIGH LOW
------ ------
1997:
First Quarter............................................. 10.38 4.88
Second Quarter............................................ 7.88 4.38
Third Quarter............................................. 7.50 4.38
Fourth Quarter............................................ 7.06 3.50
1998:
First Quarter............................................. 6.25 3.75
Second Quarter............................................ 9.00 4.50
Third Quarter............................................. 5.50 1.50
Fourth Quarter............................................ 3.88 0.75
1999:
First Quarter (through March , 1999)....................
On November 18, 1998, the last trading day prior to the public announcement
of the merger agreement, the reported high and low sales prices per share of
Prism common stock on The Nasdaq Stock Market were $3.75 and $2.31,
respectively. On March , 1999, the last practicable trading date for which
results were available for inclusion in this proxy statement/prospectus, the
reported high and low sales prices per share of Prism common stock on The Nasdaq
Stock Market were $ and $ , respectively.
As of March , 1999, there were approximately stockholders of record of
Prism.
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RISK FACTORS
In addition to general investment risks and those factors set forth
elsewhere herein, the following risks should be considered by Prism stockholders
in deciding whether to adopt the merger agreement and thereby become
stockholders of Ardent.
RISKS RELATING TO THE MERGER
THE INTEGRATION OF THE OPERATIONS OF THE TWO COMPANIES MAY BE MORE
DIFFICULT AND COSTLY THAN WE ANTICIPATE. We cannot guarantee that the
integration of Ardent and Prism will be completed in a manner that is efficient,
effective and timely enough to achieve the anticipated benefits of the merger.
Integrating our companies will require the timely combination of sales and
marketing and research and development teams that are in different geographic
locations. Integration of the companies also will require the combination of
complex software technology, product lines and software development plans.
Additionally, the time-consuming task of integrating our companies may distract
attention from the day-to-day business of the combined company.
THE DOLLAR VALUE OF ARDENT SHARES YOU WILL RECEIVE WILL VARY WITH THE
MARKET PRICE OF ARDENT COMMON STOCK. Prism stockholders will receive 0.13124 of
a share of Ardent common stock for each share of Prism common stock that they
own at the time of the merger. This fraction of a share of Ardent stock, also
known as the exchange ratio, is fixed and will not change regardless of any
fluctuation in the market price of either company's common stock. Accordingly,
the value of the Ardent shares to be issued to Prism stockholders will depend on
the market price of Ardent common stock at the time of the merger.
RISKS RELATING TO THE BUSINESS OF THE COMBINED COMPANY
SUCCESS IN OUR INDUSTRY REQUIRES A CONSTANT SUPPLY OF NEW AND ENHANCED
PRODUCTS THAT THE COMBINED COMPANY MAY NOT BE ABLE TO DEVELOP OR
COMMERCIALIZE. Technological developments, customer requirements and industry
standards change frequently in the data warehouse and database market. As a
result, the combined company's success will depend upon its ability to enhance
current products and to develop or acquire new products which meet customer
needs and comply with industry standards. The possibility exists that the
combined company's products will be rendered obsolete by technological advances,
or that the combined company will not be able to develop and market the products
required to continue to be competitive. Our planned products are in various
stages of development. It is possible that such products will prove not to be
commercially viable or that we will experience operational problems with such
products after commercial introduction that could delay or defeat the ability of
such products to generate revenue. The product lines to which the combined
company intends to devote substantial resources in the foreseeable future are
data warehouse and database management. There is no assurance that products in
either of these two areas will continue to be commercially successful. Ardent
and Prism have experienced product delays and undetected errors or bugs in their
products in the past. Although these delays and bugs have not materially
affected either company's results in the past, these types of problems may
materially affect the combined company in the future.
THE COMBINED COMPANY FACES LARGE COMPETITORS WITH GREATER FINANCIAL AND
TECHNICAL RESOURCES. The combined company will face intense competition in the
market for data warehouse and database management systems and related software
from many companies which offer alternative solutions to the needs addressed by
our products and services. Many of the combined company's direct competitors,
such as Oracle Corporation, Sybase, Inc., Platinum technology, inc. and Informix
Software, Inc., as well as other large computer software companies that could
compete directly against the combined company in the future, have far greater
resources than Ardent and Prism combined. Our competitors also may be able to
adapt more quickly to new or emerging technologies and standards or changes in
customer requirements or devote greater resources to the promotion and sale of
their products. There can be no assurance that the combined company will be able
to compete successfully in its markets against such competitors.
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ARDENT AND PRISM ARE DEFENDANTS IN LAWSUITS WHICH COULD RESULT IN
SIGNIFICANT LIABILITY TO THE COMBINED COMPANY. Ardent is a defendant in a
lawsuit brought by one of its licensees which claims that Ardent violated such
licensee's purported exclusive license to certain Ardent products in Asia.
Ardent is also a party to a lawsuit brought by a former partner in a joint
venture in which the partner is claiming Ardent is obligated to provide
additional financial support to the joint venture. Prism is a defendant in
litigation with certain stockholders who allege that members of Prism's
management artificially inflated the demand for Prism common stock prior to and
after Prism's initial public offering in March 1996. Ardent and Prism deny the
allegations against them and intend to vigorously contest these lawsuits.
Nonetheless, it is possible that one or more of these matters could subject the
combined company to substantial liability and thereby adversely affect the
combined company's financial performance.
ARDENT AND PRISM DEPEND ON ATTRACTING AND RETAINING SKILLED EMPLOYEES. Our
businesses are led by a number of key, highly skilled technical, managerial and
marketing personnel, the loss of which could adversely affect the combined
company. Competition for qualified personnel in the software industry is
intense. The success of the combined company will depend in large part upon its
ability to hire and retain such personnel. Many employees are compensated in
part with options to purchase Ardent's common stock. Any significant decreases
in the market price of Ardent's common stock after the merger may make it more
difficult to retain and attract qualified employees.
THE MARKET PRICE OF ARDENT'S COMMON STOCK MAY BE VOLATILE PRINCIPALLY
BECAUSE ITS BUSINESS CAN BE SUBJECT TO SHARP FLUCTUATIONS IN QUARTERLY
RESULTS. The market price of Ardent common stock has been, and the market price
of Ardent common stock after the merger may continue to be, highly volatile.
Factors that are difficult to predict such as quarterly revenue, statements and
ratings by financial analysts and overall market performance may have a
significant impact on the price for shares of Ardent common stock. Except for
long-term service and maintenance contracts, both Ardent and Prism operate with
an insignificant backlog of orders and the bulk of customer purchase orders are
received at the end of quarterly periods. As a result, our operating results can
vary substantially from period to period and the results of individual quarters
are extremely uncertain.
ARDENT EXPERIENCED UNPROFITABLE OPERATIONS IN THE YEARS 1995 THROUGH
1997. Although Ardent operated profitably in 1998, it incurred losses from
operations in each of the three prior years.
INTERNATIONAL OPERATIONS SUBJECT THE COMPANIES TO POTENTIAL PROBLEMS AND
COSTS. Approximately 36% of each of Ardent's and Prism's revenues for 1998 were
derived from sales outside the United States. These revenues were derived
principally from sales in the United Kingdom, France and Australia. We expect
that a substantial portion of the combined company's total revenue will continue
to come from international operations. In addition to currency fluctuations and
the European Union currency conversion discussed below, there are several other
risks associated with international operations. Large movements in foreign
currency exchange rates and economic turmoil, as seen recently in the Far East,
can make the combined companies' products more expensive, and therefore less
competitive, in the markets affected. Other potential risks inherent in the
combined company's international business generally include longer payment
cycles, greater difficulties in collecting accounts receivable, the burdens of
complying with a wide variety of foreign laws and regulations, political and
financial uncertainties, and differences in business practices.
FINANCIAL RESULTS MAY BE AFFECTED BY CHANGES IN CURRENCY FLUCTUATIONS. The
value of the United States dollar relative to foreign currencies is constantly
fluctuating. These fluctuations expose companies engaged in international
operations to the risks that accounts receivable or other assets denominated in
foreign currencies may be devalued or that accounts payable or other liabilities
denominated in foreign currencies may increase in value. Ardent has two
protections against the risks of such transaction exposures.
- Although products and services furnished to foreign locations are
generally invoiced in local currencies, the risk that the receivables
will be devalued by currency fluctuations is mitigated to the extent that
Ardent has payables in the same local currency.
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- Ardent hedges its currency risk on intercompany billings to some of its
foreign subsidiaries through foreign exchange forward contracts.
Subsidiaries are billed in local currencies and contracts are matched
accordingly. Refer to the section of this prospectus/proxy statement
"Ardent Management's Discussion and Analysis of Financial Condition and
Results of Operations" starting on page 50.
Currency fluctuations have not to date materially affected the results of
operations or financial results of either Ardent or Prism. It is possible,
however, that the combined company may be materially affected by currency
fluctuations in the future if its revenues and expenses denominated in a foreign
currency are not substantially matched, or if its hedging against billings to
its foreign subsidiaries is not successfully continued. For 1998, approximately
36% of Ardent's revenues and 39% of its expenses were denominated in foreign
currencies, principally pound sterling and French francs. At December 31, 1998,
approximately 28% of Ardent's assets were denominated in foreign currencies,
principally pound sterling, French francs and Australian dollars.
THE USE OF A NEW COMMON CURRENCY BY ELEVEN EUROPEAN COUNTRIES MAY AFFECT
ARDENT'S FINANCIAL RESULTS AND PERFORMANCE OF ITS PRODUCTS. On January 1, 1999,
eleven member nations of the European Economic and Monetary Union began using a
common currency, the Euro. For a three-year transition period ending June 30,
2002, the existing national currencies of the member nations will also continue
in use, subject to a fixed exchange rate. After the transition period, the Euro
will be the sole legal tender for those countries. The adoption of the Euro will
affect many financial systems and business applications. Of the eleven countries
currently using the Euro, the combined company will have subsidiary operations
in two and distributor relationships in the other nine. Refer to page 59 for a
more detailed discussion.
OUR INTELLECTUAL PROPERTY RIGHTS ARE DIFFICULT AND POTENTIALLY COSTLY TO
PROTECT. Where applicable, Ardent and Prism each regard its respective
technologies as proprietary and rely on a combination of patent, copyright,
trademark and trade secret laws and contractual provisions to establish and
protect its proprietary rights. These steps may not be sufficient to prevent or
deter others from copying or stealing such proprietary rights and do not prevent
competitors from independently developing technology that is equivalent or
superior to Ardent's and/or Prism's technology. In addition, while neither
Ardent nor Prism believes that its respective products, trademarks or other
proprietary rights infringe upon the proprietary rights of others, it is
possible that others will assert that they do. The cost of responding to such an
assertion may be significant, even if the assertion is false. The software
market has traditionally experienced widespread unauthorized reproduction of
products in violation of intellectual property rights. Such activity is
difficult to detect and legal proceedings to enforce intellectual property
rights are often burdensome and involve a high degree of uncertainty and costs.
OUR SOFTWARE PRODUCTS, THE THIRD PARTY SOFTWARE THAT THE COMPANIES USE
INTERNALLY, AND THE SOFTWARE AND SYSTEMS THAT OUR CUSTOMERS AND SUPPLIERS USE
MAY FAIL TO PROPERLY PROCESS DATES IN AND BEYOND 1999. Many currently installed
computer systems and software products are coded to accept or recognize only two
digit entries in the date code field. These systems and software products will
need to accept four digit entries to distinguish 21st century dates from 20th
century dates. As a result, computer systems and/or software used by many
companies and governmental agencies may need to be upgraded to comply with such
Year 2000 requirements or risk system failure or miscalculations causing
disruptions of normal business activities. Despite the diagnosis and preventive
efforts of Ardent and Prism, these kinds of software failures in their products
or the software on which they depend could have a significant negative financial
impact on the combined company. Refer to page 59 for a more detailed discussion.
WITHOUT STOCKHOLDER APPROVAL, THE ARDENT BOARD MAY ISSUE SHARES OF
PREFERRED STOCK WHICH COULD MAKE A TAKE-OVER OF ARDENT MORE DIFFICULT. Ardent's
certificate of incorporation authorizes Ardent's board to issue up to 10,000,000
shares of its preferred stock. Subject to the reservation of 15,000 shares of
preferred stock for issuance under Ardent's Rights Plan, Ardent's board may
issue shares of preferred stock without stockholder approval and upon terms and
conditions, and having such rights, privileges and preferences, as the Ardent
board may determine. This could adversely affect the common stockholders. In
particular, the issuance of preferred stock, while providing desirable
flexibility in connection with possible
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acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party from
acquiring, voting control of Ardent. Ardent has no present plans to issue any
shares of preferred stock.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE. EACH COMPANY HAS MADE
FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT THAT ARE SUBJECT TO RISKS AND
UNCERTAINTIES. FORWARD-LOOKING STATEMENTS INCLUDE INFORMATION CONCERNING
POSSIBLE OR ANTICIPATED FUTURE RESULTS, SUCH AS COST SAVINGS AND SYNERGIES
RELATING TO THE MERGER. ALSO, WHEN WE USE WORDS SUCH AS "BELIEVES," "EXPECTS,"
"ANTICIPATES" OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD-LOOKING STATEMENTS.
YOU SHOULD NOTE THAT MANY FACTORS COULD AFFECT THE FUTURE FINANCIAL RESULTS OF
ARDENT AND PRISM AND COULD CAUSE THESE RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN OUR FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE THE VARIOUS
RISKS DESCRIBED ABOVE.
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THE PRISM SPECIAL MEETING
PURPOSE OF THE MEETING
At the Prism special meeting, the holders of Prism common stock outstanding
as of the Prism record date will be asked to consider and vote upon the proposal
to adopt the merger agreement. The merger agreement would effect the following
actions, among other matters:
- a wholly owned subsidiary of Ardent will be merged into Prism, resulting
in Prism becoming a wholly owned subsidiary of Ardent,
- each share of Prism common stock outstanding immediately prior to the
effective time of the merger will be converted into the right to receive,
and become exchangeable for, 0.13124 of a share of Ardent common stock,
and
- each outstanding option to purchase Prism common stock will become an
option to purchase Ardent common stock based on the same exchange ratio.
However, cash will be paid in lieu of any fractional share of Ardent common
stock which a stockholder of Prism may otherwise be entitled to receive. A copy
of the merger agreement is attached as Annex I to this proxy
statement/prospectus and is incorporated herein by reference.
The Prism board has approved the merger agreement and unanimously
recommends that the holders of Prism common stock vote "FOR" adoption of the
merger agreement. See "The Proposed Merger -- Recommendation of the Prism Board
and Reasons for the Merger" and "The Proposed Merger -- Interests of Executive
Officers and Directors of Prism in the Merger" and "-- Stockholder Support
Agreement".
VOTING RIGHTS
As required by Delaware law, the affirmative vote of the holders of at
least a majority of the shares of Prism common stock outstanding as of the Prism
record date is required to adopt the merger agreement. The presence, either in
person or by proxy, of the holders of a majority of the shares of Prism common
stock outstanding as of the Prism record date is required to constitute a quorum
at the Prism special meeting. At the Prism record date, there were 18,772,256
shares of Prism common stock outstanding. Holders of record of Prism common
stock outstanding as of the Prism record date are entitled to one vote per share
at the Prism special meeting. Nine significant stockholders of Prism, who
collectively hold approximately 54% of the outstanding shares of Prism common
stock, have agreed, among other things, to vote their shares in favor of the
proposal to adopt the merger agreement. Therefore, stockholder adoption of the
merger agreement is assured. See "The Proposed Merger -- Stockholder Support
Agreement".
The Prism board is soliciting proxies so that each holder of Prism common
stock on the Prism record date has the opportunity to vote on the merger
proposal to be considered at the Prism special meeting. When a proxy card is
returned properly signed and dated, the shares the proxy card represents will be
voted in accordance with the instructions on the proxy card. If a stockholder
does not return a signed proxy card, that stockholder's shares will not be voted
and thus will have the effect of a vote against adoption of the merger
agreement. Shares which are represented at the meeting but as to which the
holder abstains from voting or has no voting authority in respect of a
particular matter will not be deemed to be voted on such matter. One example of
this is in the case of a broker non-vote, where a broker will not vote the
matter without the approval of the beneficial owner. Since adoption of the
merger agreement requires the affirmative vote of a majority of the outstanding
shares of Prism common stock, abstentions and broker non-votes will have the
effect of negative votes. Stockholders are urged to mark the box on the proxy
card to indicate how their shares are to be voted. IF A STOCKHOLDER RETURNS A
SIGNED PROXY CARD, BUT DOES NOT INDICATE HOW HIS OR HER SHARES ARE TO BE VOTED,
THE SHARES REPRESENTED BY THE PROXY CARD WILL BE VOTED "FOR" ADOPTION OF THE
MERGER AGREEMENT. The proxy card also gives the individuals appointed by the
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Prism board and named on the proxy card discretion to vote the shares
represented thereby on any other matter that is properly presented for action at
the Prism special meeting.
It is currently expected that on the scheduled date of the Prism special
meeting, votes will be taken and the polls closed on the proposal to adopt the
merger agreement. It is possible, however, that there could be proposals for one
or more adjournments or postponements of the meeting in order to permit further
solicitation of proxies. The affirmative vote of a majority of the shares voted
is necessary for approval of any adjournment or postponement proposal. An
instruction to vote a proxy for adoption of the merger agreement will also be
deemed to give the holder of the proxy the discretion to vote upon an
adjournment or postponement proposal.
Any holder of Prism common stock who executes and returns a proxy card may
revoke such proxy at any time before it is voted by:
- Notifying in writing the Corporate Secretary of Prism at 1000 Hamlin
Court, Sunnyvale, CA 94089,
- Granting a subsequent proxy, or
- Appearing in person and voting at the Prism special meeting. Attendance
at the Prism special meeting will not in and of itself constitute
revocation of a proxy.
INDEPENDENT ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP, independent accountants for
Prism, are expected to be present at the meeting to respond to appropriate
questions and will have an opportunity to make a statement if they desire to do
so.
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THE PROPOSED MERGER
The following description of selected aspects of the merger does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the merger agreement, which is attached to this proxy
statement/prospectus as Annex I and is incorporated herein by reference.
SUMMARY
GENERAL
At the effective time of the merger, a wholly owned subsidiary of Ardent
will be merged into Prism, the separate existence of this subsidiary will cease
and Prism, as the surviving corporation, will become a wholly owned subsidiary
of Ardent.
Upon the completion of the merger, each then outstanding share of Ardent's
subsidiary's common stock will be converted into one share of Prism common
stock. Immediately after that, each outstanding share of Prism common stock will
be converted into the right to receive, and become exchangeable for, 0.13124 of
a share of Ardent common stock. We refer to this ratio in this proxy
statement/prospectus as the exchange ratio. Each outstanding share of Prism
common stock will entitle its holder to a pro rata right under the current
version of the Ardent Rights Agreement dated as of June 12, 1996 between Ardent
and State Street Bank and Trust Company. No fractional shares of Ardent common
stock will be issued in the merger, and holders of Prism common stock whose
shares are converted in the merger will be entitled to a cash payment in lieu of
fractional shares of Ardent common stock. See "-- No Fractional Shares". For a
description of the treatment of the Prism employee stock option plans and other
rights to acquire Prism common stock in the merger, see "-- The Merger
Agreement -- Additional Agreements -- Prism Common Stock Options and Prism Stock
Option Plans" and "-- Prism Employee Stock Purchase Plan". Ardent common stock
is currently listed on The Nasdaq Stock Market. None of the shares of Ardent
common stock issued and outstanding immediately prior to the effective time of
the merger will be converted or otherwise modified in the merger and all such
shares will continue to be outstanding capital stock of Ardent after the
completion of the merger.
A description of key differences between the rights of holders of Ardent
common stock and Prism common stock, is set forth under the section of this
document entitled "Comparison of Rights of Holders of Prism Common Stock and
Ardent Common Stock".
CLOSING; EFFECTIVE TIME
The closing of the merger will take place no later than two days after the
last of the conditions set forth in the merger agreement is satisfied or waived.
The closing may be deferred until such other time as Ardent and Prism agree.
After all the conditions in the merger agreement have been satisfied or waived,
the merger will become effective when the certificate of merger required under
the Delaware corporation law is filed with the Secretary of State of Delaware,
unless the certificate of merger states that the merger shall become effective
at a later time. Ardent and Prism currently expect that the certificate of
merger will be filed and the merger will be effected as soon as practicable
after the Prism special meeting.
EXCHANGE OF STOCK CERTIFICATES
Holders of shares of Prism common stock immediately prior to the time the
merger becomes effective will be entitled to receive 0.13124 of a share of
Ardent common stock in exchange for each share of Prism common stock that they
held immediately prior to the merger. Notwithstanding the exchange ratio, no
fractional shares of Ardent common stock will be issued. As soon as practicable
after the merger becomes effective, State Street Bank and Trust Company, the
exchange agent for the merger, will mail instructions and a letter of
transmittal to each person who was a holder of Prism common stock immediately
prior to the merger. The instructions will describe the procedures for
surrendering certificates that prior to the merger represented Prism common
stock in exchange for the certificates evidencing Ardent common stock. The
letter of transmittal will specify that delivery is effective, and risk of loss
to the Prism stock
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certificates passes, only upon actual delivery of the Prism stock certificates
to the exchange agent. Upon surrender of the Prism stock certificates for
cancellation to the exchange agent, together with a signed letter of transmittal
and such other documents as the exchange agent may reasonably require, the Prism
stock certificates will be canceled and the holder of a Prism stock certificate
will receive an Ardent stock certificate representing that number of whole
shares of Ardent common stock to which the former Prism stockholder is entitled
by the provisions of the merger agreement. The Ardent stock certificate will be
delivered together with payment in cash for any fractional share of Ardent
common stock. Holders of Prism common stock should not submit their Prism
certificates for exchange unless and until they have received the transmittal
instructions and a letter of transmittal from the exchange agent.
Holders of Prism common stock will not be entitled to receive any dividends
or other distributions on Ardent common stock until the merger is completed and
they have exchanged their Prism stock certificates for Ardent stock
certificates. Subject to applicable laws, any dividends and distributions after
the merger, if any, will be accumulated and, at the time a former Prism
stockholder surrenders his or her Prism stock certificates to the exchange
agent, all such accrued and unpaid dividends and distributions, together with
any cash payments in lieu of fractional shares of Ardent common stock, will be
paid without interest. It is not anticipated that there will be any accrued and
unpaid dividends or distributions at the time of the merger.
If any Ardent stock certificates are to be issued in a name other than that
in which the corresponding Prism stock certificate is registered, it is a
condition to the exchange of the Prism stock certificate that the former Prism
stockholder requesting such exchange comply with applicable transfer
requirements and pay any applicable transfer or other taxes. Alternatively, the
Prism stockholder may establish to the satisfaction of Ardent that such tax has
been paid or does not apply. Any associated costs and expenses will be the
responsibility of the Prism stockholder. No transfers of Prism common stock will
be made on the stock transfer books of Prism after the close of business on the
date before the merger.
Neither the exchange agent nor any party to the merger agreement will be
liable to any former Prism stockholder for any shares of Ardent common stock
delivered to state authorities as required by applicable abandoned property,
escheat or other similar laws. At any time following 180 days after the merger,
Ardent may require the exchange agent to return all Ardent common stock and cash
deposited with the exchange agent which has not been disbursed to former Prism
stockholders. After that, any holders that have not remitted their Prism stock
certificates to the exchange agent may look to Ardent only as a general creditor
with respect to those shares.
NO FRACTIONAL SHARES
No certificates for fractional shares of Ardent common stock will be issued
upon the surrender for exchange of Prism stock certificates in the merger. No
Ardent common stock dividend, reclassification, stock split or interest will be
paid with respect to any fractional share of Prism common stock, and such
fractional interests will not entitle the owner of the shares to vote or to any
of the other rights of a holder of Ardent common stock. Instead, each former
beneficial owner of Prism common stock who would otherwise have been entitled to
a fraction of a share of Ardent common stock upon surrender of Prism stock
certificates for exchange will be entitled to receive from the exchange agent a
cash payment, without interest, based on the closing price of Ardent common
stock on The Nasdaq Stock Market on the date the merger becomes effective.
BACKGROUND OF THE MERGER
Ardent began to develop and market a data warehouse product in 1996. By the
beginning of 1998, although Ardent was generally meeting its goals for
establishing itself in the data warehouse market, its management believed that
consideration should be given to acquiring products and technology in that
market which were complementary to its DataStage product. Accordingly, Mr.
Gyenes, the chief executive officer of Ardent, contacted Mr. Weiss, the chief
executive officer of Prism, and arranged for a meeting.
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The two met in Sunnyvale, California on February 24, 1998 and discussed the
possibility of merging the two companies.
Following the initial meeting between Messrs. Gyenes and Weiss, the
companies entered into a mutual non-disclosure agreement effective on March 11,
1998. The companies then exchanged financial and other information, including
product plans and market data. After that exchange on April 16, Messrs Gyenes
and Weiss again met in Sunnyvale and discussed a number of matters in connection
with a possible merger, including product and marketing strategy and the
relative valuations of the two companies. This meeting was followed by a
telephone conversation between the two on April 21, in which they determined not
to continue discussions primarily due to significantly different views as to
relative valuation.
On August 10, 1998, Messrs. Gyenes and Weiss met in Woodside, California
and discussed the possibility of a partnering arrangement in which the two
companies would become resellers of each other's products. No partnering
arrangements were agreed upon and there was no discussion of a merger of the
companies.
On August 19, 1998, Prism received a proposed term sheet from another
company ("Company B") regarding a proposed acquisition of Prism. On August 21,
the Prism directors met to discuss the term sheet. On August 24, Prism received
a revised term sheet from Company B. The Prism directors met again and
authorized management to go forward with merger negotiations and sign a letter
with Company B agreeing not to negotiate with other parties. This exclusivity
letter would expire on September 11, 1998. The letter was signed and Company B
conducted due diligence on Prism from August 25 to August 28. On or about
September 4, Prism and Company B ended merger discussions because they could not
reach agreement on material terms, and the exclusivity letter with Company B
expired on September 11.
On October 20, 1998, Mr. Gyenes contacted Mr. Weiss to attempt to resume
merger discussions between Ardent and Prism. There followed over the next ten or
so days a series of meetings involving management of both companies, during
which Ardent conducted due diligence and proposed preliminary merger terms.
On October 28, the chairman of Company B contacted Mr. Weiss by telephone
and proposed terms for the acquisition of Prism by Company B. Ardent was
notified on the same day that a proposal had been made by another company, but
Ardent was not informed of the identity of Company B or the proposed terms.
The Prism directors met on November 2 to review merger proposals from
Ardent and Company B. Because of timing concerns and the fact that Company B was
further along in the due diligence process, the Prism directors believed that
there was more risk in proceeding with Ardent and instructed management to sign
a second exclusivity letter with Company B. This exclusivity letter was signed
on November 2 with an expiration date of November 13, 1998. Ardent was informed
of the Prism board's decision.
By November 5, Prism was becoming concerned that it could not reach an
agreement with Company B by November 13 due to several unacceptable terms
proposed by Company B in the negotiations, and on November 6 Prism terminated
negotiations with Company B. On November 12, the President of Company B called
Mr. Weiss and proposed the resumption of merger negotiations with Prism. Prism
agreed to resume negotiations with Company B, but refused to extend the
exclusivity letter.
Knowing that the exclusivity letter between Prism and Company B expired on
November 13, Mr. Gyenes contacted Mr. Weiss by telephone on November 14 and was
told that, although Prism was still in negotiations with the other company, the
exclusivity letter had not been extended and Prism was open to a merger proposal
from Ardent. Ardent management made a merger proposal during a telephone
conference call on November 15 which included both Messrs. Gyenes and Weiss, and
Ardent furnished Prism a draft of a proposed definitive merger agreement on
November 17.
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On November 17, the Prism board of directors met to review the two merger
proposals, and during November 17 and 18 Prism continued to negotiate with both
Ardent and Company B. By the end of the day on November 18, the management of
Prism and Ardent had reached agreement on substantially all terms for a merger,
whereas Prism and Company B had not reached agreement on several important
issues.
The Ardent board of directors met in the evening on November 18 and
unanimously authorized the execution of a definitive merger agreement with Prism
on substantially the terms which had been negotiated by management.
The Prism board of directors met on the morning of November 19 and
unanimously authorized the execution of a definitive merger agreement with
Ardent on substantially the terms which had been negotiated. Following this
meeting, the merger agreement was signed by both parties.
RECOMMENDATION OF THE PRISM BOARD AND REASONS FOR THE MERGER
The Prism board has unanimously approved the merger agreement, has
unanimously determined that the merger is fair to and in the best interests of
Prism and its stockholders and unanimously recommends that the holders of shares
of Prism's common stock vote for adoption of the merger agreement.
The Prism board's decision to approve the merger agreement and the merger
was based in significant part upon its assessment of the trends developing in
the data warehouse market, Prism's performance over the last two quarters, and
the additional demands which would be placed on Prism as a result of increasing
competition, consolidation and customer demands. The Prism board compared the
benefits and associated risks of the merger with those of continuing as a
stand-alone company and attempting to raise additional capital or accepting the
merger proposal of Company B. The merger with Ardent was viewed by the Prism
board as being preferable to either alternative for a number of reasons.
Prism has experienced financial difficulties, as reflected by its
performance over the past two quarters and resulting limited capital resources.
Prism's board decided that, given Prism's capital resources and the risks
associated with raising equity in the market environment at that time as well as
the risks associated in attaining profitability on an independent basis, the
sale of the company was a better alternative for the Prism stockholders.
The Prism board also considered the offer made by Company B to buy Prism.
The Prism board believed that the Ardent offer was a better alternative after
considering each suitor's market strategy and overall fit and the fact that
Company B's financial offer and other offered contractual terms were less
desirable. In particular, Prism's board noted that Ardent's proposal for the
acquisition of Prism was approximately 15% higher in valuation than Company B's
proposal. In addition, the Prism board believes that Ardent's prospects on a
going-forward basis are superior to those of Company B, in terms of its position
for future business growth and management's ability to execute its operating
plan. Prism believes that the Ardent offer represented the best alternative
available to it to maximize stockholder value.
A potential merger with Ardent was also considered to be complementary with
Prism's long-term objectives and to provide an opportunity to attain the
following potential strategic benefits:
- The combination of Ardent's and Prism's complementary data warehouse
technologies provides an opportunity for the combined company to offer a
more complete line of products.
- The broader and more complete product offering that will be available
from the combined company will provide potentially increased leverage
with Prism's customers.
- Given the technology of the two companies, the combined company will be
able to better address customer needs by creating new product offerings
for data warehouse projects that neither company could have created on
its own.
- The combined company will have the opportunity to benefit from sales of
Prism's products through Ardent's strong value added reseller and
original equipment manufacturer arrangements with
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companies such as Sybase, Inc., Informix Software, Inc., Compaq Computer
and Computer Sciences Corporation.
- The combined entity could streamline overhead and eliminate duplicative
functions.
- The combined entity could benefit from the systems and personnel that the
combined entity could bring to bear in the data warehouse market.
- The combination of Prism and Ardent would create a combined company with
significantly greater resources and greater sales and marketing
capabilities than those of Prism alone and might enable Prism's products
to compete more effectively with products of competitors in the
consolidating and rapidly changing data warehouse market.
- Ardent's market presence, large customer base and broad sales and
distribution network offer expanded sales and marketing opportunities for
Prism's products.
- The combined entity could leverage Prism's technological expertise and
international distribution network to market and sell a broader array of
products and services.
The Prism board further evaluated the merits of an investment in Ardent
common stock and concluded that Ardent common stock has appreciation potential
in the long term. Further, since Ardent is a larger company with more widely
traded stock, it should represent a more liquid investment than the Prism common
stock.
In the course of its deliberations, the Prism board reviewed with Prism's
management a number of other factors relevant to the merger. In particular, the
Prism board considered:
- The financial and other terms of the proposed merger agreement, which the
Prism board determined was reasonable after consultation with its legal
and financial advisors.
- The likelihood of realizing superior benefits through alternative
business strategies, including remaining a stand-alone company or the
offer from Company B.
- An analysis of the relative value that Prism might contribute to the
future business and prospects of the combined organization.
- The compatibility of the management and businesses of Prism and Ardent
and the benefits described earlier that management hopes to attain
through the merger.
- The detailed financial analysis presented by FAC/Equities, including the
opinion of FAC/Equities dated November 19, 1998 that the exchange ratio
was fair, from a financial point of view, to the holders of Prism common
stock, as of the date of that opinion.
The Prism board also considered certain risks that could potentially arise
in connection with the merger, including:
- The potential disruption of Prism's business that might result from
employee, distributor and customer uncertainty and lack of focus
following announcement of the merger in connection with integrating the
operations of Prism and Ardent.
- Prism's lack of autonomy with respect to management decisions following
the merger.
- The possibility that the merger might not be consummated.
- The effects of the public announcement of the merger on Prism's sales and
operating results and its ability to attract and retain key management,
sales, marketing and technical personnel.
- The risk that the announcement of the merger could result in decisions by
customers to defer purchases of products or services of Prism or Ardent.
- Given the volatility that the price of Ardent common stock had
experienced, with market prices closing within a range of $10.25 to $
18.625 per share over the period from March 11 to
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November 18, 1998, the risk that the price of Ardent common stock might
decline prior to the closing of the merger, thus reducing the value per
share to be received by Prism's stockholders.
- The risk that the combined companies would not successfully integrate
their products and operations.
- The risk that the other benefits sought to be achieved by the merger
would not be achieved.
- The other risks set forth in Prism's and Ardent's independent filings
with the SEC.
The discussion above of the information and factors considered by the Prism
board is not intended to be exhaustive but is believed to include all material
factors considered by the Prism board. In view of the wide variety of factors,
both positive and negative, considered by the Prism board, the Prism board did
not find it practical to, and did not, quantify or otherwise assign relative
weights to the specific factors considered. After taking into consideration all
of the factors set forth above, the Prism board believes that the merger is in
the best interests of Prism and its stockholders and recommends adoption of the
merger agreement.
ARDENT BOARD'S REASONS FOR THE MERGER
The approval of the merger agreement by the Ardent board was based upon its
conclusion that the terms of the agreement are fair to Ardent and its
stockholders and that the acquisition of Prism on such terms are in the best
interest of Ardent. In reaching such conclusion, the Ardent board, in
consultation with its management and its financial and legal advisors and
consultants, considered and relied upon a number of facts, including the
following:
- Expanded Data Warehouse Capability. The benefit to Ardent's data
warehouse business of Prism's complementary products, sales and
consulting resources, customer base, and recognized position as a pioneer
and technological leader in the data warehouse industry.
- Cost Savings. The cost savings potentially realizable in the
consolidation of duplicative sales, marketing, service, administration
and other functions. Ardent estimated that such savings would be in the
$18 million to $22 million range annually, pre-tax. This estimate
excludes one-time costs associated with the integration of Prism into
Ardent.
The Ardent board also considered a variety of negative factors associated
with the merger, primarily those described above under "Risk Factors" beginning
on page 12. It did not consider those factors in the aggregate to outweigh the
merits of the transaction.
The Ardent board did not find it practical to, and did not, quantify or
otherwise assign relative values to the specific factors associated with the
merger. The Ardent board recognized that Ardent's stock price could fluctuate
and thus change the nominal value of the consideration to be paid for Prism and
accordingly did not establish any range of value for Prism but focused on the
exchange ratio and the ranges of the exchange ratio in which the merger would be
accretive to Ardent's earnings.
OPINION OF FINANCIAL ADVISOR -- FAC/EQUITIES
By executing an engagement letter dated September 2, 1998, Prism engaged
First Albany Corporation, through its FAC/Equities division, to render an
opinion as to the fairness, from a financial point of view, of the consideration
to be received by Prism stockholders based on the terms and conditions set forth
in the merger agreement.
At the November 19, 1998 meeting of the Prism board, FAC/Equities delivered
its oral opinion, later confirmed in writing, that the consideration to be
received by Prism's stockholders in the merger is fair to Prism's stockholders
from a financial point of view. Prism and Ardent determined the amount of
consideration to be paid through negotiations, not from recommendations of
FAC/Equities. Prism did not
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impose any limitations on FAC/Equities with respect to the investigations made
or procedures followed in rendering its opinion.
The full text of the FAC/Equities opinion to the Prism board, which sets
forth the assumptions made, matters considered and limitations of review by
FAC/Equities, is attached to this proxy/statement prospectus as Annex II, and is
incorporated by reference. You should read it carefully and in its entirety in
connection with this proxy statement/prospectus. The following summary of the
FAC/Equities opinion is qualified in its entirety by reference to the full text
of the opinion. The FAC/Equities opinion is addressed to the Prism board only
and does not constitute a recommendation to any Prism stockholders as to how any
stockholder should vote at the Prism special meeting. In furnishing its opinion,
FAC/Equities did not admit that it is an expert within the meaning of the term
"expert" as used in the Securities Act of 1933 and its related rules and
regulations, or that its opinion is a report or valuation within the meaning of
Section 11 of the Securities Act. These disclaiming statements are included in
the FAC/Equities opinion. FAC/Equities has not assumed responsibility for
performing the level of diligence or independent verification that would be
required for it to render a report or valuation for purposes of the Securities
Act. Accordingly, FAC/Equities believes that the FAC/Equities opinion should not
be accorded the degree of reliance placed on such reports and valuations.
FAC/Equities has informed Prism that in arriving at its opinion,
FAC/Equities, among other activities:
- Reviewed certain publicly available financial and other data with respect
to Prism and Ardent, including the consolidated financial statements for
the years ended December 31, 1997 and 1996, financial statements for the
quarters ended September 30, 1998, June 30, 1998 and March 31, 1998 for
Prism and Ardent, and certain other relevant financial and operating data
relating to Prism and Ardent made available to FAC/Equities from
published sources and from the internal records of Prism;
- Reviewed the financial terms and conditions of the merger agreement;
- Reviewed certain publicly available information concerning the trading
of, and the trading market for, the Prism common stock and Ardent common
stock;
- Compared Prism and Ardent from a financial point of view with certain
other companies in the data warehouse software industry which it deemed
to be comparable;
- Considered the financial terms, to the extent publicly available, of
selected recent business combinations of data warehouse software
companies and the larger software sector which it deemed to be
comparable;
- Reviewed and discussed with representatives of the management of Prism
and Ardent certain information of a business and financial nature
regarding Prism and Ardent, including financial forecasts; and
- Performed such other analyses and examinations that it deemed
appropriate.
In preparing the FAC/Equities opinion, FAC/Equities did not assume any
obligation independently to verify the financial and other information reviewed
by it for purposes of its opinion and relied on its accuracy and completeness in
all material respects. With respect to the financial forecasts for Prism
provided to FAC/Equities by the Prism management, FAC/Equities assumed for
purposes of its opinion that the forecasts, including the assumptions regarding
potential operational efficiencies, were reasonably prepared on bases reflecting
the best available estimates and judgments by management at the time of
preparation. FAC/Equities also assumed that these forecasts provided
FAC/Equities a reasonable basis upon which FAC/Equities could form its opinion.
FAC/Equities assumed that there had been no material changes in Prism's or
Ardent's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to FAC/Equities. FAC/Equities relied upon the advice of counsel and
independent accountants to Prism as to all legal and financial
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reporting matters with respect to Prism, the merger and the merger agreement,
including the legal status and financial reporting of litigation involving
Prism.
FAC/Equities also assumed that the merger will be consummated:
- in a manner that complies in all respects with the applicable provisions
of the Securities Act, the Exchange Act of 1934 and all other applicable
federal and state statutes, rules and regulations, and
- in accordance with the terms described in the merger agreement, without
any further amendments thereto, and without waiver by Prism of any of the
conditions to its obligations thereunder.
In addition, FAC/Equities did not make an independent evaluation, appraisal
or physical inspection of any of the assets or liabilities, whether contingent
or otherwise, of Prism or Ardent, and was not furnished with any such
appraisals. Finally, the FAC/Equities opinion is based on economic, financial
and securities market and other conditions as in effect on, and the information
made available to it as of November 16, 1998.
Set forth below is a brief summary of material financial analyses performed
by FAC/Equities in connection with rendering the FAC/Equities opinion.
COMPARABLE PUBLIC COMPANY ANALYSIS. Using public and other available
information, FAC/Equities analyzed and compared selected data and ratios for
Prism to the corresponding data and ratios of other software companies. These
software companies were selected because they have publicly traded securities
and, FAC/Equities believes, they have operating, market and trading valuations
that are similar to those that might be expected of Prism. The companies against
whose data and ratios Prism's data and ratios were compared include:
Brio Technology,
Business Objects,
Cognos,
Comshare,
Gentia Software,
Hyperion Solutions,
Information Advantage,
Informix,
Oracle,
Pervasive Software,
Red Brick Systems, and
Sybase.
From among these comparable companies, FAC/Equities then selected the
following three companies:
Comshare,
Red Brick Systems, and
Sybase.
These three companies were selected because each faced market conditions
which resulted in declining license revenues in recent periods. Primary
multiples, data and ratios compared by FAC/Equities included:
- revenue multiples, which were derived by dividing each company's market
valuation by its latest twelve-month revenues and also by its estimated
forward twelve month revenues, and
- price-to-earnings multiples, which were derived by dividing each
company's stock price by its estimated 1998 and 1999 calendar year
earnings per share.
The multiples for Prism were based on the implied equity value of Prism
given the exchange ratio and Ardent's closing stock price as of November 16,
1998. All multiples for the three selected companies were
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based on closing stock prices as of November 16, 1998 and, with respect to
estimates of future performance for those companies, on analyst reports and
other publicly available information. FAC/ Equities relied on revenue multiples
because Prism and most of the three selected companies do not have positive
earnings per share estimates, rendering meaningless a price-to-earnings multiple
comparison.
FAC/Equities observed that Prism is valued at 0.8x latest twelve month
revenues, compared to a range of 0.6x to 0.9x for the three selected companies.
FAC/Equities also observed that Prism is valued at 0.7x forward twelve month
revenues, compared to a range of 0.6x to 1.1x for the three selected companies.
Applying the range of latest twelve month revenue multiples for the three
selected companies resulted in an equity reference range for Prism of $1.71 to
$2.76 per share. Applying the range of forward twelve month revenue multiples
for the three selected companies resulted in an equity reference range for Prism
of $1.82 to $3.24 per share. FAC/Equities compared these equity references to
the equity value implied by the exchange ratio of approximately $2.27 per share
based on the closing price of Ardent common stock on November 16, 1998. While
the three selected companies demonstrate a wide range of values, the value
implied by the Prism-to-Ardent exchange ratio is within this range. Based on
this comparable public company analysis, FAC/Equities believed that the terms of
the merger agreement were fair.
PRECEDENT TRANSACTION ANALYSIS. FAC/Equities examined the consideration
paid, to the extent publicly available, in a number of acquisitions of publicly
traded software companies. The transactions reviewed for this analysis included
38 acquisitions completed or announced between December 1, 1997 and November 16,
1998. Among other variables, FAC/Equities compared the percentage premiums
represented by the consideration paid in such transactions over the market price
for Prism common stock at one week prior to announcement and four weeks prior to
announcement. The premiums for Prism were calculated based on Ardent's closing
stock price on November 16 and Prism's closing stock prices on November 9, 1998
and October 18, 1998. The Ardent premium offered for Prism for this merger was
approximately 35% over Prism's stock price one week prior, compared to a median
premium of 34% for the precedent transactions. The premium offered for Prism in
this transaction was approximately 128% over Prism's stock price four weeks
prior, compared to a median premium of 39% for the precedent transactions.
FAC/Equities believes the most comparable precedent transaction from a
financial point of view is the pending acquisition of Red Brick Systems by
Informix, which was announced on October 7, 1998. It believes this to be so for
the following reasons:
- Red Brick Systems and Prism are both focused on the data warehouse
market,
- both companies sell products designed to construct specific aspects of a
data warehouse infrastructure,
- the two companies are close in size, as measured by total revenues,
- both companies experienced declines in quarterly license revenue during
the year prior to announcing the acquisitions, and
- both companies were projected to incur significant operating losses in
1998.
Based on publicly available and other information, FAC/Equities observed
that the Informix acquisition implies a valuation, after subtracting cash
balances, of 0.4x latest twelve month revenues for Red Brick Systems. In
comparison, the Ardent-to-Prism exchange ratio implies a valuation, after
subtracting cash balances, of 0.7x latest twelve month revenues for Prism.
Based on this precedent transaction analysis, FAC/Equities believed that
the terms of the merger agreement were fair.
EXCHANGE RATIO ANALYSIS. FAC/Equities reviewed the ratios of the prices of
Prism common stock to Ardent common stock over the one-month and two-month
periods ended November 16, 1998, and it computed the premium over these ratios
represented by the exchange ratio. On average, the closing price of Prism common
stock has been 0.11238 and 0.12249 that of Ardent common stock for the one-month
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and two-month periods, respectively. The exchange ratio of 0.13124 represents a
premium of approximately 17% and 7% to the one-month and two-month historical
trading ratios, respectively.
Based on this exchange ratio analysis, FAC/Equities believed that the terms
of the merger agreement were fair.
DISCOUNTED CASH FLOW ANALYSIS. FAC/Equities performed a discounted cash
flow analysis for Prism based on estimates of Prism's financial results for the
fiscal years 1999 through 2003. These estimates were based on publicly available
estimates for 1999 and on FAC/Equities' estimates of those results, based on its
knowledge of Prism's historical financial performance and on guidance provided
to it by Prism management. The analysis aggregated:
(a) the net present value of the projected earnings before interest and
taxes -- commonly known as the EBIT -- from 1999 through 2002, and
(b) the net present value of the estimated terminal value of the EBIT for
the year 2003.
The terminal value for Prism was determined by taking the current year
price-to-earnings ratio for the larger group of comparable companies, which, at
20x, is between the low and average values, and, after adjusting that ratio for
income taxes, implies an EBIT multiple of 13x. FAC/Equities determined an
appropriate annual discount rate of 18% for the discounted cash flow analysis.
Such analysis indicated a net present value of approximately $30.8 million for
Prism common stock, compared to the $42.5 million implied equity value of Prism
given the exchange ratio and Ardent's closing stock price as of November 16,
1998.
Based on this discounted cash flow analysis, FAC/Equities believed that the
terms of the merger agreement were fair.
PRO FORMA FINANCIAL ANALYSIS. FAC/Equities analyzed certain pro forma
effects resulting from the merger, including, among other things, the impact of
the merger on the projected earnings per share and the rate of revenue growth of
the combined company for the fiscal year 1999. Such analysis included the effect
of certain cost savings that the combined company may realize in its operations,
based on guidance provided by the managements of Prism and Ardent. The pro forma
analysis suggested that the combined companies would have earnings in 1999, as
opposed to losses projected for Prism, and they also suggested that the revenue
of the combined companies would grow at a more rapid rate then had been
estimated for Prism in 1999.
Based on this pro forma financial analysis, FAC/Equities believed that the
terms of the merger agreement were fair.
While the previous summary describes all analyses and examinations that
FAC/Equities deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually performed by FAC/Equities.
The preparation of a fairness opinion is a complex process that involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial or summary
description. FAC/Equities believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered,
without considering all such analysis and factors, would create an incomplete
view of the evaluation process underlying the FAC/ Equities opinion. Several
analytical methodologies were used and no one method of analysis should be
regarded as critical to the overall conclusion reached by FAC/Equities. The
conclusions reached by FAC/ Equities are based on all analyses and factors taken
as a whole and also on application of FAC/Equities' own experience and judgment.
Such conclusions may involve significant elements of subjective judgment and
qualitative analysis. In addition, FAC/Equities may have given various analyses
more or less weight than other analyses, and may have deemed various assumptions
more or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis should not be taken to be FAC/Equities'
view of the actual value of Prism, Ardent or the combined company.
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In performing its analyses, FAC/Equities made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Prism or Ardent. The
analyses performed by FAC/Equities are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of FAC/Equities' analysis of the fairness of the merger to Prism's
stockholders from a financial point of view and were provided to the Prism board
in connection with the delivery of the FAC/Equities opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. FAC/Equities used in certain of its analyses
various projections of future results prepared by the management of Prism and by
securities analysts. The projections are based on numerous variables and
assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in the projections.
As described above, the FAC/Equities opinion and presentation to the Prism
board were among the many factors taken into consideration by the Prism board in
making its determination to approve, and to recommend that its stockholders
adopt, the merger agreement.
In its engagement letter with FAC/Equities, Prism has agreed to pay
FAC/Equities a fee of $200,000 for the delivery of the FAC/Equities opinion to
the Prism board. Prism has also agreed to reimburse FAC/Equities for its
reasonable out-of-pocket expenses up to $25,000. Pursuant to a separate
indemnification agreement, Prism has agreed to indemnify FAC/Equities, its
affiliates, and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws. The terms of the fee
arrangement with FAC/ Equities, which Prism and FAC/Equities believe are
customary in transactions of this nature, were negotiated at arm's length
between Prism and FAC/Equities, and the Prism board was aware of such fee
arrangements. FAC/Equities served as financial advisor in connection with
Prism's acquisition of QDB Solutions in July 1997, for which FAC/Equities
received advisory fees. In addition, FAC/Equities was a member in the
underwriting group for Prism's initial public offering of Prism common stock in
March 1996.
FAC/Equities was retained based on its experience as a financial advisor in
connection with mergers and acquisitions and in securities valuations generally,
as well as FAC/Equities' investment banking relationship and familiarity with
Prism.
FAC/Equities is a nationally recognized investment banking firm. As part of
its investment banking activities, FAC/Equities is regularly engaged in the
valuation of businesses and their securities in connection with merger and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. FAC/Equities may trade the equity securities of Prism and Ardent for
its own account and for the account of its customers and, accordingly, may at
any time hold a long or short position in such securities.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF PRISM IN THE MERGER
ARDENT'S ASSUMPTION OF STOCK OPTIONS. The merger agreement provides that
the obligation to issue shares upon the exercise of Prism stock options,
including options held by directors and executive officers, will be assumed by
Ardent as described under "-- The Merger Agreement -- Additional Agreements --
Prism Common Stock Options and Prism Stock Option Plans". It is expected that,
immediately prior to the merger, the six outside directors and the Chairman of
the Board of Prism will hold options to purchase an aggregate of 160,000 shares
of Prism common stock at prices ranging from $7.56 to $17.00 per share, with a
weighted average price of $13.46 per share, and the executive officers of Prism
will hold options to purchase an aggregate of 1,654,585 shares of Prism common
stock at prices ranging from $ 0.75 to $ 0.875 per share, with a weighted
average price of $0.868 per share.
ACCELERATION OF VESTING OF OFFICER AND DIRECTOR OPTIONS. Of the options
for the 160,000 shares of Prism common stock expected to be held by outside
directors and the Chairman of the Board immediately
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prior to the merger, options for approximately 102,498 will then be vested, and
the remainder will be subject to vesting over periods of up to four years from
the date the options were granted. As required by the terms of the plan under
which the options are issued, all the unvested options held by the outside
directors and the Chairman of the Board will become vested upon the
effectiveness of the merger.
Of the options for 1,654,858 shares of Prism common stock expected to be
held by executive officers immediately prior to the merger, options for
approximately 186,995 shares will then be vested, and the remainder will be
subject to vesting over periods of up to four years from the date the options
were granted. As required by the terms under which the options were issued, it
is expected that options held by several executive officers for the purchase of
an aggregate of 1,123,957 shares will immediately vest upon the effectiveness of
the merger, as follows:
UNVESTED SHARES WEIGHTED AVERAGE
TO VEST EXERCISE PRICE
EXECUTIVE OFFICER UPON MERGER PER SHARE
----------------- --------------- ----------------
Earl C. Charles (Chief Financial Officer)................... 215,250 $0.875
Stacey Cooper (Vice President, North American Sales)........ 24,500 $0.875
Michael Hunt (Vice President, International)................ 87,500 $ 0.75
Christopher Hyrne (Vice President, Marketing)............... 24,500 $0.875
Warren M. Weiss (Chief Executive Officer)................... 772,207 $0.875
SEVERANCE ARRANGEMENTS. Messrs. Weiss, Charles and Hunt are each party to
an employment agreement with Prism which provides that, if Prism is acquired by
another company and the employee does not continue his employment, the employee
will receive severance compensation equal to current base salary for a period of
twelve months or until he commences other employment, if sooner. It is not
expected that Mr. Weiss, Charles or Hunt will continue employment with Prism or
Ardent following the merger, and they will therefore be entitled to severance
compensation under the employment agreements. Messrs. Cooper and Hyrne are each
party to an employment agreement with Prism which provides that, if Prism is
acquired by another company and the employee does not continue his employment,
the employee will receive severance compensation equal to current base salary
for a period of six months or until he commences other employment, if sooner. It
is not expected that Mr. Cooper or Hyrne will continue employment with Prism or
Ardent following the merger, and they will therefore be entitled to severance
compensation under their employment agreements.
THE MERGER AGREEMENT
GENERAL. The merger agreement provides the legal framework for the merger
between Ardent and Prism. It specifies the terms under which the merger will
take place, including but not limited to:
- the terms under which the Prism shares will be converted and exchanged;
- the procedures for the conversion and exchange of the shares;
- representations and warranties of the parties that specific circumstances
exist or that each party has complied with specific requirements;
- restrictions on the conduct of Ardent and Prism pending the merger;
- additional agreements relating to matters such as stock option and stock
purchase plans, tax and accounting treatment, and actions to facilitate
the consummation of the merger;
- conditions that must be satisfied before each party is obligated to
effect the merger; and
- the circumstances under which the merger agreement can be terminated, the
merger can be abandoned, or requirements under the merger agreement can
be waived.
The following sections briefly summarize each of the above categories other
than the first two, which are described in the summary section of this proxy
statement/prospectus. For a more complete
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understanding of the contents of the merger agreement, please see the summary
section and the merger agreement itself.
REPRESENTATIONS AND WARRANTIES. The merger agreement contains various
representations and warranties of the parties. The representations and
warranties, which are not the same for each party, relate to a variety of
matters. The following is a non-inclusive list of categories of those
representations and warranties:
- corporate power and standing
- capital structure
- litigation
- labor and employment
- tax
- insurance
- intellectual property
- interested party transactions
- restrictions on business
- liens and encumbrances
- environmental matters
- Year 2000 compliance
- the fairness opinion
- compliance with state anti-takeover statutes
Other representations and warranties involve the authority of the parties to
enter the merger agreement, the enforceability of the agreement and Prism's
stockholder vote and board of directors approval.
The merger agreement also contains representations and warranties of Prism
relating to its financial statements for the three most recent fiscal years and
the accuracy of the information they contain in accordance with generally
accepted accounting principles.
RESTRICTIONS ON THE CONDUCT OF ARDENT AND PRISM PENDING THE MERGER. The
merger agreement contains several restrictions on the conduct of both parties
pending the merger. In general, the merger agreement provides that Ardent and
Prism will operate their businesses in accordance with their ordinary course of
business and in a manner consistent with past practices, use reasonable efforts
to preserve substantially intact their respective business organizations, keep
available the services of their present officers, key employees and consultants,
and preserve their present relationships with persons with whom they have
significant business relationships, except as otherwise consented to or approved
in advance by the other party.
The merger agreement lists several particular actions that Ardent and Prism
and their respective subsidiaries have agreed not to take, pending consummation
of the merger, without the prior written consent of the other party. Examples of
these restricted actions include the following:
- changing or amending organizational documents or, in the case of Ardent,
the Ardent Rights Plan;
- taking certain actions with respect to the ownership interests of the
parties, such as issuing, pledging, or encumbering the ownership
interests or splitting, combining, or reclassifying any of their capital
stock, except under certain circumstances;
- taking certain actions with respect to the assets of the parties, such as
selling, pledging, disposing of or encumbering the assets or authorizing
any capital expenditures or purchases of fixed assets, except under
certain circumstances;
- declaring, setting aside, making, or paying any dividends or
distributions with respect to their common stock except for certain
intracompany distributions;
- amending the terms of, repurchasing, redeeming, or otherwise acquiring
any of their securities or any securities of their subsidiaries;
- selling, transferring, licensing or otherwise disposing of, or amending
or modifying existing agreements with respect to, any of their
intellectual property, except under certain circumstances;
- acquiring any business organization or division thereof;
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- incurring any indebtedness, issuing any debt securities, making any
loans, or assuming, guaranteeing or otherwise becoming responsible for
the obligations of any person, except under certain circumstances;
- increasing compensation, entering into severance agreements or granting
severance pay, or entering collective bargaining, employment or employee
benefit agreements with or for the benefit of any current or former
directors, officers, or employees, except under certain circumstances;
and
- taking any action to change accounting policies or procedures.
The merger agreement also provides that Ardent and Prism shall not directly
or indirectly solicit, encourage, negotiate, approve, or recommend any inquiries
or proposals regarding any merger, sale of assets or stock, or similar
transaction involving that party or any of its subsidiaries before the effective
time of the merger or the termination of the merger agreement. This restriction
is subject to the applicable fiduciary duties of the respective directors of
Prism and Ardent.
ADDITIONAL AGREEMENTS. The merger agreement also contains provisions in
which the parties agree to take, or not to take, actions relating to a variety
of matters following the date of the merger agreement.
Prism Common Stock Options and Prism Stock Option Plans. At the effective
time of the merger, Ardent will assume the obligation to issue shares under each
outstanding option to purchase Prism common stock granted under Prism's 1992
Stock Option Plan, 1996 Equity Incentive Plan and 1996 Directors Stock Option
Plan. As of the effective time of the merger, each Prism stock option shall be
vested and exercisable to the same extent as it would be prior to the effective
time of the merger. However, instead of being an option to acquire Prism common
stock, at the effective time of the merger each Prism stock option will be
converted into an option to acquire the whole number of shares of Ardent common
stock that the Prism option holder would have been entitled to receive in the
merger had the holder exercised his or her option in full just before the
effective time of the merger. The price per share for those options shall be
equal to the aggregate exercise price for Prism common stock otherwise
purchasable under the option, divided by the number of shares of Ardent common
stock deemed purchasable under the option. Notwithstanding this, the
exercisability or the vesting of these stock options and the underlying stock
will continue to be determined by reference to stock option agreements executed
pursuant to Prism's stock option plans. In addition, references in any Prism
stock option plan to Prism, the Prism board of directors or any board committee,
and any Prism stock option plan shall, as of the effective time, be to Ardent,
the Ardent board of directors or board committee, and Ardent's 1995
Non-Statutory Option Plan, as amended, unless those changes would be
inconsistent with the context.
Prism Employee Stock Purchase Plan. The current payment period under this
plan began on February 1, 1999 and will end on July 30, 1999. Ardent will assume
the obligation to issue stock under this plan at the end of the current payment
period. Funds that are credited to a participant's payroll withholding account
will be applied to purchase shares of Ardent common stock at a purchase price
equal to the lesser of 85% of the average market price of Prism common stock on
the first day of the payment period, adjusted by the exchange ratio to the
equivalent Ardent common stock price, and 85% of the average market price of
Ardent common stock on the last day of the payment period. It is expected that
approximately 12,000 shares of Ardent common stock will be issued to
participants in the current payment period.
Tax and Accounting Treatment. The merger agreement provides that the
parties will make reasonable efforts to take all necessary actions to cause the
merger to qualify as a tax free reorganization. Conversely, the parties will not
take any actions, either before or after completion of the merger, which could
prevent the merger from qualifying for such tax treatment. Subsequent to the
execution of the merger agreement, the companies have determined that the merger
will be accounted for as a purchase transaction for financial accounting
purposes. Refer to "-- Accounting Treatment of the Merger" for more details. For
further descriptions on the tax treatment of the merger, see "Federal Income Tax
Considerations."
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Facilitating the Merger. The merger agreement also provides that Ardent
and Prism will take or cause to be taken, or use reasonable efforts to take or
cause to be taken, certain actions to facilitate the completion of the merger.
Examples of such actions include obtaining necessary consents, making necessary
filings, affording reasonable access to the other party, and taking any other
actions that are necessary, proper, or advisable to complete the transaction and
make the merger effective as promptly as practicable.
Other. The merger agreement provides that the parties will take a variety
of other actions, some of which relate to the indemnification rights of
directors and officers of Prism, the service credit of Prism employees, Prism's
obligation to call a stockholder's meeting and solicit proxies to vote upon the
approval of the merger, and the parties' obligations to prepare and file this
proxy statement/prospectus and a registration statement on Form S-4 with the
SEC.
CONDITIONS TO THE MERGER. The merger agreement provides that completion of
the merger is subject to the satisfaction or waiver of various conditions.
Neither party currently intends to waive any of the conditions to the merger.
Examples of these conditions include the following:
- the registration statement filed with the SEC will be declared effective
and no stop order will be issued or proceedings seeking a stop order will
be initiated relating to the registration statement;
- the merger agreement will be adopted by the requisite vote of Prism
stockholders;
- the applicable government agencies have terminated or allowed to expire
the waiting period for premerger antitrust review;
- no restraining orders, injunctions, prohibitions, statutes, rules,
regulations or other legal restraints will prevent completion of the
merger;
- no governmental authority will bring proceedings seeking to make
completion of the merger illegal or to prohibit or limit Ardent from
exercising its material rights and privileges pertaining to its ownership
of the business or assets of Prism, Ardent, or any of their respective
subsidiaries due to the completion of the merger;
- the shares of Ardent common stock to be issued in the merger will be
approved for quotation on The Nasdaq Stock Market;
- the parties will receive certificates and opinions from each other and
their respective legal and tax advisors regarding the merger; and
- no event shall have occurred, or would occur as a result of the merger,
that has or would result in the triggering of any right or entitlement of
Ardent stockholders under the Ardent Rights Plan.
TERMINATION OF THE MERGER AGREEMENT, ABANDONMENT OF THE MERGER, AND
WAIVER. The merger agreement provides that the merger agreement may be
terminated and the merger may be abandoned prior to the effective time under
certain circumstances.
Ardent and Prism, jointly, can authorize termination and abandonment prior
to the effective time by mutual written consent of their boards of directors.
Ardent or Prism, each individually, can terminate the agreement and abandon
the merger prior to the effective time of the merger if one of the following
circumstances takes place:
- if the merger is not completed by April 30, 1999 and the terminating
party has not caused this failure by its willful unfulfillment of any of
its obligations under the merger agreement,
- if a court or a governmental, regulatory, or administrative agency has
issued a non-appealable final order, decree, or ruling or taken any other
action that permanently prohibits the merger and the terminating party
has complied with certain obligations under the merger agreement,
- if the stockholders of Prism fail to approve the merger agreement, or
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- if the non-terminating party has breached any representation, warranty,
covenant or agreement set forth in the merger agreement that would have a
material adverse effect on the terminating party or result in a failure
to comply in any material respect with the merger agreement, unless the
breach or failure to perform is curable by the exercise of reasonable
efforts by the non-terminating party before April 30, 1999 and that party
continues to exercise such efforts.
Ardent alone may terminate the merger agreement and abandon the merger
prior to the effective time if one of the following circumstances takes place:
- the Prism board of directors fails to recommend the merger, or withdraws,
modifies, or changes its recommendation of the merger in a manner adverse
to Ardent, or resolves to do the same,
- Ardent requests that the Prism board of directors reconfirm its
recommendation of the merger after Prism receives an inquiry or proposal
regarding any merger, sale of assets or capital stock, or similar
transaction involving Prism or its subsidiaries, and the Prism board of
directors fails to do so within 10 days after receiving such request,
- the Prism board recommends to the Prism stockholders a transaction with a
third party involving the third party's acquisition of more than a
certain percentage of the capital stock or assets of Prism,
- a tender offer or exchange offer for 20% or more of the outstanding Prism
common stock is commenced and the Prism board of directors recommends
that the Prism stockholders tender their shares in such tender or
exchange offer, or
- Prism fails to call and hold the Prism special meeting by April 30, 1999
and Prism is not otherwise entitled to terminate the merger agreement due
to a breach by Ardent of any representation, warranty, covenant, or
agreement.
At any time prior to the completion of the merger, Ardent and Prism may
extend the time for the performance by the other party of any of the obligations
under the merger agreement, waive any inaccuracies in the representations and
warranties of the other party contained in the merger agreement or in any
documents delivered pursuant to the merger agreement, and waive compliance with
any of the agreements or conditions of the other party contained in the merger
agreement. The merger agreement may be amended by an agreement in writing among
the parties prior to the completion of the merger. However, after approval of
the merger by the Prism stockholders, no amendment may be made which by law
requires further approval of such stockholders without securing such further
approval.
The merger agreement provides that all fees and expenses incurred in
connection with the agreement will be paid by the party incurring such expenses
if the merger is not completed and by Ardent if the merger is completed, subject
to two exceptions. The first exception is that if the merger is not completed,
Ardent and Prism will share equally all fees and expenses, other than attorneys'
fees, incurred in relation to the printing of this proxy statement/prospectus,
the registration statement and any amendments or supplements to those documents.
The second exception is that Prism has agreed to pay Ardent a termination fee of
$5 million if the merger agreement is terminated due to the one of the following
circumstances:
- the Prism stockholders fail to adopt the merger agreement, a proposal for
a transaction with a third party involving the third party's acquisition
of more than 20% of the capital stock or assets of Prism has been
publicly announced prior to the Prism stockholders' meeting, and such a
transaction involving Prism and a third party is entered into or
consummated within eighteen months of such termination;
- Ardent has terminated the merger agreement by right under the terms of
the agreement; or
- the Prism stockholders fail to adopt the merger agreement, one or more
stockholders of Prism that is a party to the stockholder support
agreement has failed to approve the merger or otherwise breached the
stockholder support agreement, and if such stockholder had voted for the
merger or
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not otherwise breached the agreement, the merger would have been approved
by the Prism stockholders.
NONDISCLOSURE AGREEMENT
Ardent and Prism entered into a nondisclosure agreement dated March 11,
1998. Each party agreed to keep confidential information provided by the other
party with respect to the business, properties and personnel of the party
furnishing such information. The nondisclosure agreement contains terms
restricting the disclosure and use of confidential information exchanged between
the two parties in evaluating the merger and otherwise for a period of two years
from the date the confidential information was disclosed.
STOCKHOLDER SUPPORT AGREEMENT
Concurrent with the execution and delivery of the merger agreement, Ardent
entered into a stockholder support agreement with 23 stockholders of Prism dated
as of November 19, 1998.
Each Prism stockholder who signed the stockholder support agreement has
agreed to use reasonable efforts to cause the stockholders of Prism to approve
the merger.
The stockholder support agreement also provides that each Prism stockholder
who signed the stockholder support agreement will not, and will not permit any
entity under his or her control to:
- Solicit proxies or become a participant in a solicitation as such terms
are defined in Regulation 14A under the Exchange Act with respect to a
transaction that would prevent the completion of the merger, or otherwise
encourage or assist any party in any action that would interfere with the
timely completion of the merger;
- Initiate a stockholders' vote or action by written consent of
stockholders with respect to a transaction that would prevent the
completion of the merger; or
- Act in concert with other Prism stockholders to vote for any transaction
that would prevent the completion of the merger.
The Prism stockholders who signed the stockholder support agreement also
agreed not to sell their Ardent shares in violation of federal securities laws
if they are considered affiliates of Ardent after they receive Ardent stock.
Nine of these stockholders that entered into the stockholder support
agreement also agreed:
1. To vote all shares of Prism common stock held or to be acquired by
each of them in favor of the merger agreement and the merger and any matter
that could reasonably be expected to facilitate the merger; and
2. To execute an irrevocable proxy appointing Ardent and Ardent's
Chairman of the Board as proxy to vote all shares of Prism common stock
held or to be acquired by each of them in favor of the merger and the
merger agreement.
REGULATORY FILINGS AND APPROVALS
The companies filed a premerger notification regarding the merger with the
Federal Trade Commission as required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. This notification is required under that act so that
government agencies may assess whether the merger poses any potential antitrust
issues. The waiting period in which the federal regulatory agencies may review
the merger has been terminated.
Other than the above filing, Ardent and Prism are not aware of any
governmental or regulatory requirements for completion of the merger other than
compliance with applicable state corporate laws and federal and state securities
laws.
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ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for as a purchase transaction for financial
accounting purposes in accordance with generally accepted accounting principles.
Under this method of accounting, Ardent will allocate the value of the stock it
is issuing in the merger to the assets it acquires, including goodwill and other
intangible assets. In connection with the merger, Ardent anticipates that it
will take a one-time charge consisting of a write-off of in-process research and
development, estimated to be approximately $7.0 million. The purchase price
allocation, including the one-time charge for write-off of in-process research
and development, is subject to revision when Ardent obtains additional
information concerning asset valuation.
LISTING OF NEW SHARES OF ARDENT COMMON STOCK ON THE NASDAQ STOCK MARKET
Prior to the merger, Ardent will obtain approval to list on The Nasdaq
Stock Market the shares of Ardent common stock to be issued in the merger and
upon the exercise of the Prism stock options. This listing is a condition to the
completion of the merger.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences of the merger under the Internal Revenue Code of 1986, existing IRS
regulations (including final, temporary or proposed), and current administrative
rulings and court decisions. All of these regulations, rulings and decisions are
subject to change. This discussion is based on the qualified opinions and advice
of Choate, Hall & Stewart and Fenwick & West LLP, tax counsel for Ardent and
Prism, respectively. These opinions, and the consequences described in these tax
sections, assume that the merger will be completed on the terms described in the
merger agreement. The following discussion is intended only as a summary of
selected principal U.S. federal income tax consequences of the merger and does
not purport to be a complete analysis or listing of all of the potential tax
effects of the merger. The tax opinions and this discussion are based on
important assumptions and representations concerning the merger and the actions
of the corporations and stockholders involved. Also, the following discussion
does not address tax consequences arising under state, local, or foreign laws,
and does not address the circumstances of special cases or individual
circumstances of taxpayers. By way of example, it does not address special cases
involving foreign persons, Prism stockholders who acquired their Prism common
stock from the exercise of stock options or otherwise as compensation, holders
of Prism stock options, dealers in securities, banks, insurance companies, and
tax-exempt organizations. ACCORDINGLY, EACH HOLDER OF PRISM COMMON STOCK SHOULD
CONSULT A TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE MERGER IN LIGHT OF
THE HOLDER'S OWN SITUATION, INCLUDING THE APPLICATION AND EFFECT OF ANY FEDERAL,
STATE, LOCAL, OR FOREIGN INCOME AND OTHER TAX LAWS. The following discussion is
based upon federal income tax laws as in effect on the date of this proxy
statement/prospectus, which are subject to change, possibly retroactively.
Future legislation, regulations, administrative rulings, or court decisions may
affect these expectations as to federal income tax consequences.
FEDERAL INCOME TAX CONSEQUENCES TO PRISM STOCKHOLDERS
The merger has been structured with the intent that it qualifies as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. Section 368(a) defines the categories of transactions that will qualify as
reorganizations for purposes of the Internal Revenue Code. If the merger
qualifies as a reorganization under Section 368(a), then:
- neither Ardent nor Prism will recognize any gain or loss as a result of
the merger;
- Prism stockholders will not recognize any gain or loss on the receipt of
Ardent common stock in exchange for their Prism common stock in the
merger; and
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- the aggregate tax basis of the Ardent common stock received by the Prism
stockholders in exchange for their Prism common stock in the merger will
equal the aggregate tax basis of the Prism common stock surrendered in
exchange therefor. This result excludes any basis allocable to fractional
shares of Ardent common stock for which cash is received.
It is a condition to the obligations of Prism and Ardent to complete the
merger that Prism and Ardent receive opinions from their respective counsel,
Fenwick & West LLP and Choate, Hall & Stewart, that the merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a). Those tax opinions will be based on and subject to certain
assumptions and limitations as well as representations to be received from Prism
and Ardent. An opinion of counsel only represents counsel's best legal judgment,
and has no binding effect or official status of any kind, and no assurance can
be given that contrary positions may not be taken by the IRS or a court. Neither
Ardent nor Prism has requested or will request a ruling from the IRS with regard
to any of the U.S. federal income tax consequences of the merger. Upon the
advice of its counsel, Fenwick & West LLP, provided that the merger qualifies as
a reorganization within the meaning of Section 368(a), Prism believes that its
stockholders will not recognize gain or loss as a result of the exchange of
shares of Prism common stock solely for voting shares of Ardent common stock in
the merger. This result does not apply to any cash received in lieu of a
fractional share of Ardent common stock. Subject to the same qualifications,
Prism also believes that the aggregate tax basis of the Ardent common stock
received by Prism stockholders in the merger will be the same, in each instance,
as the aggregate tax basis of the Prism common stock surrendered, excluding any
basis allocable to fractional shares of Ardent common stock for which cash is
received. In addition, provided that the merger qualifies as a reorganization
within the meaning of Section 368(a), the holding period of the shares of Ardent
common stock received in the merger by Prism stockholders will include the
period during which the shares of Prism common stock surrendered in exchange
therefor were held, provided that such shares of Prism common stock were held as
capital assets at the time of the merger.
Either company may waive the condition to receive its respective counsel's
tax opinion and proceed with the merger without such opinion. If Prism waives
the receipt of such opinion, it will resolicit proxies from its stockholders
after informing them about Prism's expectations of changes in the tax
consequences to its stockholders or material changes in tax consequences to it,
if any, as a result of the merger.
Holders of Prism common stock who receive cash in the merger in lieu of
fractional shares of Ardent common stock will be treated, in each instance, as
having received the fractional share and then as having received the cash in
redemption of such fractional share. This kind of redemption will generally
result in the recognition of gain or loss for federal income tax purposes,
measured by the difference between the amount of cash received and the portion
of the tax basis of the holder's share of Prism common stock allocable to such
fractional share.
Section 302 of the Internal Revenue Code provides general rules regarding
the federal income tax treatment of corporate redemptions of stock. Section 302
treats cash or property distributed in specific qualifying redemptions of
corporate stock as distributed in exchange for such stock. Distributions in
redemption of corporate stock that do not qualify under Section 302 may be
treated as dividends and taxed at ordinary income rates. Among the categories of
redemptions that are treated as exchanges under Section 302 are those
redemptions that are not essentially equivalent to a dividend. A redemption of
shares held by a minority stockholder in a publicly held corporation who
exercises no control with respect to corporate affairs is generally considered
to be not essentially equivalent to a dividend if such redemption results in any
actual reduction of the minority stockholder's percentage stock ownership.
Assuming that the deemed redemption of any fractional shares meets the test
under Section 302, the holders of Prism common stock will recognize gain or loss
on the deemed redemption of any fractional shares of Ardent common stock. That
gain or loss generally will be capital gain or loss, provided that the holder's
Prism common stock was held as a capital asset at the time of the merger, and
will be long-term capital gain or loss if the Prism common stock has been held
for more than one year. Long-term capital gain realized by an individual U.S.
holder is generally subject to a maximum tax rate of 20%.
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FEDERAL INCOME TAX CONSEQUENCES TO PRISM AND ARDENT
Upon the advice of its counsel, Fenwick & West LLP, and provided that the
merger qualifies as a reorganization within the meaning of Section 368(a), Prism
will not recognize any gain or loss as a result of the merger. Upon the advice
of its counsel, Choate, Hall & Stewart, and provided that the merger qualifies
as a reorganization within the meaning of Section 368(a), Ardent also will not
recognize any gain or loss as a result of the merger. Additionally, Prism's tax
basis in its assets after the merger will be equal to Prism's tax basis in such
assets immediately prior to the completion of the merger. Provided that the
merger qualifies as a reorganization within the meaning of Section 368(a),
Prism's holding period in its assets after the merger will include the period
during which Prism held such assets prior to the merger.
OTHER TAX ISSUES
A successful IRS challenge to the status of the merger as a reorganization
under Section 368(a) would result in the Prism stockholders being treated as if
they sold their Prism shares in a taxable transaction. If that happened, each
Prism stockholder would be required to recognize all of his or her realized gain
or loss on the disposition of each of his or her Prism shares equal to the
difference between the Prism stockholder's basis in such shares and the fair
market value, as of the date the merger becomes effective, of the Ardent shares
received in exchange for Prism shares, plus any cash received for fractional
shares. That gain or loss would be treated as capital gain or capital loss for a
stockholder if he or she held his or her Prism shares as a capital asset at the
time of the merger. In such event, a Prism stockholder's aggregate basis in the
Ardent shares would equal their fair market value as of the effective time of
the merger, and the Prism stockholder's holding period for such Ardent shares
would begin the day after the merger.
Even if the merger qualifies as a reorganization under Section 368(a), a
recipient of the Ardent shares at the time of the merger would recognize gain to
the extent that those shares were considered to be received in exchange for
services or property. This may not apply if it was solely in exchange for Prism
voting shares. Gain would also have to be recognized to the extent that a Prism
stockholder was treated as receiving, directly or indirectly, consideration
other than Ardent voting shares in exchange for Prism shares. All or a portion
of those gain amounts may be taxable as ordinary income.
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UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combining Statements of
Operations for the year ended December 31, 1998 give effect to the acquisition
of the Prism common stock as if it occurred on January 1, 1998. The Unaudited
Pro Forma Condensed Combining Balance Sheet as of December 31, 1998 set forth
below gives effect to the acquisition of Prism as if it occurred on December 31,
1998. Upon the completion of the merger, each holder of Prism common stock will
be entitled to receive shares of Ardent common stock based on an exchange ratio
of 0.13124 of a share of Ardent common stock for each share of Prism common
stock. Each of Ardent and Prism prepares its financial statements on the basis
of a fiscal year ending on December 31. The Pro Forma Condensed Combining
Balance Sheet combines Ardent's audited balance sheet as of December 31, 1998
with Prism's audited balance sheet as of December 31, 1998. The Pro Forma
Condensed Combining Statements of Operations combine Ardent's audited results of
operations for its fiscal year ended December 31, 1998 with Prism's audited
results of operations for the year ended December 31, 1998. The Pro Forma
Condensed Combining Statements of Operations and the Pro Forma Condensed
Combining Balance Sheet set forth below reflect several material adjustments,
including among others, adjustments to reflect the amortization of the portion
of the purchase price allocated to goodwill and other intangible assets.
These statements should be read in conjunction with the consolidated
financial statements of Ardent and Prism appearing elsewhere in this proxy
statement/prospectus. The statements are presented for comparative purposes only
and are not intended to be indicative of actual results had the transactions
occurred as of the dates indicated above or of results which may be attained in
the future.
The purchase price allocation is preliminary and subject to change. Any
changes to the allocation could have a material impact on the pro forma
financial statements.
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UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 1998
ARDENT PRISM COMBINED ADJUSTMENTS COMBINED
-------- -------- -------- ----------- --------
Current assets:
Cash and equivalents.................. $ 24,167 $ 5,069 $ 29,236 $ 29,236
Accounts receivable -- net............ 21,238 9,994 31,232 31,232
Prepaid expenses and other............ 5,062 974 6,036 6,036
Deferred income taxes................. 1,634 -- 1,634 1,634
Assets held for sale(1)(4)............ -- -- -- $ 7,975 7,975
-------- -------- -------- -------- --------
Total current assets............... 52,101 16,037 68,138 7,975 76,113
-------- -------- -------- -------- --------
Property and equipment -- net........... 6,587 3,620 10,207 (1,164) 9,043
-------- -------- -------- -------- --------
Other long-term assets:
Intangible assets(1).................. 14,633 -- 14,633 33,151 47,784
Other long-term assets................ 5,085 1,855 6,940 6,940
Deferred income taxes(1).............. 4,398 -- 4,398 1,694 6,092
-------- -------- -------- -------- --------
Total long-term assets............. 24,116 1,855 25,971 34,845 60,816
-------- -------- -------- -------- --------
TOTAL ASSETS............................ $ 82,804 $ 21,512 $104,316 $ 41,656 $145,972
======== ======== ======== ======== ========
Current liabilities:
Accounts payable...................... $ 5,476 $ 2,214 $ 7,690 $ 7,690
Accrued compensation.................. 4,289 3,041 7,330 7,330
Accrued expenses and other current
liabilities........................ 13,101 1,382 14,483 14,483
Accrued merger and restructuring
costs(1)........................... 2,112 -- 2,112 $ 7,611 9,723
Deferred revenue...................... 14,036 3,980 18,016 18,016
-------- -------- -------- -------- --------
Total current liabilities.......... 39,014 10,617 49,631 7,611 57,242
-------- -------- -------- -------- --------
Non-current debt and other long-term
liabilities........................ -- 329 329 329
-------- -------- -------- -------- --------
25)
Capital stock(1)(2)................... 157 19 176 (19 182
48,956)
Capital in excess of par(1)(2)........ 68,774 59,822 128,596 (59,822 117,730
(4,370)
Accumulated deficit(1)(2)............. (21,883) (49,275) (71,158) 49,275 (26,253)
Cumulative translation adjustment,
treasury stock and other equity.... (3,258) -- (3,258) (3,258)
-------- -------- -------- -------- --------
Total stockholders' equity......... 43,790 10,566 54,356 34,045 88,401
-------- -------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 82,804 $ 21,512 $104,316 $ 41,656 $145,972
======== ======== ======== ======== ========
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UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1998
ARDENT PRISM ADJUSTMENTS COMBINED
-------- -------- ----------- --------
Revenue:
License(4)................................... $ 70,200 $ 22,166 $ (2,864) $ 89,502
Services(4).................................. 49,060 29,924 (2,295) 76,689
-------- -------- -------- --------
Total revenue.................................. 119,260 52,090 (5,159) 166,191
-------- -------- -------- --------
Cost of software(3).......................... 7,953 1,031 4,576 13,560
Cost of services(4).......................... 22,511 21,410 (2,188) 41,733
Selling and marketing(4)..................... 41,761 27,355 (1,436) 67,680
Research development(4)...................... 17,576 14,492 (1,171) 30,897
General administrative(4).................... 9,986 6,587 (113) 16,460
Other charges................................ 14,895 -- -- 14,895
-------- -------- -------- --------
Total costs and expenses.................. 114,682 70,875 (332) 185,225
-------- -------- -------- --------
Income (loss) from operations.................. 4,578 (18,785) (4,827) (19,034)
Other income................................... 190 383 573
-------- -------- -------- --------
Income (loss) before income taxes.............. 4,768 (18,402) (4,827) (18,461)
Provision for income taxes(3).................. 3,131 249 (330) 3,050
-------- -------- -------- --------
Net income (loss).............................. $ 1,637 $(18,651) $ (4,497) $(21,511)
======== ======== ======== ========
Basic net income (loss) per share(3)......... $ 0.11 $ (1.01) $ (1.25)
Basic shares used for calculation(3)......... 14,790 18,485 17,216
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
(1) Reflects the preliminary allocation of the purchase price. The preliminary
allocation is summarized as follows (in 000's):
Value of Ardent shares to be issued for Prism outstanding
shares.................................................... $42,372
Value of Prism options to be exchanged for Ardent options... 6,609
Book value of Prism liabilities at December 31, 1998........ 10,946
Estimated merger liabilities................................ 7,611
Estimated tax liabilities................................... 2,306
-------
Total consideration and liabilities assumed....... $69,844
=======
Prism assets at December 31, 1998........................... $21,512
Less estimated disposal of fixed assets..................... (1,164)
Less net book value Prism intangibles at December 31,
1998...................................................... (878)
Estimated tax assets associated with net operating loss
carryforwards............................................. 4,000
In-process technology....................................... 4,370
Existing technology......................................... 6,072
Prism workforce............................................. 3,363
Prism customer list......................................... 1,283
Assets held for sale, net of tax............................ 7,975
Goodwill.................................................... 23,311
-------
Total asset allocation............................ $69,844
=======
This allocation is subject to change pending a final analysis of the value
of the assets acquired and the liabilities assumed and divestiture of
Prism's Customer Relationship Management Software business. (see note 4
below). The impact of such changes could be material. If the estimate of
allocation were to change such that total intangible assets increase or
decrease by $3 to $6 million, it is estimated that amortization of the
related intangibles would increase or decrease accordingly by between
approximately $300,000 to $1,000,000 annually, depending on the individual
intangibles affected and their estimated useful lives.
The tangible assets acquired consist of cash, accounts receivable, prepaid
expenses, property and equipment and other assets including principally
deposits, goodwill and prepaid royalties. The fixed assets have been reduced
in the purchase price allocation for estimated disposals of $1,000,000 and
the remaining fixed assets consist principally of computer equipment whose
fair value would not be expected to be materially different from its book
value. The book value of goodwill of $878,000 has been reduced to zero in
the purchase price allocation, as all acquired intangibles have been
assigned new values. The book value of prepaid expenses and prepaid
royalties approximates fair value. The book value of the remaining financial
instruments including cash, accounts receivable, other receivables and
deposits approximates fair value as disclosed in footnote 2 to the
accompanying Prism financial statements.
The value of intangible assets was estimated based on a preliminary estimate
of fair value which included estimated values of four products which are
currently in-process. The first in-process product provides an interface
between the Prism Warehouse Executive (PWE) product and SAP applications.
This product is expected to be approximately 88% complete as of the
acquisition date and is expected to be released in June 1999. Also in
process are the next three releases of the PWE product; version 2.1, version
2.01, and version 3.0. PWE 2.1 allows the user to manipulate the flow of
data from multiple sources of data into a target data warehouse through a
simple to use point-and-click interface. Version 2.1 differs from the
previous version as it offers a common interface that facilitates desktop
management based on Java scripts. The new version will readily inter-operate
with other sources as the common language, Java, will be more open and
flexible. Performance enhancements are also scheduled in this release. It is
expected to be approximately 80% complete at the acquisition date and is
expected to be completed in September 1999. Version 2.01 is a version of the
PWE software that is adapted to the Kanji language. It is expected to be
approximately 71% complete at the acquisition date and is expected to be
completed in September 1999. PWE 3.0 is a version of the product which
enables data warehouse users to extract data from a COBOL environment. It is
expected to be approximately 25% complete at the acquisition date and is
expected to be completed in
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September 1999. Working models of the products were not completed as of the
date of the acquisition. The preliminary valuation was based on the
assumption that the estimated cost to complete all products under
development, measured as of the anticipated acquisition date, would be
approximately $2.9 million and that the products would generate revenue
through the year 2004 with growth rates of approximately 12% in the years
following the acquisition, trailing to (50)% in the later years. Margin
assumptions used in estimating future cash flows ranged from 6% -- 11%. It
is the nature of the business to be constantly developing new software for
future product releases. A reasonable expectation of return on the
incomplete technology would be higher than that of completed technology due
to these inherent risks. As a result, the earnings associated with the
incomplete technology were discounted at a rate of 29%.
While there is no certainty that the products will be successfully
completed, Ardent management does not anticipate any problems in the
remaining portion of the development cycle at this time. It is anticipated
that the combined company will benefit from the new products within the
first quarter following their release. The inability of Ardent to complete
this technology within the expected timeframe could materially impact future
revenues and earnings, which could have a material adverse effect on
Ardent's business, financial condition and results of operations.
The preliminary purchase price allocation does not give effect to any
synergies expected to be achieved from combining the operations of the two
companies nor any benefits from the actions expected to be taken by Ardent
upon consummation of the merger.
The estimated merger liabilities of $7,611,000 include $2,425,000 of
financial advisor, legal and accounting fees related to the merger,
$1,889,000 of costs to close 12 Prism sales offices as a result of
consolidation of offices, and $3,297,000 of severance costs in connection
with the termination of 35 Prism employees, principally finance and
administrative and sales and marketing positions which overlapped with
Ardent positions.
(2) Adjustments reflect the elimination of Prism's equity accounts in connection
with the purchase price allocation.
(3) Pro forma net loss reflects the estimated amortization associated with the
intangible assets detailed above and the related tax benefit, using lives
ranging from three to ten years. Pro forma basic and diluted net loss per
share is computed using the weighted-average number of shares of common
stock outstanding after the issuance of Ardent common stock in exchange for
the outstanding shares of Prism common stock. Dilutive options are excluded
from the computation during the loss periods as their effect is
antidilutive.
(4) Upon completion of the merger between Ardent and Prism, Ardent plans to
dispose of certain assets of Prism related to the Customer Relationship
Management Software, or CRMS, products and services. As of the date of this
proxy statement/prospectus, Ardent was in the early stages of pursuing
potential acquirors of the assets and, for purposes of pro forma
presentation, has estimated the value of the assets to be disposed at $12.2
million ($7.975 million net of estimated taxes on the sale). This estimate
is based on a combination of factors. A preliminary business enterprise
valuation was obtained and initial discussions with potential acquirors are
consistent with the estimated value. Additionally, Prism acquired CRMS
through a pooling-of-interests transaction only one year preceding the
anticipated close of the merger with Ardent. The value of the shares issued
by Prism totaled approximately $12 million. The disposal of the assets is
expected to be completed by the end of June 1999. Prism's basis in the
assets held for sale consist only of fixed assets totaling approximately
$164,000. This amount has been deducted from the total fixed assets in the
pro forma purchase price allocation. The remaining assets to be sold are
intangible, for which Prism has no basis due to the pooling-of-interests
accounting which was applied in connection with Prism's acquisition of CRMS.
The estimated selling price is preliminary and is subject to change prior to
the close of the transaction with Prism. Changes in the actual or estimated
value of the total assets to be disposed will result in a reallocation of
the purchase price of Prism at the time the change is identified. The
results of operations for CRMS for the years ended December 31, 1997 and
1998 have been excluded from the pro forma condensed combining statements of
operations for the same periods.
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THE BUSINESS OF ARDENT
GENERAL
Ardent is a data management software company. Ardent designs, develops and
markets easy-to-use and highly compatible products that enable businesses to get
the most out of their data. Ardent's products help businesses store, sort,
retrieve, manipulate and analyze their ever increasing stores of information.
Ardent's principal products include DataStage, a software product that
simplifies the creation of large storage units of data known as data marts and
data warehouses, and two extended relational database management systems known
as UniVerse and UniData. Ardent markets and sells its products worldwide and
provides technical support, consulting and education services to its customers.
BUSINESS STRATEGY
Ardent was founded in the mid-1980s to develop and market extended
relational database management systems. Initially, these database systems were
licensed to users to enable business applications developed on a particular
operating system to be easily converted to run on the UNIX operating system.
Beginning in the early 1990s, the database systems were also licensed to users
as an embedded part of business applications. In 1996, Ardent began to develop
and market data warehouse products. In February, 1998, Ardent merged with
Unidata, Inc., a relational database, object database, and software tools
developer and marketer. The purpose of this merger was to combine the strengths
of two leaders in the extended relational database marketplace.
Ardent currently has two business units which are based on two general
product areas: data warehouses and databases. Ardent maintains 68
sales/distribution offices in 52 countries around the world. In addition to
direct sales, Ardent has established relationships with more than 1,000 value
added resellers. These value added resellers market Ardent's products in
connection with other products and services which, as a combined package,
provide business solutions for all phases of a company's operations.
Ardent's strives to support and expand its existing customer and reseller
base while expanding its presence in the data warehouse and database markets.
Key Features of Ardent's Strategy Are:
- Improved Developer and User Productivity
Ardent promotes increased productivity of both software application
developers and software users by offering products and services that make it
easier to manage today's most complex business applications.
- Cost Containment and Compatibility
Ardent's products are designed to operate uniformly across a broad range of
computer systems, including PCs, workstations and servers. This ensures that
customers do not bear unnecessary costs for application re-deployment or
user retraining.
- Client/Server Technologies
Ardent's products provide a safe and efficient means for sharing database
information in a multi-user environment.
- Worldwide Distribution
In addition to its value added reseller relationships, Ardent also
distributes its products through strategic original equipment manufacturer
agreements and system integrating technicians who utilize Ardent's products
and services when building solutions for their customers. Ardent has a
worldwide direct sales force of distributors in key markets around the
world.
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- International Presence
Ardent maintains engineering and sales subsidiaries in three strategic
regions outside the United States: the United Kingdom, France, and Asia
Pacific. Additionally, Ardent has established subsidiary and distributor
operations in emerging markets, including New Zealand, South America,
Germany, Japan, and Canada.
- Recurring Revenue
Ardent's distribution and pricing strategies are intended to generate
recurring revenue. The sale of a development license generally leads to
follow-on sales as applications are deployed and expanded. Ardent also
receives maintenance fees and revenues from consulting assignments and
training courses.
- Worldwide Customer Service
Ardent offers installation assistance, telephone and on-line support,
consulting services, and training both at worldwide Ardent locations and at
value added reseller and customer locations.
PRODUCTS
Ardent's many products enable it to serve the current and changing needs of
its growing customer base.
Ardent's Data Warehouse Products
As businesses rapidly accumulate data, they need better ways to manage,
manipulate and analyze that data. To meet this need, Ardent has created products
called data warehouses, which store and integrate data to be used in various
applications, and data marts, which contain a subset of information from a data
warehouse. The primary product in Ardent's Data Warehouse business unit is
DataStage.
- DataStage
DataStage addresses what has historically been the most difficult and
time-consuming portion of a data mart or data warehouse implementation:
extracting and organizing data from different database management systems.
Through an easy to use point and click interface, DataStage allows
developers to quickly create easy to use and maintain data marts and data
warehouses. This gives businesses ready access to the data they need to make
faster, smarter business decisions. Its compatibility with popular databases
such as Oracle, Microsoft SQL Server, UniVerse, Sybase, Informix, legacy
databases and others, makes it a cost-effective and flexible solution for
businesses.
Ardent's Database Products
The traditional portion of Ardent's business is represented by its database
business unit. This collection of relational database technology and tools has
long enabled customers to manage the most complex business data. Products sold
through the database business unit include:
- UniVerse and UniData extended relational database management systems
With these products developers can build, enhance and run high performance
business applications using the popular UNIX and Windows NT operating
systems. UniVerse and UniData are leading technologies for processing a
large volume of data involving complex data structures and relationships.
- RedBack
RedBack is a product that simplifies the integration of Web-based systems
with existing data and applications both on the Internet and corporate
intranets.
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- wIntegrate
wIntegrate is a product that helps to transform applications that are based
on alphabetical or numerical characters into graphical applications based on
a Windows style, point-and-click, drag-and-drop format.
- System Builder
A powerful application developer, System Builder allows developers to
transform existing applications to graphical user interfaces and multi-tier
deployment architectures, while maintaining the original functions of the
application.
- O2 Object Database System
The O2 database system enables object developers to build high performance
database applications. O2 makes object development simpler because it is
compatible with both the popular Java and C++ data models. The O2 System
incorporates a complete set of application development tools tailored to the
evolving needs of today's application developers. O2 also provides
interfaces to other databases, the Web and the Common Object Request Broker
Architecture, a system which enables communication between diverse and
remote applications.
In addition to these products, the database business unit offers a variety
of middleware products which interconnect existing programs that run separately,
a COBOL migration solution, and a set of data analysis and reporting tools.
SERVICES
In addition to its product-focused business units, Ardent provides
customers worldwide with a full spectrum of services. These services include
technical support for customers who purchase maintenance contracts, education
and consulting services.
SALES AND MARKETING
Ardent sells its products and services throughout the world to a broad
range of customers through direct sales, value added resellers, and systems
integrators.
In the United States, Ardent's sales and support staff are located at its
Westboro, Massachusetts headquarters and the following field offices:
Arlington, Texas
Bellevue, Washington
Bridgewater, New Jersey
Cary, North Carolina
Denver, Colorado
Irvine, California
Palo Alto, California
Princeton, New Jersey
Reston, Virginia
Rosemont, Illinois
Tampa, Florida
Internationally, Ardent has seven wholly-owned international subsidiaries
located in the United Kingdom, France, Canada, Germany, South Africa, Australia
and Japan. Ardent also has exclusive distributors in Argentina, Brazil, Ecuador
and Spain. Revenue derived from outside the United States was approximately 36%,
38%, and 35%, of total revenue for the years ended December 31, 1998, 1997, and
1996, respectively. Ardent intends to continue making investments in
international activities. See page 13 for a description of various risks
involved in international transactions.
Ardent implements a variety of marketing programs to assist in the sale of
its products and services, including advertising and public relations campaigns,
regional seminars, reseller and end-user group meetings, and cooperative
programs. In addition, Ardent participates in various trade shows, and provides
catalogs, visual aids, newsletters, and product sales literature, both in
printed form and on the Web.
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CUSTOMERS
Ardent's products are used by over two million end-users in a broad range
of industries. Its end-users include:
Aetna
Anheuser-Busch
Bankers Trust
Cabletron
Chase Manhattan
Corporation
Eurotunnel
France Telecom
Fujitsu Lab
GE Aerospace
Hyatt International
Hewlett Packard
IBM
John Deere
Kaiser Permanente
Lucent Technologies
Motorola
New York City
Library
Sears, Roebuck &
Company
Sony Corporation
Stanford University
Travelers Insurance
U.S. Sprint
Wells Fargo
Xerox
PRODUCT DEVELOPMENT
Ardent believes that its future success depends, in part, on its ability to
maintain and improve its current technologies, enhance its existing products and
develop new products that meet an expanding range of customer requirements.
Ardent intends to expand its existing product offerings and introduce new
products to maintain its competitive position.
In 1998, Ardent began shipping commercially UniVerse version 9.5.1; UniData
version 5.0; UniData version 5.0/NT; RedBack version 2.3; wIntegrate version
4.01; System Builder 4.4; DataStage version 3.1/UNIX; and DataStage version
3.5/NT.
Throughout 1998, Ardent invested in the further development of these
existing products and established new technology sharing relationships to begin
work on new products. Ardent's development efforts are focused on enhancing the
features of and adding new functionality to all of its products.
In the years ending December 31, 1998, 1997, and 1996, Ardent's expenses
relating to product development were $17,526,000, $16,924,000 and $16,649,000,
respectively. Ardent has experienced little turnover in its product development
personnel and believes that the experience, stability, and depth of its product
development staff are important factors in Ardent's success.
The market for database and data warehouse software products changes
rapidly due to improvements in computer hardware and software. Ardent's success
will depend upon its ability to develop and market competitive technologies,
enhance its current products and bring forth new products in a timely and cost-
effective manner. Ardent may not be able to develop and market product
enhancements or new products that respond to changing market conditions or that
will be accepted by customers. Ardent previously experienced delays in the
development and introduction of new products and product enhancements. The
length of these delays has varied depending upon the size and scope of the
project and the nature of the problems encountered. If Ardent fails to
anticipate or to respond adequately to changing market conditions, or encounters
significant delays in product development and introduction, its customers could
delay or decide against purchases of Ardent's products. Any of these
circumstances could substantially harm Ardent's business, operating results and
financial condition.
COMPETITION
The computer software and service industry is intensely and increasingly
competitive. Because of the breadth of its overall product offering, Ardent
competes with many companies offering alternative solutions. Many of these firms
have greater financial, marketing and technical resources than Ardent. They may
be able to adapt more quickly to new or emerging technologies and standards or
changes in customer requirements, or they may be able to devote greater
resources to the promotion and sale of their products than can Ardent.
Ardent believes that the principal competitive factors affecting the
database and data warehouse markets include technical performance and product
attributes such as functionality, portability, reliability, ease of use,
adaptability and scaleability, product reputation, quality, customer service and
support, price,
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ability to integrate with products produced by other vendors, the effectiveness
of sales and marketing efforts and company reputation. There can be no assurance
that Ardent will be successful in competing in the future with respect to these
or other factors.
EMPLOYEES
As of December 31, 1998, Ardent had a total of 623 employees worldwide,
consisting of 363 in sales, support and marketing, 181 in engineering, and 79 in
finance and administration. Ardent's success is highly dependent on its ability
to attract and retain qualified employees. Competition for employees is intense
in the software industry, and an inability to attract and retain qualified
development and sales personnel, in particular, could postpone product release
schedules and adversely affect Ardent's ability to generate revenue.
None of Ardent's employees is represented by a labor union or is the
subject of a collective bargaining agreement with respect to his or her
employment with Ardent. Ardent has never experienced a work stoppage and
believes its relations with its employees are good.
PROPRIETARY RIGHTS AND LICENSES
Ardent depends upon a combination of copyrights and restrictions on access
to its trade secrets to protect its proprietary rights. Ardent distributes its
products under software license agreements which grant customers a perpetual,
non-exclusive license to Ardent's products and contain terms and conditions
prohibiting the unauthorized reproduction or transfer of Ardent's products.
Generally, Ardent's products are furnished to customers only in object code
form. In the limited cases where Ardent makes its source codes available to
third parties, it does so only under an obligation of confidentiality. In
addition, Ardent generally enters into confidentiality agreements with
management and programming staff and limits access to and distribution of its
proprietary information.
While Ardent has not registered any of its copyrights, it generally
includes copyright notices in its software. Despite these precautions, it may be
possible for unauthorized third parties to copy aspects of Ardent's products or
to obtain information that Ardent regards as proprietary. Unregistered
copyrights are still protected under both federal and state law, although a
copyright holder must first register a copyright to sue another person for
infringement of that copyright under federal law. This may be done immediately
prior to bringing a suit. Obtaining registered copyrights on software often
requires disclosure of the underlying software code. In addition, software code
changes so frequently that constant updates would be required to keep a useful
copyright current. Therefore, Ardent has elected not to register its copyrights
at this time, although it is free to do so at any time.
Ardent believes that, due to the rapid pace of innovation within the
software industry, factors such as the technological and creative skills of its
personnel and ongoing reliable product maintenance and support are more
important in establishing and maintaining a leadership position within the
industry than are the various legal protections of its technology.
All trademarks and registered trademarks used herein are the property of
their respective owners.
PROPERTIES
Ardent's principal administrative, marketing, product development and
support facilities are located in Westboro, Massachusetts, where Ardent occupies
approximately 90,000 square feet of office space under a lease that expires in
2008. Ardent also leases office space for its twenty US and foreign sales and
support offices and one foreign product development office. The terms of these
leases generally range from one to five years. Ardent believes the current space
is adequate for its current needs and that additional space will be available as
needed.
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LEGAL PROCEEDINGS
Ardent is a defendant in two actions filed against Unidata prior to its
merger into Ardent, one in May 1996 in the U.S. District Court for the Western
District of Washington and one in September 1996 in the U.S. District Court for
the District of Colorado. The plaintiff, a company controlled by a former
stockholder of Unidata and a distributor of its products in certain parts of
Asia, alleges in both actions the improper distribution of certain Unidata
products in the plaintiff's exclusive territory and asserts damages of
approximately $30,000,000 under claims for fraud, breach of contract, unfair
competition, racketeering and corruption, and trademark and copyright
infringement, among other relief. Unidata denied the allegations against it in
its answers to the complaints. In the Colorado action, Unidata moved that the
matter be resolved by arbitration in accordance with its distribution agreement
with the plaintiff. The motion regarding arbitration has been under the Court's
consideration for approximately two years. No discovery or other activity in
either action has occurred pending the Court's decision on the motion for
arbitration. Management of Ardent believes that the actions against Ardent are
without merit and plans to continue to oppose them vigorously.
Ardent is a defendant in an action filed in July 1998 in the U.S. District
Court for the Southern District of Ohio. The plaintiff, with which Ardent
entered into a joint venture in 1996 to develop the Object Studio product,
alleges in its complaint that Ardent is obligated to support the joint venture
in amounts up to $1,400,000 per year for an aggregate present value liability of
up to $8,000,000. Ardent believes the allegations are without merit and has
denied its alleged liability and filed certain counterclaims against the
plaintiff seeking an amount in excess of $9,000,000 for misrepresentation and
breach of fiduciary duty.
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ARDENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
------- -------- ------- ------- -------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software................................................ $70,200 $ 58,812 $61,805 $54,218 $52,520
Services and other...................................... 49,060 43,916 48,694 38,503 29,368
------- -------- ------- ------- -------
Total revenue......................................... 119,260 102,728 110,499 92,721 81,888
------- -------- ------- ------- -------
Costs and expenses:
Cost of software........................................ 7,953 9,211 8,864 6,449 5,899
Cost of services and other.............................. 22,511 24,825 26,807 21,403 13,987
Selling and marketing................................... 41,761 40,786 40,116 34,957 30,941
Product development..................................... 17,576 16,924 16,649 14,376 13,538
General and administrative.............................. 9,986 13,128 12,920 11,174 9,436
Merger, exit and restructuring costs.................... 14,895 -- 4,322 6,882 1,700
Purchased technology.................................... -- 3,040 4,900 -- 3,212
Loss on disposal of subsidiary.......................... -- 602 -- -- --
Litigation.............................................. -- -- -- 499 650
------- -------- ------- ------- -------
Total costs and expenses.............................. 114,682 108,516 114,578 95,740 79,363
------- -------- ------- ------- -------
Income (loss) from operations............................. 4,578 (5,788) (4,079) (3,019) 2,525
------- -------- ------- ------- -------
Other income (expense):
Other income -- net..................................... 579 981 461 751 644
Interest expense........................................ (389) (2,965) (2,100) (1,354) (333)
Loss on investment in joint venture..................... -- -- (176) -- --
------- -------- ------- ------- -------
Total other income (expense).......................... 190 (1,984) (1,815) (603) 311
------- -------- ------- ------- -------
Income (loss) before provision for (benefit from) income
taxes and extraordinary item............................ 4,768 (7,772) (5,894) (3,622) 2,836
Provision for (benefit from) income taxes................. 3,131 1,149 (635) (996) 2,984
------- -------- ------- ------- -------
Income (loss) before extraordinary item................... 1,637 (8,921) (5,259) (2,626) (148)
Extraordinary loss - loss from disposal of assets acquired
in a pooling of interests, net of tax benefit of
$1,184.................................................. -- -- (4,734) -- --
------- -------- ------- ------- -------
Net income (loss)......................................... $ 1,637 $ (8,921) $(9,993) $(2,626) $ (148)
======= ======== ======= ======= =======
Basic income (loss) per common share:
Before extraordinary item............................... $ 0.11 $ (0.65) $ (0.40) $ (0.21) $ (0.01)
Net income (loss)....................................... $ 0.11 $ (0.65) $ (0.76) $ (0.21) $ (0.01)
======= ======== ======= ======= =======
Diluted income (loss) per common share:
Before extraordinary item............................... $ 0.10 $ (0.65) $ (0.40) $ (0.21) $ (0.01)
Net income (loss)....................................... $ 0.10 $ (0.65) $ (0.76) $ (0.21) $ (0.01)
======= ======== ======= ======= =======
Shares for basic computation.............................. 14,790 13,751 13,071 12,623 12,474
======= ======== ======= ======= =======
Shares for diluted computation............................ 16,724 13,751 13,071 12,623 12,474
======= ======== ======= ======= =======
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents...................................... $24,167 $ 24,155 $15,545 $12,654 $16,293
Working capital........................................... 13,087 12,548 18,314 18,873 24,800
Total assets.......................................... 82,804 93,984 94,516 79,833 78,779
Long-term liabilities, less current portion............... -- 21,190 21,704 12,085 12,091
Stockholders' equity...................................... 43,790 32,082 35,851 41,134 41,983
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ARDENT MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
On February 10, 1998, Ardent (formerly known as VMARK Software, Inc.)
merged with Unidata, Inc. in a transaction accounted for as a
pooling-of-interests. The accompanying consolidated financial statements include
the accounts of Unidata, Inc. with those of Ardent for all periods prior to the
merger.
The discussion which follows analyzes the results of operations for the
year ended December 31, 1998 compared to the year ended December 31, 1997, and
for the year ended December 31, 1997 compared to the year ended December 31,
1996.
The following table sets forth selected items from Ardent's Consolidated
Statement of Operations as a percentage of total revenue and the percentage
change in dollar amounts of such items.
PERIOD- PERIOD-
TO-PERIOD TO-PERIOD
YEAR ENDED DECEMBER 31 CHANGE CHANGE
----------------------- 1998 VS. 1997 VS.
1998 1997 1996 1997 1996
----- ----- ----- --------- ---------
Revenue:
Software..................................... 58.9% 57.3% 55.9% 19.4% (4.8)%
Services and other........................... 41.1 42.7 44.1 11.7 (9.8)
----- ----- ----- ----- ----
Total revenue............................. 100.0 100.0 100.0 16.1 (7.0)
----- ----- ----- ----- ----
Costs and expenses:
Costs of software............................ 6.7 9.0 8.0 (13.7) 3.9
Costs of services and other.................. 18.9 24.2 24.3 (9.3) (7.4)
Selling and marketing........................ 35.0 39.7 36.3 2.4 1.7
Product development.......................... 14.7 16.4 15.1 3.9 1.7
General and administrative................... 8.4 12.8 11.7 (23.9) 1.6
Merger, exit, and restructuring costs........ 12.5 -- 3.9 * *
Purchased technology......................... -- 3.0 4.4 * *
Loss on disposal of subsidiary............... -- .5 -- * *
----- ----- ----- ----- ----
Total costs and expenses.................. 96.2 105.6 103.7 5.7 .5
----- ----- ----- ----- ----
Income (loss) from operations.................. 3.8% (5.6)% (3.7)% *% *%
===== ===== ===== ===== ====
- ---------------
* Not meaningful.
Ardent's revenue is derived from the licensing of software and the delivery
of related services. These services include consulting, training and product
maintenance. Ardent generally licenses its software for use on individual
computers. Customers may elect to contract with Ardent for product maintenance,
which includes product and documentation enhancements, as well as telephone
support for product problem resolution, by paying annual or quarterly fees or
paying fees based upon usage of such maintenance services.
REVENUE
Ardent's total revenue increased 16% to $119,260,000 for the year ended
December 31, 1998, from $102,728,000 for the year ended December 31, 1997. This
increase in revenue is primarily due to the increase in sales of Ardent's data
warehouse and embedded database licenses. Data warehouse revenue represented 14%
of total revenue in 1998, as compared to 5% in 1997. Total embedded database
revenue grew approximately 21%, or $18,000,000. These increases were offset by
the decline in revenues associated with the conversion of applications from
other operating systems to client server UNIX and NT environments, which
decreased from approximately 15% of total revenue in 1997 to 2% in 1998.
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Ardent's total revenue decreased 7% to $102,728,000 in fiscal year 1997,
from $110,499,000 in fiscal year 1996. The decline in total revenue is primarily
due to Ardent having exited certain non-strategic and unprofitable businesses in
the fourth quarter of 1996, including the Object Studio product line and related
services, and due to an increase in the Unidata allowance for returns in fiscal
year 1997 as a result of the fact that several customers had denied full payment
of their outstanding balances because of technical or invoicing issues. Prior to
the merger, Unidata occasionally experienced technical issues at key value-added
resellers and end-user sites for which Unidata accepted product returns or would
grant partial credit, even though there was no contractual obligation to provide
such credit. These decreases were partially offset by the increase in revenue
associated with Ardent's data warehouse product, DataStage, and the System
Builder products. DataStage revenue represented 5% of total revenue in 1997.
DataStage was released in late January 1997 and, therefore, was not included in
the results of operations in 1996. System Builder products' revenue represented
approximately 9% of revenue in 1997, as compared to 6% in 1996. System Builder
was acquired in fiscal year 1996.
SOFTWARE REVENUE
Software revenue increased 19% to $70,200,000 in 1998, as compared to
$58,812,000 in 1997. This increase is due principally to the increase in
DataStage revenue which represented approximately 19% of license revenue for the
year ended December 31, 1998, as compared to 7% for the year ended December 31,
1997. Revenue from Ardent's relational database products and the object database
product, O2 System, also contributed to the increase in software revenue. The
object database product was acquired through the acquisition of O2 Technology on
December 31, 1997, and, therefore, was not included in the 1997 results of
operations. O2 Systems license revenue represented approximately 4% of Ardent's
total software revenue. Software revenue increased to 59% of total revenue for
1998, as compared to 57% for the same fiscal period in 1997.
Software revenue decreased 5% to $58,812,000 in fiscal year 1997, from
$61,805,000 in 1996. This decrease is due to the elimination of sales of the
Object Studio product line offset by the impact of revenue associated with
Ardent's data warehouse product, DataStage, and application development tool
product, SB+. DataStage was released in late January 1997 and represented
approximately 7% of revenue for the year ended December 31, 1997. SB+ was
acquired through the System Builder acquisition in fiscal year 1996 and
contributed a full year of revenue to fiscal year 1997, as compared to eight
months of revenue in 1996. Software revenue increased to approximately 57% of
total revenue in fiscal year 1997, from 56% in 1996.
SERVICES AND OTHER REVENUE
Services and other revenue, consisting of consulting, training, and
software maintenance increased 12% to $49,060,000 for the year ended December
31, 1998, as compared to the same period in 1997. This increase is due primarily
to the services revenue associated with the DataStage and O2 System products.
The combined service revenue attributable to these two products represented 11%
of total services revenue for the year ended December 31, 1998, as compared to
2% for the comparable period in the prior year. Services and other revenue
decreased to 41% of total revenue in 1998, as compared to 43% for the same
fiscal period in 1997.
Services and other revenue declined 10% to $43,916,000 in 1997, from
$48,694,000 in 1996. This decrease is due to the elimination of Object Studio
related consulting and maintenance services, which represented approximately 15%
of services and other revenue in fiscal year 1996. Ardent also disposed of its
third-party education business in 1996 which had represented approximately 45%
of Ardent's training revenue. This decline was partially offset by the revenue
associated with DataStage consulting projects, and System Builder maintenance
revenue, as well as the increase in maintenance revenue consistent with the
growth of Ardent's existing, installed license base.
COST OF SOFTWARE
Costs of software, which consist of amortization of technology licenses and
capitalized software, product royalties, product documentation, packaging, media
and production costs, decreased 14% to
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$7,953,000 for the year ended December 31, 1998, from $9,211,000 for same period
in 1997. This decrease in cost of software is due to the expiration of certain
royalty agreements in 1997, therefore resulting in a reduction of approximately
$1,540,000 in royalty expense in 1998, and the reduction of approximately
$600,000 in amortization costs related to software and other capitalized costs
that have been fully amortized. This decrease is also due to Unidata having
recorded a $382,000 change in estimate on the useful life of internally
developed software, reducing the life from five to three years, increasing costs
of software in 1997 over 1998. These decreases were offset by $1,300,000 of
amortization expense associated with the intangibles acquired in connection with
the acquisition of O2 Technologies in December 1997. Cost of software as a
percentage of software revenue decreased in 1998 to 11%, from 16% for the same
periods in 1997.
Costs of software increased 4% to $9,211,000 in 1997, from $8,864,000 in
1996. As a percentage of license revenue, costs of software increased slightly
to 16% in 1997, from 14% in 1996. The increase in costs of software for 1997
compared to 1996 is a due to an increase in the amortization of software
development costs. This increase resulted from the inclusion of a full twelve
months of amortization in 1997 associated with the intangibles acquired in
connection with the acquisition of the System Builder group of companies, while
the results of operations of 1996 included only seven months of such
amortization. The increase was also due to the reduction from five to three
years for the estimated useful lives of capitalized software that had been
internally developed by Unidata. This change in estimate was made pursuant to
management's belief that the three-year life more appropriately matches the
development costs with the related revenue streams.
COST OF SERVICES
Costs of services and other, which consist of consulting, training, and
other customer support service costs, decreased 9% to $22,511,000 for the year
ended December 31, 1998, as compared to $24,825,000 for the same period in the
prior year. The profit margin associated with services and other revenue
increased to 54% as compared to 43% for 1997. The decrease in costs, and the
resulting increase to profit margins, is due to a higher percentage of customer
maintenance support revenue in 1998 which typically has a higher profit margin
than training and consulting services revenue. Maintenance represented
approximately 67% of services and other revenue in 1998, compared to 64% in
1997. The improvement in margins of services and other revenue in 1998 over 1997
is also due to improved utilization of internal consultants, as compared to the
utilization of more expensive third party contractors used to deliver consulting
services during 1997.
Costs of services and other decreased 7% to $24,825,000 in 1997, from
$26,807,000 in 1996 due to the elimination of Object Studio related consulting
and maintenance costs. This decline was offset by the expansion of the
consulting and education staff needed to provide an increased level of
consulting services, as the product lines have broadened. As a percentage of
service and other revenue, the costs of these services increased to 57% in 1997,
from 55% in 1996. This slight decline in margins in 1997 was due to losses
incurred on certain fixed price consulting projects, as well as a lag between
the hiring and training of professional service personnel and the future
revenues generated by those individuals.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses, which consist primarily of sales operating
costs and marketing programs, represented 35% of total revenue or $41,761,000 in
the year ended December 31, 1998, as compared to 40% of total revenue or
$40,786,000 in the comparable period of the prior year. The increase in absolute
dollar spending year over year is due to the increase in the investment in the
DataStage product offset by the decrease in selling and marketing programs for
the relational database technology and tools products. The selling and marketing
resources have been reallocated to the data warehouse technology, which
represented 54% of spending for selling and marketing in 1998, as compared to 8%
in 1997.
Selling and marketing expenses increased 2% to $40,786,000 in 1997, from
$40,116,000 in 1996. As a percentage of total revenue, sales and marketing costs
increased to 40% of revenue in 1997, from 36% of revenue in 1996. The increase
in the levels of spending in sales and marketing costs as a percentage of
revenue is a result of the increase in DataStage and Redback marketing and
program activities throughout
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1997 and the increase in the data warehouse sales force. This increase was also
due to the foreign subsidiaries investing more dollars in their sales and
marketing efforts throughout 1997. These increases were offset by savings
associated with the elimination of Object Studio marketing activities and
planned attrition of overlapping sales personnel acquired in the System Builder
acquisition.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses, which consist primarily of salaries and
related benefits of development personnel and facility costs, increased 4% to
$17,576,000 in the twelve months ended December 31, 1998, as compared to the
same fiscal period of the prior year. Product development expenses as a
percentage of revenue slightly decreased to 15% from 16% in the comparable
period from the prior year. The increase in spending in absolute dollar terms is
due primarily to a shift in the concentration of development efforts dedicated
to the DataStage and O2 System products. Ardent allocated 57% of its research
and development funds into these new technologies in 1998, as compared to 7% in
1997. Relational database technology and tools development represented 43% of
research and development costs in 1998, as compared to 93% in 1997.
Product development expenses remained relatively constant at $16,924,000 in
1997 and $16,649,000 in 1996. As a percentage of total revenue, product
development expenses slightly increased to 16% of revenue in 1997, from 15% in
1996. The relatively flat level of spending, as a percentage of revenue and year
over year, is due to the cost savings associated with the elimination of
development efforts previously dedicated to the Object Studio product offset by
an increase in spending on data warehouse product development and the inclusion
of a full year's expense related to engineering staff retained in connection
with the System Builder acquisition.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include the costs of finance, human
resources, legal, information systems, and administrative departments of Ardent.
General and administrative expenses decreased 24% to $9,986,000 in the year
ended December 31, 1998, from $13,128,000 for the same period in 1997. This
decrease is due to the elimination of duplicate positions in human resources and
finance, as well as the elimination of duplicate facilities, both in conjunction
with the merger of Ardent and Unidata consummated in February 1998.
General and administrative expenses increased 2% to $13,128,000 in 1997
from $12,920,000 in 1996. As a percentage of total revenue, general and
administrative costs increased to 13% in 1997, from 12% in 1996. This increase
in expense is primarily due to an increase in legal and accounting costs
associated with potential acquisitions and financing activities, an increase in
legal costs associated with litigation, and an increase in administrative staff
in the Denver and Asia Pacific offices. These increases were offset by the
elimination of the administrative costs associated with Ardent's German
subsidiary, which is currently inactive as it had previously sold Object Studio
products and services.
ACQUISITION COSTS
Ardent recorded a one time charge of $14,895,000 associated with the merger
with Unidata in the quarter ended March 31, 1998. This amount included
$3,910,000 for financial advisor, legal, and accounting fees related to the
merger and $10,985,000 for costs associated with combining the operations of the
two companies including expenditures of $6,209,000 for severance, benefits and
other, $2,170,000 for closure of facilities and $2,606,000 for the write-off of
redundant assets. The severance costs related to the termination of 139 Unidata
and Ardent employees who held overlapping positions and terminated employment
principally within a period of one month prior and one month following the close
of the merger. Costs associated with integration activities preceding and
following the merger were charged to expense as incurred. The facilities closure
costs related to the accrual of future rental obligations for duplicate sales
offices which were identified at the time of the merger in California, Georgia,
New Jersey, Colorado, Texas, Australia, France, and the United Kingdom. The
offices were closed within a period of one month prior and two months following
the merger and were either sublet or remained idle until the end of the lease
term. Rent costs following the merger until closures were finalized and
employees were
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moved were charged to expense as incurred. The redundant assets which were
written off in connection with the merger included the net book value of
abandoned leasehold improvements, scrapped computer equipment, scrapped
documentation and product inventory with predecessor company names and prepaid
license inventory related to a version of the Unidata database product which was
no longer sold following the merger. All assets were scrapped or disposed of
within two months following the merger. Benefits related to reduced salaries,
rent and depreciation began to be realized immediately following the merger. The
annual cost reductions resulting from these actions totals approximately $14.7
million, $700,000 of which has no cash flow impact. As of December 31, 1998,
$1,312,000 of accrued merger costs remain unpaid comprised principally of future
rental obligations on idle facilities and severance associated with longer term
arrangements with senior executives.
In 1996, Ardent recorded non-recurring charges of $4,322,000. These charges
related to two separate restructurings undertaken by Ardent in May and December
1996. In May, Ardent recorded a $2,125,000 restructuring charge associated with
the downsizing of the ObjectStudio product line and associated development
efforts. The charge included approximately $1,900,000 in employee severance and
benefits related to the immediate termination of 50 employees, $153,000 for the
write-off of capitalized software and $72,000 for facility abandonment. In
December, Ardent recorded a $2,197,000 restructuring charge associated with
further staff reductions throughout all areas of Ardent, as well as the
write-off of certain intangible assets associated with discontinued product
lines. The charge included approximately $1,591,000 in employee severance and
benefits related to the immediate termination of 34 employees and $606,000 for
the write off of the remaining net book value of technology purchased in 1992,
the development of which ceased with the first version of UniVerse Release 9. At
December 31, 1998, all amounts provided for in connection with these
restructurings had been paid.
PURCHASE OF IN-PROCESS SOFTWARE DEVELOPMENT
The 1997 results of operations include a charge of $3,040,000 for purchased
in-process technology associated with the acquisition of O2 Technologies. O2 was
a database software company, which developed, marketed, sold, and supported an
object database management system. Object databases are databases which allow
programmers to change aspects of the database without impacting other segments
of the entire software system, thus reducing overall development time. In
connection with the acquisition, Ardent issued 248,549 shares of common stock.
Some of these products were only partially complete and others were under
development. The classification of the technology as complete or under
development was made in accordance with the guidelines established by Statement
of Financial Accounting Standards No. 86 ("SFAS 86"), Statement of Financial
Accounting Standards No. 2 ("SFAS 2") and Financial Accounting Standards Board
Interpretation No. 4 ("FIN 4"). At the time of acquisition, O2 had two new
software products under development, O2 Database version 5.0 and O2 Database
version 5.1. Development of version 5.0 began in early 1997. At the time of the
close of the transaction, approximately 65% of version 5.0 was complete, based
on a cost-based percentage of completion valuation method. O2 version 5.0
differs from previous version 4.6 in that it offers improved performance for
larger databases by providing significant additional ease of integration and
adaptability to change in larger environments. This version was also made
available on new software platforms. As of the acquisition date, a working model
had not been completed for the product. The working model was subsequently
completed and the completeness was confirmed through product testing and quality
assurance processes. Based on an estimate revenue stream through 2000 with
anticipated growth ranging from 45% to (53)%, estimated margins ranging from 25%
to 29%, and a 30% discount rate, the acquired in-process development was valued
at $1,642,000. Ardent invested an additional $1,300,000 in this product and the
product was released in June 1998. Development of version 5.1 also began in
early 1997. At the time of the close of the transaction, approximately 15% of
this product was complete, based upon a cost-based percentage of completion
methodology. O2 version 5.1 differs from 5.0 due to the additional features
which increase speed, increase the performance of large data sources and include
additional interface features which conform to industry standards. As of the
acquisition date, a working model had not been completed for the product. It is
expected that a working model will be completed by the end of March 1999. Based
on an estimated revenue stream through 2001, anticipated growth ranging from
200% to (23%), estimated
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margins ranging from 26% to 41%, and a 30% discount rate, the acquired
in-process research and development associated with this product was valued at
$1,398,000. The discount rate was based on the assumption that a reasonable
expectation of return on the incomplete technology would be higher than that of
completed technology due to the risk inherent in the constant development of new
software for future product releases. Ardent has invested approximately
$1,000,000 in this product since the acquisition and expects to invest an
additional $1,650,000 in this product before its scheduled release date in March
1999. Both in-process projects continue to progress, in all material respects,
consistently with the assumptions that Ardent used for estimating the fair
value. The estimates did not consider any synergies expected to be achieved as a
result of the acquisition. The inability of Ardent to complete the technology
within the expected timeframe could materially impact future revenues and
earnings, which could have a material adverse effect on Ardent's business,
financial condition and results of operations.
The 1996 results of operations include a charge of $4,900,000 for purchased
in-process technology associated with the acquisition of System Builder. System
Builder was a software tools development company. In connection with the
acquisition, Ardent issued 572,097 shares of common stock. Some of the products
were only partially complete and others were under development. The
classification of the technology as complete or under development was made in
accordance with the guidelines established by SFAS 86, SFAS 2 and FIN 4. At the
date of the acquisition, System Builder had three new software products under
development. The first was SB+3.3.2 which is a tool which assists programmers in
the development of applications. The second was SBClient 2.2.5 which is a
product which provides a consistent visual front end interface between a client
personal computer and a server, regardless of the platform on which the server
is running. Both of these products were approximately 65% complete at the
acquisition date. The third in-process product was SQLator which is a product
which assists in the migration of an application to an Oracle database. This
product was approximately 40% complete at the acquisition date. Working models
were not completed for any of the three products at the acquisition date. The
working models were subsequently completed and the completeness was confirmed
through product testing and quality assurance procedures. Estimates of fair
value considered three traditional approaches to valuation; the cost approach,
the market approach, and the income approach. The income approach was used to
value the in-process technology and assumed a revenue stream through 2000 with
revenue growth ranging from 260% to (55%), and operating margins ranging from
(7%) to 54%. It is the nature of the business to be constantly developing new
software for future product releases. A reasonable expectation of return on the
incomplete technology would be higher than that of completed technology due to
these inherent risks. As a result, the earnings associated with the incomplete
technology were discounted at a rate of 26%. The estimates did not consider any
synergies expected to be achieved as a result of the acquisition. SB+ and
SBClient were released in December 1996 and approximately $1,760,000 was
incurred to complete the two products. SQLator was released in February 1997 and
$1,280,000 was incurred to complete the product. The progression of the projects
to completion was substantially consistent with the expectations at the time of
the acquisition.
LOSS ON DISPOSAL OF FOREIGN SUBSIDIARY
In 1997, Ardent sold the stock of its subsidiary in Spain and wrote off its
investment in its joint venture in India, and recorded non-recurring charges of
$602,000 related to the transactions. Since these charges are of a capital loss
nature, for income tax purposes they are deductible only to the extent that they
can be offset against capital gains. Because capital transactions of this type
occur very infrequently, no tax benefit was recorded for this loss.
OTHER INCOME AND EXPENSE
Other income was $190,000 for the year ended December 31, 1998, as compared
to expense of $1,984,000 for the year ended December 31, 1997. This fluctuation
is due to a decrease in debt of approximately $19,000,000 year over year
reducing interest expense by approximately $1,200,000. This fluctuation is also
due to the change in the treatment of the lease on Ardent's principal operating
facility
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from a capital to an operating lease, the elimination of the associated interest
expense of approximately $500,000, and the gain of approximately $600,000
recorded because of the change in classification.
Other expense increased slightly to $1,984,000 during 1997, as compared to
$1,815,000 in 1996. The increase was due to an increase in the balance of the
line of credit during 1997 in order to finance a portion of the acquisition of
O2 Technologies.
COMMITMENTS
In the quarter ended March 1998, Ardent renegotiated the lease of its
principal operating facility. The lease had been classified as a capital lease.
As a result of this renegotiation, the term of the lease was modified and
reduced from 20 years to 14 years. As a result of this modification, the lease
no longer qualifies as a capital lease and has been reclassified as operating.
In connection with this reclassification, Ardent removed the asset and liability
from the balance sheet and recorded a net gain of approximately $600,000 as a
component of other income (expense).
INCOME TAXES
Ardent recorded a provision for income taxes of $3,131,000 for the year
ended December 31, 1998. This represents an annual effective income tax rate of
36%, excluding the impact of non-deductible merger charges, which caused a 65%
effective income tax rate seen in the financial statements. For the year ended
December 31, 1997, Ardent recorded a provision for income taxes of $1,149,000,
or a 15% annual effective income tax rate. The 1996 effective tax rate of 11%
differed from the statutory rate of 35% principally due to the generation of
foreign losses for which no tax benefit was recorded.
Ardent recorded a $1,149,000 tax provision in 1997 on a loss before tax of
$7,772,000. The provision included a non-deductible charge for in-process
research and development. The 1997 tax provision was a result of the above
mentioned non-deductible charges and losses generated in foreign jurisdictions
for which future benefit was uncertain. Future effective tax rates will be
dependent on a number of factors including, but not limited to, the geographical
mix of earnings. Total deferred tax assets, net of liabilities, amount to
$12,374,000 against which Ardent has provided a valuation allowance of
$5,652,000 at December 31, 1997. Realization of Ardent's net deferred tax assets
is dependent upon Ardent generating sufficient taxable income in future years in
appropriate tax jurisdictions to obtain benefit from the reversal of temporary
differences and from net operating loss carryforwards.
EXTRAORDINARY ITEM
In December 1996, as part of Ardent's ongoing efforts to direct the
business towards growth areas, management, at the direction of the board of
directors, undertook a review of all existing businesses, including those
acquired through a merger with Easel Corporation, which had been accounted for
as a pooling-of-interests. Following this review, in December 1996, management
recommended, and the board of directors approved, a comprehensive plan to exit
businesses which did not fit with Ardent's strategic plan. In general, these
businesses represented portions of the business with minimal profitability and
lower future growth prospects. Among the product lines and businesses to be
discontinued or abandoned were certain product lines of business present at the
date of the merger with Easel Corporation. Because these dispositions were not
contemplated at the date of the merger, and are therefore outside of the normal
course of business, they have been presented as an extraordinary item in
accordance with Accounting Principles Board Opinion No. 16. The extraordinary
item aggregated $5,918,000 before tax, with a related tax benefit of $1,184,000.
See Note 10 to the Ardent consolidated financial statements for further
discussion. As of December 31, 1998, $800,000 remains unpaid comprised of
facility costs.
FOREIGN CURRENCY TRANSLATION
Ardent hedges its exposure to foreign currency fluctuations through foreign
exchange forward contracts. As of December 31, 1998, Ardent had foreign exchange
forward contracts outstanding used to hedge foreign exchange exposure on
billings to its principal international subsidiaries. These contracts are
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composed of contracts to sell foreign currency aggregating $9,302,000 of
notional amount, principally British pounds and French francs. These contracts
are short-term in duration, typically 90 days. These contracts have limited
market risk, since decreases or increases in the unrealized gain or loss on any
position is generally fully offset by corresponding increases or decreases in
gains and losses on the intercompany balances being hedged. Credit risk is
limited to the risk that counterparties to these contracts fail to deliver at
maturity. Ardent deals only with reputable financial institutions in entering
into these contracts and therefore believes that credit risk is insignificant.
Currency forward contracts are used only to hedge identified foreign currency
commitments and are never held for speculative purposes. The gains and losses
associated with currency rate changes on these contracts, net of the
corresponding gains and losses on the hedged intercompany accounts, are recorded
as a component of other income/expense in the period the change occurs. Foreign
exchange gains or losses were not material in any period presented.
INFLATION
Certain of Ardent's expenses increase with general inflation in the
economy. However, Ardent does not believe that its results of operations have
been, or will be, adversely affected by inflation.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Ardent invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, Ardent's working capital line of credit agreement provides for
borrowings which bear interest at a variable rate based on a prime rate. As of
December 31, 1998 Ardent had no borrowings outstanding pursuant to the credit
agreement. Ardent believes that the effect, if any, of reasonably possible
near-term changes in interest rates on Ardent's financial position, results of
operations and cash flows should not be material.
Ardent is exposed to changes in foreign currency exchange primarily in its
cash and foreign currency transactions. Ardent holds foreign exchange forward
contracts. Derivative instruments used by Ardent in its hedging activities are
viewed as risk management tools and are not used for trading or speculative
purposes. Analytic techniques are used to manage and monitor foreign exchange
risk and include market valuation. Ardent believes that it is managing the
foreign exchange exposure through its cash management and hedging policies. This
exposure is not considered material to Ardent's financial position, results of
operations and cash flows.
LIQUIDITY AND CAPITAL RESOURCES
Ardent has funded its operations to date primarily through sales of equity
securities and positive cash flow from operations, including sales of
receivables to certain finance companies. At December 31, 1998, Ardent had
$24,167,000 in cash and equivalents and $13,087,000 in working capital
($27,123,000 excluding deferred revenue, the satisfaction of which will have no
significant cash impact). As of December 31, 1997, Ardent had $24,155,000 in
cash and equivalents and $12,548,000 in working capital ($25,779,000 excluding
deferred revenue, the satisfaction of which will have no significant cash
impact).
Ardent has a working capital line of credit with a bank under which Ardent
may borrow, on a secured basis, up to the lesser of $12,500,000 or 70% to 80% of
eligible domestic and foreign accounts receivable, conditioned upon meeting
financial covenants, including maintaining specified levels of quarterly
earnings, tangible net worth and liquidity. The line of credit also prohibits
Ardent from paying dividends. Interest on outstanding borrowings is at the
bank's prime rate plus 1.25% to 0.25%, depending on Ardent's tangible net worth.
At December 31, 1998, the applicable interest rate was 7.75% and there were no
borrowings outstanding under the line of credit facility. As of that date
$10,200,000 was available to Ardent under the arrangement.
As of December 31, 1998, Ardent's accounts receivable, net of the allowance
for doubtful accounts, were $21,238,000, compared to $21,161,000 at December 31,
1997. Ardent's allowance for doubtful accounts has decreased considerably from
$6,129,000 at the end of 1997, to $3,351,000 at the end of 1998. This decrease
was due to the utilization of reserves in 1998 for specifically identified
Unidata key value-
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added resellers and end-user sites that had denied full payment in 1997 on their
outstanding balances because of technical or invoicing issues. Prior to the
merger, Unidata occasionally experienced technical issues at key value-added
resellers and end-user sites for which Unidata accepted product returns or would
grant partial credit, even though there was no contractual obligation to provide
such credit. Ardent has experienced a 16% increase in revenues and has been able
to maintain its strong collection efforts, reducing the outstanding accounts
receivable balance from approximately $27,290,000 at the end of 1997 to
$24,589,000 at the end of 1998.
In 1998, Ardent generated approximately $8,900,000 through the sale of
securities and approximately $18,900,000 through operations. Ardent used
approximately $8,000,000 in the acquisition of fixed assets, software
development costs capitalized, and expenditures made on the cash surrender value
of officers' life insurance. Throughout 1998, Ardent paid down debt of
approximately $19,800,000, most of which was represented by Unidata's
outstanding line of credit, stockholder's notes, and subordinated note. Current
liabilities were $39,014,000 at December 31, 1998, comprised principally of
deferred revenue and accrued expenses.
Ardent believes that its available cash, anticipated cash generated from
operations based upon its operating plan, and amounts available under its credit
facility will be sufficient to finance Ardent's operations and meet its
foreseeable cash requirements at least for the next twelve months.
During the year ended December 31, 1998, Ardent transferred its rights to
certain accounts receivable to finance companies in exchange for cash payments.
Receivables sold under these arrangements aggregated $13,200,000 and $7,150,000
in the years ended December 31, 1998 and 1997, respectively.
Ardent, together with a third-party leasing company, offers a leasing
program available to current and potential customers. Under the program,
customers are able to purchase Ardent products through operating and capital
leases with a third-party lessor. All sales under this program are subject to
Ardent's normal revenue recognition policies and are made without recourse to
Ardent. Sales under the program in the years ended December 31, 1998 and
December 31, 1997, totaled approximately $1,632,000 and $1,536,000,
respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which Ardent will be required to adopt
effective January 1, 2000. Statement No. 133 establishes standards for reporting
and accounting for derivatives instruments, and conforms the requirements for
treatment of hedging activities across the different types of exposures hedged.
Ardent has not yet completed its evaluation of Statement No. 133, and is,
therefore, unable to disclose the impact adoption will have on its consolidated
financial position or results of operations.
In December 1998, the AICPA released Statement of Position 98-9, or SOP
98-9, Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when the following conditions exist:
- there is vendor-specific objective evidence, or VSOE, of the fair values
of all the undelivered elements that are not accounted for by means of
long-term contract accounting;
- VSOE of fair value does not exist for one or more of the delivered
elements; and
- all revenue recognition criteria of SOP 97-2, other than the requirement
for VSOE of the fair value of each delivered element, are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs
of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and
SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. Retroactive application is
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prohibited. Ardent does not expect the adoption of SOP 98-9 to have a material
effect on its consolidated financial position or results of operations.
EUROPEAN UNION CURRENCY CONVERSION
On January 1, 1999, eleven member nations of the European Economic and
Monetary Union began using a common currency, the Euro. For a three-year
transition period ending on June 30, 2002, both the Euro and each of the
currencies for those member nations will remain in circulation. After June 30,
2002, the Euro will be the sole legal tender for those countries. The adoption
of the Euro will affect many financial systems and business applications as the
commerce of those countries will be transacted in both the Euro and the existing
national currency during the transition period. Of the eleven countries
currently using the Euro Ardent has subsidiary operations in two and distributor
relationships in the other nine.
Ardent has assessed the potential impact of the Euro conversion in a number
of areas, particularly including marketing and product development. For
instance, Ardent has considered whether the common currency will adversely
affect its pricing strategies for individual European countries. Although Ardent
does not currently expect that the conversion, either during or after the
transition period, will adversely affect its operations or financial condition,
the conversion has only recently been implemented and there can be no assurance
that it will not have some unexpected adverse impact.
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
Ardent regards certain of its technologies as proprietary and relies on a
combination of patent, copyright, trademark and trade secret laws and
contractual provisions to establish and protect its proprietary rights. These
steps may not be sufficient to prevent or deter others from copying or stealing
such proprietary rights and do not prevent competitors from independently
developing technology that is equivalent or superior to Ardent's technology. In
addition, while Ardent does not believe that its products, trademarks, or other
proprietary rights infringe upon the proprietary rights of others, it is
possible that others will assert that they do. The cost of responding to such an
assertion may be significant, even if the assertion is false. The software
market has traditionally experienced widespread unauthorized reproduction of
products in violation of intellectual property rights. Such activity is
difficult to detect and legal proceedings to enforce intellectual property
rights are often burdensome and involve a high degree of uncertainty and costs.
RISK OF SYSTEM FAILURE; YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of Readiness -- Ardent has made assessments of the Year 2000
readiness of its internal information technology systems, system services
provided by third-party software, and the software solutions that Ardent
provides to its customers. These assessments include:
- quality assurance testing of Ardent's internally developed proprietary
software;
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
Ardent's business;
- contacting third-party suppliers of material systems; and
- assessment and implementation of repair or replacement requirements.
Ardent has prepared and made available to its customers a Year 2000
readiness statement addressing its products. Ardent has been informed by most of
its vendors of material hardware and software
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components that the products of these vendors used by Ardent are currently Year
2000 compliant. Ardent has also performed testing on its internally developed
systems. Ardent expects to complete all such testing and assessment by May 31,
1999.
Costs -- To date, Ardent has not incurred material incremental expenditures
in connection with identifying or evaluating Year 2000 compliance issues. Most
of the expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters. At this time, Ardent does not possess
the information necessary to estimate the potential costs of the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Based on testing to date, Ardent does not anticipate that such
expenses will be material. Such expenses, if higher than anticipated, could have
a material adverse effect on Ardent's business, results of operations and
financial condition.
Risks -- Ardent is not aware of any Year 2000 compliance problems relating
to its proprietary products or systems that would, despite efforts to avoid or
fix such problems, have a material adverse effect on Ardent's business, results
of operations and financial condition. There can be no assurance that Ardent
will not discover Year 2000 compliance problems in its proprietary products that
will require substantial revisions. In addition, there can be no assurance that
third-party software, hardware or services incorporated into its material
systems will not need to be revised or replaced, all of which could be time
consuming and expensive. The failure of Ardent to fix its proprietary products,
if necessary, or to fix or replace third-party software, hardware or services on
a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions, any of which could have a
material adverse effect on Ardent's business, results of operations and
financial condition. Moreover, failure to adequately address Year 2000
compliance issues in its products and its systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
Contingency Plans -- Pending completion of its testing and assessment
procedures, Ardent has not developed any plans for likely scenarios involving
Year 2000 failures. If, when its testing and assessment is complete, it appears
reasonably likely that such a failure may occur, Ardent intends to develop
appropriate plans to deal with such contingencies.
CAUTIONARY STATEMENT
When used anywhere in this Proxy Statement and Prospectus and in future
filings by Ardent with the SEC, in Ardent's press releases and in oral
statements made with the approval of an authorized executive officer of Ardent,
the words or phrases "will likely result", "are expected to", "will continue",
"is anticipated", "estimated", "project", "outlook" or similar expressions
(including confirmations by an authorized executive officer of Ardent of any
such expressions made by a third party with respect to Ardent) are intended to
identify "forward-looking statements," which speak only as of the date made.
Such statements are subject to risks and uncertainties that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. These risks and uncertainties are discussed generally
below, in Part II of Ardent's Annual Report on Form 10-K for the year ended
December 31, 1997 and in the Risk Factors section of this proxy
statement/prospectus. Ardent specifically declines any obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
FACTORS AFFECTING FUTURE RESULTS
Ardent operates in a rapidly changing environment that involves a number of
risks, many of which are beyond Ardent's control. The following discussion
highlights some of these risks which are in addition to those already discussed
elsewhere in this proxy statement/prospectus.
Ardent's future operating results may vary substantially from period to
period. The timing and amount of Ardent's license fee revenues are subject to a
number of factors that make estimation of revenues and
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operating results prior to the end of the quarter extremely uncertain. Quarterly
fluctuations may be caused by several factors including but not limited to,
timing of customer orders, adjustments of delivery schedules to accommodate
customer or regulatory requirements, timing and level of international sales,
mix of products sold, and timing of level of expenditures for sales, marketing
and new product development. Ardent generally ships its products upon receipt of
orders and maintains no significant backlog. Ardent has experienced a pattern of
recording 45% to 55% of its quarterly revenues in the third month of the
quarter, with a concentration of such revenues in the last two weeks of that
third month. Ardent's operating expenses are based on projected annual and
quarterly revenue levels and a substantial portion of Ardent's costs and
expenses, including costs of personnel and facilities, cannot be easily reduced.
As a result, if projected revenues are not achieved in the expected time frame,
Ardent's results of operations for that quarter would be adversely affected.
Accordingly, the results of any one period may not be indicative of the
operating results for future periods.
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OWNERSHIP OF ARDENT CAPITAL STOCK
The following table sets forth, as of January 31, 1999, information as to
the number of shares of Ardent common stock that are owned by:
- each director of Ardent,
- the Chief Executive Officer of Ardent,
- each of the four other most highly compensated executive officers of
Ardent based on Ardent's fiscal year 1998 compensation,
- all of the executive officers and directors of Ardent, as a group, and
- each person or entity (or group of affiliated persons) known by Ardent to
beneficially own 5% or more of the outstanding shares of Ardent common
stock.
For purposes of this table, beneficial ownership of securities is defined
according to the rules of the SEC and means generally the power to vote or
exercise investment discretion with respect to securities, regardless of any
economic interests therein. Except as otherwise indicated, Ardent believes that
the beneficial owners of shares of Ardent common stock listed below have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable. In addition, for purposes of this table, a
person or group is deemed to have beneficial ownership of any shares which such
person has the right to acquire within 60 days after January 31, 1999. For
purposes of calculating the percentage of outstanding shares held by each person
named above, any shares which such person has the right to acquire within 60
days after January 31, 1999 are deemed to be outstanding, but such shares are
not deemed to be outstanding for the purpose of calculating the percentage
ownership of any other person.
The third column shows separately shares which may be acquired by exercise
of stock options within sixty days after January 31, 1999 by the directors and
executive officers individually and as a group as shown. These shares are
included in the numbers expressed in the first column. Of those shares, 766,094
would be fully vested as to all directors and executive officers within that
sixty day period, and the holders would have investment and voting powers; the
remaining shares would be subject to vesting, and the holders would have voting
but not investment power until the shares vested.
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The shares held by James T. Dresher, Jr. and Virginia Dresher Meoli
include, for each of them, 1,785,362 shares held by Glenangus Holdings Corp., a
private investment company, and 736,278 shares held by The Dresher Foundation, a
private charity. Mr. Dresher and Mrs. Meoli each have shared investment and
voting powers with respect to, but no economic interest in, the shares held by
those entities.
BENEFICIAL OWNERSHIP
OF SHARES OF ARDENT OPTIONS
COMMON STOCK EXERCISABLE
----------------------- WITHIN
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE 60 DAYS
------------------------ --------- ---------- -----------
DIRECTORS AND OFFICERS
Peter Gyenes...................................... 514,990 3.1% 471,804
David W. Brunel................................... 586,671 3.6 344,765
Robert G. Claussen................................ 125,219 * 9,374
Martin T. Hart.................................... 50,000 * 1,667
Robert M. Morrill................................. 337,234 2.1 154,000
Charles F. Kane................................... 126,943 * 122,917
Cornelius P. McMullan............................. 122,500 * 122,500
James D. Foy...................................... 154,287 * 133,446
Peter L. Fiore.................................... 124,802 * 123,751
All executive officers and directors as a group
(12 persons).................................... 2,475,081 14.0 1,722,611
5% STOCKHOLDERS
James T. Dresher, Jr. ............................ 2,690,249
1400 Muirfield Close
Bel Air, MD 21015
Virginia Dresher Meoli ........................... 2,730,688
1208 East MacPhail Road
Bel Air, MD 21015
- ---------------
* Less than 1%
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THE BUSINESS OF PRISM
Prism Solutions, Inc. pioneered the data warehouse market and today
provides a wide range of products and services to help companies understand,
manage and use information effectively. Through the end of 1992, Prism was
engaged primarily in research and development and the establishment of a sales
and marketing infrastructure. From 1992 to 1995, Prism began shipping the first
generation of its principal products, Prism(R) Warehouse Manager(TM) and Prism
Directory Manager(TM). In December 1996, Prism replaced those products with its
next generation software, Prism Warehouse Executive(TM) and Prism Warehouse
Directory(TM). Since then, Prism has introduced many new products and services.
With each new product and service offering Prism has enhanced its core products
and expanded its sales into new industry sectors.
PRODUCTS AND SERVICES
THE PRISM EXECUTIVE SUITE
The Prism Warehouse Executive is an integrated set of software tools which
allows users to manipulate the flow of data from multiple sources into a target
data warehouse through a simple to use point-and-click interface. With Prism
Warehouse Executive, the user can create reports and documents that provide an
overview of a project's structure and help the user to see the data warehouse or
data mart construction process. Prism Warehouse Executive extracts and
integrates data from mainframes and databases which are utilized in the UNIX
operating system. Built-in features allow users to convert and summarize data
and to develop a consistent historical perspective of their information.
Prism Warehouse Executive has many unique features and is widely adaptable
to various uses. One feature of Prism Changed Data Capture(TM), allows users to
detect changes to information in various applications and to transform and load
these changes into the data warehouse. Another feature, Prism Schedule Manager,
provides support for planning, scheduling and managing the processes of
converting and loading data into the data warehouse. Two other features, Prism
FastLoad and FastUpdate(TM), allow the reproduction and movement of data between
databases to prevent an imbalance of data among various data sources and to
allow for the creation of data marts.
Prism Warehouse Executive's components share common data, known as meta
data. Sharing this meta data enables users to move quickly and easily from
planning and design to actual warehouse implementation. Once the warehouse is
constructed, the meta data serves as the basis for generating programs to
integrate, transform and move particular data to the appropriate warehouse
database.
The meta data collected by Prism Warehouse Executive is stored in the Prism
Warehouse Directory, which integrates and manages information about warehouse
changes across the computing enterprise. Developers use this meta data to manage
construction of data warehouses, while users rely on meta data to help them
navigate and access business information. Prism Warehouse Directory's meta data
can be read by a variety of software packages and industry-standard Web
browsers, giving users a choice as to how to access to warehoused information.
Complementing Prism Warehouse Executive and Directory, Prism offers Prism
Quality Manager. This product allows customers to analyze and manage the
accuracy of data as it moves from one application to another and to monitor the
quality of data in the warehouse. Prism Quality Manager shortens the warehouse
development cycle and improves overall information accuracy. Prism Quality
Manager can also be used to improve quality in application conversions or
overhauls of existing operational systems.
SUPPORT OF SAP PRODUCTS
Prism offers a host of products and services targeted to the needs of
customers of SAP, a German software company that markets enterprise resource
information systems. One common problem SAP customers often face is the
difficulty of converting data from legacy databases for SAP R/3 applications. To
meet this need, Prism offers Prism Warehouse Executive Target Module. Prism also
offers Quality Manager, a product that evaluates, cleans and prepares data for
SAP R/3 implementations. Prism offers its Warehouse Executive Source Module for
R/3 that allows users to move information from SAP R/3
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systems into a data warehouse. Finally, Prism offers its Warehouse Executive
Target Module for SAP's Business Warehouse that allows users to migrate legacy
data into SAP's Business Warehouse.
CUSTOMER RELATIONSHIP MANAGEMENT SOLUTIONS FOR THE FINANCIAL SERVICES INDUSTRY
Prism's Customer Relationship Management System is a product which allows
businesses to maintain complete customer profiles containing demographic,
product and service information. Customer Relationship Management System is the
only product in the industry which combines customer relationship management and
marketing automation applications. The system collects and standardizes
information which can then be analyzed or used to support customer service
functions. Ultimately, the system enables financial institutions to take
specific steps to improve customer service, sales performance, customer
retention and profitability. Campaign Advisor(TM) is a product which enables
financial institutions to implement appropriate product and service portfolios
for their customers. Campaign Advisor allows financial institutions to analyze
and predict future profitability.
IMPLEMENTATION AND CONSULTING SERVICES
Prism designs and installs its products and offers long-term consulting
services to its customers. Product design and installation are a standard
component of the license and delivery process. This on-site contact enhances the
likelihood that customers will be satisfied with Prism's products. The design
and installation process lasts approximately two weeks and is delivered by a
systems engineering team familiar to the customer. The process includes an
on-site planning session, product training, a detailed design session and
implementation of a prototype or limited-scope data warehouse.
Prism guides its users through the process of implementing and utilizing
its data warehouse products and services through Iterations(R), its consulting
methodology. Iterations shows customers the various steps and time required to
build effective data warehouses. Iterations guides users through all phases of
the process of implementing the data warehouse, from the startup phase to
analysis and design; to construction, testing and implementation; then returning
to evaluation and management of the subsequent version.
Prism offers executive briefings, technical publications and seminars
worldwide to educate the market about the benefits and payback of data
warehousing. Additionally, Prism publishes a series of newsletters that provide
in-depth information on data warehousing strategy and implementation.
PRODUCT DEVELOPMENT
Prism intends to expand its existing product offerings and to introduce new
data warehouse software products. To date, Prism has relied primarily on
internal development of its products, but expects that it will also license or
acquire technology or products from third parties or consultants. Prism intends
to continue to support industry standard operating environments, client-server
architectures and databases.
Prism is currently rewriting its software code base and plans to
incrementally incorporate the new code into its products over the next two
years. The first product element to incorporate the new code base was the
point-and-click user interface, which was introduced as part of Prism Warehouse
Executive in the fourth quarter of 1996. Prism believes that the new code base
will add functionality and ease of use to its products.
As of December 31, 1998, Prism's product development staff consisted of 61
full-time equivalent employees. Prism's total expenses for product development
for 1996, 1997 and 1998 were $6,974,000, $11,068,000 and $14,492,000,
respectively. Prism anticipates that it will continue to commit substantial
resources to product development in the future. To date, Prism has not
capitalized any software development costs as such costs required to be
capitalized have been immaterial.
The market for data warehouse software products changes rapidly due to
constant improvements in computer hardware and software. Prism's success in the
future will depend upon its ability to deliver its new code base, maintain
competitive technologies, enhance its current products and develop new products
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in a timely and cost-effective manner. Prism may not be able to develop and
market product enhancements or new products. Even if Prism develops and markets
those products, they may not be accepted by customers. In the past, Prism has
experienced delays in the development and introduction of new products and
product enhancements. The length of these delays has varied depending upon the
size and scope of the project and the nature of the problems encountered. If
Prism fails to anticipate or to respond adequately to changing market
conditions, or if significant delays in product development or introduction
occur, customers could decide to delay or decide against purchases of Prism's
products. That could have a substantial negative impact on Prism's business,
operating results and financial condition.
SALES, MARKETING AND CUSTOMER SUPPORT
Prism markets its software and services primarily through a direct sales
organization and, to a lesser extent, through third-party distributors and other
indirect sales channels. Prism employs skilled engineers and technically
proficient salespersons capable of serving the needs of its customers. In
addition to its direct sales efforts, Prism utilizes advertising, direct mail
and public relations programs, participates in numerous industry trade shows
and, individually or with others, organizes seminars and conferences to promote
the adoption of its products and methodologies. Prism currently has domestic
offices in the metropolitan areas of Atlanta, Boston, Chicago, Dallas, as well
as Orange, California, Little Falls, New Jersey and Washington, D.C. In
addition, Prism has offices in Reading, United Kingdom; Paris, France; Munich,
Germany; Madrid, Spain; Toronto, Canada; Hoofddorp, Netherlands; Auckland, New
Zealand; Melbourne, Australia; and Singapore. Field offices are staffed with
both sales and technical pre-sales representatives.
Prism has also developed indirect distribution and marketing channels with
vendors whose products fit strategically with those of Prism. Prism believes
that in order to provide the most comprehensive and competitive data warehouse
management solutions, it will be necessary to develop, maintain and enhance
close associations with software and hardware vendors. Prism currently has
marketing relationships with over 20 software and hardware vendors and several
systems integrators. However, Prism may not be able to maintain these existing
relationships or enter into new relationships, which could adversely affect the
compatibility of Prism's products with other software and hardware. The failure
to maintain or enter into these relationships could also have a negative impact
on the timing of bringing new and enhanced products into the marketplace and
could affect Prism's ability to use third party distribution channels and
decrease its market presence.
Prism engages distributors to serve international markets in which Prism
typically does not have a direct sales presence. Prism's current distributors
sublicense Prism's products in Belgium, Brazil, Denmark, Israel, Italy, Japan,
Korea, Luxembourg, the Netherlands, New Zealand, Portugal, South Africa, Spain,
Sweden and Venezuela. These distributors license Prism's products and relicense
them to third parties at a discount. These distributors may also provide
training and consulting services to users. Prism intends to expand its
operations in Europe, North America, Latin America and Asia, which will require
significant management attention and financial resources. Prism commits
significant resources to developing international sales and support channels and
opening international sales offices. The failure of those efforts could
substantially harm Prism's business, operating results and financial condition.
Prism believes that its customer service and technical support are crucial
to its marketing efforts and to the establishment of long-term customer
relationships. Prism offers its licensees periodic product updates and
post-sales technical assistance via telephone hotline, Web and fax. Almost all
of Prism's licensees opt for annual maintenance contracts at the time they enter
into their initial license agreement. Annual maintenance fees generally account
for 15% of all fees for a given license agreement. Prism also offers
installation, consulting, education and training services on a fee basis to
assist customers implement their data warehouses. Prism's distributors offer
first-level customer support to their customers, while relying on Prism for any
additional support, as needed.
Prism generally ships its products as orders are received. As a result,
Prism has relatively little backlog at any given time. Therefore, backlog is not
a meaningful indicator of future performance. Prism's
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sales cycle ranges from three months to over a year, depending on the size of
the transaction, the length of the customer relationship, the timing of new
product releases, the level of sales management activity and general economic
conditions.
Historically, a substantial majority of Prism's revenues in a given quarter
have been recorded in the third month of that quarter, with a concentration of
such revenues in the last two weeks of the third month. Because of the
relatively large dollar size of Prism's typical software license, any delay in
the closing of a transaction can have a significant impact on Prism's operating
results for a particular period.
At December 31, 1998, Prism had more than 400 active customers, some with
multiple installations. No customer accounted for more than 10% of Prism's total
revenues in fiscal 1996, 1997 or 1998.
COMPETITION
The data warehouse market is intensely competitive and subject to rapid
change. Competitors vary in size and scope of the products and services they
offer. Prism encounters competition from a number of sources, including internal
information systems departments of customers and potential customers. The most
active competitors to Prism's data warehouse products and services are
Evolutionary Technologies International, Apertus Carleton Corporation, and
PLATINUM technology, inc. The most active competitors to the Prism data mart
products and services are Informatica and several other small, private
companies. Prism expects to experience additional competition from other
established and emerging software companies, including some of Prism's current
marketing partners. Due to increased competition, Prism has had to lengthen
sales cycles and reduce prices. These circumstances could result in reduced
transaction sizes, fewer customer orders, reduced gross margins and loss of
market share. The end result could be a negative impact on Prism's business,
operations and financial condition.
Prism believes that the principal competitive factors affecting the data
warehouse market include technical performance, company reputation, reliability
and compatibility of products, customer service and price. Prism may not be
successful in competing in the future with respect to these or other factors.
Some of Prism's competitors have significantly greater financial,
technical, marketing and other resources than Prism. 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, sale and support of their products than Prism. 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 Prism's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly gain significant market share. Prism may not be able to
compete successfully against these types of competitors. Competitive pressures
faced by Prism could have a negative impact on its business, operating results
and financial condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Prism relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
its proprietary technology. For example, Prism requires its customers to sign
license agreements which impose restrictions on the licensees' ability to
utilize the software. Prism also seeks to prevent disclosure of its trade
secrets by requiring those persons with access to Prism's proprietary
information to execute confidentiality agreements. These agreements restrict the
access to Prism's source code. Prism protects its software, documentation and
other written materials through trade secret and copyright laws. These laws,
however, afford only limited protection. Prism presently has no patents or
patent applications pending.
Despite Prism's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of Prism's products or to obtain and use
information that Prism regards as proprietary. Policing unauthorized use of
Prism's products is difficult. Prism is unable to determine the extent to which
piracy of its software products exists, and software piracy is expected to be a
persistent problem in the future. In
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addition, the laws of many countries do not protect Prism's proprietary rights
to as great an extent as the laws of the United States. Prism's means of
protecting its proprietary rights may not be adequate, and Prism's competitors
may independently develop similar technology.
To date, Prism has not been notified that its products infringe the
proprietary rights of third parties. However, third parties in the future could
claim infringement by Prism with respect to current or future products. Prism
expects that data warehouse software product developers will increasingly be
subject to infringement claims as the number of products and competitors in
Prism's industry segment grows and the functionality of products in different
industry segments overlaps. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require Prism to enter into royalty or licensing agreements. Such royalty or
licensing agreements may not be available on terms acceptable to Prism or at
all. This could substantially harm Prism's business, operating results and
financial condition.
EMPLOYEES
As of December 31, 1998, Prism employed 285 full-time equivalent persons,
including 86 in sales, presales technical support, marketing and related
activities, 61 in product development and support, 114 in consulting services,
and 24 in management, administration and finance. Prism's success is highly
dependent on its ability to attract and retain qualified employees. Competition
for employees is intense in the software industry, and an inability to attract
and retain qualified development and sales personnel, in particular, could
postpone product release schedules and adversely affect Prism's ability to
generate revenue.
None of Prism's employees is represented by a labor union or is the subject
of a collective bargaining agreement with respect to his or her employment by
Prism. Prism has never experienced a work stoppage and believes that its
employee relations are good.
PROPERTIES
Prism's sales, marketing, support and product development facility is
located in approximately 38,000 square feet of space in Sunnyvale, California.
The lease on this office space expires in April 2005. Prism also leases
approximately 7,200 square feet of space in the United Kingdom under two lease
agreements that expire in November 2000 and February 2003, respectively. Prism
currently leases small field offices in seven United States cities, as well as
in France, Germany, Spain, the Netherlands, Canada, Australia, New Zealand and
Singapore. Prism believes that suitable additional or alternative space will be
available in the future on commercially reasonable terms, as needed.
LEGAL PROCEEDINGS
On March 5, 1997, a class action complaint called Adler et al., v. Prism
Solutions, Inc. et al., Case No. CV764547, was filed by the law firm of Milberg
Weiss Bershad Hynes & Lerach LLP, in Superior Court of the State of California,
County of Santa Clara, against Prism, several of its current and former officers
and directors and the underwriters of its initial public offering. The complaint
was filed on behalf of those persons who purchased or otherwise acquired the
common stock of Prism from March 14 through October 14, 1996, and alleged that
the defendants artificially inflated the demand for the common stock prior to
and after the initial public offering. The complaint sought damages in an
unspecified amount.
On August 6, 1997, the Court entered an order that agreed with the
defendants that the plaintiffs failed to present sufficient facts to proceed
with three claims under the corporation law of the State of California, one
claim under the civil code of the State of California, and two claims under the
federal securities laws. This order provided that the plaintiffs could amend the
state corporation law and civil code claims but not the federal securities law
claims. On December 12, 1997, the plaintiff filed a first amended complaint that
included a claim under the corporation law of the State of California and claims
under the federal securities laws against Prism and certain of its current and
former officers and directors. On March 2, 1998, the Court agreed with the
assertions of the individual officer and director defendants that the plaintiffs
failed to present sufficient facts to proceed with the claims against these
individuals, but
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provided that the plaintiffs could amend all of the claims. The Court disagreed
with the assertions of Prism that the plaintiffs failed to present sufficient
facts to proceed with the claims against the company.
On December 24, 1997, Milberg Weiss filed an additional class action
complaint in the United States District Court for the Northern District of
California. This federal court action named Prism and several current and former
officers and directors as defendants, and was based on the same allegations as
the previously filed state court action. Like the state court action, this
complaint was filed on behalf of those persons who purchased or otherwise
acquired the common stock of Prism from March 14 through October 14, 1996. In
April 1998, the federal court action was dismissed.
In March 1998, a new judge was assigned to the state court action. On March
12, 1998, the plaintiffs filed a second amended state court complaint against
Prism and certain of its officers and directors. In response, Prism filed a
motion that asked the Court to reconsider its prior assertion that the
plaintiffs had failed to present sufficient facts to proceed with the claims
against the company. The individual officer and director defendants also filed a
motion in response that argued that the plaintiffs had failed to present
sufficient facts to proceed with the claims against these individuals. On June
4, 1998, the Court agreed with the individual defendants that the plaintiffs had
failed to present sufficient facts to proceed with the claims, and provided the
plaintiffs the ability to amend the claims filed under federal securities laws
but not the claims filed under the corporation law of the State of California.
The Court also denied Prism's motion.
On June 30, 1998, the plaintiffs filed a third amended complaint that
brought claims against Prism under the corporation law of the State of
California and the federal securities laws, and claims against all but one of
the same officer and director defendants under the federal securities laws. On
August 3, 1998, the individual defendants filed a motion that argued that the
plaintiffs had failed to present sufficient facts to proceed with the claims
against these individuals. The Court overruled this motion on September 29,
1998. On October 30, 1998, Prism and the four remaining individual defendants
filed a joint answer to the third amended complaint. Prism believes the third
amended complaint's claims have no merit and intends to vigorously defend the
state court action. Prism is also involved in other ongoing legal matters
incidental to its business.
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF PRISM
The following selected consolidated financial data of Prism as of and for
each of the five fiscal years ended December 31, 1998 are derived from the
consolidated financial statements of Prism. The financial statements for the
five fiscal years ended December 31, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants. This data is qualified in
its entirety by, and should be read in conjunction with, the Prism Financial
Statements and related notes thereto appearing elsewhere herein. See "Financial
Information of Prism and Subsidiaries" and "Prism Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License................................................ $ 22,166 $ 23,823 $19,586 $12,868 $ 6,295
Services and other..................................... 29,924 27,568 16,581 8,533 1,932
-------- -------- ------- ------- -------
Total revenue........................................ 52,090 51,391 36,167 21,401 8,227
-------- -------- ------- ------- -------
Costs and expenses:
Cost of license........................................ 1,031 1,338 847 402 113
Cost of services and other............................. 21,410 16,046 9,684 5,159 1,654
Selling and marketing.................................. 27,355 24,712 18,462 11,604 5,632
Research and development............................... 14,492 11,068 6,974 3,987 2,436
General and administrative............................. 6,587 7,114 4,048 3,206 889
Purchased in process technology........................ -- 8,558 -- -- --
-------- -------- ------- ------- -------
Total costs and expenses............................. 70,875 68,836 40,015 24,358 10,724
-------- -------- ------- ------- -------
Loss from operations..................................... (18,785) (17,445) (3,848) (2,957) (2,497)
-------- -------- ------- ------- -------
Other income (expenses):
Other income (expense)-net............................... 13 -- (21) (67) (21)
Interest income-net...................................... 370 1,352 1,453 119 43
-------- -------- ------- ------- -------
Total other income................................... 383 1,352 1,432 52 22
-------- -------- ------- ------- -------
Loss before provision for income taxes................... (18,402) (16,093) (2,416) (2,905) (2,475)
Provision for income taxes............................... 249 91 21 9 63
-------- -------- ------- ------- -------
Net loss................................................. $(18,651) $(16,184) $(2,437) $(2,914) $(2,538)
======== ======== ======= ======= =======
Basic net loss per common share:......................... $ (1.01) $ (0.94) $ (0.17) $ (0.45) $ (0.90)
Diluted net loss per common share:....................... $ (1.01) $ (0.94) $ (0.17) $ (0.45) $ (0.90)
Basic weighted average number of common shares
outstanding............................................ 18,485 17,291 14,640 6,467 2,814
======== ======== ======= ======= =======
Diluted weighted average number of common and common
equivalent shares outstanding.......................... 18,485 17,291 14,640 6,467 2,814
======== ======== ======= ======= =======
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents and short-term investments.......... $ 5,069 $ 21,706 $34,915 $ 2,068 $ 3,205
Working capital.......................................... 5,420 22,252 35,562 1,355 3,247
Total assets............................................. 21,512 43,185 48,894 12,487 7,257
Long term debt, less current portion..................... 329 364 179 438 --
Stockholders' equity..................................... 10,566 27,604 38,022 2,767 3,623
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PRISM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Incorporated in California in March 1991 and reincorporated in Delaware in
January 1996, Prism Solutions, Inc. pioneered the data warehouse market to help
companies understand, manage and use information effectively. Today, Prism
provides comprehensive solutions to deliver data warehouse applications. Through
the end of 1992, Prism was in the development stage and was engaged primarily in
research and development and the establishment of a sales and marketing
infrastructure. Prism began shipping its principal products, Prism Warehouse
Manager and Prism Directory Manager in December 1992 and April 1995,
respectively. In December 1996, Prism Warehouse Manager and Prism Directory
Manager were replaced with Prism Warehouse Executive and Prism Warehouse
Directory, respectively, as Prism's next generation software. In the fourth
quarter of 1996, Prism also completed the first transactions for Iterations, its
consulting methodology. Over the course of 1997 Prism introduced additional
components to its core products. These included Prism Schedule Manager for
operational planning and deployment, Prism Quality Manager for auditing and
improving data quality, Prism FastLoad for replication offerings and Prism Web
Access for warehouse navigation and data delivery. In the first quarter of 1998,
Prism complemented its Warehouse development solutions by offering its Customer
Relationship Management System (through the acquisition of Customer Focus
International). This offering consists of comprehensive data models and
analytical and sales development applications for customer relationship
management in the financial services industry. In April 1998, Prism introduced
the Prism Executive Suite which consists of Prism Warehouse Executive, Prism
Warehouse Directory and Prism Quality Manager. Most recently, through the
acquisition of Systems Techniques, Inc., Prism enhanced its ability to deliver
greater business value to customers through vertical data warehouse solutions by
establishing a data warehouse Center of Excellence for the healthcare industry.
Prism's total revenues to date have been derived from software license revenues
and consulting services revenues. Software license revenue accounted for 54%,
46% and 43% of total revenues in 1996, 1997 and 1998, respectively. Services and
other revenues accounted for the remaining revenues in 1996, 1997 and 1998.
Prism's core data warehouse products are primarily enterprise related and they
require a significant amount of consulting and implementation time from
qualified personnel. Because many companies are experiencing increased demands
for other information technology projects, most companies are outsourcing the
implementation of data warehouse projects. Accordingly, Prism believes that the
consulting services component of its business will continue to be a significant
portion of total revenues, with the balance derived from license fees and the
related maintenance revenue.
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RESULTS OF OPERATIONS
The following table sets forth selected consolidated statement of
operations data as a percentage of total revenues for the periods indicated:
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
Revenues:
License................................................... 42.6% 46.4% 54.2%
Services and other........................................ 57.4 53.6 45.8
----- ----- -----
Total revenues......................................... 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
License................................................... 2.0 2.6 2.3
Services and other........................................ 41.1 31.2 26.8
----- ----- -----
Total cost of revenues................................. 43.1 33.8 29.1
----- ----- -----
Gross margin........................................... 56.9 66.2 70.9
----- ----- -----
Costs and expenses:
Sales and marketing....................................... 52.5 48.1 51.0
Research and development.................................. 27.8 21.5 19.3
General and administrative................................ 12.6 13.8 11.2
Purchased-in-process technology........................... -- 16.7 --
----- ----- -----
Total operating expenses............................... 92.9 100.1 81.5
----- ----- -----
Loss from operations...................................... (36.0) (33.9) (10.6)
Interest income, net........................................ 0.7 2.6 4.0
Other expense, net.......................................... -- -- (0.1)
----- ----- -----
Loss before income taxes.................................. (35.3) (31.3) (6.7)
----- ----- -----
Provision for income taxes.................................. 0.5 0.2 --
----- ----- -----
Net loss.................................................. 35.8% (31.5)% (6.7)%
===== ===== =====
REVENUES
Total revenues were $52,090,000, $51,391,000 and $36,167,000 in 1998, 1997
and 1996, respectively, representing increases of 42.1% from 1996 to 1997 and
1.4% from 1997 to 1998. Prism's revenues are derived from license fees for its
software products and fees for services complementing its products, including
software maintenance and support, implementation, consulting and training.
License Revenues. License revenues decreased $1,657,000, or 7.0%, for the
year ended December 31, 1998 compared to the same period of 1997. Sales to new
customers accounted for 70% of revenues during 1998 compared to 73% for 1997.
The lower sales volume in 1998 compared to the same period of 1997 is primarily
the result of lower than expected new product sales, and, to a lesser extent,
lower than expected sales in the Pacific Rim territory due to the economic
downturn in that region.
Revenues from software licenses were $22,166,000, $23,823,000 and
$19,586,000 in 1998, 1997 and 1996, respectively, representing an increase of
21.6% from 1996 to 1997 and a decrease of 7.0% from 1997 to 1998. The increase
in license revenues from 1996 to 1997 was primarily attributable to growing
acceptance of Prism's products and an increase in the number and tenure of
direct sales personnel, which led to increases in the number of units licensed.
The decrease in license revenues from 1997 to 1998 was primarily the result of
lower than expected sales in the North American and Asian Pacific market places.
License revenues in 1997 and 1998 were favorably affected by Prism's
acquisitions completed during fiscal 1997 and 1998, in addition to the expansion
and development of the sales force into the European and Asia Pacific regions.
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Services and Other Revenues. Services and other revenues increased
$2,356,000, or 8.5%, for the year ended December 31, 1998 compared to the same
period of 1997. The growth in service and other revenue during 1998 compared to
1997 was primarily the result of an increase in the number and scope of
consulting engagements. Additionally, Prism's consulting organization has
continued to grow to meet customer demand. The majority of services and other
revenues in both periods came from consulting revenues.
Services and other revenues were $29,924,000, $27,568,000 and $16,581,000
in 1998, 1997 and 1996, respectively, representing increases of 66.3% from 1996
to 1997 and 8.5% from 1997 to 1998. The growth from 1996 to 1998 was primarily
due to an increase in the number and size of consulting engagements and, to a
lesser extent, licensing activity and maintenance renewals. As a percentage of
total revenues, services and other revenue comprised 57.4%, 53.6% and 45.8% in
1998, 1997 and 1996, respectively. A majority of services and other revenues in
1998, 1997 and 1997 came from consulting revenues.
COST OF REVENUES
Cost of License Revenues. Cost of license revenues consists primarily of
the costs of royalties paid to third-party vendors, product media and
duplication, shipping expenses, manuals and packaging materials. Cost of license
revenues decreased $307,000, or 23.0%, for the year ended December 31, 1998
compared to the same period of 1997. Approximately 72% of the decrease in cost
of license revenue for the year was the result of decreases in royalty payments
with the remainder due to decreases in distribution costs. Prism expects that
the cost of license revenues will increase in absolute dollars as Prism licenses
technology and products from third parties for which royalties are owed.
Cost of license revenues was $1,031,000, $1,338,000 and $847,000 in 1998,
1997 and 1996, respectively, representing 2.0%, 2.6% and 2.3% of total revenues
for those years. The increase both in absolute dollars and as a percentage of
revenues from 1996 to 1997 was primarily attributable to increased royalties and
commissions paid to third party vendors as license revenues continued to
increase. The decrease both in absolute dollars and as a percentage of revenues
from 1997 to 1998 was primarily attributable to decreased royalties and
commissions payable to third parties as license revenues continued to decrease.
Cost of Services and Other Revenues. Cost of services and other revenues
consists primarily of personnel-related costs incurred in providing consulting
and implementation services, telephone support and training to customers. Cost
of services and other revenues increased $5,364,000, or 33.4%, for the year
ended December 31, 1998 compared to the same period of 1997. The increase in
cost of service and other revenues was primarily due to increased costs related
to growth of the consulting organization and the use of contractors in Prism's
consulting, customer support and training organizations. Prism expects that the
cost of services and other revenues will increase in absolute dollars as Prism
continues to add customers.
Cost of services and other revenues was $21,410,000, $16,046,000 and
$9,684,000 in 1998, 1997 and 1996, respectively, representing 41.1%, 31.2% and
26.8% of total revenues for those years. The dollar amount of cost of services
and other revenues increased significantly from 1996 to 1998 primarily because
of increases in the infrastructure required to expand the consulting
organization both domestically and worldwide.
OPERATING EXPENSES
The growth in operating expenses during the years ended December 31, 1998
and 1997, when compared to the earlier periods presented, occurred primarily as
a result of increases in salaries and benefits resulting from higher staffing
levels and the expansion of facilities. Prism has recently conducted a reduction
in force which should result in lower operating expenses in subsequent periods.
However, should Prism's revenues grow substantially, staff levels may be higher
and operating expenses may increase.
Prism's operating expenses were $48,434,000, $51,452,000 and $29,484,000,
or 93.0%, 100.1% and 81.5% of total revenues, in 1998, 1997 and 1996,
respectively. The growth in operating expenses in absolute dollars from 1996 to
1997 occurred primarily as a result of increases in salaries and benefits,
resulting from higher staffing levels, and the expansion of facilities. The
decrease in operating expenses as
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a percentage of revenues from 1997 to 1998 resulted from economies of scale
associated with Prism's growing revenues. The increase in operating expenses as
a percentage of revenues from 1996 to 1997 was primarily the result of the one
time charge of $8,558,000 associated with the write-off of the purchased in-
process technology related to acquisitions made during the 1997 fiscal year.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses paid to sales and marketing personnel and
promotional expenses. Sales and marketing expenses increased $2,643,000, or
11.0%, for the year ended December 31, 1998 compared to the same period of 1997.
The percentage increase from 1997 to 1998 in sales and marketing expenses
resulted primarily as a result of increases in salaries and benefits, resulting
from higher staffing levels and the expansion of sales office facilities.
Sales and marketing expenses were $27,355,000, $24,712,000 and $18,462,000,
or 52.5%, 48.1% and 51.0% of total revenues, in 1998, 1997 and 1996,
respectively. The increases in dollar amounts in sales and marketing expenses
were primarily due to the expansion of Prism's sales operations and increased
marketing activities, including trade shows and promotional expenses. The
decrease in sales and marketing expenses as a percentage of total revenues from
1996 to 1997 resulted primarily from increases in productivity as newly hired
sales personnel and system engineers became more experienced, and was also due
to the benefits of economies of scale associated with the increase in total
revenues.
Research and Development. Research and development expenses consist
primarily of salaries paid to the engineering staff. Research and development
expenses increased $3,424,000, or 31.0%, for the year ended December 31, 1998
compared to the same period of 1997. The increase in research and development
expenses in absolute dollars and as a percentage of revenues from 1997 to 1998
was primarily attributable to increased staffing and associated support for
software engineers required to expand and develop Prism's most recent product
offerings. Software development costs have been expensed in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." To date, costs
incurred after establishment of technological feasibility have been immaterial
and, as a result, all research and development costs have been expensed as
incurred. Prism believes that a significant level of investment for research and
development is required to remain competitive.
Research and development expenses were $14,492,000, $11,068,000 and
$6,974,000, or 27.8%, 21.5% and 19.3% of total revenues, in 1998, 1997 and 1996,
respectively. The increases in dollar amounts in research and development
expenses since 1996 were primarily attributable to increased staffing and
associated support for software engineers required to expand and enhance Prism's
product line.
General and Administrative. General and administrative expenses consist
primarily of salary expenses for administrative and executive staff. General and
administrative expenses decreased $527,000, or 7.4%, for the year ended December
31, 1998 compared to the same period of 1997. These expenses decreased due to
workforce reductions undertaken by Prism during 1998. Prism expects that its
general and administrative expenses will be lower in absolute dollars and
decrease as a percentage of revenues if Prism's total revenues increase.
General and administrative expenses were $6,587,000, $7,114,000, and
$4,048,000 or 12.6%, 13.8% and 11.6% of total revenues, in 1998, 1997 and 1996,
respectively. These expenses increased in absolute dollars from 1996 to 1997
primarily as a result of increases in staffing and an expansion of facilities.
The decrease in absolute dollars from 1997 to 1998 was primarily the result of
decreases in headcount as part of Prism's workforce reduction undertaken during
the third quarter of 1998.
Purchased-in-process technology. During the third quarter of 1997, Prism
incurred a one time charge of $8,558,000 for the write-off of
purchased-in-process technology.
In connection with its acquisition of QDB Solutions, Inc. and the purchase
of technology from Peregrine/Bridge Transfer Corporation, as further discussed
below, Prism acquired certain in-process technology which was expensed in
accordance with Interpretation 4 to Statement of Financial Accounting
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Standards No. 2 "Accounting for Research and Development Costs." Such in-process
technologies along with other acquired net assets were valued at fair value.
In July 1997, Prism acquired QDB Solutions, Inc. for 1,143,613 shares of
Prism common stock and cash of $1.25 million. The acquisition was treated as a
purchase transaction for financial accounting purposes. The allocation of the
purchase price was based on appraised values, of which $7.2 million was
identified as purchased in-process technology for three projects that were
completed in 1998 and which had no alternative future use. The development
activities of QDB Solutions, Inc. were planned to be integrated to existing
Prism in-process development projects. The same core in-process technology of
QDB Solutions, Inc. would be integrated into all three planned Prism products.
The nature of the technology acquired allows analysis and management of data,
monitors data quality and shortens the data warehouse development cycle. The
three products were:
%
PRODUCT DESCRIPTION COMPLETE VALUE ASSIGNED
- ------- ----------- -------- --------------
PQM 1.0 Data quality, 16 bit architecture.................... 90% $3.4 million
PQM 2.0 Data quality, 32 bit architecture, additional data
filters and user interface enhancements.............. 75% $2.8 million
PWE/PQM Integrated product to use data quality filters in
data transformations and in the metadata model....... 40% $1.0 million
Working models of the products were not complete at the date of
acquisition. The working models were completed subsequent to the acquisition
date. Completeness was confirmed through product testing and quality assurance
processes. At the time of acquisition, additional development activities were
required to be performed to develop the in-process technology for use in the
three Prism products. Approximately $1,000,000 was anticipated to complete the
work on the existing in-process QDB Solutions, Inc. technology by mid-1998. All
projects were successfully completed. Estimated costs to complete the projects
and the completion dates for the projects did not differ materially from the
assumptions used in the appraisal, although revenues were below those expected.
Revenue from these projects was approximately 6% of total revenue for 1998.
Although revenues from these products were lower than those expected for 1998,
Prism believes that there is customer demand for the products and that the
expected return on the acquired technology will be realized. Prism used the
income approach in appraising the technology. The significant assumptions used
in such approach include estimates for revenue and expenses. The discount rate
of 27% was based on an analysis of the cost of capital to Prism. Prism assumed a
long-term increase in revenue from this business in the appraisal, with profit
margins trending upward over time. There were no cost reductions expected from
this acquisition.
In July 1997, Prism purchased certain in-process technology from
Peregrine/Bridge Transfer Corporation for $1.3 million in pre-paid royalties.
Prism expensed this prepayment at the time of purchase as purchased in-process
technology because it had not reached technological feasibility and had no
alternative future use to Prism. The nature of the technology acquired allows
high performance batch and incremental data replication to leverage the
investment and reduce cost in the deployment of data warehouses. The two
products that Prism developed from the technology, FastLoad and FastUpdate, have
ultimately only generated revenue of $86,000 since January 1998, when the
products were released. The same core in-process technology was used in both
Prism products. The technology underlying the FastLoad and FastUpdate products
was approximately 90% complete at the acquisition date. The value assigned to
this technology was $1.3 million, the amount of the pre-paid royalties. This
technology has also been subsequently deployed by Prism in the roll out of its
change data capture products for Oracle and DB2 databases. Working models of
these products were not complete at the date of acquisition. The working models
were completed subsequent to the acquisition date. Completeness was confirmed
through product testing and quality assurance processes. Future revenue from
these products is difficult to estimate. Actual estimated costs to complete the
projects and the completion dates for the projects did not differ materially
from Prism's assumptions, however revenue results were below expectations.
Although revenues from these products have been lower than those expected, the
products allow Prism to offer a more robust
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data warehouse solution. Prism believes that the value of the technology will
help Prism to deliver more enterprise solution customers, even though demand for
the individual products is difficult to predict.
LIQUIDITY AND CAPITAL RESOURCES
Prism's cash and cash equivalents decreased from $6,351,000 at December 31,
1997 to $5,069,000 as of December 31, 1998. The decrease was attributable
primarily to Prism's loss of $18,651,000 during the year ended December 31,
1998, which was offset by collections of accounts receivable of $4,162,000 and
depreciation and amortization expense of $3,504,000. The increase in cash used
in operating activities was offset by net sales and maturities of short-term
investments which provided cash of $15,384,000 from investing activities. As of
December 31, 1998, Prism had $5,069,000 in cash and cash equivalents.
In recognition of the operating losses experienced by Prism in 1998, Prism
implemented cost reduction measures which began in the third quarter of 1998.
These measures consisted primarily of reductions in headcount and were intended
to align operating expenses with projected revenues. To the extent Prism
experiences continuing losses in the future as it has in the previous year,
Prism will need to obtain additional debt or equity financing which may not be
available or, if available, may not be on favorable terms or may be dilutive. In
recognition of these factors, the company entered into a merger agreement with
Ardent Software, Inc.
As of December 31, 1998, Prism had no material commitments to make capital
expenditures. Prism's principal commitments consisted of non-cancelable
operating leases on its facilities.
To date, Prism has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk.
Management expects that, in the future, cash in excess of current requirements
will be invested in short-term, interest-bearing, investment grade securities.
Prism has planned, based on its current operating levels and cost reduction
and containment efforts, to use existing cash resources at December 31, 1998 for
operating activities through fiscal 1999. However, if Prism is unable to turn
around its financial performance of previous quarters it will require additional
resources. There can be no assurance, however, that Prism will obtain additional
resources or achieve sufficient cost reductions. In the event that management is
unable to achieve its planned revenue levels or complete its merger with Ardent
Software, Inc. in a timely manner, operating activities may be significantly
curtailed.
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OWNERSHIP OF PRISM CAPITAL STOCK
The following table sets forth certain information, as of March 19, 1999,
known to Prism regarding the beneficial ownership of Prism's common stock by:
- each director of Prism,
- the Chief Executive Officer for 1998,
- each of the four other most highly compensated executive officers, and
two former executive officers, of Prism based on Prism's fiscal year 1998
compensation,
- all executive officers and directors as a group, and
- each person known by Prism to be the beneficial owner of more than 5% of
Prism's common stock.
Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. Shares
of common stock subject to options that are exercisable at or within 60 days of
March 19, 1999 are deemed to be outstanding and to be beneficially owned by the
person holding such options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
The third column shows separately shares which may be acquired by exercise
of stock options within 60 days after March 19, 1999 by the directors and
executive officers individually and as a group as shown. The fourth column shows
separately shares that are vested within 60 days after March 19, 1999 under the
stock options held by the directors and executive officers individually and as a
group. The shares in the third and fourth columns are included in the numbers
expressed in the first column.
Mr. Kvamme's beneficial ownership includes 2,048,283 shares held by Kleiner
Perkins Caufield & Byers VI. Mr. Kvamme is a general partner of KPCB VI
Associates, which is the general partner of Kleiner Perkins Caufield & Byers VI.
Mr. Kvamme shares voting and dispositive power of the shares held by Kleiner
Perkins Caufield & Byers VI with the other general partners of KPCB VI
Associates, including Brook H. Byers, Vinod Khosla, L. John Doerr, Joseph S.
Lacob, Bernard Lacroute and James P. Lally. Each of these general partners
disclaims beneficial ownership of the shares held by Kleiner Perkins Caufield &
Byers VI.
Mr. Fong's beneficial ownership includes 1,835,796 shares held by Mayfield
VI, 130,558 shares held by Mayfield Software Technology Partners and 81,930
shares held by Mayfield Associates. Mr. Fong is a general partner of Mayfield VI
Management, which is the general partner of Mayfield VI, which is the general
partner of Mayfield Software Technology Partners and a limited partner of
Mayfield Associates. Mr. Fong shares voting and dispositive power of the shares
held by the Mayfield funds described above with other general and limited
partners of the Mayfield funds, including Yogen K. Dalal, F. Gibson Myers, Jr.,
William D. Unger, Wendell G. Van Auken, Michael J. Levinthal and A. Grant
Heidrich, III. Each general and limited partner of the Mayfield funds disclaims
beneficial ownership of shares held by the Mayfield funds except as to his
proportional ownership interest in those shares.
Mr. Haque's beneficial ownership includes 1,811,750 shares held by Norwest
Equity Partners IV and 6,000 shares held by Norwest Equity Partners V. Mr. Haque
is a general partner of Itasca Partners and Itasca Partners V, which are general
partners of Norwest Equity Partners IV and Norwest Equity Partners V,
respectively. Mr. Haque shares voting and dispositive power of the shares held
by the Norwest funds with other general and managing partners of the Norwest
funds, including Daniel J. Haggerty and Robert F. Zicarelli. Each general and
managing partner of the Norwest funds disclaims beneficial ownership except as
to his proportional pecuniary interest in those shares.
Ms. Schoendorf's beneficial ownership includes 1,130,484 shares held by
Mohr, Davidow Ventures III. Ms. Schoendorf is a general partner of WLPJ
Partners, the general partner of Mohr, Davidow Ventures III. Ms. Schoendorf
shares voting and dispositive power of the shares held by Mohr, Davidow
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Ventures III with other general partners of WLPJ Partners, including Lawrence G.
Mohr, William H. Davidow and Jonathan D. Feiber. Each of the general partners of
WLPJ Partners disclaims beneficial ownership of shares held by Mohr, Davidow
Ventures III, except as to his or her proportional ownership interest in those
shares.
Mr. van den Berg's beneficial ownership includes 732,284 shares held by JMI
Equity Fund, L.P. Mr. van den Berg is a general partner of JMI Partners, the
general partner of JMI Equity Fund. Mr. van den Berg shares voting and
dispositive power of the shares held by JMI Equity Fund with the other general
partners of JMI Partners, including Charles E. Noell, Harry S. Gruner and
Anthony Moores. Each of the general partners of JMI Partners disclaims
beneficial ownership of the shares held by JMI Equity Fund.
Mr. Ashbrook's beneficial ownership includes 547,967 shares held by the
James W. Ashbrook and Melba J. Ashbrook Living Trust dated May 2, 1991.
The beneficial ownership of all of Prism's executive officers and directors
as a group does not include shares or options held by Donald Taylor or Philip
Sakakihara, as they were not executive officers of Prism as of March 19, 1999.
AMOUNT AND PERCENT OF OPTIONS OPTIONS
NATURE OF OUTSTANDING EXERCISABLE VESTED
BENEFICIAL COMMON WITHIN WITHIN
NAME OF BENEFICIAL OWNER OWNERSHIP STOCK 60 DAYS 60 DAYS
- ------------------------ ---------- ----------- ----------- ---------
Thuan D. Phan.................................. 2,470,439 13.2% 0 0
c/o Prism Solutions, Inc.
1000 Hamlin Court
Sunnyvale, CA 94089
E. Floyd Kvamme................................ 2,228,545 11.9 30,000 30,000
KPCB VI Associates
2750 Sand Hill Road
Menlo Park, CA 94025
Kevin Fong..................................... 2,082,787 11.1 30,000 30,000
Mayfield Funds
2800 Sand Hill Road
Menlo Park, CA 94025
Promod Haque................................... 1,847,750 9.8 30,000 30,000
Norwest Equity Partners Funds
245 Lytton Avenue
Suite 250
Palo Alto, CA 94301
Nancy Schoendorf............................... 1,160,484 6.2 30,000 30,000
Mohr Davidow Ventures III
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Warren M. Weiss................................ 886,811 4.5 862,000 862,000
Norris van den Berg
JMI Equity Fund, L.P......................... 762,284 4.1 30,000 30,000
James W. Ashbrook.............................. 557,967 3.0 10,000 10,000
Mark Rankovic.................................. 279,245 1.5 13,750 13,750
Earl C. Charles................................ 259,814 1.4 246,000 246,000
Donald N. Taylor............................... 76,536 * 72,605 72,605
Philip M. Sakakihara........................... 82,825 * 73,707 73,707
Stacy Cooper................................... 53,691 * 41,563 41,563
All executive officers and directors as a group
(14 persons)................................. 13,613,501 67.2 1,477,279 1,477,279
- ---------------
* Less than 1%
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RELATIONSHIPS AND RELATED TRANSACTIONS OF PRISM
Since January 1, 1997, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which Prism was or is to be
a party in which the amount involved exceeds $60,000 and in which any director,
executive officer, holder of more than 5% of Prism's common stock or any member
of the immediate family of the directors, executive officers and 5% stockholders
had or will have a direct or indirect material interest other than normal
compensation arrangements, and the items listed below.
In August 1995, Prism accepted a promissory note secured by a stock pledge
agreement (the "Note") from James W. Ashbrook, Chairman of the Board, in the
principal amount of $90,000 as partial payment for the exercise of options to
purchase 413,408 shares of common stock. The principal balance on the Note
accrued interest at a rate of 8% per annum, compounded annually. In 1998, Mr.
Ashbrook repaid the full principal balance on the Note and all interest accrued.
In July 1997, Prism purchased certain technology from Peregrine/Bridge
Transfer Corporation for $1.3 million in prepaid royalties. Additionally, Prism
may be obligated to make an additional $2.7 million in royalty payments over
time. JMI Equity Fund, L.P., a stockholder of Prism of which Norris van den
Berg, a director of Prism, is a general partner, is a shareholder of Peregrine
Systems, Inc., which had previously spun off a business unit to
Peregrine/Bridge. In connection with the spin-off, Peregrine Systems transferred
certain technology to Peregrine/Bridge which was eventually purchased by Prism
from Peregrine/Bridge. The transaction was done at arms-length, and Mr. van den
Berg abstained from all discussions of the Board related to approval of the
transaction.
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MANAGEMENT OF ARDENT FOLLOWING THE MERGER
Following the merger, it is expected that the persons listed below will
serve as directors and executive officers of Ardent.
AGE ON
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
Peter Gyenes............................. 53 Chief Executive Officer and Chairman of
the Board
David W. Brunel.......................... 43 Director
Robert G. Claussen....................... 62 Director
Martin T. Hart........................... 62 Director
Robert M. Morrill........................ 61 Director
John G. Akers............................ 50 Vice President, Americas Sales
Peter L. Fiore........................... 41 Vice President, Data Warehousing
James D. Foy............................. 51 Vice President, Engineering
Charles F. Kane.......................... 41 Vice President, CFO, and Treasurer
Cornelius P. McMullan.................... 58 Vice President, International Operations
Jason E. Silvia.......................... 49 Vice President, Services
James K. Walsh........................... 60 Vice President and General Counsel
PETER GYENES has been an executive officer of Ardent since May 1996,
serving as Executive Vice President, International Operations through October
1996, Executive Vice President, Worldwide Sales through March 1997, President
and Chief Executive Officer through January 1998, and thereafter as Chairman of
the Board and Chief Executive Officer. From May 1995 to May 1996, Mr. Gyenes was
President and Chief Executive Officer of Racal InterLan Inc., a supplier of
local area networking products. From 1994 to May 1995, he was President of the
American Division of Fibronics International, Inc., and from 1990 to 1993, he
was Vice President and General Manager of the international operations and
minicomputer business unit of Data General Corporation. Mr. Gyenes is a Director
of Enteractive, Inc., a supplier of multimedia software.
DAVID W. BRUNEL has been a business consultant since July 1998. From
February to June 1998, he was President and Chief Operating Officer of Ardent.
From 1988 until its merger into Ardent in February 1998, he was President, Chief
Operating Officer and a founder of Unidata, Inc.
ROBERT G. CLAUSSEN has been, since 1989, the Chairman of the Board and
Chief Executive Officer of Claussen Co., a real estate development company, and
managing general partner of several real estate development partnerships
affiliated with Claussen Co.
MARTIN T. HART has been a business advisor and private investor since 1969.
He is a director of P.J. America, Inc., a food service company, MassMutual
Corporate Investors and MassMutual Participation Investors, Inc., both
investment companies, Schuler Homes, Inc., a builder of homes, Optical
Securities Group, Inc., a manufacturer of security systems, and T-Netix, Inc., a
communications company.
ROBERT M. MORRILL has been a private investor since 1991. He was Chairman
of the Board of Ardent from 1984 until February 1998 and Chief Executive Officer
and President of Ardent from March 1996 through March 1997.
JOHN G. AKERS joined Ardent in February 1998 as Vice President and General
Manager, Americas Relational Technology and Tools Sales. From 1989 until its
merger into Ardent in February 1998, he was Vice President of America Operations
of Unidata, Inc.
PETER L. FIORE joined the sales and marketing staff of Ardent in 1994 and
has been Vice President and General Manager of the Data Warehouse Business Unit
since June 1996. From 1993 to 1994, he was senior director of channel marketing
at CrossComm Corp., a manufacturer of communications networking products.
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JAMES D. FOY joined the engineering staff of Ardent in 1994 and has been
Vice President, Engineering since April 1996. From 1990 until its acquisition by
Ardent in 1994, he was Chief Executive Officer and a founder of Constellation
Software, Inc., a software development company.
CHARLES F. KANE joined Ardent in December 1995 and has been Chief Financial
Officer since that time. From 1989 through November 1995, he served in several
financial and accounting positions with Stratus Computer, Inc., a manufacturer
of fault-tolerant computers, most recently as international controller and
finance director, mergers and acquisitions.
CORNELIUS P. MCMULLAN joined Ardent in January 1997, serving as Executive
Vice President of North American Sales until April 1997 and thereafter as Vice
President and General Manager of International Operations. From 1992 to 1996, he
was President and Chief Executive Officer of Sequoia Systems, a manufacturer of
fault tolerant computers.
JASON E. SILVIA joined Ardent in November 1993 and has served in several
senior sales and service positions, most recently as Vice President, Services
since 1997. From 1979 to October 1993, he served in several management positions
with Computervision Corporation, a computer hardware and software company, most
recently as Vice President of Worldwide Operations.
JAMES K. WALSH joined Ardent in 1984 and has served as General Counsel
since that time.
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ARDENT EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth compensation received
by:
- Ardent's Chief Executive Officer during 1998,
- the four other most highly compensated executive officers who were
serving as such on December 31, 1998, and
- another individual who served as an executive officer during 1998.
The table details compensation received for services rendered to Ardent
during the fiscal years ended December 31, 1998, 1997 and 1996.
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SHARES UNDER
-------------------- OPTIONS ALL OTHER
SALARY(1) BONUS AWARDED COMPENSATION
NAME AND PRINCIPAL POSITION ON DECEMBER 31, 1998 YEAR ($) ($) (#) (1)(2)
- ------------------------------------------------ ---- --------- -------- ------------ ------------
Peter Gyenes(3)............................ 1998 $300,000 $225,000 400,000 $81,890
Chief Executive Officer 1997 233,077 $150,000 75,000 81,613
and Chairman of the Board 1996 99,904 -- 125,000 77,716
David W. Brunel(4)......................... 1998 376,153 166,615 300,000 377,890
Director 1997 185,000 77,083 -- 4,625
1996 162,500 -- -- 4,603
Charles F. Kane............................ 1998 165,000 150,000 55,000 43,002
Vice President, Finance and Chief 1997 162,939 50,000 -- 41,804
Financial Officer 1996 158,675 -- 25,000 38,798
Cornelius P. McMullan...................... 1998 180,000 120,000 50,000 --
Vice President, International 1997 170,827 50,000 100,000 --
Operations 1996 -- -- -- --
James D. Foy............................... 1998 165,000 150,000 55,000 81,875
Vice President, Engineering 1997 165,000 50,000 52,351 81,405
1996 155,000 -- 41,000 82,265
Peter L. Fiore............................. 1998 165,000 125,000 55,000 42,775
Vice President, Data Warehousing 1997 155,000 45,000 24,000 41,576
1996 130,000 -- 68,834 41,761
- ---------------
(1) Salary includes amounts deferred by the named executive officer, and All
Other Compensation includes Ardent's contribution under, its deferred
compensation and profit-sharing plan established under Section 401(k) of the
Internal Revenue Code. The plan covers substantially all domestic employees
of Ardent and allows each participant to contribute up to 15% of his or her
base wage up to an amount not to exceed an annual statutory maximum ($10,000
in 1998). Ardent matches contributions in an amount equal to 50% of the
contributions of each participant up to 6% of such participant's annual
compensation.
(2) All Other Compensation includes, for each of the executive officers except
Mr. McMullan, the value, projected on an actuarial basis, of the benefit to
the executive of the premium paid by Ardent during the year on an insurance
policy on the life of the executive purchased in connection with a
split-dollar agreement. Each policy is a whole-life policy to be paid in ten
equal annual premiums, which Ardent has agreed to pay so long as the
executive continues to be employed by Ardent and, in certain circumstances,
including the occurrence of change-in-control events, thereafter. Ardent has
limited rights to borrow against each policy and the right to receive an
amount equal to all premiums paid by it not later than upon the death of the
respective executive. The executives have the right to borrow
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limited amounts under the policies and to receive the respective death
benefits net of premium amounts paid by Ardent. The benefits in 1998 were:
Mr. Gyenes, $77,490; Mr. Brunel, $25,292; Mr. Kane, $38,602; Mr. Foy,
$77,475; and Mr. Fiore, $38,375. All Other Compensation also includes, for
Mr. Gyenes, $30,000 which he received in May 1996 as compensation for
joining Ardent.
(3) Mr. Gyenes was first employed by and became an executive officer of Ardent
in May 1996. Mr. Gyenes became Chief Executive Officer on April 1, 1997.
(4) Mr. Brunel was the President and Chief Operating Officer of Unidata, Inc.
prior to its merger with Ardent. Upon completion of the merger, Mr. Brunel
became the President, Chief Operating Officer and a Director of Ardent. In
June 1998, Mr. Brunel resigned as President and Chief Operating Officer but
remains a Director and an employee in a special assignment capacity. All
other compensation includes the present value, $347,598, of all compensation
due to Mr. Brunel after 1998 in his special assignment capacity.
SEVERANCE ARRANGEMENTS ON CHANGE-IN-CONTROL.
Ardent has a policy providing that each of its executive officers will,
upon termination of their employment within one year following a
change-in-control of Ardent, be entitled to severance compensation equal to one
year's salary and any applicable planned discretionary bonus. This does not
include voluntary termination or termination for cause.
OPTION GRANTS TABLE
The following option grants table sets forth information with respect to
stock options granted by Ardent to the named executive officers and employees in
the fiscal year ended December 31, 1998. All of such options were exercisable
immediately upon grant but the underlying shares were subject to vesting over at
least a three year period beginning on the date of grant, subject to
acceleration upon change-in-control events which are defined in the respective
plans under which the options were granted. If the options are exercised to
purchase unvested shares, such shares, until vested, may not be sold and are
subject to repurchase by Ardent at the exercise price.
INDIVIDUAL GRANTS
------------------------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS AT ASSUMED RATES OF STOCK
SHARES GRANTED TO PRICE APPRECIATION FOR
UNDER EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN PRICE EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH.) DATE 5%($) 10%($)
- ---- ---------- ----------- -------- ---------- ------------ ------------
Peter Gyenes.................... 300,000 9.2% $10.00 02/25/08 $1,886,684 $4,781,227
100,000 3.1 18.75 12/15/08 2,054,177 3,863,267
David W. Brunel................. 300,000 9.2 10.00 02/25/08 1,886,684 4,781,227
Charles F. Kane................. 20,000 * 10.00 02/25/08 125,779 318,748
35,000 1.1 18.75 12/15/08 718,962 1,352,143
Cornelius P. McMullan........... 20,000 * 10.00 02/25/08 125,779 318,748
30,000 * 18.75 12/15/08 616,253 1,158,980
James D. Foy.................... 20,000 * 10.00 02/25/08 125,779 318,748
35,000 1.1 18.75 12/15/08 718,962 1,352,143
Peter L. Fiore.................. 20,000 * 10.00 02/25/08 125,779 318,748
35,000 1.1 18.75 12/15/08 718,962 1,352,143
- ---------------
* less than 1%
(1) As required by the rules of the SEC, potential values are stated based on
the prescribed assumption that the common stock of Ardent will appreciate in
value from the date of grant to the end of the
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option term at rates (compounded annually) of 5% and 10%, respectively, and
therefore do not reflect past results and are not intended to forecast
possible future appreciation, if any, in the price of the common stock.
OPTION EXERCISE AND YEAR-END VALUE TABLE
The following option exercise and year-end value table sets forth
information regarding the exercise of stock options by the named executive
officers during the fiscal year ended December 31, 1998 and the number and
unrealized value or spread (the difference between the exercise price and the
market value) of unexercised options held by these officers on December 31,
1998. All of these options were then exercisable, but some of the underlying
shares were subject to vesting over a five year period, subject to acceleration
upon defined change-of-control events.
SHARES UNDER UNEXERCISED VALUE OF UNEXERCISED IN THE MONEY
SHARES OPTIONS AT FISCAL YEAR END(#) OPTIONS AT FISCAL YEAR END($)
ACQUIRED VALUE ------------------------------- ------------------------------------
NAME ON EXERCISE REALIZED VESTED UNVESTED TOTAL VESTED UNVESTED TOTAL
- ---- ----------- -------- -------- --------- -------- ---------- ---------- ----------
Peter Gyenes............. -- -- 142,975 457,025 600,000 $2,126,175 $5,470,700 $7,596,875
David W. Brunel.......... -- -- 244,765 100,000 344,765 3,534,246 1,300,000 4,834,246
Charles F. Kane.......... -- -- 63,285 91,715 155,000 1,028,575 1,027,050 2,055,625
Cornelius P. McMullan.... -- -- 42,500 107,500 150,000 681,874 1,343,126 2,025,000
James D. Foy............. -- -- 58,061 107,468 165,529 942,592 1,240,530 2,183,122
Peter L. Fiore........... -- -- 54,058 101,776 155,834 768,141 1,091,414 1,859,555
PRO FORMA OWNERSHIP OF ARDENT CAPITAL STOCK
The following table sets forth information as to the number of shares of
Ardent common stock that will be owned immediately after giving effect to the
merger by:
- each person expected to be a director of Ardent,
- the person expected to be the Chief Executive Officer and the persons
expected to be the four other most highly compensated executive officers
of Ardent,
- all persons expected to be Ardent directors and executive officers, as a
group, and
- each person or entity (or group of affiliated persons) expected to
beneficially own more than 5% of Ardent's common stock, based on such
person's or entity's ownership of Prism common stock and Ardent common
stock as of January 31, 1999.
For purposes of this table, beneficial ownership of securities is defined
according to the rules of the SEC and means generally the power to vote or
exercise investment discretion with respect to securities, regardless of any
economic interests therein. Except as otherwise indicated, Ardent and Prism
believe that the beneficial owners of shares of Ardent common stock listed below
will have sole investment and voting power with respect to such shares, subject
to community property laws where applicable. In addition, for purposes of this
table, a person or group is deemed to have beneficial ownership of any shares
which such person has the right to acquire within 60 days after the date as of
which these data are presented. For purposes of calculating the percentage of
outstanding shares held by each person named above, any shares which such person
has the right to acquire within 60 days after the date as of which these data
are presented are deemed to be outstanding, but not for the purpose of
calculating the percentage ownership of any other person.
The third column shows separately shares which may be acquired by exercise
of stock options within sixty days after January 31, 1999 by the directors and
executive officers individually and as a group as shown. These shares are
included in the numbers expressed in the first column. Of those shares, 766,094
would be fully vested as to all directors and executive officers as a group, and
the holders would have
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investment and voting powers; the remaining shares would be subject to vesting,
and the holders would have voting, but not investment power until the shares
vested.
The shares held by James T. Dresher, Jr. and Virginia Dresher Meoli
include, for each of them, 1,785,362 shares held by Glenangus Holdings Corp., a
private investment company, and 736,278 shares held by The Dresher Foundation, a
private charity. Mr. Dresher and Mrs. Meoli each have shared investment and
voting powers with respect to, but no economic interest in, the shares held by
those entities.
BENEFICIAL
OWNERSHIP
OF SHARES OF PERCENTAGE OPTIONS
ARDENT OWNERSHIP EXERCISABLE
COMMON OF WITHIN
NAME OF BENEFICIAL OWNER STOCK ARDENT 60 DAYS
------------------------ ------------ ---------- -----------
DIRECTORS AND OFFICERS
Peter Gyenes..................................... 514,990 2.7% 471,804
David W. Brunel.................................. 586,671 3.1 344,765
Robert G. Claussen............................... 125,219 * 9,374
Martin T. Hart................................... 50,000 * 1,677
Robert M. Morrill................................ 337,234 1.8 154,000
Charles F. Kane.................................. 126,943 * 122,917
Cornelius P. McMullan............................ 122,500 * 122,500
James D. Foy..................................... 154,287 * 133,446
Peter L. Fiore................................... 124,802 * 123,751
All executive officers and directors as a group
(12 persons)................................... 2,475,081 12.3
5% STOCKHOLDERS
James T. Dresher, Jr. ........................... 2,690,249
1400 Muirfield Close
Bel Air, MD 21015
Virginia Dresher Meoli........................... 2,730,688
1208 East MacPhail Road
Bel Air, MD 21015
- ---------------
* Less than 1%
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COMPARISON OF RIGHTS OF HOLDERS
OF PRISM COMMON STOCK AND ARDENT COMMON STOCK
After completion of the merger, the holders of Prism common stock who
receive Ardent common stock in the merger will become stockholders of Ardent. As
stockholders of Prism, their rights are presently governed by the Delaware
corporation law and by Prism's certificate of incorporation, commonly referred
to as its charter, and bylaws. As stockholders of Ardent, their rights will be
governed by the Delaware corporation law and by Ardent's charter and bylaws. The
following discussion summarizes the material differences between Ardent's
charter and bylaws and Prism's charter and bylaws. This summary does not purport
to be complete and is qualified in its entirety by reference to Ardent's charter
and bylaws and Prism's charter and bylaws.
SPECIAL MEETING OF STOCKHOLDERS
Ardent's charter provides that special meetings of stockholders may only be
called by the chairman of the board, the chief executive officer, the president
or, within 10 days after a written request by a majority of the directors, by
the secretary. Prism's bylaws provide that special meetings of stockholders may
only be called by the chairman of the board, the chief executive officer, the
president, the holders of shares of Prism that are entitled to cast not less
than ten percent of the total number of votes entitled to be cast by all
stockholders at such meeting, or by a majority of the directors. If a special
meeting of stockholders is called by any person(s) other than a majority of
Prism's directors, then such person(s) shall call such meeting by delivering a
written request to call such meeting to each member of the board. Such meeting
shall be held not more than 120 days nor less than 35 days after the written
request was delivered to each member of the board.
ACTION BY CONSENT OF STOCKHOLDERS
Ardent's charter provides that, subject to the rights of holders of
preferred stock, if any, any action required or permitted to be taken by the
stockholders cannot be effected by written consent, but must be effected by vote
at a duly called annual or special meeting of stockholders. The bylaws of Prism
provide that any action required or permitted to be taken at any annual or
special meeting of the stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Ardent's charter provides for three classes of directors with the directors
of each class being elected to staggered three year terms. Prism's bylaws do not
provide for different classes of directors. Each director of Prism is elected at
the annual meeting of stockholders for a one year term.
REMOVAL OF DIRECTORS
Ardent's charter provides that directors may only be removed for cause and
only upon a vote of a majority of outstanding shares of capital stock entitled
to vote generally in the election of the directors. Prism's bylaws provide that
directors may be removed, with or without cause, only by the holders of a
majority of the shares then entitled to vote at an election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
Ardent's charter provides that vacancies on the board of directors shall be
filled only by the affirmative vote of a majority of the remaining directors
then in office. Prism's bylaws provide that any vacancy occurring on the board
of directors may be filled by the stockholders, by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
86
94
AMENDMENTS TO BY-LAWS
Ardent's charter gives the board of directors the power to make, alter,
amend or repeal the bylaws. Prism's bylaws give both the board of directors and
the stockholders holding a majority of Prism's outstanding voting stock the
power to amend Prism's bylaws.
LEGAL MATTERS
The validity of the shares of Ardent common stock offered to holders of
Prism common stock by this proxy statement/prospectus will be passed upon for
Ardent by Choate, Hall & Stewart. The tax consequences of the merger will be
passed upon by Fenwick & West LLP with respect to Prism and its stockholders,
and by Choate, Hall & Stewart with respect to Ardent. See "Federal Income Tax
Considerations".
EXPERTS
The consolidated financial statements of Ardent Software, Inc. and its
subsidiaries as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998 (except for the statements of operations,
stockholders' equity and cash flows of Unidata, Inc. for the year ended June 30,
1996) included in this proxy statement/prospectus have been audited by Deloitte
& Touche LLP as stated in their report appearing herein. The statements of
operations, stockholders' equity and cash flows of Unidata, Inc. for the year
ended June 30, 1996 (consolidated with those of Ardent Software, Inc. and its
subsidiaries for the year ended December 31, 1996) have been audited by
PricewaterhouseCoopers LLP as stated in their report included herein. Such
financial statements of Ardent Software, Inc. and its consolidated subsidiaries
are included herein in reliance upon the respective reports of such firms given
upon their authority as experts in accounting and auditing. Deloitte & Touche
LLP and PricewaterhouseCoopers LLP are independent auditors.
The consolidated balance sheets of Prism as of December 31, 1998 and 1997
and the consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998,
included in this proxy statement/prospectus and in the registration statement,
have been included herein in reliance on the report, which includes an
explanatory paragraph related to Prism's ability to continue as a going concern,
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
EXPENSES OF SOLICITATION
Ardent shall bear the expenses incurred in connection with the printing of
this proxy statement/ prospectus, including the cost of distributing this proxy
statement/prospectus to Prism's stockholders, unless the merger is not
consummated, in which case such expenses (excluding attorney's fees) shall be
borne equally by Ardent and Prism. Stockholder proxies may be solicited by
directors, officers or employees of Prism, in person, by letter or by telephone
or telegram.
OTHER MATTERS
The Prism board does not intend to bring any matters before the Prism
special meeting other than those specifically set forth in the notice of the
meeting and does not know of any matters to be brought before the meeting by
others. If any other matters properly come before the Prism special meeting, it
is the intention of the persons named in the accompanying proxies to vote such
proxies in accordance with the judgment of the Prism board.
87
95
WHERE YOU CAN FIND MORE INFORMATION
Both Ardent and Prism file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by Ardent and Prism at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. All of Ardent's and Prism's SEC filings are also
available to the public from commercial document retrieval services and, for
filings filed electronically since 1996, at the Web site maintained by the SEC
at "http://www.sec.gov."
Ardent filed a registration statement on Form S-4 to register with the SEC
the Ardent common stock to be issued to Prism stockholders in the merger. This
proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of Ardent in addition to being a proxy statement of
Prism for its special meeting. As allowed by SEC rules, this proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
You should rely only on the information contained in this proxy
statement/prospectus to vote on the merger and the other proposals to be voted
on at the Prism special meeting. We have not authorized anyone to provide you
with information that is different from what is contained in this proxy
statement/ prospectus. This proxy statement/prospectus is dated March , 1999.
You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than March , 1999, and
neither the mailing of the proxy statement/prospectus to stockholders nor the
issuance of Ardent common stock in the merger shall create any implication to
the contrary.
88
96
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Ardent's consolidated financial statements and the related independent
auditors' report are presented in the following pages. The consolidated
financial statements filed in this Item 8 are as follows:
Independent Auditors' Reports............................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-4
Consolidated Statements of Operations for each of the years
ended December 31, 1998, 1997 and 1996.................... F-5
Consolidated Statements of Stockholders' Equity for each of
the years ended December 31, 1998, 1997 and 1996.......... F-6
Consolidated Statements of Comprehensive Income (Loss) for
each of the years ended December 31, 1998, 1997 and
1996...................................................... F-7
Consolidated Statements of Cash Flows for each of the years
ended December 31, 1998, 1997 and 1996.................... F-8
Notes to Consolidated Financial Statements.................. F-9
F-1
97
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ARDENT SOFTWARE, INC. :
We have audited the consolidated balance sheets of Ardent Software, Inc.
and its subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, comprehensive
income (loss), and cash flows for each of the three years in the period ended
December 31, 1998. 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 audits. The consolidated financial statements
give retroactive effect to the merger of the Company and Unidata, Inc., which
has been accounted for as a pooling-of-interests as described in Note 1 to the
consolidated financial statements. We did not audit the statement of operations,
stockholders' equity and cash flows of Unidata, Inc. for the year ended June 30,
1996, which statements reflect total revenues of $41,233,000 for the year ended
June 30, 1996. These statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Unidata, Inc. for 1996 as described above, is based solely on the
report of such auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of the Company and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 22, 1999
F-2
98
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF UNIDATA, INC. AND SUBSIDIARIES:
In our opinion, the consolidated statements of operations, stockholders'
equity and cash flows for the year ended June 30, 1996 of Unidata, Inc. and
Subsidiaries (not included separately herein) present fairly, in all material
respects, the consolidated results of their operations and cash flows for the
year ended June 30, 1996, in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
October 25, 1996
F-3
99
ARDENT SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
DECEMBER 31,
------------------
1998 1997
------- -------
ASSETS
Current assets:
Cash and equivalents................................... $24,167 $24,155
Accounts receivable (less allowances for doubtful
accounts, $3,351 in 1998 and $6,129 in 1997).......... 21,238 21,161
Prepaid expenses and other current assets.............. 5,062 6,101
Deferred income taxes.................................. 1,634 1,843
------- -------
Total current assets.............................. 52,101 53,260
------- -------
Property and equipment:
Building under capital lease........................... -- 9,689
Computer equipment..................................... 14,502 13,378
Office furnishings and fixtures........................ 4,807 6,621
Leasehold improvements................................. 2,011 1,584
------- -------
Total............................................. 21,320 31,272
Less accumulated depreciation and amortization......... 14,733 15,356
------- -------
Property and equipment -- net..................... 6,587 15,916
------- -------
Other long-term assets:
Goodwill -- net........................................ 7,772 9,073
Purchased technology -- net............................ 3,706 5,507
Other intangibles -- net............................... 3,155 2,665
Other long-term assets................................. 5,085 2,743
Deferred income taxes.................................. 4,398 4,820
------- -------
Total other long-term assets...................... 24,116 24,808
------- -------
Total....................................................... $82,804 $93,984
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit......................................... $ -- $ 7,357
Current portion of capital lease obligation............ -- 216
Accounts payable....................................... 5,476 4,995
Accrued compensation................................... 4,289 2,364
Accrued expenses....................................... 13,101 11,464
Accrued merger and restructuring costs................. 2,112 1,068
Deferred revenue....................................... 14,036 13,248
------- -------
Total current liabilities......................... 39,014 40,712
------- -------
Long-term liabilities:
Non-current debt and other long-term liabilities....... -- 21,190
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized, 10,000,000
shares; issued, none..................................
Common stock, $.01 par value, authorized, 40,000,000
shares; issued, and outstanding, 15,745,275 in 1998
and 14,361,844 in 1997................................ 157 143
Additional paid-in capital............................. 68,774 58,653
Accumulated deficit.................................... (21,883) (23,520)
Cumulative translation adjustment...................... (244) (152)
Treasury stock at cost, 280,082 shares................. (2,956) (2,956)
Unearned compensation.................................. (58) (86)
------- -------
Total stockholders' equity........................ 43,790 32,082
------- -------
Total....................................................... $82,804 $93,984
======= =======
See notes to consolidated financial statements.
F-4
100
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
---- ---- ----
Revenue:
Software............................................... $ 70,200 $ 58,812 $ 61,805
Services and other..................................... 49,060 43,916 48,694
-------- -------- --------
Total revenue..................................... 119,260 102,728 110,499
-------- -------- --------
Costs and expenses:
Cost of software....................................... 7,953 9,211 8,864
Cost of services and other............................. 22,511 24,825 26,807
Selling and marketing.................................. 41,761 40,786 40,116
Product development.................................... 17,576 16,924 16,649
General and administrative............................. 9,986 13,128 12,920
Merger, exit and restructuring costs................... 14,895 -- 4,322
Purchased technology................................... -- 3,040 4,900
Loss on disposal of subsidiary......................... -- 602 --
-------- -------- --------
Total costs and expenses.......................... 114,682 108,516 114,578
-------- -------- --------
Income (loss) from operations............................... 4,578 (5,788) (4,079)
-------- -------- --------
Other income (expense):
Other income -- net.................................... 579 981 461
Interest expense....................................... (389) (2,965) (2,100)
Loss on investment in joint venture.................... -- -- (176)
-------- -------- --------
Total other income (expense)........................... 190 (1,984) (1,815)
-------- -------- --------
Income (loss) before provision for (benefit from) income
taxes and extraordinary item.............................. 4,768 (7,772) (5,894)
Provision for (benefit from) income taxes................... 3,131 1,149 (635)
-------- -------- --------
Income (loss) before extraordinary item..................... 1,637 (8,921) (5,259)
Extraordinary loss -- disposal of assets acquired in a
pooling of interests, net of tax benefit of $1,184........ -- -- (4,734)
-------- -------- --------
Net income (loss)........................................... $ 1,637 $ (8,921) $ (9,993)
======== ======== ========
Basic income (loss) per common share:
Before extraordinary item.............................. $ 0.11 $ (0.65) $ (0.40)
-------- -------- --------
Net income (loss)...................................... $ 0.11 $ (0.65) $ (0.76)
======== ======== ========
Diluted income (loss) per common share:
Before extraordinary item.............................. $ 0.10 $ (0.65) $ (0.40)
-------- -------- --------
Net income (loss)...................................... $ 0.10 $ (0.65) $ (0.76)
======== ======== ========
Shares for basic computation................................ 14,790 13,751 13,071
Shares for diluted computation.............................. 16,724 13,751 13,071
======== ======== ========
See notes to consolidated financial statements.
F-5
101
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
COMMON STOCK ADDITIONAL CUMULATIVE
------------------- PAID-IN ACCUMULATED TRANSLATION TREASURY UNEARNED
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK COMPENSATION TOTAL
------ ------ ---------- ----------- ----------- -------- ------------ -----
Balance, January 1, 1996....... 12,765,074 $127 $45,194 $ (3,818) $(188) $ -- $ -- $41,315
Issuance of stock for cash..... 503,737 5 3,603 3,608
Acquisition of System
Builder...................... 572,097 6 3,828 3,834
Repurchase and retirement of
common stock................. (51,480) (131) (239) (370)
Repurchase of common stock
(280,082 shares)............. (2,956) (2,956)
Unearned compensation.......... 140 (114) 26
Tax benefit arising from early
disposition of stock
options...................... 192 192
Net loss....................... (9,993) (9,993)
Translation adjustment......... 195 195
---------- ---- ------- -------- ----- ------- ----- -------
Balance, December 31, 1996..... 13,789,428 138 52,826 (14,050) 7 (2,956) (114) 35,851
Adjustment to conform pooled
entity - Unidata (See Notes 1
and 10)...................... 281 (549) (100) (368)
Issuance of stock for cash..... 323,867 3 1,483 1,486
Acquisition of O2
Technologies................. 248,549 2 3,917 3,919
Unearned compensation.......... 28 28
Tax benefit arising from early
disposition of stock
options...................... 146 146
Net loss....................... (8,921) (8,921)
Translation adjustment......... (59) (59)
---------- ---- ------- -------- ----- ------- ----- -------
Balance, December 31, 1997..... 14,361,844 143 58,653 (23,520) (152) (2,956) (86) 32,082
Issuance of stock for cash..... 1,383,431 14 8,877 8,891
Unearned compensation.......... 28 28
Tax benefit arising from early
disposition of stock
options...................... 1,244 1,244
Net income..................... 1,637 1,637
Translation adjustment......... (92) (92)
---------- ---- ------- -------- ----- ------- ----- -------
Balance, December 31, 1998..... 15,745,275 $157 $68,774 $(21,883) $(244) $(2,956) $ (58) $43,790
========== ==== ======= ======== ===== ======= ===== =======
See notes to consolidated financial statements.
F-6
102
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
Net income (loss)........................................... $1,637 $(8,921) $(9,993)
Change in translation adjustment............................ (92) (59) 195
------ ------- -------
Comprehensive net income (loss)........................... $1,545 $(8,980) $(9,798)
====== ======= =======
See notes to consolidated financial statements.
F-7
103
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- ------- -------
Cash flows from operating activities:
Net income (loss)...................................... $ 1,637 $(8,921) $(9,993)
Adjustments to reconcile net income (loss) to cash
provided by operating activities (net of
acquisitions):
Cash provided by Unidata operating activities
during the six months ended December 31, 1996... -- 694 --
Depreciation and amortization..................... 8,425 9,474 8,759
Purchased research and development................ -- 3,040 4,900
Equity in loss of joint venture................... -- -- 176
Deferred income taxes............................. 630 38 (1,984)
Stock compensation................................ 28 28 26
Write-down of assets in connection with exit of
businesses...................................... -- -- 3,059
Loss on disposal of assets........................ 280 1,515 33
Increase (decrease) in cash from:
Accounts receivable.......................... (42) 8,896 (3,371)
Other current assets......................... 1,115 2,065 642
Current liabilities.......................... 6,800 (244) 5,730
-------- ------- -------
Cash provided by operating activities........ 18,873 16,585 7,977
-------- ------- -------
Cash flows from investing activities:
Expenditures for property and equipment -- net......... (2,727) (593) (3,622)
Capitalized software costs............................. (3,024) (1,158) (2,323)
Purchase of a business, net of cash acquired........... -- (5,318) (10,512)
Increase in cash surrender value of officers' life
insurance and deposits and other..................... (2,254) (1,614) (278)
Cash used in other Unidata investing activities during
the six months ended December 31, 1996............... -- (1,737) --
-------- ------- -------
Cash used in investing activities................. (8,005) (10,420) (16,735)
-------- ------- -------
Cash flows from financing activities:
Sale of common stock................................... 8,891 1,486 3,608
Repurchases of common stock............................ -- -- (3,326)
Proceeds from issuance of notes payable................ -- -- 10,963
Borrowing (repayments) under line of credit............ (7,368) 1,663 1,112
Repayments of capital lease and other obligations...... (12,431) (516) (438)
Borrowings (repayments) under Unidata line of credit
during the six months ended December 31, 1996........ -- 600 --
Sale of Unidata common stock during the six months
ended December 31, 1996.............................. -- 281 --
Cash used by other Unidata financing activities during
the six months ended December 31, 1996............... -- (874) --
-------- ------- -------
Cash (used in) provided by financing activities........ (10,908) 2,640 11,919
-------- ------- -------
Effect of exchange rate changes on cash..................... 52 (195) (270)
-------- ------- -------
Increase in cash and equivalents............................ 12 8,610 2,891
Cash and equivalents, beginning of year..................... 24,155 15,545 12,654
-------- ------- -------
Cash and equivalents, end of year........................... $ 24,167 $24,155 $15,545
======== ======= =======
See notes to consolidated financial statements.
F-8
104
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation -- In February 1998, Ardent Software, Inc. (formerly
known as VMARK Software, Inc.) and subsidiaries (the Company) merged with
Unidata, Inc. (Unidata). In connection with the merger, the Company issued
5,749,980 shares of common stock to Unidata shareholders for all of their
interest in Unidata. In addition, options outstanding under Unidata's option
plans were converted to options under the Company's plans, adjusted only for the
impact of the exchange ratio between shares of the two companies. The merger was
accounted for as a pooling-of-interests and, accordingly, the Company's
financial statements include the accounts of Unidata for all periods prior to
the merger.
Prior to the consummation of the merger, Unidata had a fiscal year ending
on June 30 of each year. For purposes of presentation in these consolidated
financial statements, the balance sheet of the Company as of December 31, 1997
has been combined with the Unidata balance sheet as of December 31, 1997. The
Company's results of operations and cash flows for the year ended December 31,
1997 have been combined with Unidata's results of operations and cash flows for
the same period. The Company's results of operations and cash flows for the year
ended December 31, 1996 have been combined with the Unidata results of
operations and cash flows for the fiscal year ended June 30, 1996. Unidata's
summarized statement of operations and cash flows from operations for the
six-month period ended December 31, 1996 are included in Note 10 to these
consolidated financial statements.
Information regarding the separate revenue and net income (loss) of the
combining companies in 1997 and 1996 is presented below. There were no
adjustments required to conform the accounting policies of the companies.
1997 1996
-------- --------
(IN THOUSANDS)
Revenue:
Ardent (formerly VMARK)........................... $ 57,554 $ 69,266
Unidata........................................... 45,174 41,233
-------- --------
Combined..................................... $102,728 $110,499
======== ========
Extraordinary item:
Ardent (formerly VMARK)........................... $ -- $ (4,734)
Unidata........................................... -- --
-------- --------
Combined..................................... $ -- $ (4,734)
======== ========
Net income (loss):
Ardent (formerly VMARK)........................... $ 3,384 $ (7,375)
Unidata........................................... (12,305) (2,618)
-------- --------
Combined..................................... $ (8,921) $ (9,993)
======== ========
Nature of the Business -- Ardent Software, Inc. designs, develops, markets,
sells and supports software for developing, deploying, and maintaining business
applications and data warehousing solutions. The Company also provides a
comprehensive range of services, including customer maintenance support,
training, on-site assistance and consulting. The Company has operations in the
United States, Canada, Europe, Australia, Japan and Africa. Selling and
marketing activities are conducted through direct selling efforts, value-added
resellers, and distributors throughout the world. Research and development
efforts are conducted in the United States, the United Kingdom and Australia.
F-9
105
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consolidation -- The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires, out of
necessity, the use of estimates to determine the appropriate carrying value of
certain assets and liabilities. Each of these estimates requires the Company to
assess past history and to estimate probable outcomes in the future. Actual
results could differ from these estimates.
Foreign Currency Translation -- The functional currency of foreign
operations is the local country's currency. Assets and liabilities of operations
outside the United States are translated into United States dollars using
current exchange rates at the balance sheet date. Results of operations are
translated at average exchange rates prevailing during each period. Translation
adjustments are accumulated as a separate component of stockholders' equity and
are considered a component of other comprehensive income (loss).
The Company hedges its exposure to foreign currency fluctuations through
foreign exchange forward contracts. As of December 31, 1998, the Company had
foreign exchange forward contracts outstanding used to hedge foreign exchange
exposure on intercompany balances of certain of its international subsidiaries.
These contracts are comprised of contracts to sell foreign currency aggregating
$9,302,000 of notional amount (principally British pounds and French francs).
These contracts are short-term in duration (typically 90 days) and have limited
market risk, since decreases or increases in the unrealized gain or loss on any
position is generally fully offset by corresponding increases or decreases in
gains and losses on the intercompany balances being hedged. Credit risk is
limited to the risk that counterparties to these contracts fail to deliver at
maturity. The Company deals only with reputable financial institutions in
entering into these contracts and commitments and are never held for speculative
purposes. The gains and losses associated with currency rate changes on these
contracts, net of the corresponding gains and losses on the hedged intercompany
accounts, are recorded as a component of other income/expense in the period the
change occurs. Foreign exchange gains or losses were not material in any period
presented.
Revenue Recognition -- Prior to 1998, revenue from software license sales
was recognized upon shipment of the product. To the extent that insignificant
obligations remained after delivery, costs associated with those obligations
were accrued at the time that revenue was recognized. Effective January 1, 1998,
the Company adopted the provisions of Statement of Position No. 97-2, "Software
Revenue Recognition" (SOP 97-2). Since that date, revenue from software license
sales continues to be recognized when persuasive evidence of an arrangement
exists, delivery of the product has been made, and a fixed fee and
collectibility has been determined; to the extent that obligations exist for
other services, the Company allocates revenue between the license and the
services based upon their relative fair value. Revenue from customer maintenance
support agreements is deferred and recognized ratably over the term of the
agreements. Revenue from consulting and training services is recognized as those
services are rendered. Adoption of the provisions of SOP 97-2 did not have a
significant impact on the consolidated results of operations or financial
position of the Company.
Concentration of Credit Risk -- The Company sells its products to various
companies in several industries. The Company performs on-going credit
evaluations of its customers and maintains allowances for potential credit
losses, and such losses have been within management's expectations. The Company
generally requires no collateral from its customers.
Advertising Costs -- Advertising costs, included in selling and marketing
expenses, are expensed as incurred and were approximately $1,966,000, $1,045,000
and $1,198,000 in 1998, 1997 and 1996, respectively.
F-10
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ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Software Development Costs -- Certain software development costs for
products and product enhancements are capitalized after technological
feasibility has been established (generally when a working model is complete).
Such costs are included in intangible assets and are amortized over the
estimated useful lives (two to three years) in an amount equal to the greater of
the amount computed using the ratio of current revenues to total expected
revenues in a product's expected life or straight line. Related accumulated
amortization was approximately $2,387,000 and $2,255,000 at December 31, 1998
and 1997, respectively. Research and development costs and software development
costs incurred before technological feasibility has been established are
expensed as incurred.
Property and Equipment -- Purchased property and equipment is recorded at
cost. Leased equipment is recorded at the present value of the minimum lease
payments required during the lease period. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
related assets or the life of the lease, whichever is shorter. Capitalized cost
of the leased assets was $9,689,000 and related accumulated amortization was
$1,493,000 at December 31, 1997. The Company renegotiated the lease of its
principal operating facility in the first quarter of 1998, and as a result of
this renegotiation, the lease no longer qualified as a capital lease. The
Company has re-classified the lease as operating, removed the asset and
liability from the balance sheet, and recorded a net gain of approximately
$600,000 as a component of other income (expense) (see Note 3).
Intangible Assets -- Intangible assets, other than capitalized software
development costs, are principally comprised of purchased technology and
goodwill and are recorded at cost. Amortization expense is recorded to costs of
software or other operating categories depending on the use of the related
intangible asset. Amortization expense is provided on a straight-line method
over the estimated life of the asset (two to seven years) and totaled, together
with amortization of capitalized software costs described above, $5,062,000,
$4,378,000, and $4,381,000 in the years ended December 31, 1998, 1997, and 1996,
respectively. The Company periodically reviews the carrying value of intangible
assets in relation to expectations of nondiscounted future cash flows
attributable to each asset. A permanent impairment in the value of an intangible
asset is recognized in operating results in the period the impairment occurs.
Accumulated amortization was $10,251,000 and $12,964,000 at December 31, 1998
and 1997, respectively.
Cash Equivalents -- The Company considers all short-term, highly liquid
investments, purchased with a remaining maturity of three months or less, to be
cash equivalents.
Supplemental cash flow information is as follows (in thousands):
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ------ ------
Cash paid for income taxes......................... $365 $ 787 $ 672
Cash refunds of income taxes....................... 728 1,913 3,406
Cash paid for interest............................. 389 2,965 2,100
Stock issued in purchase acquisition............... -- 3,919 3,834
Income Taxes -- Deferred taxes are provided to reflect temporary
differences in the basis between book and tax assets and liabilities and certain
loss and credit carryforwards. Deferred tax assets and liabilities are measured
using currently enacted tax rates (see Note 5).
Income (Loss) Per Common Share -- Basic income (loss) per common share is
computed using the weighted average number of common shares outstanding during
each year. Diluted income (loss) per common share reflects the effect of the
Company's outstanding options, except where such items would be anti-dilutive.
F-11
107
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between shares used for the computation of basic and
diluted income (loss) per common share is as follows (in thousands):
YEAR ENDED
----------------------------
1998 1997 1996
---- ---- ----
Shares for basic computation............................. 14,790 13,751 13,071
Effect of dilutive stock options......................... 1,934 -- --
------ ------ ------
Shares for diluted computation...................... 16,724 13,751 13,071
====== ====== ======
Potential shares from option exercises excluded from the diluted
calculation due to anti-dilution in the years ended December 31, 1997 and 1996
were 501,000 and 750,000, respectively.
Fair Value of Financial Instruments -- Financial instruments held or used
by the Company include cash and its equivalents, accounts receivable, accounts
payable, capital lease obligations and forward foreign currency contracts. The
fair values of these instruments, which could change if market conditions
change, are based on management's estimates. With the exception of forward
contracts, management believes that the carrying value of these instruments
approximates fair value. At December 31, 1998 there was an unrealized gain on
foreign exchange contracts of approximately $66,000. The unrealized gain on
foreign exchange contracts at December 31, 1997 was approximately $107,000.
Stock-Based Compensation -- Compensation cost associated with awards of
stock or options to employees is measured using the intrinsic value method. Tax
benefits associated with early exercise of stock options are generally recorded
as increases to additional paid-in capital (see Note 4).
New Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board (FASB) released Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No.
133), which the Company will be required to adopt effective January 1, 2000.
SFAS No. 133 establishes standards for reporting and accounting for derivative
instruments, and conforms the requirements for treatment of hedging activities
across the different types of exposures hedged. The Company has not yet
completed its evaluation of SFAS No. 133, and is, therefore, unable to disclose
the impact adoption will have on its consolidated financial position or results
of operations.
In December 1998, the AICPA released Statement of Position No. 98-9, (SOP
98-9) "Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions". SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence (VSOE) of the fair
values of all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist for one or
more of the delivered elements, and (3) all revenue recognition criteria of SOP
97-2 (other than the requirement for VSOE of the fair value of each delivered
element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs
of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and
SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. Retroactive application is prohibited. The
Company does not expect the adoption of SOP 98-9 to have a material effect on
its consolidated financial position or results of operations.
Changes in Presentation -- Certain prior year amounts have been
reclassified to conform to the current year presentation.
F-12
108
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. MERGERS AND ACQUISITIONS
Merger with Unidata, Inc.
On February 10, 1998, the Company merged with Unidata, Inc. (see Notes 1
and 10).
Acquisitions
During the last three years, the Company has made the following additional
acquisitions, all of which were accounted for as purchases and the results of
operations included with those of the Company from the date of acquisition
(amounts in thousands):
FAIR VALUE OF NET LIABILITIES TOTAL
COMPANY ACQUIRED CASH PAID SHARES ISSUED ASSUMED CONSIDERATION
---------------- --------- ------------- --------------- -------------
Integrasoft (June 1998)................. $ -- $ -- $ 405 $ 405
O2 Technologies (December 1997)......... 5,530 3,919 2,090 11,539
FT Technology Institute (January
1996)................................. 360 -- -- 360
Marine, S.A. (July 1996)................ 561 -- -- 561
System Builder (November 1995).......... 10,509 3,834 -- 14,343
Integrasoft -- Integrasoft (doing business as Dovetail) was a meta data
transformation technology company which developed software to allow for
management and re-use of meta data. In connection with the acquisition, the
Company assumed approximately $405,000 in liabilities. Of this total
consideration paid, $398,000 was allocated to goodwill.
O2 Technologies -- O2 Technologies ("O2") was a database software company
which developed, marketed, sold and supported an object database management
system. In connection with the acquisition, the Company issued 248,549 shares of
common stock. Of the total consideration paid, $3,040,000 was allocated to
research and development in process, for which no alternative use existed, and
was charged to expense at the date of consummation. The remainder of the
purchase price was allocated to purchased technology and goodwill based upon
fair values. At the time of acquisition, O2 had two new software products under
development, O2 Database version 5.0 and O2 Database version 5.1. Development of
version 5.0 began in early 1997. At the time of the close of the transaction,
approximately 65% of version 5.0 was complete, based on a cost-based percentage
of completion valuation method. Ardent invested an additional $1,300,000 in this
product following acquisition and the product was released in June 1998.
Development of version 5.1 also began in early 1997. At the time of the close of
the transaction, approximately 15% of this product was complete, based upon a
cost-based percentage of completion methodology. Ardent has invested
approximately $1,000,000 in this product since the acquisition and expects to
invest an additional $1,650,000 in this product before its scheduled release
date in March 1999. Both projects have progressed, in all material respects,
consistently with the assumptions that Ardent used for estimating the fair
value. The inability of Ardent to complete the technology within the expected
timeframe could materially impact future revenues and earnings, which could have
a material adverse effect on Ardent's business, financial condition and results
of operations.
FT Technology Institute -- FT Technology Institute operated as an education
and service training business based in Sydney, Australia. The purchase price was
allocated between property and equipment and goodwill based upon fair values. In
December 1996, the Company decided to withdraw from this line of business. The
writedown of the remaining net book value of related assets and employee
termination costs are included in the results of operations in 1996 as a
component of costs and expenses (See Note 9).
Marine, S.A. -- Marine, S.A. was a french software distributor known as
Patio ("Patio"). The purchase price was allocated between property and equipment
and goodwill based upon estimated fair values on the acquisition date.
System Builder -- System Builder was a software tools development
company. In connection with the acquisition, the Company issued 572,097 shares
of common stock. Of the total consideration paid, $4,900,000 was allocated to
research and development in process, for which no alternative use existed, and
F-13
109
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was charged to expense at the date of consummation. The remainder of the
purchase price was allocated to property and equipment, identifiable intangible
assets and goodwill based upon fair values. At the time of acquisition, System
Builder had three new software products under development, SQLator and new
versions of the System Builder development tool, SB+ and the client-based
version of the tool, SBClient. SB+ and SBClient were released in December 1996
and approximately $1,760,000 was incurred to complete the two products. SQLator
was released in February 1997 and $1,280,000 was incurred to complete the
product. The progression of the projects to completion was substantially
consistent with the expectations at the time of the acquisition.
Pro Forma Results of Operations -- The results of operations for the
acquired entities were not significant to the Company in either 1998 or 1997.
Accordingly, pro forma information has not been presented.
3. FINANCING AND LEASING ARRANGEMENTS
LEASING ARRANGEMENTS
The Company leases office facilities, motor vehicles and certain office
furnishings under noncancelable operating lease agreements expiring on various
dates through 2008. Total rent expense under all operating leases for the years
ended December 31, 1998, 1997 and 1996 approximated $4,037,000, $3,271,000 and
$3,071,000, respectively.
At December 31, 1998, future minimum payments under operating leases are
due as follows (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------
1999................................................... $ 4,082
2000................................................... 3,442
2001................................................... 2,609
2002................................................... 1,314
2003................................................... 997
Thereafter............................................. 5,096
-------
$17,540
=======
The Company had a twenty-year capital lease on its principal operating
facility which commenced in November 1994. In March 1998, the Company
renegotiated this lease. As part of the renegotiation, the term of the lease was
modified and reduced from 20 years to 14 years. As a result, the lease no longer
qualifies as a capital lease and has been reclassified as operating. In
connection with this reclassification, the Company removed the asset and
liability from the balance sheet and recorded a net gain of approximately
$600,000 as a component of other income (expense) in 1998.
LINES OF CREDIT
The Company has a working capital line of credit with a bank under which
the Company may borrow, on a secured basis, up to the lesser of $12,500,000 or
70-80% of eligible domestic and foreign accounts receivable, conditioned upon
meeting financial covenants, including maintaining specified levels of quarterly
earnings, tangible net worth and liquidity. The line of credit also prohibits
the Company from paying dividends. Interest on outstanding borrowings under the
facility is at the bank's prime rate plus 1.25% -- .25%, depending on the
Company's tangible net worth. The applicable interest rate was 7.75% at December
31, 1998 and 8.5% at December 31, 1997. At December 31, 1998 and 1997, there
were no borrowings outstanding under the line-of-credit facility; as of each
date $10,200,000 and $5,830,000, respectively, were available to the Company
under the line of credit.
F-14
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ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had a credit agreement with a bank that provided a revolving
line of credit in the amount of $8,000,000 for working capital needs and the
purchase of O2 Technologies. Interest accrued at the bank's prime rate (8.5% at
December 31, 1997) plus 1%. The agreement provided for a borrowing base in an
amount equal to 80% of eligible accounts receivable, as defined, and was
collateralized by substantially all of the assets of the Company and a personal
guarantee for amounts drawn in excess of the borrowing base. At December 31,
1997, advances of $6,825,000 had been made against the line of credit, with
$1,175,000 remaining available. The Company was required to pay a commitment fee
at a rate of .25% per annum on the average daily unused portion of the line. The
revolving credit agreement included various restrictive covenants, the most
restrictive of which prohibited or limited the Company's capacity to incur
additional indebtedness, and required maintenance of certain financial
requirements including tangible net worth, fixed charge coverage and current
ratio, as defined in the agreement. In February 1998, the agreement expired and
the Company paid the outstanding balance in full.
STOCKHOLDER NOTES PAYABLE
The Company had stockholder loans payable totaling $2,350,000 at December
31, 1997. The agreements required quarterly interest payments at a national
bank's prime lending rate (8.5% at December 31, 1997) plus 1%. The loans had an
original due date of December 31, 1996 and had been extended to December 31,
2003. The loans were not collateralized and had various restrictive covenants
which include restrictions on payment of dividends. In April 1998, the Company
paid down the remaining outstanding balance.
SUBORDINATED NOTE PAYABLE
The Company had entered into a $10,000,000 eight-year note with an
insurance company that was to mature in December 2003. Interest accrued at a
rate of 11.5% per annum, payable semi-annually, with $96,000 accrued at December
31, 1997. The note was subordinated to all senior debt, as defined. Principal
payments of $1,500,000 were due each year beginning in December 1998 with the
balance due at maturity. The Company had the right to prepay $5,000,000 without
a premium. In March 1998, the Company paid the remaining outstanding balance in
full and the bank waived the prepayment penalty.
RECEIVABLES FINANCING ARRANGEMENTS
As part of the Company's management of working capital, certain accounts
receivable are periodically sold to financial institutions. Such factoring
arrangements are treated as sales in accordance with SFAS No. 125, since the
Company relinquishes control and all rights over the accounts that are
transferred to the factor. Receivables sold under these arrangements aggregated
$13,200,000 in 1998 and $7,150,000 in 1997. These sales are typically done on a
limited recourse basis, and any potential losses are evaluated at the time the
asset is sold. To date, no losses on factored receivables have been incurred,
other than the fee charged to the Company by the factor.
The Company, together with a third-party leasing company, offers a leasing
program to current and potential customers. Under the program, customers are
able to purchase Ardent products through operating and capital leases with a
third-party lessor. All sales under this program are subject to the Company's
normal revenue recognition policies and are made without recourse to the
Company. Sales under the program in the years ended December 31, 1998 and
December 31, 1997 totaled approximately $1,632,000 and $1,536,000, respectively.
4. STOCKHOLDERS' EQUITY
Preferred Stock -- The Board of Directors is authorized to designate one or
more series of preferred stock and to establish the voting, dividend,
liquidation and other rights and preferences of the shares of each series, and
to provide for the issuance of shares of any series. The Board of Directors has
designated
F-15
111
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15,000 shares of $0.01 par value preferred stock as Series A Junior Preferred
Stock. At December 31, 1998, no shares of preferred stock were outstanding.
Preferred Share Purchase Rights -- On June 6, 1996, the Company's Board of
Directors declared a dividend of one purchase right (a "Right") for every
outstanding share of the Company's common stock. The Rights were distributed on
June 12, 1996 to holders of record as of that date. Each Right entitles the
holder to purchase from the Company one one-thousandth of a share of Series A
Junior Preferred Stock at a price of $75, subject to adjustments in certain
events. The Rights will be exercisable only if a person or group acquires 15% or
more of the outstanding shares of the Company's common stock or announces a
tender offer, the consummation of which would result in such person or group
owning 30% or more of the Company's common stock. If a person or group (other
than the Company and its affiliates) acquires 15% or more of the Company's
outstanding common stock, each Right (other than Rights held by such person or
group) will entitle the holder to receive shares of common stock, or in certain
circumstances, cash, property, or other securities of the Company, having a
market value of two times the exercise price of the right. In addition if the
Company were acquired in a merger or other business combination, or if more than
50% of its assets or earning power were sold, each holder of a Right would be
entitled to exercise such Right and thereby receive common stock of the
acquiring company with a market value of two times the exercise price of the
Right. Furthermore, at any time after a person or group acquires more than 15%
of the outstanding stock, but prior to the acquisition of 50% of such stock, the
Board of Directors may, at its option, exchange all or a part of the Rights at
an exchange ratio of one share of common stock for each Right. The Company will
be entitled to redeem the Rights at $.01 per Right, subject to adjustment in
certain events, at any time on or prior to the tenth day after public
announcement that a 15% or greater position has been acquired by any person or
group. The Rights expire on June 12, 2006.
1986 Stock Option Plan -- The Company's 1986 Stock Option Plan (the 1986
Plan) provides for the issuance of up to an aggregate 4,500,000 shares of common
stock upon the exercise of incentive stock options (ISOs) and non-qualified
stock options (NSOs) granted to key employees and consultants of the Company and
its subsidiaries. The exercise price for ISOs must be at least equal to the fair
market value of the underlying shares of common stock at the time of grant, and
the exercise price of NSOs may be at any price established by the Board of
Directors. The term of each option may not exceed ten years. Options are
exercisable either in full immediately, or in installments, as the Board of
Directors may determine at the time it grants such options. In general, the
shares acquired by exercising the options vest ratably over four to five years
from the date the options first become exercisable. As of December 31, 1998,
there were 588,946 options available for grant under the 1986 Plan.
1991 Director Stock Option Plan -- The 1991 Director Stock Option Plan (the
Director Plan) provides for the grant of non-qualified stock options to
non-employee directors of the Company for the purchase of up to an aggregate of
350,000 shares of common stock. Under the Director Plan, each non-employee
director is entitled to receive, when first elected to serve as a director, an
option to purchase 15,000 shares. In addition, each non-employee director is
entitled to receive on January 31 of each year an option to purchase 10,000
shares (5,000 shares for 1998 and prior years). The exercise price of the
options may not be less than fair market value on the date of grant. Options may
only be exercised with respect to vested shares. As of December 31, 1998, there
were 91,920 options available for grant under the Director Plan. Options granted
under the Director Plan have ten year terms and vest over a three year period.
1995 Non-Statutory Stock Option Plan -- The Company's 1995 Non-Statutory
Stock Option Plan (the 1995 Plan), provides for the grant of non-qualified stock
options to key employees (other than executive officers, who are not eligible to
participate) and consultants of the Company for the purchase of up to an
aggregate of 5,300,000 shares of common stock. The exercise price of the options
may be at any price established by the Board of Directors, which administers the
1995 Plan. The term of each option may not exceed ten years. Options are
exercisable over periods determined at the discretion of the Board
F-16
112
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Directors and are generally subject to vesting on a monthly basis over four
to five years. As of December 31, 1998, there were 1,271,343 options available
for grant under the 1995 Plan.
The following is a summary of activity for all of the Company's option
plans:
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
---------- ----------------
Outstanding at January 1, 1996.................. 2,675,827 $ 7.79
Granted.................................... 1,730,525 8.28
Exercised.................................. (118,983) 4.49
Canceled................................... (951,733) 10.42
---------- ------
Outstanding at December 31, 1996................ 3,335,636 7.26
Granted.................................... 1,143,663 7.13
Issued pursuant to O2 Technologies
acquisition.............................. 548,585 5.85
Exercised.................................. (226,786) 5.17
Canceled................................... (906,878) 8.49
---------- ------
Outstanding at December 31, 1997................ 3,894,220 6.93
Granted.................................... 3,275,258 12.71
Exercised.................................. (1,216,140) 6.37
Canceled................................... (326,287) 9.04
---------- ------
Outstanding at December 31, 1998................ 5,627,051 $10.25
========== ======
The following table sets forth information regarding options outstanding at
December 31, 1998:
OPTIONS EXERCISABLE AND/OR
OPTIONS OUTSTANDING SHARES TRANSFERABLE
---------------------------------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING CONTRACTUAL AVERAGE NUMBER AVERAGE
RANGE OF OF SHARES LIFE(YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICES --------- --------------------- -------------- ----------- --------------
$ .16 - $ 2.51....... 168,724 8.3 $ 2.05 168,187 $2.05
3.84 - 5.88....... 479,356 8.8 5.68 418,857 5.66
6.00 - 7.83....... 1,298,230 7.8 6.88 615,816 6.89
8.00 - 10.00....... 2,182,741 8.9 9.75 624,695 9.41
10.25 - 12.50....... 390,083 8.3 10.98 127,711 10.83
13.00 - 16.00....... 259,785 9.0 14.13 57,358 14.13
17.00 - 18.75....... 822,711 9.9 18.67 11,693 17.23
20.59 - 23.50....... 25,421 9.5 24.24 3,728 22.80
--------- ---------
5,627,051 8.7 $10.25 2,028,045 $7.55
========= =========
At December 31, 1997 and 1996, 1,440,147 and 948,599, respectively, options
were exercisable or the related shares were transferable.
As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure compensation,
the Company's net loss and diluted loss per share would have been $(3,326,000)
or $(0.22) per share in 1998, $(11,475,000) or $(0.84) per share in 1997, and
$(12,120,000) or $(0.93) per share in 1996.
The fair value of each stock option is estimated on the date of grant using
the Black -Scholes option-pricing model with the following weighted-average
assumptions in 1998, 1997 and 1996: expected lives of 4 to 6 years, expected
volatility of 64.1% in 1998, 46.9% in 1997, and 64.9% in 1996, a dividend yield
of 0% and a risk-free interest rate of 4.75% in 1998, 6% in 1997 and 6.10% in
1996. Stock option grants made by Unidata prior to the merger were measured
using the minimum value method as Unidata had been
F-17
113
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
privately held and no data relating to volatility was available. The weighted
average fair value of options granted and awarded in 1998, 1997 and 1996 was
$7.38, $3.80, and $5.40, respectively.
The option pricing model used was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are not
tradable and have contractual lives of ten years. However, management believes
that the assumptions used and the model applied to value the awards yields a
reasonable estimate of the fair value of the grants made under the
circumstances.
During 1996, a total of 80,000 options were granted to certain officers of
the Company at exercise prices which were an aggregate of $140,000 lower than
the market value at the date of grant. This amount was recorded as unearned
compensation and is being amortized to expense over the five year vesting period
of the options. Related compensation expense was approximately $28,000 in 1998
and 1997, and $26,000 in 1996. The weighted average exercise price of the
options involved is $6.38 per share.
In January 1999, an additional 40,000 options were granted under the
Directors Plan at an exercise price of $26.88.
Employee Stock Purchase Plan -- The Company's Employee Stock Purchase Plan
(the Purchase Plan) provides for the purchase of common stock at six-month
intervals at 85% of the lower of the fair market value on the first day or the
last day of each six-month period. The Company issued 114,579, 72,460 and
157,590 shares in 1998, 1997 and 1996, respectively, under the Purchase Plan. At
December 31, 1998, 220,188 shares were reserved for future issuance's under the
Purchase Plan. The pro forma disclosures presented above include compensation
expense related to the Purchase Plan of $168,000, $74,000 and $446,000 in 1998,
1997 and 1996, respectively.
Warrants -- In connection with obtaining financing in 1996, the Company had
issued warrants to existing stockholders to acquire 111,912 shares of its common
stock. These warrants were exercised in connection with the repayment of the
related obligation. Pursuant to the exercise of the warrants, the Company
received $250,000 in proceeds.
The Company has issued warrants to existing stockholders to acquire 114,151
shares of its common stock. The warrants are exercisable until December 2004 at
an exercise price of $8.56.
5. INCOME TAXES
The components of income (loss) before income taxes and extraordinary item
were comprised of the following (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------ ------- -------
Domestic.................................. $2,574 $(3,304) $(4,425)
Foreign................................... 2,194 (4,468) (1,469)
------ ------- -------
$4,768 $(7,772) $(5,894)
====== ======= =======
F-18
114
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision (benefit) for income taxes consists of the
following (in thousands):
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------ ------ -------
Current:
Federal.................................... $ 889 $ 110 $ 258
State...................................... 105 103 (20)
Foreign.................................... 1,507 (88) 290
------ ------ -------
Total................................. 2,501 125 528
------ ------ -------
Deferred:
Federal.................................... 1,177 1,105 (821)
State...................................... 138 (364) (111)
Foreign.................................... (685) 283 (231)
------ ------ -------
Total................................. 630 1,024 (1,163)
------ ------ -------
Total............................ $3,131 $1,149 $ (635)
====== ====== =======
Significant components of the Company's deferred income tax assets and
liabilities were as follows at December 31 (in thousands):
1998 1997
---- ----
Current assets:
Accounts receivable................................. $ 749 $1,398
Accrued expenses and other.......................... 885 445
------ ------
Total current assets........................... $1,634 $1,843
====== ======
Long-term assets and liabilities:
Property and equipment.............................. $ (328) $ (62)
Intangible assets................................... 3,050 2,781
Capitalized software costs.......................... (521) (67)
Net operating loss carryforwards -- U.S............. 4,667 5,131
Net operating loss carryforwards -- foreign......... 2,628 2,125
Tax credit carryforwards -- U.S..................... 2,487 2,420
Other............................................... 104 101
Valuation allowance................................. (7,689) (7,609)
------ ------
Total net long-term assets..................... $4,398 $4,820
====== ======
The valuation allowance for deferred tax assets as of December 31, 1997,
was $7,609,000. The net change in the total valuation allowance for the year
ended December 31, 1998, was an increase of $80,000 principally due to fully
reserved tax benefits of foreign loss carryforwards. A valuation allowance of
$7,689,000 remains at December 31, 1998, and is primarily attributable to loss
and credit carryforwards that the Company currently evaluates as not being
likely to be realized.
At December 31, 1998, the Company has federal net operating loss
carryforwards of approximately $13,726,000, and federal tax credit carryforwards
of approximately $2,034,000, that all expire in varying amounts beginning in
1999 through 2018. Due to the "change in ownership" provisions of the Internal
Revenue Code of 1986, the availability of net operating loss and tax credit
carryforwards to offset future federal taxable income is subject to cumulative
annual limitations. Restrictions on net operating loss carryforwards expire at a
rate of approximately $1,665,000 in 1999, and $1,490,000 for years thereafter
through 2005. As of December 31, 1998, $3,022,000 of limited net operating loss
carryforwards were not subject to restrictions of future usage. Foreign tax loss
carryforwards of $7,147,000 are available for use in reducing future taxable
income in certain foreign jurisdictions.
F-19
115
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the provision (benefit) for income taxes and the
amount computed by applying the highest federal statutory income tax rate of 35%
to income (loss) before provision (benefit) for income taxes and extraordinary
items is explained below:
YEAR ENDED DECEMBER 31
-----------------------
1998 1997 1996
---- ---- ----
Statutory tax rate.................................... 35% (35)% (35)%
State taxes, net of federal benefit................... 3 (5) (3)
Surtax exemption...................................... (1) 1 1
Nondeductible charges and other....................... 3 3 13
Foreign income taxes.................................. (7) 21 4
Change in valuation allowance......................... 9 (4) 8
Tax credits and other................................. -- (5) 1
Non-deductible in-process research and development.... -- 39 --
Non-deductible merger charges......................... 23 -- --
-- --- ---
Effective tax rate.................................... 65% 15% (11)%
== === ===
6. SEGMENT INFORMATION
The Company has identified two distinct and reportable segments: the
Database segment and the Data warehouse segment. The Company considers these two
segments reportable under SFAS No. 131 criteria as they are managed separately
and the operating results of each segment are regularly reviewed and evaluated
separately by the Company's chief decision maker and Board of Directors.
Evaluations of each segment are done on the basis of revenue and income (loss)
from operations excluding any tax effects or interest income or expense.
The accounting policies of each segment are the same as those described in
Note 1. There are no intercompany transactions between the two business
segments. There is no Data warehouse revenue or expense information for the year
ended December 31, 1996, as the Data warehouse business unit was not formed
until fiscal year 1997. The U.S. Database segment incurred a loss of
approximately $176,000 in 1996 on an investment in a joint venture accounted for
by the equity method.
F-20
116
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Within each operating segment, the Company's operations are conducted
throughout the world, with four locations representing individually more than
10% of revenues or income (loss) from operations; the United States of America
(US), the United Kingdom (UK), the Asia Pacific region (principally Australia),
and France. The Company also conducts operations in Canada, Germany, South
Africa and Japan, however, these operations are individually insignificant and
have been included in "Other Foreign" below. The following table presents
information about the Company's operating segments:
DATABASE SEGMENT DATA WAREHOUSE SEGMENT
----------------------------------------------- --------------------------
ASIA OTHER ASIA
US UK PACIFIC FRANCE FOREIGN US UK PACIFIC
------- ------- ------- ------- ------- ------ ------- -------
1998
Revenue:
License revenue....... $34,505 $10,772 $ 3,719 $ 6,136 $2,013 $8,457 $ 1,530 $1,182
Services revenue...... 30,136 7,118 3,447 3,332 1,485 2,695 386 275
------- ------- ------- ------- ------ ------ ------- ------
Total revenue..... 64,641 17,890 7,166 9,468 3,498 11,152 1,916 1,457
------- ------- ------- ------- ------ ------ ------- ------
Depreciation and
amortization............ 5,531 402 258 210 15 1,675 206 69
------- ------- ------- ------- ------ ------ ------- ------
Merger costs.............. 11,549 1,281 1,240 705 120 -- -- --
------- ------- ------- ------- ------ ------ ------- ------
Income (loss) from
operations.............. $(3,620) $ 6,787 $ (219) $(1,530) $2,134 $3,063 $(2,170) $ (257)
======= ======= ======= ======= ====== ====== ======= ======
1997
Revenue:
License revenue....... $33,239 $ 8,982 $ 5,252 $ 6,078 $ 946 $2,680 $ 524 $ 358
Services revenue...... 31,267 4,622 3,913 1,772 1,472 755 11 104
------- ------- ------- ------- ------ ------ ------- ------
Total revenue..... 64,506 13,604 9,165 7,850 2,418 3,435 535 462
------- ------- ------- ------- ------ ------ ------- ------
Depreciation and
amortization............ 6,891 667 459 196 174 872 134 45
------- ------- ------- ------- ------ ------ ------- ------
Income (loss) from
operations.............. $(2,894) $ 2,410 $(3,993) $ (532) $ 280 $ (502) $(1,467) $ 337
======= ======= ======= ======= ====== ====== ======= ======
1996
Revenue:
License revenue....... $41,072 $ 9,513 $ 3,968 $ 3,696 $3,556 -- -- --
Services revenue...... 30,788 4,537 3,899 3,124 6,346 -- -- --
------- ------- ------- ------- ------ ------ ------- ------
Total revenue..... 71,860 14,050 7,867 6,820 9,902
------- ------- ------- ------- ------ ------ ------- ------
Depreciation and
amortization............ 7,226 774 464 175 120 -- -- --
------- ------- ------- ------- ------ ------ ------- ------
Exit and restructuring
costs................... 3,471 9 574 268 -- -- -- --
------- ------- ------- ------- ------ ------ ------- ------
Income (loss) from
operations.............. $(2,235) $ (311) $ (728) $ (658) $ (147) -- -- --
======= ======= ======= ======= ====== ====== ======= ======
DATA WAREHOUSE SEGMENT
--------------------------
OTHER TOTAL
FRANCE FOREIGN CONS.
------ ------- -------
1998
Revenue:
License revenue....... $1,436 $ 450 $70,200
Services revenue...... 175 11 49,060
------ ----- -------
Total revenue..... 1,611 461 119,260
------ ----- -------
Depreciation and
amortization............ 59 -- 8,425
------ ----- -------
Merger costs.............. -- -- 14,895
------ ----- -------
Income (loss) from
operations.............. $ 661 $(271) $ 4,578
====== ===== =======
1997
Revenue:
License revenue....... $ 657 $ 96 $58,812
Services revenue...... -- -- 43,916
------ ----- -------
Total revenue..... 657 96 102,728
------ ----- -------
Depreciation and
amortization............ 36 -- 9,474
------ ----- -------
Income (loss) from
operations.............. $ 507 $ 66 $(5,788)
====== ===== =======
1996
Revenue:
License revenue....... -- -- $61,805
Services revenue...... -- -- 48,694
------ ----- -------
Total revenue..... 110,499
------ ----- -------
Depreciation and
amortization............ -- -- 8,759
------ ----- -------
Exit and restructuring
costs................... -- -- 4,322
------ ----- -------
Income (loss) from
operations.............. -- -- $(4,079)
====== ===== =======
Export sales from the United States did not exceed ten percent of revenue
for any year presented.
Information regarding assets, or cash flows or additions to long-lived
assets by segment is not available. Information regarding assets by geographical
location as of December 31 is as follows:
1998 1997
---- ----
United States of America............................... $69,980 $84,862
United Kingdom......................................... 10,976 8,273
Asia Pacific (primarily Australia)..................... 3,543 4,137
France................................................. 7,516 8,138
Other foreign.......................................... 2,741 1,537
Eliminations........................................... (11,952) (12,963)
------- -------
Total assets................................. $82,804 $93,984
======= =======
F-21
117
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LITIGATION
The Company was a defendant in a proceeding in the U.S. District Court in
the District of Massachusetts. The plaintiffs alleged that the Company and
certain of its officers, during July through October 1995, made certain untrue
statements and failed to disclose certain information regarding the Company's
prospective financial performance in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that such
statements and omissions artificially inflated the market prices of the
Company's stock. The Company denied the allegations. Following completion of all
discovery, the defendants and their insurance carrier reached, in September
1998, an agreement in principle with the plaintiffs to settle the action. The
Company has recorded its contribution to the agreed settlement which was not
material to the consolidated financial position or results of operations of the
Company for the year ended December 31, 1998.
The Company is a defendant in two actions filed against Unidata prior to
its merger into the Company, one in May 1996 in the U.S. District Court for the
Western District of Washington and one in September 1996 in the U.S. District
Court for the District of Colorado. The plaintiff, a company controlled by a
former stockholder of Unidata and a distributor of its products in certain parts
of Asia, alleges in both actions the improper distribution of certain Unidata
products in the plaintiff's exclusive territory and asserts damages of
approximately $30,000,000 under claims for fraud, breach of contract, unfair
competition, racketeering and corruption, and trademark and copyright
infringement, among other relief. Unidata denied the allegations against it in
its answers to the complaints. In the Colorado action, Unidata moved that the
matter be resolved by arbitration in accordance with its distribution agreement
with the plaintiff. The motion regarding arbitration has been under the Court's
consideration for approximately two years. No discovery or other activities in
either action has occurred pending the Court's decision on the motion for
arbitration. Management of the Company believes that the actions against the
Company are without merit and plans to continue to oppose them vigorously.
The Company is a defendant in an action filed in July 1998 in the U.S.
District Court for the Southern District of Ohio. The plaintiff, with whom the
Company entered into a joint venture in 1996 to develop the Object Studio
product, alleges in its complaint that the Company is obligated to support the
joint venture in amounts up to $1,400,000 per year for an aggregate present
value liability of up to $8,000,000. The Company believes the allegations are
without merit and has denied its alleged liability and filed certain
counterclaims against the plaintiff seeking an amount in excess of $9,000,000.
The Company is also subject to various other legal proceedings and claims,
either asserted or unasserted, which arise in the ordinary course of business.
While the outcome of these claims cannot be predicted with certainty, management
does not believe that the outcome of any of these legal matters will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
8. RETIREMENT PLANS
The Company provides certain supplemental retirement benefits to its
executive officers, which it has funded through life insurance policies in a
"split dollar" arrangement. The executive officers are allowed to borrow against
the excess cash surrender value in the policy over and above the Company's
cumulative paid-in premiums. Upon termination of a policy or the death of the
insured executive, the Company will receive proceeds equal to the amount of the
cumulative premium paid by the Company. The Company may borrow against its share
of the accumulated cash surrender value in the respective policies at any time.
The Company accounts for these policies as a defined contribution plan and
expenses premiums on the policies as incurred, which represents the compensation
element of the plan. In addition, since the Company controls its share of the
cash surrender value of the policies at all times, it accounts for any changes
in cash surrender value in accordance with the guidance provided in Financial
Accounting Standards Board Technical Bulletin No. 85-4, "Accounting for
Purchases of Life Insurance." Accordingly,
F-22
118
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increases or decreases in cash surrender value are recognized each period and
the asset recorded on the Company's books represents the lesser of the Company's
share of cash surrender value or the cumulative premiums paid on the policies.
This amount is included in other long-term assets and was $2,807,000 and
$2,016,000 at December 31, 1998 and 1997, respectively. Total premiums in 1998,
1997, and 1996 were approximately $858,000, $659,000, and $466,000,
respectively.
The Company has 401(k) retirement and savings plans (the Plans) covering
substantially all U.S. employees. The Plans allow each participant to contribute
up to 15% of his or her base wage up to an amount not to exceed an annual
statutory maximum. Effective January 1, 1996, the Company matches 50% of the
contributions of each participant in excess of 2% of such participant's annual
compensation, up to 4% of such participant's annual compensation. The Company
made matching contributions to the Plan of approximately $741,000, $536,000, and
$538,000 in 1998, 1997, and 1996, respectively.
9. MERGER, EXIT AND RESTRUCTURING COSTS
MERGER COSTS
In connection with the merger with Unidata, the Company recorded a charge
of $14,895,000. The charge included $3,910,000 for financial advisor, legal and
accounting fees, $6,209,000 for severance and related costs, $2,170,000 for
closure of facilities, and $2,606,000 for the write-off of redundant assets. The
severance costs related to the termination of 139 Unidata and VMARK employees
who held overlapping positions and terminated employment principally within a
period of one month prior and one month following the close of the merger. Costs
associated with integration activities preceding and following the merger were
charged to expense as incurred. The facilities closure costs related to the
accrual of future rental obligations for duplicate sales offices which were
identified at the time of the merger in California, Georgia, New Jersey,
Colorado, Texas, Australia, France, and the United Kingdom. The offices were
closed within a period of one month prior and two months following the merger
and were either sublet, or remained idle until the end of the lease term. Rent
costs following the merger until closures were finalized and employees were
moved were charged to expense as incurred. The redundant assets which were
written off in connection with the merger included the net book value of
abandoned leasehold improvements ($1,300,000), scrapped computer and office
equipment ($450,000), scrapped documentation and product inventory with
predecessor company names ($500,000) and prepaid license inventory related to a
version of the Unidata database product which was no longer sold following the
merger ($350,000). All assets were scrapped or disposed of within two months
following the merger. Benefits related to reduced salaries, rent and
depreciation began to be realized immediately following the merger. As of
December 31, 1998, $1,312,000 remains unpaid comprised principally of future
rental obligations on idle facilities and approximately $300,000 of severance
associated with longer term arrangements with senior executives. All of which is
expected to be paid in 1999.
RESTRUCTURING COSTS
The 1996 results include a $2,125,000 restructuring charge associated with
the downsizing of Object Studio -- related activities. The charge was recorded
pursuant to a formal plan adopted and announced in May 1996. The charge included
approximately $1,900,000 in employee severance and benefits, $153,000 for the
write off of capitalized software and $72,000 related to abandonment of
facilities. Fifty employees were immediately terminated in this restructuring.
As of December 31, 1998, all balances related to this restructuring have been
paid.
The 1996 results also include a $2,197,000 charge associated with a
restructuring and reduction in staff from all areas of the Company. Management
approved the restructuring plan late in fiscal year 1996 with the intent to
bring costs in line with revenues. The charge included $1,591,000 in employee
severance and benefits and $606,000 for the write-off of intangible assets. This
intangible asset write-off related to
F-23
119
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the impairment of the remaining net book value of technology purchased in 1992,
the development of which ceased with the first version of UniVerse Release 9.
Thirty-four employees were immediately terminated in this restructuring. As of
December 31, 1998, all balances related to this restructuring had been paid.
EXTRAORDINARY LOSS
In December 1996, as part of the Company's ongoing efforts to direct the
business towards growth areas, management, at the direction of the Board of
Directors, undertook a review of all existing businesses, including those
acquired through the merger with Easel Corporation in 1995 which was accounted
for as a pooling-of-interests. Following this review, in December 1996,
management recommended and the Board of Directors approved a comprehensive plan
to exit certain businesses. In general, these businesses represented portions of
the business with minimal profitability and lower future growth prospects. For
discussion of certain abandoned businesses and asset write-offs, see above.
Among the product lines and businesses to be discontinued or abandoned were
certain products or lines of business present at the date of the merger with
Easel. Because these dispositions were not contemplated at the date of the
merger and are therefore outside of the normal course of business, they have
been presented as an extraordinary item.
The components of the extraordinary item recorded in 1996 consist of the
following (in thousands):
Net loss on disposition of ASG.............................. $ 537
Object Studio:
Asset writedown........................................ 1,845
Facilities closure..................................... 1,419
Severance related costs................................ 417
Expected costs and funding for joint venture........... 1,700
-------
Pre-tax extraordinary item.................................. 5,918
Tax benefit................................................. (1,184)
-------
Extraordinary loss.......................................... $ 4,734
=======
The Company's US education business, ASG, was sold to a third party for
$420,000. The net loss reflected above represents the write-down of the assets
of ASG to net realizable value.
In October, 1996, the Company entered into a joint venture with one of its
resellers (the "Other Party") to develop and support the ObjectStudio product
suite. This joint venture was formed to allow the Company to reduce its ongoing
cash cost of continued development of ObjectStudio. The Company's investment
consisted of certain product rights. The Company's share of the venture's loss
for the quarter ended December 31, 1996 is included as a component of other
income and expense.
Despite the formation of the joint venture, profitability related to the
ObjectStudio product line continued to be below expectation. In addition,
certain actions by competitors in the ObjectStudio marketplace led the Company
to conclude that it was not in the best interest of the Company to continue to
support this product line and that the Company would be best served by focusing
its resources on product lines with more favorable prospects. Accordingly, the
Company decided to exit the ObjectStudio product line.
To facilitate exit from the ObjectStudio product line, in December 1996 the
Company entered into certain agreements which effectively transferred all of the
Company's rights to the product to the Other Party. The Other Party also agreed
to take over the operations of the Company's German subsidiary (devoted to
ObjectStudio) and to assume all of the Company's obligations related to
ObjectStudio in exchange for a one time payment of $300,000. In addition, the
Company agreed to maintain its funding
F-24
120
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitment to the joint venture for 1997, aggregating $1,400,000, and accepted a
significant reduction in its rights in the venture. Because the Company had
committed to pay the one time payment and 1997 funding, such costs were
considered to be exit costs and were accrued at December 31, 1996.
As a result of the plan to exit the ObjectStudio business, forty employees
were terminated and such costs were accrued at December 31, 1996. The Company
also incurred costs for facility abandonment related to the German subsidiary
which was also charged to the extraordinary item. In addition, it was determined
that the Company's investment in the joint venture was worthless, as the Company
had transferred all of its rights in the related products and did not expect to
recover any of the funds invested. Accordingly, the investment was written down
to zero and a loss of $1,845,000 was recorded.
In 1997 and 1998, the Company recorded no revenue or expenses associated
with ObjectStudio activity or the joint venture. In addition, the Company has
paid substantially all amounts described above and the dissolution of the joint
venture commenced in 1997, in line with the Company's expectations in 1996.
However, as discussed in Note 7, the Other Party has asserted certain claims
against the Company regarding the joint venture. At December 31, 1998,
approximately $800,000 in facilities costs remains unpaid.
The following is a summary of activity in the various restructurings and
merger accrual balances in the years ended December 31, 1998 and 1997 (in
thousands):
DECEMBER
1995 MERGER MAY 1996 1996 EXTRAORDINARY 1998 MERGER
ACCRUAL RESTRUCTURING RESTRUCTURING ITEM ACCRUAL TOTAL
----------- ------------- -------------- ------------- ----------- -------
Balances as of December 31,
1995...................... $1,286 $ -- $ -- $ -- $ -- $ 1,286
May 1996 restructure
charge.................... 2,125 2,125
December 1996 restructure
charge.................... 2,197 2,197
Extraordinary item.......... 5,918 5,918
Severance payments.......... (701) (1,482) (2,183)
Asset impairment............ (153) (606) (2,381) (3,140)
Facilities payments......... (585) (72) (657)
------ ------- ------- ------- ------- -------
Balances as of December 31,
1996...................... -- 418 1,591 3,537 -- 5,546
------ ------- ------- ------- ------- -------
Severance payments.......... (320) (1,582) (417) (2,319)
Funding payments............ (1,745) (1,745)
Facilities payments......... (414) (414)
------ ------- ------- ------- ------- -------
Balances as of December 31,
1997...................... -- 98 9 961 -- 1,068
------ ------- ------- ------- ------- -------
Unidata merger charge....... 14,895 14,895
Severance payments.......... (98) (9) (5,937) (6,044)
Asset impairment............ (2,606) (2,606)
Professional fees........... (3,910) (3,910)
Facilities payments......... (161) (1,130) (1,291)
------ ------- ------- ------- ------- -------
Balances as of December 31,
1998...................... $ -- $ -- $ -- $ 800 $ 1,312 $ 2,112
====== ======= ======= ======= ======= =======
F-25
121
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RESULTS OF OPERATIONS OF UNIDATA, INC.
As described in Note 1, the Company consummated the merger with Unidata,
Inc. on February 10, 1998. Prior to 1997, Unidata's fiscal year ended on June
30. Therefore, the six months of Unidata's operations and cash flows for the
period ending December 31, 1996 were not included in the 1996 consolidated
statements of operations and cash flows.
The summarized statement of operations and statement of cash flows for
Unidata for the six months ended December 31, 1996 are as follows (in
thousands):
SIX MONTHS ENDED
SUMMARIZED STATEMENT OF OPERATIONS DECEMBER 31, 1996
---------------------------------- -----------------
Revenue..................................................... $22,745
Total costs and expenses.................................... 22,558
Net loss.................................................... (549)
SUMMARIZED STATEMENT OF CASH FLOWS
Cash provided by operating activities....................... $ 694
Cash used in investing activities........................... (1,737)
Cash provided from financing activities..................... 7
Effect of exchange rates on cash............................ 34
-------
Decrease in cash equivalents................................ $(1,002)
=======
11. RELATED PARTY
During 1996, the Company issued a note payable to an insurance company and
affiliates. The insurance company is a stockholder and held warrants to purchase
111,912 shares of common stock (see Note 4). The Company had engaged this
insurance company to provide medical and life insurance for employees as well as
administer the Company's 401k Plan. During fiscal year 1997 and 1996, payments
to the insurance company for interest on the note totaled $1,150,000 and
$582,000 respectively, and payments for insurance benefits totaled $809,000 and
$251,000, respectively.
During 1996, the Company issued warrants to purchase 114,151 shares of
common stock to a director and an employee, both of whom are stockholders of the
Company (see Note 4).
The Company paid $222,000 and $228,000 in interest to a stockholder and
director during fiscal year 1997 and 1996, respectively, on an outstanding loan
of $2,350,000. The rate charged is the same as those paid to another
unaffiliated bank for working capital loans. In April 1998, the outstanding
balance of this loan was paid in full (see Note 3).
A former director and stockholder of the Company is a partner in a law firm
that was engaged by the Company to provide legal services. The Company had paid
$279,000 and $298,000 in legal services to this law firm during fiscal year 1997
and 1996, respectively.
F-26
122
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED -- IN THOUSANDS)
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
Revenue..................................... $25,710 $29,237 $29,734 $34,579
Income (loss) from operations............... (12,368) 4,711 5,068 7,167
Net income (loss)........................... (9,357) 2,968 3,321 4,705
Basic net income (loss) per common share.... (.66) .20 .22 .31
Diluted net income (loss) per common
share..................................... (.66) .18 .20 .27
1997
Revenue..................................... $26,020 $29,108 $23,580 $24,020
Income (loss) from operations............... 1,321 1,583 (595) (8,097)
Net income (loss)........................... 464 481 (753) (9,113)
Basic net income (loss) per common share.... .03 .04 (.05) (.65)
Diluted net income (loss) per common
share..................................... .03 .03 (.05) (.65)
Quarterly results of operations are affected by a number of factors,
primarily seasonality and the impact of acquisitions. Revenues for the third
quarter of 1997 declined due to the method of combining the results of Ardent
and Unidata; prior to the merger Unidata utilized a June year end. As a result,
the reported second quarter of 1997 for the combined company includes the last
fiscal quarter of 1997 for Unidata; traditionally, Unidata experienced declines
in the revenue in the first quarter of its fiscal years.
In addition, in the first quarter of 1998 and the fourth quarter of 1997,
the Company consummated certain business combinations which required expensing
certain amounts related to merger costs and in-process research and development
charges.
During 1998, the Company revised its estimate of the amount allocable to
acquired technology related to O2 Technologies. As a result of this revision, an
increase of $645,000 in amortization expense was recorded in the fourth quarter
of 1998.
F-27
123
PRISM SOLUTIONS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-29
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-30
Consolidated Statements of Operations for the three years
ended December 31, 1998, 1997 and 1996.................... F-31
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1998, 1997 and 1996........ F-32
Consolidated Statements of Cash Flows for the three years
ended December 31, 1998, 1997 and 1996.................... F-33
Notes to Consolidated Financial Statements.................. F-35
F-28
124
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Prism Solutions, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Prism
Solutions, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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 audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters, which include the proposed merger
with Ardent Software, Inc., are also described in Note 12. The financial
statements do not include any adjustments that might result from this
uncertainty.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 1, 1999
F-29
125
PRISM SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
--------------------
1998 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,069 $ 6,351
Short-term investments.................................... -- 15,355
Accounts receivable, net of allowance for doubtful
accounts of $481 and $649 in 1998 and 1997,
respectively........................................... 9,994 14,186
Other receivables......................................... 510 650
Prepaid expenses and other current assets................. 464 927
-------- --------
Total current assets................................... 16,037 37,469
Property and equipment, net................................. 3,620 3,517
Other assets................................................ 1,855 2,199
-------- --------
Total assets........................................... $ 21,512 $ 43,185
======== ========
LIABILITIES
Current liabilities:
Notes payable, current portion of long-term debt and
capital leases......................................... $ 214 $ 262
Accounts payable.......................................... 2,214 2,813
Accrued commissions....................................... 657 1,169
Accrued payroll and related............................... 2,384 2,335
Deferred revenue.......................................... 3,980 5,221
Other accrued liabilities................................. 1,168 3,417
-------- --------
Total current liabilities.............................. 10,617 15,217
Notes payable, long-term debt and capital leases............ 329 364
-------- --------
Total liabilities...................................... 10,946 15,581
-------- --------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY
Convertible preferred stock, par value $0.001 per share:
Authorized 1,000,000; none issued or outstanding.......... -- --
Common stock, par value $0.001 per share:
Authorized: 50,000,000 shares issued and outstanding:
18,716,661 in 1998 and 18,182,251 in 1997.............. 19 18
Additional paid-in capital.................................. 59,822 57,253
Accumulated comprehensive loss.............................. -- (29)
Receivable from stockholder................................. -- (90)
Accumulated deficit......................................... (49,275) (29,548)
-------- --------
Total stockholders' equity............................. 10,566 27,604
-------- --------
Total liabilities and stockholders' equity............. $ 21,512 $ 43,185
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
126
PRISM SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- -------
Revenues:
License................................................... $ 22,166 $ 23,823 $19,586
Services and other........................................ 29,924 27,568 16,581
-------- -------- -------
Total revenues......................................... 52,090 51,391 36,167
-------- -------- -------
Cost of revenues:
License................................................... 1,031 1,338 847
Services and other........................................ 21,410 16,046 9,684
-------- -------- -------
Total cost of revenues................................. 22,441 17,384 10,531
-------- -------- -------
Gross margin.............................................. 29,649 34,007 25,636
-------- -------- -------
Costs and expenses:
Sales and marketing....................................... 27,355 24,712 18,462
Research and development.................................. 14,492 11,068 6,974
General and administrative................................ 6,587 7,114 4,048
Purchased-in-process technology........................... -- 8,558 --
-------- -------- -------
Total costs and expenses............................... 48,434 51,452 29,484
-------- -------- -------
Loss from operations...................................... (18,785) (17,445) (3,848)
-------- -------- -------
Interest income, net........................................ 370 1,352 1,453
Other income (expense), net................................. 13 -- (21)
-------- -------- -------
Loss before income taxes.................................. (18,402) (16,093) (2,416)
Provision for income taxes.................................. 249 91 21
-------- -------- -------
Net loss.................................................. (18,651) (16,184) (2,437)
-------- -------- -------
Unrealized holding gain (loss).............................. 29 (29) --
-------- -------- -------
Comprehensive loss........................................ $(18,622) $(16,213) $(2,437)
======== ======== =======
Basic and dilutive loss per share......................... $ (1.01) $ (0.94) $ (0.17)
======== ======== =======
Shares used in per share calculation...................... 18,485 17,291 14,640
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
127
PRISM SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL ACCUMULATED RECEIVABLES
------------------- -------------------- PAID-IN COMPREHENSIVE FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL GAINS (LOSS) STOCKHOLDERS
---------- ------ ----------- ------ ----------- ------------- ------------
BALANCE AT JANUARY 1, 1996............. 7,990,817 $ 8 6,011,493 $ 6 $14,946 -- $ (129)
Conversion of preferred stock.......... (7,990,817) (8) 7,990,817 8
Issuance of common stock in initial
public offering...................... 2,325,500 3 35,610
Issuance of common stock under stock
option plan.......................... 116,324 78
Issuance of common stock under stock
purchase plan........................ 42,751 491
Issuance of common stock for consulting
purposes............................. 11,472 106
Repurchase of common stock............. (63,822) (20)
Payment received on receivables from
stockholder.......................... 25
Net loss...............................
---------- ---- ----------- --- ------- ---- --------
BALANCE AT DECEMBER 31, 1996........... -- -- 16,434,535 17 51,211 -- (104)
Issuance of common stock under stock
option plan.......................... 267,669 286
Issuance of common stock under stock
purchase plan........................ 164,016 869
Repurchase of common stock............. (348,536) (2,021)
Issuance of common stock related to
acquisitions......................... 1,664,567 1 6,908
Payment received on receivables from
stockholder.......................... 14
Unrealized holding losses.............. $(29)
Net loss...............................
---------- ---- ----------- --- ------- ---- --------
BALANCE AT DECEMBER 31, 1997........... -- -- 18,182,251 18 57,253 (29) (90)
Termination of S-corp election for
CFI.................................. 1,053
Issuance of common stock under stock
option plan.......................... 221,129 1 544
Issuance of common stock under stock
purchase plan........................ 328,084 976
Payment received on receivable from
stockholder.......................... 90
Realized holding gain.................. 29
Repurchase of common stock............. (14,803) (4)
Payment of preferred stock dividends of
acquired companies...................
Net loss...............................
---------- ---- ----------- --- ------- ---- --------
BALANCE AT DECEMBER 31, 1998........... -- $ -- 18,716,661 $19 $59,822 $ -- $ --
========== ==== =========== === ======= ==== ========
ACCUMULATED
DEFICIT TOTAL
----------- --------
BALANCE AT JANUARY 1, 1996............. $(10,927) $ 3,904
Conversion of preferred stock.......... --
Issuance of common stock in initial
public offering...................... 35,613
Issuance of common stock under stock
option plan.......................... 78
Issuance of common stock under stock
purchase plan........................ 491
Issuance of common stock for consulting
purposes............................. 106
Repurchase of common stock............. (20)
Payment received on receivables from
stockholder.......................... 25
Net loss............................... (2,437) (2,437)
-------- --------
BALANCE AT DECEMBER 31, 1996........... (13,364) 37,760
Issuance of common stock under stock
option plan.......................... 286
Issuance of common stock under stock
purchase plan........................ 869
Repurchase of common stock............. (2,021)
Issuance of common stock related to
acquisitions......................... 6,909
Payment received on receivables from
stockholder.......................... 14
Unrealized holding losses.............. (29)
Net loss............................... (16,184) (16,184)
-------- --------
BALANCE AT DECEMBER 31, 1997........... (29,548) 27,604
Termination of S-corp election for
CFI.................................. (1,053) --
Issuance of common stock under stock
option plan.......................... 545
Issuance of common stock under stock
purchase plan........................ 976
Payment received on receivable from
stockholder.......................... 90
Realized holding gain.................. 29
Repurchase of common stock............. (4)
Payment of preferred stock dividends of
acquired companies................... (23) (23)
Net loss............................... (18,651) (18,651)
-------- --------
BALANCE AT DECEMBER 31, 1998........... $(49,275) $ 10,566
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
128
PRISM SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- -------- -------
Cash flows from operating activities:
Net loss.................................................. $(18,651) $(16,184) $(2,437)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 3,455 2,207 1,836
Provision for doubtful accounts......................... 168 248 44
Loss on disposal of property and equipment.............. -- 41 14
Purchase of in-process technology....................... -- 8,558 --
Stock issued for consulting services.................... -- 125 106
Changes in operating assets and liabilities:
Accounts receivable.................................. 4,024 (3,989) (2,041)
Other receivables.................................... 140 (479) (250)
Prepaid expenses and other current assets............ 463 42 (687)
Other assets......................................... 92 (896) 188
Accounts payable..................................... (599) 1,386 832
Accrued commissions.................................. (512) 466 180
Accrued payroll and related.......................... 49 1,112 877
Deferred revenue..................................... (1,241) 295 (682)
Other accrued liabilities............................ (2,249) 320 355
-------- -------- -------
Net cash used in operating activities..................... (14,861) (6,748) (1,665)
-------- -------- -------
Cash flows from investing activities:
Purchase of in-process technology and assets, net of
cash received........................................ -- (2,466) --
Purchases of property and equipment..................... (3,306) (3,095) (1,860)
Purchases of short-term investments..................... (5,093) -- (20,052)
Sale of short-term investments.......................... 20,477 4,668 --
-------- -------- -------
Net cash provided by (used in) investing activities..... 12,078 (893) (21,912)
-------- -------- -------
Cash flows from financing activities:
Repayment of equipment lines of credit.................... -- -- (1,238)
Proceeds from debt...................................... -- 3,085 --
Repayment of debt....................................... (83) (3,104) --
Proceeds from sale of common stock...................... -- -- 35,613
Proceeds from sale of stock of acquired companies....... -- -- 1,500
Dividend paid on stock of acquired companies............ -- -- (77)
Payments received on receivable from stockholder........ 90 14 25
Proceeds from employee stock purchase plan.............. 976 869 491
Proceeds from the exercise of employee stock options.... 545 286 78
Payment of preferred stock dividend of acquired
company.............................................. (23) -- --
Repurchase of common stock.............................. (4) (2,021) (20)
-------- -------- -------
Net cash provided by (used in) financing activities..... 1,501 (871) 36,372
-------- -------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
129
PRISM SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........ (1,282) (8,512) 12,795
Cash and cash equivalents at beginning of year.............. 6,351 14,863 2,068
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 5,069 $ 6,351 $14,863
======== ======== =======
Supplemental cash flow information:
Cash paid for income taxes................................ $ 89 $ 82 $ 81
Cash paid for interest.................................... $ 56 $ 9 $ 22
Supplemental disclosure of noncash transactions:
Property and equipment included in accounts payable....... $ -- $ 24 $ 69
Issuance of common stock for consulting services.......... $ -- $ -- $ 106
Conversion of preferred stock into common stock in initial
public offering......................................... $ -- $ -- $ 8
Effect of acquisitions:
Termination of S-Corp election for Customer Focus
International........................................ $ 1,053 -- --
Fair value of assets acquired (see note 11)............. $ -- $ 7,374 $ --
Goodwill................................................ $ -- $ 1,275 $ --
Issuance of common stock................................ $ -- $ 6,908 $ --
Assets acquired, net of $244 cash received.............. $ -- $ 2,466 $ --
Liabilities assumed including expenses incurred......... $ -- $ 464 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
130
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS
Nature of Business -- Prism Solutions, Inc. (the "Company") designs,
develops, markets and supports data warehouse management software that assists
its customers in developing, managing and maintaining data warehouses. The
Company currently markets its software products to a wide variety of businesses
and other organizations in North and South America, Europe, South Africa, the
Middle East, Asia Pacific and Australia. Substantially all of the Company's
revenues to date have been attributable to licenses of two of the Company's
products and related services.
On January 30, 1998, the Company completed the acquisition of Customer
Focus International, Inc. ("CFI"), which was accounted for as a pooling of
interests. All financial data of the Company, including the Company's previously
issued financial statements for the periods presented have been restated to
include the historical financial information of CFI in accordance with generally
accepted accounting principles and pursuant to Securities and Exchange
Commission Regulation S-X.
On May 13, 1998, the Company completed the acquisition of Systems
Techniques, Inc. ("STI"), which was accounted for as a pooling of interests. All
financial data of the Company, including the Company's previously issued
financial statements for the periods presented have been restated to include the
historical financial information of STI in accordance with generally accepted
accounting principles and pursuant to Securities and Exchange Commission
Regulation S-X.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Company has established wholly-owned subsidiaries in Mexico, Canada,
the United Kingdom, Germany, France and Spain. In 1997, the Company established
wholly-owned subsidiaries in the Netherlands, Hong Kong and Singapore, and
acquired Object Software in Melbourne, Australia and QDB Solutions, Inc. in
Cambridge, Massachusetts. The consolidated financial statements include the
financial statements of Prism Solutions, Inc. and its wholly-owned subsidiaries
after elimination of intercompany accounts and transactions.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that reflect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with an
original or remaining maturity of three months or less to be cash equivalents.
Highly liquid investments with an original or remaining maturity beyond three
months, but less than one year, are classified as short-term investments and
carried at fair value, which approximates cost.
Concentration of Credit Risk and Fair Value of Financial Instruments
The Company's cash and cash equivalents are held in various interest
bearing deposit accounts at local and foreign banks. Through December 31, 1998,
no material losses had been experienced on such investments.
F-35
131
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
As of December 31, 1997, the Company had short-term investments totaling
$15,355, which were classified as available for sale. There were no short-term
investments as of December 31, 1998. Short-term investments principally consist
of municipal securities and corporate bonds. Through December 31, 1998, no
material losses had been experienced on such investments. The amortized cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity, both of which are included in interest income. Realized
gains and losses are recorded on the specific identification method.
The Company markets its software products directly and through resellers,
and generally does not require collateral. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for doubtful accounts.
As of December 31, 1998 and 1997 no one customer accounted for more than 10% of
accounts receivable.
For financial instruments consisting of cash and cash equivalents, accounts
receivable, other receivables, deposits, long-term debt, accounts payable, and
accrued liabilities included in the Company's consolidated financial statements,
the carrying amounts are reasonable estimates of fair value.
Property and Equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over their estimated useful lives of two to three years.
Leasehold improvements are amortized on a straight-line basis over their
estimated useful lives or their lease terms, whichever is less.
Goodwill
Goodwill related to the Company's acquisitions (see Note 11 in the notes to
the Consolidated Financial Statements) is included in other assets and is being
amortized over 5 years on a straight-line basis.
Revenue Recognition
The Company has adopted the provisions of Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"), as amended by SOP 98-4, "Deferral
of the Effective Date of Certain Provisions of SOP 97-2", effective January 1,
1998. SOP 97-2 supercedes Statement of Position 91-1 and delineates the
accounting for software product and maintenance revenues. Under SOP 97-2, the
Company recognizes product revenues and license fees upon shipment if a signed
contract exists, the fee is fixed and determinable, collection of resulting
receivables is probable and product returns are reasonably estimable. In
addition, for contracts with multiple obligations (e.g. deliverable and
undeliverable products, services and maintenance), revenue must be allocated to
each component of the contract based on evidence of its fair value which is
specific to the Company, or for products not yet being sold separately, the
price established by management.
Revenue allocated to undelivered products is recognized when criteria for
product and license revenue set forth above are met. Revenue allocated to
maintenance fees for ongoing customer support and product updates is recognized
ratably over the period of the maintenance contract. Payments for maintenance
fees are generally made in advance and are non-refundable. Revenue allocated to
other services is recognized as the related services are performed.
Prior to January 1, 1998, product revenues were generally recognized after
execution of a licensing agreement, a valid purchase order for resellers, and
shipment of the product, if no significant vendor obligations remained and
collection of the resulting receivables was deemed probable. The Company's
license agreements generally did not provide a right of return.
F-36
132
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Service revenues from customer maintenance fees for ongoing customer
support and product updates were recognized ratably over the term of the
service. Payments for maintenance fees were generally received in advance and
were generally nonrefundable. Consulting, implementation and training revenues
were generally recognized following execution of a contract, performance of the
related services and if collection of the resulting receivables was deemed
probable.
Advertising Costs
Advertising costs, included in sales and marketing expenses, are expensed
as incurred and were $251, $260 and $380 in 1998, 1997 and 1996, respectively.
Research and Development
Research and development expenditures are expensed as incurred.
Software Development Costs
Software development costs have been expensed in accordance with Statement
of Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed." Under SFAS 86,
capitalization of software development costs begins upon the establishment of
technological feasibility and ends when a product is available for general
release to customers. Such costs have been immaterial to date.
Income Taxes
The Company determines its income tax liability in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes." Under SFAS 109, the liability method is used to account for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts more likely than not to be realized.
Foreign Currency Translation
All subsidiaries located outside the United States operate with the U.S.
dollar as the functional currency. Net nonmonetary assets are translated at
historical exchange rates, and net monetary assets are translated at current
exchange rates. Transaction and translation gains and losses are included in the
determination of the results of operations and were not material.
Basic and Diluted Loss Per Share
Basic and diluted net loss per share is computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Common equivalent shares are excluded from basic and diluted loss per share as
their effect is antidilutive. Common equivalent shares that could potentially
dilute earnings per share in the future and that were not included in the
computation of diluted loss per
F-37
133
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
share because of antidilution were 1,297,508, 868,262 and 1,113,919 for the
years ended December 31, 1998, 1997 and 1996, respectively.
YEARS ENDED
DECEMBER 31,
--------------------------------------
1998 1997 1996
----------- ---------- -----------
BASIC EPS:
Net loss......................................... $ (18,651) $ (16,184) $ (2,437)
Denominator: Average common shares outstanding... 18,485,000 17,291,000 14,640,000
----------- ---------- -----------
Basic net loss per share......................... $ (1.01) $ (0.94) $ (0.17)
=========== ========== ===========
DILUTED EPS:
Denominator: Average common shares outstanding... 18,485,000 17,291,000 14,640,000
Common equivalent shares outstanding (options)... -- -- --
----------- ---------- -----------
Total shares........................... 18,485,000 17,291,000 14,640,000
----------- ---------- -----------
Dilutive net loss per share...................... $ (1.01) $ (0.94) $ (0.17)
=========== ========== ===========
Recent Pronouncements
In March 1998, the Accounting Standards Executive Committee, or AcSEC,
released Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
companies to capitalize certain costs of computer software developed or obtained
for internal use, provided that those costs are not research and development.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The
Company is evaluating the requirements of SOP 98-1 and the effects, if any, on
the Company's current policies on accounting for software costs.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133 will be effective for fiscal years
beginning after June 15, 1999. The Company does not currently hold derivative
instruments or engage in hedging activities.
In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9,
"Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions". SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence (VSOE) of the fair
values of all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist for one or
more of the delivered elements, and (3) all revenue recognition criteria of SOP
97-2 (other than the requirement for VSOE of the fair value of each delivered
element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs
of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and
SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. Retroactive application is
F-38
134
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
prohibited. The Company does not expect the adoption of SOP 98-9 to have a
material effect on its consolidated financial position or results of operations.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year financial statement presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
------------------
1998 1997
------- -------
Computers and equipment..................................... $ 5,973 $ 4,566
Furniture and fixtures...................................... 2,100 1,480
Software.................................................... 2,015 1,186
Leasehold improvements...................................... 984 326
------- -------
11,072 7,558
Less accumulated depreciation and amortization.............. (7,452) (4,041)
------- -------
$ 3,620 $ 3,517
======= =======
4. NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES
Notes payable, long-term debt and capital leases consist of the following
at December 31, 1998:
Notes payable, due March 31, 1999; interest at 7.77%...... $ 83
Advances under line of credit, due through August 2000;
interest at 5.285%..................................... 220
Equipment leases, due through 2002, varying rates of
interest............................................... 240
-----
543
Less: current position............................ (214)
-----
$ 329
=====
Scheduled repayments are as follows:
CAPITAL NOTES AND
LEASES ADVANCES TOTAL
YEARS ENDING DECEMBER 31, ------- --------- -----
1999...................................................... $122 $131 $253
2000...................................................... 74 96 170
2001...................................................... 49 65 114
2002...................................................... 21 40 61
2003...................................................... -- 10 10
---- ---- ----
266 342 608
Less: amounts representing interest....................... (26) (39) (65)
---- ---- ----
$240 $303 $543
==== ==== ====
F-39
135
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its facilities under noncancelable operating leases that
expire in February 2002 with renewal options at fair market value for additional
periods. The Company is generally responsible for maintenance, property taxes,
liability and personal property insurance and utilities relating to its facility
leases.
Rent expense under the operating leases amounted to approximately $2,722,
$1,821 and $1,122 in 1998, 1997 and 1996, respectively.
Future minimum payments to be made under noncancelable operating leases and
future payments to be received under a sublease agreement are as follows:
LEASE SUBLEASE
YEARS ENDING DECEMBER 31, PAYMENTS INCOME
------------------------- -------- --------
1999........................................................ $1,943 $7
2000........................................................ 1,864 --
2001........................................................ 1,623 --
2002........................................................ 1,514 --
2003........................................................ 1,422
Thereafter.................................................. 1,477 --
$9,843 $7
====== ==
Royalty Agreements
The Company is obligated to pay royalties based on sales from other
specified products under certain continuing license agreements. Royalty expense
was $141, $351 and $140 for 1998, 1997 and 1996, respectively.
Contingencies
On March 5, 1997, a class action complaint was filed by the law firm of
Milberg Weiss Bershad Hynes & Lerach LLP in Superior Court of the State of
California, County of Santa Clara, against the Company and several of its
current and former officers and directors and the underwriters of its initial
public offering. The complaint was filed on behalf of those persons who
purchased or otherwise acquired the common stock of the Company from March 14
through October 14, 1996 and alleges that the defendants artificially inflated
the demand for the common stock prior to and after the initial public offering.
The complaint seeks damages in an unspecified amount. The Company believes the
complaint has no merit and will vigorously defend itself. At December 31, 1998,
no range of loss could be estimated and accordingly, no accrual has been made in
the financial statements. The Company is also involved in other ongoing legal
matters incidental to its business.
6. STOCKHOLDERS' EQUITY
Reincorporation
On February 2, 1996, the reincorporation of the Company as a Delaware
corporation was consummated. The certificate of incorporation provides for
8,990,817 authorized shares of preferred stock with a $0.001 par value per share
and for 50,000,000 authorized shares of common stock with a $0.001 par value per
share. The consolidated financial statements have been retroactively restated to
give effect to the reincorporation.
F-40
136
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Common and Convertible Preferred Stock
On March 15, 1996, the Company sold 2,325,500 shares of common stock in its
initial public offering. Net proceeds to the Company, after deducting the
underwriting discount and offering expenses, were approximately $35,613. In
connection with such offering, all outstanding shares of preferred stock were
converted into 7,990,817 shares of common stock and the authorized shares of
preferred stock was reduced to 1,000,000 shares of preferred stock with a $0.001
par value.
Employee Stock Purchase Plan
In 1996, the Company's stockholders approved the adoption of the Employee
Stock Purchase Plan (the "Purchase Plan") wherein 500,000 shares were reserved
for issuance pursuant to such plan. In 1998, the Purchase Plan was increased by
600,000 shares, bringing the total shares reserved for issuance pursuant to the
Purchase Plan to 1,100,000 shares. The Purchase Plan is administered over
offering periods of 24 months each, with each offering period divided into four
consecutive six-month purchase periods beginning August 1 and February 1 of each
year. Eligible employees may designate not more than 10 percent of their cash
compensation to be deducted each pay period for the purchase of common stock
under the Purchase Plan. In addition, in an offering period, no employee may
purchase more than the number of shares specified by the Board of Directors for
any single purchase date or twice the number of shares an employee would be
eligible to purchase at 85 percent of the market price of a share on the first
business day of the offering period if the market price of a share on the last
business day of the purchase period drops to less than one-half of the market
price of a share on the first business day of the offering period. On the last
business day of each purchase period, shares of common stock are purchased with
the employee's payroll deductions accumulated during the six months, generally
at a price per share of 85 percent of the market price of the common stock on
the employee's entry date of the applicable offering period or the last day of
the applicable offering period, whichever is lower. The Purchase Plan will
terminate no later than 2006. A total of 164,016 and 42,751 shares were issued
under the Purchase Plan in 1997 and 1996, respectively. During 1998, a total of
328,084 additional shares were issued pursuant to the Purchase Plan.
Stock Option Plan
In 1996, the Company's stockholders approved an increase in the number of
common shares reserved under the 1992 Stock Option Plan (the "1992 Plan") by
400,000 shares. In addition, the Company's stockholders approved the adoption of
the 1996 Equity Incentive Plan and the 1996 Directors Stock Option Plan
(together known as the "1996 Plans") wherein 2,000,000 and 300,000 shares,
respectively, were reserved for issuance pursuant to these plans. The 1992 Plan
and the 1996 Plans together are known as "the Plans". In 1997, the 1996 plan was
amended to reflect an increase of 5,500,000 shares issuable under the plan. In
1998, the Company's stockholders approved an increase in the number of common
shares reserved under the 1996 Plans by 4,000,000 shares.
The Plans provide for the grant of incentive stock options and nonqualified
stock options to employees, directors and consultants of the Company at prices
ranging from 85% to 110% (depending on the type of grant and the individual
receiving the grant) of the fair market value of the common stock on the date of
grant as determined by the Board of Directors.
The vesting and exercise provisions of the option grants under the Plans
are determined by the Board of Directors. Options granted under the Plans are
generally immediately exercisable, but any shares acquired pursuant to exercises
are subject to repurchase by the Company until they have vested. Options
generally vest ratably over a four-year period commencing from the date of
grant, subject to one year of employment and expire ten years from date of
grant.
F-41
137
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Information with respect to the Plans is summarized as follows:
OUTSTANDING OPTIONS
-------------------------------------------------------
WEIGHTED
AVAILABLE NUMBER PRICE AVERAGE PRICE AGGREGATE
FOR GRANT OF SHARES PER SHARE PER SHARE PRICE
---------- ---------- -------------- ------------- ---------
Balance at December 31, 1995... 8,359 1,138,758 $0.20 - $5.50 $ 1.74 $ 1,985
Additional shares reserved... 2,700,000 -- -- -- --
Granted...................... (1,830,323) 1,830,323 4.88 - 36.00 9.76 17,738
Canceled..................... 886,641 (886,641) 0.20 - 36.00 12.63 (11,033)
Exercised.................... -- (116,324) 0.20 - 7.50 0.67 (78)
---------- ---------- --------
Balance at December 31, 1996... 1,764,677 1,966,116 4.38 8,612
Additional shares reserved... 5,500,000 -- -- -- --
Granted...................... (3,417,931) 3,417,931 0.20 - 8.25 5.58 18,774
Canceled..................... 748,870 (748,870) 0.20 - 8.25 0.96 (3,831)
Exercised.................... -- (267,669) 0.10 - 5.63 5.12 (286)
---------- ---------- --------
Balance at December 31, 1997... 4,595,616 4,367,508 5.38 23,269
Additional shares reserved... 4,000,000 -- -- -- --
Granted...................... (6,466,969) 6,466,969 0.87 - 7.75 1.12 15,841
Canceled..................... 5,565,124 (5,565,124) 0.25 - 8.52 5.49 (31,126)
Exercised.................... -- (221,129) 0.20 - 7.50 2.49 (544)
---------- ---------- --------
Balance at December 31, 1998... 7,693,771 5,048,224 1.47 $ 7,440
========== ========== ========
As of December 31, 1998, the Company had reserved 12,741,995 shares of
common stock for future issuance under the Plans. As of December 31, 1998,
776,371 options outstanding under the Plans had vested and 7,619 shares of
common stock acquired under the Plans were subject to the Company's right of
repurchase.
In October 1998, the Board of Directors approved a plan for repricing of
stock options under which each employee-holder of outstanding options with an
exercise price above the closing price of the Company's stock on October 15,
1998 was permitted to elect to exchange the existing options for new options
which would vest monthly over a four year period and the exercise price of which
was equal to the closing price of the Company's common stock on October 15,
1998. Sale of shares purchased through exercise of these options was prohibited
until April 1, 1999.
F-42
138
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following information concerning the Company's stock option and
employee stock purchase plans is provided in accordance with Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." The Company accounts for such plans in accordance with APB No. 25
and related interpretations.
OPTIONS OUTSTANDING VESTED OPTIONS
--------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/98 LIFE (YEARS) PRICE AT 12/31/98 PRICE
- --------------- ----------- ------------ -------- ----------- --------
$0.20 - $0.87 4,458,543 9.79 $ .87 308,650 $ 0.38
1.00 - 5.00 252,173 6.80 1.81 227,302 2.95
5.12 - 17.00 337,508 8.73 8.52 240,419 10.03
--------- ---- ----- ------- ------
0.20 - 17.00 5,048,224 9.35 1.47 776,371 4.18
========= =======
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996:
1998 1997 1996
------- ------- -------
Risk-free interest rates.................................... 5.2% 5.5% 5.18%
Expected life............................................... 4 years 4 years 4 years
Volatility.................................................. 40% 93% 44%
Dividend yield.............................................. 0% 0% 0%
The weighted average expected life was based on the exercise behavior. The
weighted average fair value of those options granted in 1998, 1997 and 1996 was
$0.65, $5.29 and $10.65 per share, respectively.
Under SFAS 123, proforma compensation cost is calculated for the fair value
of employee's purchase rights under the Company's Employee Stock Purchase Plan,
which was estimated using the following assumptions for 1998, 1997 and 1996,
respectively:
1998 1997 1996
------- ------- -------
Volatility.................................................. 40% 93% 44%
Risk-free interest rates.................................... 4.33% 3.57% 3.75%
Expected life............................................... 2 years 2 years 2 years
Dividend yield.............................................. 0% 0% 0%
Based on the above assumptions, the weighted average fair value per share
of those purchase rights granted in 1998, 1997 and 1996 was $1.05, $2.03 and
$3.36, respectively.
At December 31, 1998, the Company had two stock-based compensation plans,
which are described above. As the Company applies APB Opinion 25 and related
interpretations in accounting for its plans, no compensation cost has been
recognized for its fixed stock option plans and its stock purchase plan.
F-43
139
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Had compensation cost for the Company's two stock-based compensation plans
been determined consistent with SFAS 123, the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated below:
1998 1997 1996
-------- -------- -------
Net loss as reported............. $(18,651) $(16,184) $(2,437)
pro forma............... (19,105) (17,004) (2,670)
Basic and dilutive loss
per share as reported............. $ (1.01) $ (0.94) $ (0.17)
pro forma............... (1.03) (0.98) (0.18)
The above pro forma effects on net loss may not be representative of the
effects in future years as option grants typically vest over several years and
are generally granted each year.
7. INCOME TAXES
The components of the provision for income taxes for 1998, 1997 and 1996
were as follows:
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996
----- ------ ------
Current:
Federal, state and Other.................................. $ 50 $ 5 $(116)
Foreign................................................... 199 86 95
---- ----- -----
$249 $ 91 $ 21
==== ===== =====
The principal items accounting for the difference between income taxes
computed at the United States statutory rate and the provision for income taxes
is as follows:
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -----
U.S. federal statutory benefit at 34%................... $(7,110) $(5,460) $(821)
State benefit, net of U.S. federal income tax effect.... (201) (77) (51)
Tax credits............................................. (1,090) (648) (6)
Foreign withholding taxes............................... 164 57 95
In-process research and development..................... -- 2,328 --
Other................................................... 287 171 43
Unbenefited net operating loss and credits.............. 8,199 3,720 761
------- ------- -----
$ 249 $ 91 $ 21
======= ======= =====
F-44
140
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
deferred tax assets for federal and state income taxes are as follows:
DECEMBER 31,
-------------------
1998 1997
-------- -------
Net operating loss carryforwards............................ $ 13,000 $ 6,449
Research credits............................................ 2,592 1,277
Capitalized research and development........................ 1,558 368
Other temporary differences................................. (128) 727
-------- -------
Total deferred tax assets................................. 17,022 8,821
Valuation allowance for deferred tax assets................. (17,022) (8,821)
-------- -------
Net deferred tax assets................................... $ -- $ --
======== =======
The Company has established a valuation allowance to the extent of its
deferred tax assets due to the uncertainty of utilization against future
operating income. During the years ended December 31, 1998 and 1997, the
Company's valuation allowance increased by $8,201 and $4,483, respectively.
As of December 31, 1998, the Company, including certain pooled entities,
had federal and California net operating loss carryforwards of approximately
$37,981 and $3,013, respectively. The Company also had Federal and California
research and development tax credit carryforwards of $1,635 and $957,
respectively. The net operating loss and credit carryforwards will expire at
various dates from 1999 through 2013, if not utilized.
Utilization of the net operating losses and credits may be subject to an
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization. Approximately $1,500 of such operating losses are already
subject to such limitations.
8. EMPLOYEE BENEFIT PLAN
During 1994, the Company adopted a qualified profit sharing plan and trust
under Internal Revenue Service Code 401(k) (the "401(k) Plan"). The 401(k) Plan
provides for tax deferred salary deductions. Employees can elect to contribute
to the 401(k) Plan up to 20% of their salary, subject to current statutory
limits. The Company is not required to contribute to the 401(k) Plan and has
made no contributions since the inception of the 401(k) Plan.
9. RELATED PARTY TRANSACTIONS
At December 31, 1997, the Company held a note receivable of $90, with
interest at 8.0% per annum, from an executive officer issued in connection with
the purchase of common stock under incentive and non-qualified stock option
plans. The note was repaid during 1998.
10. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards No.
131, ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related
Information". SFAS 131 supercedes Statement of Financial Accounting Standards
No. 14, or SFAS 14, Financial Reporting for Segments of a Business Enterprise.
SFAS 131 changes current practice under SFAS 14 by establishing a new framework
on which to base segment reporting and also requires interim reporting of
segment information.
F-45
141
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Management uses one measurement of profitability for its business. The
Company's software products and related services are developed and marketed to
support data warehouses. The Company markets its products and related services
to customers in the United States, Canada, Latin America, Europe and Asia
Pacific.
Revenues and long-lived-asset information by geographic area as of and for
the year ended:
LONG-LIVED
REVENUES ASSETS
-------- ----------
(IN THOUSANDS)
December 31, 1998:
United States............................................. $33,404 $4,751
International............................................. 18,686 724
------- ------
Total..................................................... $52,090 $5,475
======= ======
December 31, 1997:
United States............................................. $38,503 $5,013
International............................................. 12,888 703
------- ------
Total..................................................... $51,391 $5,716
======= ======
December 31, 1996:
United States............................................. $26,801 $1,652
International............................................. 9,366 372
------- ------
Total..................................................... $36,167 $2,024
======= ======
No customer accounted for more than 10 percent of the Company's total
revenues in the years ended December 31, 1998, 1997 and 1996.
11. ACQUISITIONS
On July 1, 1997, the Company completed the acquisition of Object Software
Pty. Limited ("Object") by issuing an aggregate of 258,621 shares of its Common
Stock and $160 in cash. The transaction was completed in connection with the
acquisition by a wholly-owned Australian subsidiary of the Company of certain of
Object's assets pursuant to an Asset Purchase Agreement entered into on July 1,
1997 between the Company, the Company's wholly-owned Australian subsidiary,
Object and Object's major shareholder. The transaction has been accounted for as
a purchase and results of operations subsequent to the acquisition date have
been consolidated with the Company. At December 31, 1998 and 1997, accumulated
amortization of the purchased intangibles, including goodwill was $323, and
$108, respectively.
Consideration for the acquisition was allocated as follows:
Total consideration paid.................................... $ 1,240
Fair value of assets acquired (principally cash)............ 164
----------
Goodwill.................................................... $ 1,076
==========
On July 21, 1997, the Company issued an aggregate of 1,143,613 shares of
its Common Stock and paid an aggregate of $1,250 in cash in connection with the
acquisition by the Company of QDB Solutions, Inc., a Massachusetts corporation
("QDB"). The acquisition was accounted for as a purchase through the
F-46
142
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
merger of a wholly-owned subsidiary of the Company with and into QDB pursuant to
an Agreement and Plan of Reorganization entered into on July 21, 1997 between
the Company, the Company's wholly-owned subsidiary, QDB and the shareholders of
QDB. The results of operations subsequent to the acquisition date have been
consolidated with the Company. At December 31, 1998 and 1997, accumulated
amortization of the purchased goodwill was $74, and $37, respectively.
Consideration for the acquisition was allocated as follows:
Total consideration paid.................................... $ 7,409
Fair value of assets acquired............................... 7,210
----------
Goodwill.................................................... $ 199
==========
Net assets acquired consisted primarily of in-process technology ($7,200),
existing technology and furniture and fixtures, less liabilities assumed.
Pro-forma results of operations from both acquisitions would not have been
material to the Company's 1997 loss.
On July 22, 1997, the Company purchased certain technology from the
Peregrine/Bridge Transfer Corporation for $1,300 in pre-paid royalties.
Additionally, the Company may be obligated to make an additional $2,700 in
royalty payments not to exceed $4,000 in the aggregate. The royalty payments are
payable 45 days after the end of each of the Company's fiscal quarters. Under
the terms and conditions of this agreement, the Company has not paid any
royalties as of December 31, 1998. Assets acquired consisted almost exclusively
of purchased in-process technology.
On January 30, 1998, the Company completed the acquisition of CFI by
issuing approximately 2,877,500 shares of common stock in exchange for all
outstanding common stock of CFI. The transaction was accounted for as a pooling
of interests. CFI designs, markets, integrates, and supports enterprise customer
relationship management software for the financial services industry, primarily
banking. All financial data of the Company has been restated to include the
historical financial information of CFI. Accumulated earnings for CFI at the
time of revocation of its S corporation were reclassified to additional
paid-in-capital in accordance with SEC Topic 4-B. Pro-forma tax expense for the
year ended December 31, 1997 has not been presented as it was not material.
Costs associated with the merger were charged to expense as incurred and
were not significant.
F-47
143
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On May 13, 1998, the Company completed the acquisition of STI by issuing
approximately 544,000 shares of common stock in exchange for all outstanding
common stock of STI. The transaction was accounted for as a pooling of
interests. STI, a specialist in data warehousing solutions for the healthcare
industry, offers application-specific bundled solutions and methodology and
consulting services for the healthcare industry. All financial data of the
Company has been restated to include the historical financial information of
STI.
The following data includes the revenues and net loss of each of the
companies for the years ended December 31, 1997 and 1996.
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
Revenues:
Prism...................................... $ 43,433 $30,424
CFI........................................ 3,514 2,082
STI........................................ 4,444 3,661
-------- -------
Combined................................... $ 51,391 $36,167
======== =======
Net Income (loss):
Prism...................................... $(16,152) $(1,839)
CFI........................................ 49 539
STI........................................ (81) (1,137)
-------- -------
Combined................................... $(16,184) $(2,437)
======== =======
Costs associated with the merger were charged to expense as incurred and
were not significant.
NOTE 12. PROPOSED ACQUISITION AND LIQUIDITY
During the year ended December 31, 1998, the Company utilized cash flows
from operations and incurred a net operating loss. In recognition of these
matters, the Company undertook a plan in the third quarter to reduce its
headcount to balance its expenses with projected revenues. In addition, the
Company entered into a merger agreement with Ardent Software, Inc., the closing
of which is subject to certain conditions. The accompanying financial statements
have been prepared on the basis of a going concern and do not include any
adjustments that might result if the Company's plans, consisting principally of
the merger with Ardent Software, Inc., are not completed.
F-48
144
ANNEX I
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
ARDENT SOFTWARE, INC.,
AQUARIUS ACQUISITION CORP.,
AND
PRISM SOLUTIONS, INC.
DATED AS OF NOVEMBER 19, 1998
145
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE MERGER.................................................. I-1
SECTION 1.01. Merger; Effective Time....................... I-1
SECTION 1.02. Closing...................................... I-1
SECTION 1.03. Effect of the Merger......................... I-1
SECTION 1.04. Certificate of Incorporation; By-laws........ I-2
SECTION 1.05. Directors and Officers....................... I-2
SECTION 1.06. Effect on Capital Stock...................... I-2
SECTION 1.07. Exchange of Certificates..................... I-3
SECTION 1.08. Stock Transfer Books......................... I-4
SECTION 1.09. [Intentionally Omitted]...................... I-4
SECTION 1.10. No Further Ownership Rights in PRISM Common
Stock..................................................... I-4
SECTION 1.11. Lost, Stolen or Destroyed Certificates....... I-4
SECTION 1.12. Tax and Accounting Consequences.............. I-4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PRISM..................... I-4
SECTION 2.01. Organization................................. I-4
SECTION 2.02. PRISM Capital Structure...................... I-5
SECTION 2.03. Obligations With Respect to Capital Stock.... I-5
SECTION 2.04. Authority; No Conflicts...................... I-6
SECTION 2.05. SEC Filings; PRISM Financial Statements...... I-6
SECTION 2.06. Absence of Certain Changes or Events......... I-7
SECTION 2.07. Liabilities.................................. I-7
SECTION 2.08. Taxes........................................ I-8
SECTION 2.09. Restrictions on Business Activities.......... I-9
SECTION 2.10. Absence of Liens and Encumbrances............ I-9
SECTION 2.11. Intellectual Property........................ I-9
SECTION 2.12. Agreements, Contracts and Commitments........ I-11
SECTION 2.13. No Default................................... I-12
SECTION 2.14. Governmental Authorization................... I-12
SECTION 2.15. Litigation................................... I-12
SECTION 2.16. Insurance.................................... I-13
SECTION 2.17. Labor Matters................................ I-13
SECTION 2.18. Employee Benefits............................ I-13
SECTION 2.19. Relationships with Related Persons........... I-15
SECTION 2.20. State "Anti-Takeover" Statutes............... I-15
SECTION 2.21. Change of Control Payments................... I-15
SECTION 2.22. Registration Statements; Proxy
Statements/Prospectus..................................... I-15
SECTION 2.23. Board Approval............................... I-16
SECTION 2.24. Fairness Opinion............................. I-16
SECTION 2.25. Brokers' and Finders' Fees................... I-16
SECTION 2.26. Environmental Matters........................ I-16
SECTION 2.27. Year 2000 Compliance......................... I-16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ARDENT AND SUB............ I-17
SECTION 3.01. Organization................................. I-17
SECTION 3.02. Absence of Certain Changes or Events......... I-17
SECTION 3.03. Capital Structure............................ I-17
SECTION 3.04. Authority; No Conflict....................... I-18
SECTION 3.05. SEC Filings; ARDENT Financial Statements..... I-19
SECTION 3.06. Liabilities.................................. I-19
SECTION 3.07. Intellectual Property........................ I-19
SECTION 3.08. Litigation................................... I-20
(i)
146
PAGE
----
SECTION 3.09. Employee Benefits............................ I-20
SECTION 3.10. Registration Statement; Proxy
Statement/Prospectus...................................... I-20
SECTION 3.11. Board Approval............................... I-21
SECTION 3.12. Brokers' and Finders' Fees................... I-21
SECTION 3.13. Operations of SUB............................ I-21
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER...................... I-21
SECTION 4.01. Conduct of Business by PRISM and ARDENT
Pending the Merger........................................ I-21
SECTION 4.02. No Solicitation by PRISM or ARDENT........... I-23
ARTICLE V
ADDITIONAL AGREEMENTS....................................... I-23
SECTION 5.01. Proxy Statement/Prospectus; Registration
Statement................................................. I-23
SECTION 5.02. Stockholders Meeting......................... I-24
SECTION 5.03. Access to Information; Confidentiality....... I-24
SECTION 5.04. Consents; Approvals.......................... I-24
SECTION 5.05. Stock Options................................ I-24
SECTION 5.06. PRISM Employee Stock Purchase Plan........... I-25
SECTION 5.07. Notification of Certain Matters.............. I-25
SECTION 5.08. Further Action; Tax Treatment................ I-26
SECTION 5.09. Public Announcements......................... I-26
SECTION 5.10. Listing of ARDENT Common Stock on Nasdaq..... I-26
SECTION 5.11. Accountant's Comfort Letters................. I-26
SECTION 5.12. Pooling Accounting Treatment................. I-26
SECTION 5.13. Indemnification; Directors' and Officers'
Insurance................................................. I-26
SECTION 5.14. Employee Benefits............................ I-27
SECTION 5.15. HSR Act Filings.............................. I-27
SECTION 5.16. Stockholder Litigation....................... I-27
ARTICLE VI
CONDITIONS TO THE MERGER.................................... I-27
SECTION 6.01. Conditions to Obligation of Each Party to
Effect the Merger......................................... I-27
SECTION 6.02. Additional Conditions to Obligation of ARDENT
and SUB................................................... I-28
SECTION 6.03. Additional Conditions to Obligation of
PRISM..................................................... I-28
ARTICLE VII
TERMINATION................................................. I-29
SECTION 7.01. Termination.................................. I-29
SECTION 7.02. Effect of Termination........................ I-29
SECTION 7.03. Fees and Expenses............................ I-29
ARTICLE VIII
GENERAL PROVISIONS.......................................... I-30
SECTION 8.01. Effectiveness of Representations, Warranties
and Agreements; Knowledge, Etc............................ I-30
SECTION 8.02. Notices...................................... I-31
SECTION 8.03. Certain Definitions.......................... I-31
SECTION 8.04. Amendment.................................... I-32
SECTION 8.05. Waiver....................................... I-32
SECTION 8.06. Severability................................. I-32
SECTION 8.07. Entire Agreement............................. I-32
SECTION 8.08. Assignment................................... I-32
SECTION 8.09. Parties in Interest.......................... I-32
SECTION 8.10. Failure or Indulgence Not Waiver; Remedies
Cumulative................................................ I-32
SECTION 8.11. Governing Law................................ I-33
SECTION 8.12. Specific Performance......................... I-33
SECTION 8.13. Counterparts................................. I-33
(ii)
147
TABLE OF DEFINED TERMS
SECTION
-----------
Acquisition Proposal........................................ 4.02(a)
Affiliate................................................... 8.03(a)
Agreement................................................... Preamble
Certificate of Merger....................................... 1.01
Alternative Transaction..................................... 7.03(e)
Authorizations.............................................. 2.06(b)
Business Day................................................ 8.03(c)
Canceled Shares............................................. 1.06(c)
Certificate of Merger....................................... 1.01
Certificates................................................ 1.07(b)
Code........................................................ Recitals
Confidentiality Agreement................................... 5.03
Control..................................................... 8.03(c)
Delaware Law................................................ Recitals
Effective Time.............................................. 1.01
Embedded Products........................................... 2.11(c)
End-User Licenses........................................... 2.11(b)
ERISA....................................................... 2.18(a)
Exchange Act................................................ 2.04(c)
Exchange Agent.............................................. 1.07(a)
Exchange Ratio.............................................. 1.06(b)
Family...................................................... 2.19
Final PRISM Purchase Date................................... 5.06
First Albany................................................ 2.24
Government Entity........................................... 2.04(c)
Group Health Plan........................................... 5.14(b)
HSR Act..................................................... 2.04(c)
Injunction.................................................. 6.01(c)
Lost Certificate............................................ 1.11
Material Adverse Effect..................................... 2.01, 3.01
Merger...................................................... Recitals
Merger Consideration........................................ 1.07(b)
Millennial Dates............................................ 2.11(h)
Outside Date................................................ 7.01(b)
Person...................................................... 8.03(d)
Proxy Statement............................................. 2.22
Registration Statement...................................... 5.01
Returns..................................................... 2.08(b)(i)
SEC......................................................... 2.05(a)
Securities Act.............................................. 2.03
Share....................................................... 1.06(b)
Stock Option................................................ 5.05(a)
Sub......................................................... Preamble
Subsidiary.................................................. 8.03(e)
Surviving Corporation....................................... 1.01
Tax......................................................... 2.08(a)
Terminating Breach.......................................... 7.01(e)
Third Party Intellectual Property Rights.................... 2.11(c)
Year 2000 Compliant......................................... 2.27
PRISM....................................................... Preamble
PRISM Balance Sheet......................................... 2.05(b)
PRISM Common Stock.......................................... 1.06(b)
PRISM Intellectual Property Rights.......................... 2.11(a)
PRISM Legal Proceedings..................................... 2.15
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SECTION
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PRISM Material Contracts.................................... 2.12
PRISM Permits............................................... 2.14
PRISM Plan.................................................. 2.18(d)
PRISM Preferred Stock....................................... 2.02
PRISM Schedules............................................. Article II
PRISM SEC Reports........................................... 2.05(a)
PRISM Stock Option Plans.................................... 5.05(a)
PRISM Stockholder Support Agreement......................... Recitals
PRISM Stockholders' Meeting................................. 2.22
PRISM Stock Purchase Plan................................... 5.06
ARDENT...................................................... Preamble
ARDENT Balance Sheet........................................ 3.05(b)
ARDENT Certificates......................................... 1.07(b)
ARDENT Common Stock......................................... 1.06(b)
ARDENT Intellectual Property Rights......................... 3.07
ARDENT Plan................................................. 3.09(c)
ARDENT Rights Plan.......................................... 1.06(b)
ARDENT Schedules............................................ Article III
ARDENT SEC Reports.......................................... 3.07(a)
ARDENT Stock Purchase Plan.................................. 3.03(b)
(iv)
149
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of November 19,
1998 (this "Agreement"), among ARDENT SOFTWARE, INC., a Delaware corporation
("ARDENT"), AQUARIUS ACQUISITION CORP., a Delaware corporation and a
wholly-owned subsidiary of ARDENT ("SUB") and PRISM SOLUTIONS, INC., a Delaware
corporation ("PRISM").
WITNESSETH:
WHEREAS, the Boards of Directors of ARDENT and PRISM have determined that
it is advisable and in the best interests of their respective stockholders for
ARDENT and PRISM to enter into a strategic business combination upon the terms
and subject to the conditions set forth herein; and
WHEREAS, in furtherance of such combination, the Boards of Directors of
ARDENT, SUB and PRISM have each approved the merger (the "Merger") of SUB with
and into PRISM, pursuant to which PRISM will become a wholly-owned subsidiary of
ARDENT, the Merger to be in accordance with the applicable provisions of the
Delaware General Corporation Law (the "Delaware Law") and upon the terms and
subject to the conditions set forth herein; and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to each of ARDENT's and SUB's willingness to enter
into this Agreement, certain stockholders of PRISM have entered into Stockholder
Support Agreements with ARDENT dated as of the date of this Agreement,
(collectively, the "PRISM Stockholder Support Agreement"), pursuant to which
such stockholders have agreed, among other things, to vote all voting securities
of PRISM beneficially owned by them in favor of adoption of the Merger;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, ARDENT, SUB and PRISM hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. Merger; Effective Time. At the Effective Time (as defined
below), and subject to and upon the terms and conditions of this Agreement and
the Delaware Law, SUB shall be merged with and into PRISM, the separate
existence of SUB shall cease, and PRISM, as the surviving corporation and a
wholly owned subsidiary of ARDENT after the Merger, is hereinafter sometimes
referred to as the "Surviving Corporation." As promptly as practicable after the
satisfaction or waiver, as the case may be, of the conditions set forth in
Article VI, PRISM, SUB and ARDENT shall cause the Merger to be consummated by
filing a certificate of merger as contemplated by Section 251 of the Delaware
Law (the "Certificate of Merger"), together with any required related
instruments, with the Secretary of State of the State of Delaware, in such form
as required by, and executed in accordance with the applicable provisions of,
the Delaware Law (the time of such filings being referred to herein as the
"Effective Time").
SECTION 1.02. Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 7.01, and subject to the satisfaction or waiver of all the conditions
set forth in Article VI, the consummation of the Merger shall take place as
promptly as practicable (and in any event within two business days) after
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston,
Massachusetts, unless another time or place is agreed to in writing by PRISM,
ARDENT and SUB.
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the Delaware law. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of SUB shall vest in the Surviving
Corporation, and all
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debts, liabilities and duties of SUB shall become the debts, liabilities and
duties of the Surviving Corporation. As a result of the Merger, the outstanding
shares of capital stock of SUB and PRISM shall be converted or canceled in the
manner provided in Section 1.06 of this Agreement; the separate corporate
existence of SUB shall cease; and PRISM shall be the surviving corporation in
the Merger.
SECTION 1.04. Certificate of Incorporation; By-laws.
(a) Certificate of Incorporation. The Certificate of Incorporation
of PRISM, as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with the Delaware Law and said Certificate
of Incorporation.
(b) By-laws. The By-laws of PRISM, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended in accordance with the Delaware Law, the Certificate of
Incorporation of the Surviving Corporation and said By-laws.
SECTION 1.05. Directors and Officers. The directors and officers of SUB
shall be the respective directors and officers of the Surviving Corporation
immediately following the Effective Time.
SECTION 1.06. Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of ARDENT, SUB or PRISM or the
holders of any securities issued by any of them:
(a) Capital Stock of SUB. Each issued and outstanding share of the
capital stock of SUB shall be converted into and become one fully paid and
nonassessable share of common stock, $.001 par value per share, of the
Surviving Corporation, which shares shall be the only shares of capital
stock of SUB outstanding immediately following such conversion.
(b) Conversion of PRISM Common Stock. Each share (a "Share") of
PRISM's common stock, $.001 par value (the "PRISM Common Stock"), issued
and outstanding immediately prior to the Effective Time (excluding any
Shares to be canceled pursuant to Section 1.06(c)) shall be converted,
subject to Sections 1.06(d), 1.06(e) and 1.07(f), into the right to receive
0.13124 shares (the "Exchange Ratio") of validly issued, fully paid and
nonassessable shares of ARDENT common stock, $.01 par value per share
("ARDENT Common Stock") and a pro rata right under the ARDENT rights plan
(the "ARDENT Rights Plan") pursuant to the Rights Agreement dated as of
June 12, 1996, as amended, between ARDENT and State Street Bank and Trust
Company.
(c) Cancellation of PRISM Common Stock. Each Share held in the
treasury of PRISM and each Share owned by any direct or indirect subsidiary
of PRISM immediately prior to the Effective Time (the "Canceled Shares")
shall, by virtue of the Merger and without any action on the part of the
holder thereof, cease to be outstanding and be canceled and retired without
payment of any consideration therefor.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any subdivision, combination, stock
dividend (including any dividend or distribution of securities convertible
into ARDENT Common Stock or PRISM Common Stock), reorganization,
recapitalization or similar capital change with respect to ARDENT Common
Stock or PRISM Common Stock occurring after the date hereof and prior to
the Effective Time.
(e) Fractional Shares. No fraction of a share of ARDENT Common Stock
shall be issued, but in lieu thereof each holder of PRISM Common Stock who
would otherwise be entitled to a fraction of a share of ARDENT Common Stock
(after aggregating all fractional shares of ARDENT Common Stock to be
received by such holder and providing for any amounts or shares to be
withheld pursuant to Section 1.07(f), it being the intention of the parties
that no holder of PRISM Common Stock will receive cash in an amount equal
to or greater than the value of one full share of ARDENT Common Stock)
shall receive from ARDENT an amount of cash (rounded to the nearest cent),
without interest, equal to the product of (i) such fraction, multiplied by
(ii) the closing price of ARDENT Common Stock on the Nasdaq National Market
on the date of the Effective Time.
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SECTION 1.07. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, ARDENT shall supply,
or shall cause to be supplied, to or for the account of a bank or trust
company to be designated by ARDENT (the "Exchange Agent"), in trust for the
benefit of the holders of PRISM Common Stock (other than Canceled Shares),
for exchange in accordance with this Section 1.07, certificates evidencing
the ARDENT Common Stock issuable pursuant to Section 1.06 in exchange for
outstanding Shares and all cash required to be paid pursuant to Sections
1.06(e) and 1.07(c).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, ARDENT shall instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates (the "Certificates")
which immediately prior to the Effective Time evidenced outstanding Shares,
other than Canceled Shares, (i) a letter of transmittal, which letter shall
specify, among other conditions, that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent, and (ii) instructions to effect
the surrender of the Certificates in exchange for the certificates
evidencing shares of ARDENT Common Stock (the "ARDENT Certificates") and,
in lieu of any fractional shares thereof, cash. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed, and such other customary documents as
may be reasonably required by ARDENT or the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor (A)
ARDENT Certificates evidencing that whole number of shares of ARDENT Common
Stock which such holder has the right to receive in respect of the Shares
formerly evidenced by such Certificate in accordance with the Exchange
Ratio and the other applicable provisions hereof, together with an equal
number of rights under the ARDENT Rights Plan, (B) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.07(c),
and (C) cash in lieu of fractional ARDENT Common Stock to which such holder
is entitled pursuant to Section 1.06(e) (such ARDENT Common Stock, rights,
dividends, distributions and cash in lieu of fractional shares together
with any amounts or shares to be withheld pursuant to Section 1.07(f) being
collectively referred to as the "Merger Consideration"), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Shares which is not registered in the transfer
records of PRISM as of the Effective Time, ARDENT Common Stock and cash may
be issued and paid in accordance with this Article I to a transferee if the
Certificate evidencing such Shares is presented to the Exchange Agent,
accompanied by all documents required by law to evidence and effect such
transfer pursuant to this Section 1.07(b) and by evidence that any
applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding Certificate which, prior to the Effective Time, represented
shares of PRISM Common Stock shall be deemed from and after the Effective
Time, for all corporate purposes other than the payment of dividends, to
evidence the ownership of the number of full shares of ARDENT Common Stock
into which such shares of PRISM Common Stock may be exchanged in accordance
herewith and the right to receive an amount in cash in lieu of the issuance
of any fractional shares in accordance with Section 1.06(e).
(c) Distributions With Respect to Unexchanged PRISM Common Stock. No
dividends or other distributions with respect to ARDENT Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the ARDENT Common Stock such
holder is entitled to receive until such holder shall surrender such
Certificate. Subject to applicable law, following the surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of ARDENT Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective
Time theretofore paid with respect to such whole shares of ARDENT Common
Stock.
(d) Transfers of Ownership. If any certificate evidencing shares of
ARDENT Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange shall have paid to ARDENT, or any agent
designated by ARDENT, any transfer or other
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taxes required by reason of the issuance of a certificate for shares of
ARDENT Common Stock in any name other than that of the registered holder of
the Certificate surrendered.
(e) No Liability. ARDENT and PRISM shall have no liability to any
holder of PRISM Common Stock for any Merger Consideration (or dividends or
distributions with respect thereto) which are delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(f) Withholding Rights. ARDENT or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise
payable to any holder of PRISM Common Stock such amounts as ARDENT or the
Exchange Agent may be required to deduct and withhold with respect to any
provision of Federal, state, local or foreign tax laws. To the extent that
amounts are so withheld by ARDENT or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the Shares in respect of which such deduction and
withholding was made by ARDENT or the Exchange Agent.
SECTION 1.08. Stock Transfer Books. At the Effective Time, the stock
transfer books of PRISM shall be closed, and there shall be no further
registration of transfers of PRISM Common Stock on the records of PRISM.
SECTION 1.09. [Intentionally Omitted]
SECTION 1.10. No Further Ownership Rights in PRISM Common Stock. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
SECTION 1.11. Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed (a "Lost Certificate"),
the Exchange Agent shall, upon the making of an affidavit of that fact by the
registered owner thereof, deliver to such owner such Merger Consideration as may
be required pursuant to Section 1.06; provided, however, that ARDENT may, in its
sole discretion and as a condition precedent to the delivery thereof, require
the registered owner of such Lost Certificate to deliver a bond in such sum as
it may reasonably direct as indemnity against any claim that may be made against
ARDENT or the Exchange Agent with respect to the Lost Certificate.
SECTION 1.12. Tax and Accounting Consequences. It is intended by ARDENT
and PRISM that the Merger shall (i) constitute a reorganization within the
meaning of Section 368(a) of the Code, and (ii) qualify for accounting treatment
as a pooling of interests. ARDENT and PRISM hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PRISM
PRISM represents and warrants to ARDENT and SUB, subject to the exceptions
specifically disclosed in writing in the disclosure letter supplied by PRISM to
ARDENT ("PRISM Schedules") which identifies the Section numbers hereof to which
the disclosures pertain and which is dated as of the date hereof, as follows:
SECTION 2.01. Organization. Each of PRISM and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and authority
to own, lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and in good standing as a
foreign corporation in
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each jurisdiction in which such qualification is required by virtue of the
nature of the activities conducted by it, except to the extent that the failure
to be so qualified and in good standing could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on PRISM (as
hereinafter defined). PRISM Schedules contain a true and complete list of all of
PRISM subsidiaries and the jurisdiction of incorporation of each subsidiary.
PRISM owns, directly or indirectly through one or more subsidiaries, 100% of the
capital stock of each of its subsidiaries and there are no securities
exchangeable into or exercisable for any capital stock of any such subsidiary
issued, reserved for issuance or outstanding. Except as set forth in PRISM
Schedules, PRISM does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable for
any interest in, any corporation, partnership, joint venture or other business
association or entity. PRISM has delivered or made available to ARDENT a true
and correct copy of the Certificate of Incorporation and Bylaws of PRISM and
similar governing instruments of each of its subsidiaries, each as amended to
the date hereof. In this Agreement, the term "Material Adverse Effect" used in
reference to PRISM or any of its subsidiaries means any event, change or effect,
individually or in the aggregate that is, or is reasonably likely to be,
materially adverse to the financial condition, assets, liabilities, results of
operations or business of PRISM and its subsidiaries, taken as a whole, other
than decreases in the market price of PRISM Common Stock, changes resulting
solely from changes in general economic or computer software industry
conditions, or changes that are a direct result of the announcement or pending
status of the Merger (including, without limitation, any reduction or
termination of orders received by PRISM employees, distributors or resellers or
the cessation of employment by PRISM employees resulting therefrom).
SECTION 2.02. PRISM Capital Structure. The authorized capital stock of
PRISM consists of 50,000,000 shares of Common Stock, $.001 par value, of which
there were 18,701,138 shares issued and outstanding as of the date hereof, and
15,000,000 shares of Preferred Stock, $.001 par value ("PRISM Preferred Stock").
No shares of PRISM Preferred Stock are issued and outstanding as of the date
hereof, and there will be no such shares outstanding as of the Effective Time.
All outstanding shares of PRISM Common Stock are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of PRISM or any
agreement or document to which PRISM is a party or by which it is bound. As of
the date hereof, PRISM had reserved 8,821,790 shares of PRISM Common Stock, net
of exercises, for issuance to employees pursuant to PRISM Stock Option Plans,
under which options are outstanding for 5,369,315 shares of PRISM Common Stock,
minus any shares issued on the date hereof upon exercise of options outstanding
on the date hereof. All shares of PRISM Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. PRISM Schedules include a list,
for each outstanding option as of the date hereof, of the following: (i) the
name of the holder of such option, (ii) the number of shares subject to such
option, and (iii) the exercise price per share of such option. Except as
disclosed in PRISM Schedules, no options for PRISM Common Stock have been
repriced since December 31, 1996. For the 24-month offering period ending
January 31, 1999, if all current participants continue to contribute at current
levels (assuming the purchase price of such shares to be 85% of the fair market
value of PRISM Common Stock on the first day of such offering period), there
would be an aggregate of approximately 81,851 shares issuable pursuant to PRISM
1996 Employee Stock Purchase Plan (the "PRISM Stock Purchase Plan"), and no more
than 163,702 shares are issuable for such offering period. Since December 31,
1996, except as set forth in PRISM Schedules, there have been no changes in the
capital structure of PRISM other than issuances of PRISM Common Stock (i) upon
the exercise of options granted under PRISM Stock Option Plans and (ii) pursuant
to the Stock Purchase Plan.
SECTION 2.03. Obligations With Respect to Capital Stock. Except as set
forth in Section 2.2 hereof, as of the date of this Agreement, there are no
equity securities of any class of PRISM, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except for securities PRISM owns, directly or indirectly through
one or more subsidiaries, there are no equity securities of any class of any
subsidiary of PRISM, or any securities exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. Except as set
forth in
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Section 2.2 hereof and PRISM Schedules and except for obligations of PRISM under
PRISM Stock Purchase Plan as of the date of this Agreement, there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which PRISM or any of its subsidiaries is a party or by
which it is bound obligating PRISM or any of its subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock of PRISM or any of its subsidiaries or obligating PRISM or any of its
subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement. To the
knowledge of PRISM, there are no voting trusts, proxies or other agreements or
understandings with respect to the shares of capital stock of PRISM, except for
the Amended and Restated Investor Rights Agreement dated as December 19, 1994,
as amended, among PRISM and the persons listed on Exhibit A thereto. No existing
rights with respect to the registration under the Securities Act of 1933, as
amended (the "Securities Act"), of shares of PRISM Common Stock, including, but
not limited to, demand rights or piggy-back registration rights, shall apply
with respect to any shares of ARDENT Common Stock issuable in connection with
the Merger.
SECTION 2.04. Authority; No Conflicts.
(a) PRISM has all requisite corporate power and authority to enter
into this Agreement and, subject to obtaining requisite stockholder
approval, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of PRISM, subject only to the approval of the Merger by
the vote of the holders of at least a majority of PRISM Common Stock voting
together as one class. This Agreement has been duly executed and delivered
by PRISM and constitutes the valid and binding obligation of PRISM,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of
equity.
(b) Except as set forth in PRISM Schedules, the execution and delivery
of this Agreement by PRISM does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit under (i) any provision of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of PRISM
or similar governing instruments of any of its subsidiaries or (ii) any
mortgage, indenture, lease, contract or other agreement to which PRISM or
any of its subsidiaries is a party or by which PRISM or any of its
subsidiaries or the assets of PRISM or any of its subsidiaries is bound,
except for any such conflict, violation, default, right or loss which could
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on PRISM, or (iii) any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to PRISM, any of its subsidiaries or their
respective properties or assets, except for any such conflict, violation,
default, right or loss which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on PRISM.
(c) Except as set forth in PRISM Schedules, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority
or instrumentality ("Governmental Entity"), is required by or with respect
to PRISM or any of its subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby, except (i) in connection, or in compliance, with the
provisions of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended (the "HSR Act"), the Securities Act and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (ii) the filing of the
Certificate of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which PRISM or
any of its subsidiaries is qualified to do business, (iii) in compliance
with applicable requirements, if any, of The Nasdaq Stock Market and (iv)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings, the failure of which to be obtained or made could
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on PRISM.
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SECTION 2.05. SEC Filings; PRISM Financial Statements.
(a) PRISM has timely filed all forms, reports and documents required
to be filed with the Securities and Exchange Commission (the "SEC") since
March 14, 1996. All such required forms, reports and documents are referred
to herein as the "PRISM SEC Reports." As of their respective dates, PRISM
SEC Reports (i) complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such PRISM SEC Reports,
and (ii) did not at the time they were filed (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. None of PRISM subsidiaries is required to file
any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in PRISM SEC Reports, including
any PRISM SEC Reports filed after the date of this Agreement, true and
correct copies of which have been (or will be, as the case may be)
delivered to ARDENT, (i) complies (or will comply, as the case may be) as
to form in all material respects with the published rules and regulations
of the SEC with respect thereto, (ii) has been (or will be, as the case may
be) prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
may be indicated therein or in the notes thereto) and (iii) fairly presents
(or will present, as the case may be) in all material respects the
consolidated financial position of PRISM and its subsidiaries as at the
respective dates thereof and the consolidated results of their operations
and cash flows for the periods indicated, except that the unaudited
financial statements do not (or will not, as the case may be) include
footnote disclosure of the type associated with audited financial
statements and were or are (or will be, as the case may be) subject to
normal and recurring year-end adjustments described therein. The unaudited
consolidated balance sheet of PRISM and its subsidiaries as of September
30, 1998 is hereinafter referred to as the "PRISM Balance Sheet."
(c) As of the date hereof, there are no material amendments or
modifications to agreements, documents or other instruments which
previously had been filed by PRISM with the SEC pursuant to the Securities
Act or the Exchange Act or any other agreements, documents or other
instruments which have not yet been filed with the SEC but which are or
will be required to be so filed by PRISM.
SECTION 2.06. Absence of Certain Changes or Events. Except as discussed
in PRISM SEC Reports filed prior to the date of this Agreement or PRISM
Schedules, since the date of PRISM Balance Sheet, except with respect to the
actions contemplated by this Agreement, each of PRISM and its subsidiaries has
conducted its business only in the ordinary course and in a manner consistent
with past practice, and since such date and prior to or as of the date hereof,
there has not been (i) any Material Adverse Effect on PRISM or any development
that could reasonably be expected to have a Material Adverse Effect on PRISM;
(ii) any damage, destruction or loss (whether or not covered by insurance) on
PRISM or any of its subsidiaries that has had or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on PRISM;
(iii) any material change by PRISM or any of its subsidiaries in its accounting
methods, principles or practices; (iv) any material revaluation by PRISM or any
of its subsidiaries of any of its assets, including, without limitation, writing
down the value of capitalized software or inventory or deferred tax assets or
writing off notes or accounts receivable other than in the ordinary course of
business; (v) any labor dispute or charge of unfair labor practice which could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on PRISM or, to the knowledge of PRISM, any activity or
proceeding by a labor union or representative thereof to organize any employees
of PRISM or any of its subsidiaries or any campaign being conducted to solicit
authorization from employees to be represented by any labor union; (vi) any
waiver by PRISM or any of its subsidiaries of any rights of material value; or
(vii) any other action or event that would have
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required the consent of ARDENT pursuant to Article 4 had such action or event
occurred after the date of this Agreement.
SECTION 2.07. Liabilities. Except (a) for liabilities incurred in the
ordinary course of business consistent with past practice, (b) for transaction
expenses incurred in connection with this Agreement, (c) for liabilities set
forth on PRISM Balance Sheet, or (d) as set forth in PRISM Schedules, since the
date of PRISM Balance Sheet, neither PRISM nor any of its subsidiaries has
incurred any material liabilities that either (i) would be required to be
reflected or reserved against in a consolidated balance sheet of PRISM and its
subsidiaries prepared in accordance with generally accepted accounting
principles as applied in preparing PRISM Balance Sheet or (ii) could reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on PRISM.
SECTION 2.08. Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or "Taxes" refers to any and all federal, state, local and foreign, taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and including
any liability for taxes of a predecessor entity. For the purposes of this
Agreement, a "Significant Tax Agreement" is any agreement to which PRISM or
any subsidiary of PRISM is a party under which PRISM or such subsidiary
could reasonably be expected to be liable to another party under such
agreement in an amount in excess of $10,000 in respect of Taxes payable by
such other party to any taxing authority.
(b) Tax Returns and Audits. Except as set forth in PRISM Schedules:
(i) PRISM and each of its subsidiaries has timely filed all
federal, state, local and foreign returns, information statements and
reports relating to Taxes required by applicable Tax law to be filed by
PRISM and each of its subsidiaries, except for any such failures to file
that could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on PRISM. All Taxes required to
have been paid by PRISM or any of its subsidiaries to a taxing authority
have been paid as of the date hereof, and as of the Effective Time will
have been paid, except for any such failure to pay that could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on PRISM. PRISM has made (A) accruals for Taxes
on PRISM Balance Sheet and (B) with respect to periods after the date of
PRISM Balance Sheet and prior to the Effective Time, made accruals for
Taxes on a periodic basis consistent with past practice on PRISM and
each of its subsidiaries' books and records or financial statements, in
each case which are adequate to cover any Tax liability of PRISM and
each of its subsidiaries determined in accordance with generally
accepted accounting principles through the date of PRISM Balance Sheet
or the date of the accrual, as the case may be, except where failures to
make such accruals could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on PRISM.
(ii) PRISM and each of its subsidiaries have withheld, and paid
over to the appropriate taxing authority when required, with respect to
its employees, all federal and state income taxes, FICA, FUTA and other
Taxes required to be withheld, except for amounts, which individually or
in the aggregate, are immaterial.
(iii) There is no Tax deficiency outstanding, proposed or assessed
against PRISM or any of its subsidiaries, except any such deficiency
that, if paid, could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on PRISM. Neither PRISM nor
any of its subsidiaries has executed or requested any waiver of any
statute of limitations on, or extending the period for, the assessment
or collection of any federal or material state Tax.
(iv) No federal or state Tax audit or other examination of PRISM or
any of its subsidiaries is presently in progress, nor has PRISM or any
of its subsidiaries been notified in writing of any
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request for any federal or material state Tax audit or other
examination, except in all cases for Tax audits and other examinations
which could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on PRISM.
(v) Neither PRISM nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by PRISM.
(vi) Neither PRISM nor any of its subsidiaries is a party to (A)
any agreement with a party other than PRISM or any of its subsidiaries
providing for the allocation or payment of Tax liabilities or payment
for Tax benefits with respect to a consolidated, combined or unitary
Return which Return includes or included PRISM or any subsidiary or (B)
any Significant Tax Agreement.
(vii) Except for the group of which PRISM and its subsidiaries are
now presently members, neither PRISM nor any of its subsidiaries has
ever been a member of an affiliated group of corporations within the
meaning of Sections 1504 of the Code.
(viii) Except as set forth in PRISM Schedules, neither PRISM nor
any of its subsidiaries has agreed to make nor is it required to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(ix) PRISM is not, and has not at any time been, a "United States
Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(x) Neither PRISM nor any of its subsidiaries has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
payments, that will not be deductible under Section 280G of the Code,
except as disclosed in PRISM Schedules.
SECTION 2.09. Restrictions on Business Activities. Except as set forth in
PRISM Schedules, there is no agreement, judgment, injunction, order or decree
binding upon PRISM or its subsidiaries or their properties (including, without
limitation, their intellectual properties) which has or could reasonably be
expected to have the effect of prohibiting or materially impairing the conduct
of the business by PRISM or any of its subsidiaries, including any exclusive
distribution or licensing agreements which cannot be terminated on less than 30
days notice without any cost or expense to PRISM or its subsidiaries.
SECTION 2.10. Absence of Liens and Encumbrances. Each of PRISM and its
subsidiaries has good, valid, and marketable title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its properties and
assets (whether real, personal or mixed, and whether tangible or intangible),
necessary for the conduct of its business, free and clear of any liens and
encumbrances, except (i) as reflected in PRISM Balance Sheet, (ii) liens for
Taxes not yet due and payable, and (iii) such liens and encumbrances that could
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on PRISM.
SECTION 2.11. Intellectual Property.
(a) Except as set forth in PRISM Schedules, PRISM or its subsidiaries
owns, or is licensed, or otherwise possesses legally enforceable rights, to
use, sell or license, as applicable, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks,
schematics, technology, trade secrets, know-how, computer software (in both
source code and object code form), and tangible or intangible proprietary
information or material (excluding in each case Commercial Software (as
defined below)) that are material to the business of PRISM or its
subsidiaries as currently conducted (the "PRISM Intellectual Property
Rights"). Except as disclosed in PRISM Schedules, each of PRISM and its
subsidiaries has licenses for all Commercial Software used in its business
and neither PRISM nor any subsidiary has any obligation to pay fees,
royalties
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and other amounts in excess of $10,000, in the aggregate, at any time
pursuant to any such license, except on customary generally available
commercial terms. "Commercial Software" means packaged commercially
available software programs generally available to the public which have
been licensed to PRISM or any of its subsidiaries pursuant to end-user
licenses and which are used in PRISM or any of its subsidiaries' respective
businesses.
(b) PRISM Schedules set forth a complete list of all executory
licenses, sublicenses and other agreements as to which PRISM or any of its
subsidiaries is a party (as licensor, licensee or otherwise) and pursuant
to which PRISM or any of its subsidiaries or any other person is authorized
to use, sell, distribute or license any PRISM Intellectual Property Rights
(excluding (i) object code end-user licenses granted to end-users pursuant
to PRISM's end-user license, or any other document that is substantially
similar to such forms, in the ordinary course of business that permit use
of software products without a right to modify, distribute or sublicense
the same ("End-User Licenses") and (ii) licenses, sublicenses or other
agreements with resellers and distributors that grant non-exclusive rights
to use or modify and resell or sublicense object code which (A) did not in
any individual case represent $50,000 or more of revenues to PRISM in 1997,
or $25,000 or more of revenues to PRISM in the first six months of 1998, on
a consolidated basis, (B) PRISM has no reason to believe will be material
to PRISM or any of its subsidiaries' business and (C) can be terminated by
PRISM on 90 days or less prior notice without cost or expense to PRISM or
its subsidiaries or any diminution in PRISM Intellectual Property Rights or
in the ability of PRISM or any of its subsidiaries to conduct its
business). Neither PRISM nor any of its subsidiaries is in violation of any
such license, sublicense or agreement, except for such violations that
could not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on PRISM.
(c) Except for Embedded Products (as defined below) for which PRISM
has valid non-exclusive licenses which are disclosed in PRISM Schedules and
which are adequate for the conduct of PRISM and its subsidiaries' business
as currently conducted, and, except as otherwise disclosed in PRISM
Schedules, PRISM or one of its subsidiaries is the sole and exclusive owner
of PRISM Intellectual Property Rights (free and clear of any liens or
encumbrances) and has sole and exclusive rights to the use and distribution
therefor or the material covered thereby in connection with the services or
products in respect of which such PRISM Intellectual Property Rights are
currently being used, sold, licensed or distributed. PRISM Schedules list
all material written executory licenses, sublicenses and other agreements
as to which PRISM or any of its subsidiaries is a party and pursuant to
which PRISM or any such subsidiary is authorized to use any third party
patents, patent rights, trademarks, service marks, trade secrets or
copyrights, including software ("Third Party Intellectual Property Rights")
which is incorporated in any existing products or services of PRISM or any
of its Subsidiaries ("Embedded Products"). Neither PRISM nor any of its
subsidiaries is contractually obligated to pay compensation to any third
party with respect to any PRISM Intellectual Property Rights, except
pursuant to the agreements disclosed on PRISM Schedules.
(d) Except as disclosed in PRISM Schedules, to PRISM knowledge,
neither PRISM nor any of its subsidiaries has infringed on any intellectual
property rights of any third persons.
(e) Except as disclosed in PRISM Schedules, no claims with respect to
PRISM Intellectual Property Rights are pending or, to the knowledge of
PRISM, threatened by PRISM or any third party, (i) alleging that the
manufacture, sale, licensing or use of any PRISM Intellectual Property
Rights as now manufactured, sold, licensed or used by PRISM or any of its
subsidiaries or any third party infringes on any intellectual property
rights of any third party or PRISM, (ii) against the use by PRISM or any of
its subsidiaries or any third party of any technology, know-how or computer
software used in PRISM business as currently conducted or (iii) challenging
the ownership by PRISM or any of its subsidiaries or the validity or
effectiveness of any such PRISM Intellectual Property Rights; provided,
however, that no disclosure pursuant to this paragraph (e) shall be
required with respect to any PRISM Intellectual Property Rights which are
licensed to PRISM or any of its subsidiaries on a non-exclusive basis,
unless PRISM has knowledge of the pending or threatened
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claim and such claim, if true, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on PRISM.
(f) Except as disclosed in PRISM Schedules, neither PRISM nor any of
its subsidiaries has entered into any agreement under which PRISM or its
subsidiaries is restricted from selling, licensing or otherwise
distributing any products to any class or type of customers, in any
geographic area or during any period of time.
(g) PRISM or one of its subsidiaries has taken reasonable security
measures to safeguard and maintain their respective property rights in all
PRISM Intellectual Property Rights owned by PRISM or any of its
subsidiaries. Except for clerical and similar lower level internal support
personnel (e.g., mail room staff, messengers, etc.), all officers,
employees and consultants of PRISM or any of its subsidiaries who have
access to proprietary information have executed and delivered to PRISM or
one of its subsidiaries an agreement regarding the protection of
proprietary information and the assignment to, or ownership by PRISM or one
of its subsidiaries of, all PRISM Intellectual Property Rights arising from
the services performed for PRISM or any of its subsidiaries by such
persons. To the knowledge of PRISM, no current or prior officers, employees
or consultants of PRISM or any of its subsidiaries claim, and neither PRISM
nor any of its subsidiaries is aware of any grounds that would form a
reasonable basis to assert a claim to, any ownership interest in any PRISM
Intellectual Property Right as a result of having been involved in the
development of such PRISM Intellectual Property Right while employed by or
consulting to PRISM or one of its subsidiaries, or otherwise. Except as
disclosed in PRISM Schedules and except for Embedded Products, all of the
computer software products within PRISM Intellectual Property Rights have
been developed by employees of PRISM or its subsidiaries within the scope
of their employment or by consultants who have assigned all rights to such
products to PRISM or its subsidiaries.
(h) To the knowledge of PRISM, as of the date hereof, there are no
defects in PRISM or any of its subsidiaries' software products, and there
are no errors in any documentation, specifications, manuals, user guides,
promotional materials, internal notes and memos, technical documentation,
drawings, flow charts, diagrams, source language statements, demo disks,
benchmark test results, and other written materials related to, associated
with or used or produced in the development of PRISM or any of its
subsidiaries' software products, which defects or errors would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on PRISM. Except as disclosed in PRISM Schedules, the occurrence in,
or use by, any computer software included in PRISM Intellectual Property
Rights of dates on or after January 1, 2000 ("Millennial Dates") will not
adversely affect the performance of such software with respect to date
dependent data, computations, output or other functions (including without
limitation, calculating, computing and sequencing), and such software will
create, sort and generate output data related to or including Millennial
Dates that are properly entered without any material errors or omissions.
(i) No government funding or university or college facilities were
used in the development of the computer software programs or applications
owned by PRISM or any of its subsidiaries.
(j) To the knowledge of PRISM, neither PRISM nor any of its
subsidiaries has made any material oral or written representations or
warranties with respect to its products or services, except as set forth in
PRISM End-User Licenses.
SECTION 2.12. Agreements, Contracts and Commitments. Except as set forth
in PRISM Schedules or in the Exhibits to PRISM SEC Reports filed prior to the
date of this Agreement, as of the date of this Agreement, neither PRISM nor any
of its subsidiaries is a party to nor is it or its assets bound by any PRISM
Material Contract. For purposes of this Agreement, "PRISM Material Contract"
means:
(a) any union or collective bargaining agreement;
(b) any employment or consulting agreement, contract or binding
commitment (including any royalty agreement with an employee) providing for
compensation or payments in excess of $50,000 in any year not terminable by
PRISM or its subsidiary on 30 days notice without liability, except to the
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extent general principles of wrongful termination or other employment law
may limit PRISM or its subsidiary's ability to terminate employees at will;
(c) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan, or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated or the right to benefits will be created, by the
occurrence of any of the transactions contemplated by this Agreement;
(d) any partnership agreement or joint venture agreement or other
similar arrangement to share in profits from an activity;
(e) any agreement of indemnification or guaranty not entered into in
the ordinary course of business with any party in excess of $100,000
individually or in the aggregate, and any agreement of indemnification or
guarantee between PRISM or any of its subsidiaries and any of their
respective officers or directors, irrespective of the amount of such
agreement or guarantee;
(f) any agreement, contract or binding commitment containing any
covenant directly or indirectly limiting the freedom of PRISM or any of its
subsidiaries to engage in any line of business, compete with any person or
sell any product or, following the consummation of the Merger, would so
limit ARDENT, PRISM or any of PRISM's subsidiaries;
(g) any agreement, contract or binding commitment relating to capital
expenditures and involving future obligations in excess of $250,000;
(h) any agreement, contract or binding commitment relating to the
disposition or acquisition of assets not in the ordinary course of business
since December 31, 1995, or any ownership interest in any corporation,
partnership, joint venture or other business enterprise;
(i) any mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the borrowing of
money or extension of credit (other than extensions of credit in the
ordinary course of business from vendors);
(j) any joint marketing or development agreement (including any
agreement with an independent contractor);
(k) any distribution, sales representative, reseller or value-added
reseller agreement, including in such PRISM Schedules an indication of
those distributors, sales representatives, resellers or value-added
resellers who have not met the quotas established in accordance with those
agreements or whose agreements are otherwise currently terminable;
(l) other than in connection with the transactions contemplated by
this Agreement, any other agreement, contract or binding commitment which
involves payment by PRISM or any of its subsidiaries of $100,000 or more in
any 12-month period or $250,000 in the aggregate and which cannot be
terminated on 30 days notice without cost or expense to PRISM or its
subsidiaries;
(m) any escrow agreements involving PRISM Intellectual Property Rights
(including source codes);
(n) any agreements to register its securities;
(o) any agreement required to be disclosed in Section 2.11;
(p) any voting trust or stockholders' agreement; or
(q) any other material agreement, contract or binding commitment.
The numerical thresholds set forth in this Section 2.12 shall not be deemed in
any respects to define materiality for other purposes of this Agreement. PRISM
has provided to ARDENT true and complete copies of all PRISM Material Contracts
as amended to date.
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SECTION 2.13. No Default. Neither PRISM nor any of its subsidiaries has
breached, or received in writing any claim or threat that it has breached, in
any material respect, any PRISM Material Contract. Each PRISM Material Contract
that has not expired or been terminated in accordance with its terms is in full
force and effect, except for such PRISM Material Contracts for which the failure
to be in full force and effect could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on PRISM.
SECTION 2.14. Governmental Authorization. Each of PRISM and its
subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities which are material to the operation of
its business as currently conducted (the "PRISM Permits"). Neither PRISM nor any
of its subsidiaries is in violation of the terms of PRISM Permits, except for
violations which could not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on PRISM. The business of PRISM and its
subsidiaries is not being, and the business of PRISM and its subsidiaries (and
any prior subsidiaries (but only with respect to the period prior to the
disposition of such subsidiary)) currently or previously conducted has not been,
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for violations which could not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on PRISM. No
material investigation or review by any Governmental Entity with respect to
PRISM or any of its subsidiaries is pending or, to the knowledge of PRISM,
threatened.
SECTION 2.15. Litigation. Except as disclosed in PRISM Schedules or in
PRISM SEC Reports filed prior to the date of this Agreement, there are no suits,
actions, arbitrations, demands, claims or proceedings pending, or, to the
knowledge of PRISM, threatened against PRISM or any of its subsidiaries or any
of their respective directors, officers or employees in their capacities as such
(collectively, "PRISM Legal Proceedings") nor is there any material judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against PRISM or any of its subsidiaries. PRISM has made available
to ARDENT or its counsel correct and complete copies of all correspondence
prepared by its counsel for PRISM auditors in connection with the last two
completed audits of PRISM financial statements and any such correspondence since
the date of the last such audit.
SECTION 2.16. Insurance. PRISM and each of its subsidiaries maintains in
full force and effect insurance on its assets and its business and operations
against loss or damage, risks, hazards and liabilities of any kind (including
coverage with respect to PRISM Legal Proceedings), in the amounts indicated in
PRISM Schedules. Each of PRISM insurance policies, and the type and amount of
coverage provided thereunder, is described in PRISM Schedules. The companies
providing PRISM with insurance against liability with respect to PRISM Legal
Proceedings have accepted coverage of such PRISM Legal Proceedings, and PRISM
has no reason to believe that the total liability of PRISM with respect to any
of PRISM Legal Proceedings (including fees and expenses associated with the
defense or settlement thereof) will exceed the limits of the applicable policies
of insurance or that PRISM or any of its subsidiaries will have any
indemnification obligations to any of its directors, officers or employees which
are not fully covered by the applicable policies of insurance, in connection
with any of PRISM Legal Proceedings.
SECTION 2.17. Labor Matters. Each of PRISM and its subsidiaries has
complied with all applicable laws, and there is no allegation, charge or
complaint or proceeding pending or, to PRISM knowledge, threatened against
PRISM, its subsidiaries or any of their officers, directors or employees,
relating to the employment of labor, including with respect to employment, equal
employment opportunity, discrimination, harassment, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and other taxes,
workers compensation or long term disability, except, in each case, for any such
non-compliance, allegations, charges, complaints or proceedings which could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on PRISM. There has never been, there is not presently pending or
existing, and to PRISM knowledge there is not threatened, any labor arbitration
or proceeding in respect of the grievance of any employee, or other labor
dispute against or affecting PRISM or any of its subsidiaries, except, in each
case, for any of the foregoing which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on PRISM, or, to the
knowledge of PRISM, any strike, slowdown, picketing, work stoppage,
organizational activity or
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application or complaint filed by an employee or union with the National Labor
Relations Board or any comparable governmental authority. No application for
certification of a collective bargaining agent is pending or, to PRISM
knowledge, threatened. There is no lockout of any employees by PRISM or any of
its subsidiaries, and no such action is contemplated by PRISM or any of its
subsidiaries. As of the date hereof, neither PRISM nor any of its subsidiaries
has given to or received from any current officer, manager, "significant
employee" (within the meaning of Item 401(c) of Regulation S-K promulgated by
the SEC) or director of PRISM or any of its subsidiaries written notice of
termination of employment or has the knowledge that any such officer, manager,
significant employee or director intends to terminate such employment.
SECTION 2.18. Employee Benefits.
(a) PRISM Schedules contain a list of each PRISM Plan (as hereinafter
defined) currently maintained, sponsored or contributed to by PRISM or any
of its subsidiaries. With respect to each PRISM Plan, PRISM has delivered
or made available to ARDENT prior to the date hereof, to the extent
applicable, a true and correct copy of (i) such PRISM Plan and all
amendments thereto, (ii) each trust agreement, insurance contract or
administration agreement relating to such PRISM Plan, (iii) the most recent
summary plan description for each PRISM Plan for which a summary plan
description is required, (iv) the most recent annual report (Form 5500)
filed with the IRS, (v) the most recent actuarial report or valuation
relating to a PRISM Plan subject to Title IV of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), if any, (vi) the most
recent determination letter, if any, issued by the IRS with respect to any
PRISM Plan intended to be qualified under section 401(a) of the Code, (vii)
any request for a determination currently pending before the IRS and (viii)
all correspondence with the IRS, the Department of Labor or the Pension
Benefit Guaranty Corporation relating to any outstanding controversy.
Except as set forth on PRISM Schedules and except as could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on PRISM, (i) each PRISM Plan complies with ERISA, the Code and all
other applicable statutes and governmental rules and regulations, (ii) no
"reportable event" (within the meaning of Section 4043 of ERISA) has
occurred within the past three years with respect to any PRISM Plan which
is likely to result in liability to PRISM and (iii) no action has been
taken, or is currently being considered, to terminate any PRISM Plan
subject to Title IV of ERISA. At no time has PRISM or any of its ERISA
Affiliates (as hereinafter defined) been required to contribute to, or
otherwise had any liability with respect to, a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA).
(b) There has been no failure to make any contribution or pay any
amount due to any PRISM Plan as required by Section 412 of the Code,
Section 302 of ERISA, or the terms of any such Plan, and no PRISM Plan, nor
any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.
(c) There are no actions, suits or claims pending or, to the knowledge
of PRISM, threatened (other than routine claims for benefits) with respect
to any PRISM Plan which could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on PRISM. Neither PRISM nor
any of its ERISA Affiliates has incurred or could reasonably be expected to
incur any material liability under or pursuant to Title IV of ERISA,
including, without limitation, any material liability in the event of the
involuntary termination of any PRISM Plan subject to Title IV of ERISA. No
prohibited transactions described in Section 406 of ERISA or Section 4975
of the Code have occurred which could reasonably be expected to result in
material liability to PRISM or its subsidiaries. All PRISM Plans that are
intended to be qualified under Section 401(a) of the Code have been
determined by the IRS to be so qualified or a request for determination is
currently pending before the IRS, and PRISM has no reason to believe that
the IRS will not determine any such PRISM Plan to be so qualified. Except
for non-compliance that could not reasonably be expected to have a Material
Adverse Effect on PRISM, each such PRISM Plan has been operated in
compliance with the Code. Neither PRISM nor any of its ERISA Affiliates has
any liability or obligation under any welfare plan to provide life
insurance or medical benefits after termination of
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employment to any employee or dependent other than as required by Part 6 of
Title I of ERISA or as disclosed in PRISM Schedules.
(d) As used herein, (i) "PRISM Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA), a "welfare plan" (as defined in Section
3(1) of ERISA), or any bonus, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option,
phantom stock, vacation, severance, death benefit, insurance or other plan
or arrangement, in each case established, maintained or contributed to by
PRISM or any of its ERISA Affiliates or as to which PRISM or any of its
ERISA Affiliates or otherwise may have any liability and (ii) with respect
to any person, "ERISA Affiliate" means any trade or business (whether or
not incorporated) which is under common control or would be considered a
single employer with such person pursuant to Section 414(b), (c), (m) or
(o) of the Code and the regulations promulgated under those sections or
pursuant to Section 4001(b) of ERISA and the regulations promulgated
thereunder.
(e) PRISM Schedules contain a list of each PRISM Ex-U.S. Pension Plan
and PRISM has made available to ARDENT prior to the date hereof a copy of
any written plan document with respect thereto. Except for non-compliance
that could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on PRISM, each such plan has been
maintained in compliance with all applicable laws, orders and regulations,
and the fair market value of the assets of each such plan which is intended
to be a funded plan or arrangement equals or exceeds the value of the
accrued benefits. "PRISM Ex-U.S. Pension Plan" shall mean any arrangement
providing retirement pension benefits that is established or maintained by
PRISM or any of its subsidiaries exclusively for the benefit of employees
who are or were employed outside the United States.
(f) PRISM Schedules contain a list, as of the date of this Agreement,
of all (i) severance and employment agreements with officers and employees
of PRISM and each ERISA Affiliate, (ii) severance plans, programs and
policies of PRISM with or relating to its employees and (iii) plans,
programs, agreements and other arrangements of PRISM with or relating to
its employees which contain change of control or similar provisions. PRISM
has provided to ARDENT a true and complete copy of each of the foregoing.
SECTION 2.19. Relationships with Related Persons. Except as disclosed in
PRISM SEC Reports filed prior to the date hereof and except as set forth on
PRISM Schedules, there are no, and since December 31, 1996 have not been any,
undischarged material contracts or agreements or other material transactions
between PRISM or any of its subsidiaries, on the one hand, and any director or
executive officer of PRISM or any of their respective Related Persons (as
defined below), on the other hand, and no director or executive officer of PRISM
or any of their respective Related Persons has any interest in any of the assets
of PRISM or any of its subsidiaries. For purposes hereof, the term "Related
Persons" shall mean (a) each other member of such individual's Family and (b)
any person or entity that is directly or indirectly controlled by any one or
more members of such individual's Family. For purposes of this definition, the
"Family" of an individual includes (i) such individual, (ii) the individual's
spouse, siblings or parent[s], (iii) any lineal descendants of such individual
or (iv) any trusts for the benefit of any of the foregoing.
SECTION 2.20. State "Anti-Takeover" Statutes. The Board of Directors of
PRISM has taken all necessary action so that neither Section 203 of Delaware law
nor any other "fair price" or "control share acquisition" statute or other
similar statute or regulation will apply to the Merger or this Agreement or the
transactions contemplated hereby.
SECTION 2.21. Change of Control Payments. Except as set forth on PRISM
Schedules, except for the acceleration of vesting of outstanding stock options
as required in accordance with the terms of PRISM Stock Option Plans, except for
employment agreements with directors and officers entered into before the date
of this Agreement and filed with the SEC, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of PRISM or any of its subsidiaries from PRISM or
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any of its subsidiaries, under any PRISM Plan or otherwise, (ii) materially
increase any benefits otherwise payable under any PRISM Plan, (iii) result in
the acceleration of the time of payment or vesting of any such benefits or (iv)
create a right to receive payments upon a subsequent termination of employment.
SECTION 2.22. Registration Statements; Proxy Statements/Prospectus. The
information supplied by PRISM for inclusion in the Registration Statement on
Form S-4 (or such other or successor form as shall be appropriate) (including
any amendments or supplements thereto, the "Registration Statement"), pursuant
to which the shares of ARDENT Common Stock to be issued in the Merger will be
registered with the SEC, shall not at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The information supplied by or concerning
PRISM for inclusion in the proxy statement/prospectus to be sent to the
stockholders of PRISM in connection with the meeting of PRISM stockholders to
consider the Merger (the "PRISM Stockholders' Meeting") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Proxy Statement") shall not, on the date the Proxy Statement is first mailed to
PRISM stockholders, at the time of PRISM Stockholders' Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not false or misleading. The Proxy Statement will comply (with respect to PRISM)
as to form in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder. If at any time prior to the Effective Time
any event relating to PRISM or any of its affiliates, officers or directors
should be discovered by PRISM which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, PRISM shall
promptly inform ARDENT. Notwithstanding the foregoing, PRISM makes no
representation or warranty with respect to any information supplied by or
concerning ARDENT or SUB which is contained in any of the foregoing documents.
SECTION 2.23. Board Approval. The Board of Directors of PRISM, has, on or
prior to the date hereof, unanimously approved this Agreement and the Merger.
SECTION 2.24. Fairness Opinion. The Board of Directors of PRISM has
received a written opinion from First Albany Corporation ("First Albany"), dated
no later than the date hereof, that the Exchange Ratio contemplated by this
Agreement is fair to PRISM stockholders from a financial point of view and has
delivered to ARDENT a copy of such opinion.
SECTION 2.25. Brokers' and Finders' Fees. Neither PRISM nor any of its
subsidiaries has incurred, nor will incur, directly or indirectly, any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby, except
for a fee due to First Albany at the Effective Time pursuant to an agreement, a
copy of which has been provided to ARDENT.
SECTION 2.26. Environmental Matters. Except as set forth on Schedule
2.26, PRISM and each of its subsidiaries (i) have obtained all material
applicable permits, licenses and other authorization which are required under
Federal, state or local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic materials
or wastes into ambient air, surface water, ground water or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or wastes by PRISM or its subsidiaries (or their respective
agents); (ii) are in substantial compliance with all material terms and
conditions of such required permits, licenses and authorization, and also are in
substantial compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such laws or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; (iii) as of the date hereof, are not aware of nor have
received notice of any event, condition, circumstance, activity, practice,
incident, action or plan which would interfere with or prevent continued
compliance with or which would give rise
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to any material common law or statutory liability, or otherwise form the basis
of any claim, action, suit or proceeding, based on or resulting from PRISM's or
any of its subsidiaries' (or any of their respective agent's) manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge or release into the environment, of any
pollutant, contaminant or hazardous or toxic material or waste, and (iv) have
taken all actions necessary under applicable requirements of Federal, state or
local laws, rules or regulations to register any products or materials required
to be registered by PRISM or its subsidiaries (or any of their respective
agents) thereunder.
SECTION 2.27. Year 2000 Compliance. The computer software operated by
PRISM which is material to the conduct of the business of the company is Year
2000 Compliant (as defined below). The software sold by PRISM is, to its
knowledge, Year 2000 Compliant. As used herein, "Year 2000 Compliant" means that
neither the performance nor functionality of the operating systems for the
computers used by PRISM for all software applications that run on such computers
or the software sold by PRISM is affected by dates prior to, during, spanning or
after January 1, 2000 and shall include (a) accurately processing (including
calculating, comparing and sequencing) date and time data from, into and between
the years 1999 and 2000 and leap year calculations, (b) functioning without
error interruption or decreased performance relating to such date and time date,
(c) accurately processing such date and time data when used in combination with
other technology, if the other technology properly exchanges date and time data,
(d) accurate date and time data century recognition, (e) calculations that
accurately use the same century and multi-century formulae and date and time
values, (f) date and time interface values which reflect the correct century and
(g) processing, storing, receiving and outputting all date and time date in a
format that accurately indicates the century of the date and time data.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ARDENT AND SUB
ARDENT and SUB represent and warrant to PRISM, subject to the exceptions
specifically disclosed in the disclosure letter supplied by ARDENT to PRISM
("ARDENT Schedules") which identifies the Section numbers hereof to which the
disclosures pertain and which is dated as of the date hereof, as follows:
SECTION 3.01. Organization. Each of ARDENT and its material subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own,
lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which such qualification is required
by virtue of the nature of activities conducted by it, except to the extent that
the failure to be so qualified and in good standing could not reasonably be
expected to have, individual or in the aggregate, a Material Adverse Effect on
ARDENT. ARDENT has delivered or made available a true and correct copy of the
Certificate of Incorporation and By-laws of each of ARDENT and SUB, each as
amended to the date hereof, to counsel for PRISM. In this Agreement, the term
"Material Adverse Effect" used in reference to ARDENT and its subsidiaries means
any event, change or effect materially adverse to the financial condition,
assets, liabilities, results of operations or business of ARDENT and its
subsidiaries, taken as a whole, other than decreases in the market price of the
ARDENT Common Stock, changes resulting solely from changes in general economic
or computer software industry conditions, or changes that are a direct result of
the announcement or pending status of the Merger.
SECTION 3.02. Absence of Certain Changes or Events. Except as described
in ARDENT SEC Reports (as hereinafter defined) filed prior to the date of this
Agreement or ARDENT Schedules, and except with respect to the actions
contemplated by this Agreement or in connection with acquisitions of businesses
or technologies by ARDENT or its subsidiaries, since the date of the ARDENT
Balance Sheet (as hereinafter defined), ARDENT has conducted its business only
in the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (i) any Material Adverse Effect on ARDENT or any
development that could reasonably be expected to have a Material Adverse
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Effect on ARDENT; (ii) any damage, destruction or loss (whether or not covered
by insurance) on ARDENT or any of its material subsidiaries that has had or
could reasonably be expected to have a Material Adverse Effect on ARDENT; (iii)
any material change by ARDENT or any of its material subsidiaries in its
accounting methods, principles or practices; (iv) any material revaluation by
ARDENT or any of its material subsidiaries of any of its assets, including,
without limitation, writing down the value of capitalized software or inventory
or deferred tax assets or writing off notes or accounts receivable other than in
the ordinary course of business; (v) any labor dispute or charge of unfair labor
practice which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on ARDENT, any activity or proceeding by a
labor union or representative thereof to organize any employee of ARDENT or any
of its material subsidiaries or any campaign conducted to solicit authorization
from employees to be represented by any labor union; or (vi) any waiver by
ARDENT of any rights of material value.
SECTION 3.03. Capital Structure.
(a) As of the date hereof, the authorized capital stock of ARDENT
consists of 40,000,000 shares of ARDENT Common Stock, of which 15,443,302
shares are issued and outstanding as of date hereof (not including any
shares issued on or after such date upon exercise of options outstanding on
the date hereof) and 10,000,000 shares Preferred Stock, $.01 par value, of
which none is currently issued and outstanding. The authorized capital
stock of SUB consists of 1,000 shares of Common Stock, $.01 par value, all
of which are issued and outstanding and held by ARDENT. All of the
foregoing shares of capital stock of ARDENT and SUB have duly authorized,
and all such issued and outstanding shares have been validly issued, are
fully paid and nonassessable and are free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof.
(b) As of the date hereof, ARDENT has also reserved (i) 4,500,000 and
3,750,000 shares of Common Stock for issuance to ARDENT's officers,
directors, employees or independent contractors or affiliates thereof under
ARDENT's 1986 and 1995 Stock Option Plan, respectively, (ii) 350,000 shares
of ARDENT Common Stock for issuance to non-employee directors of ARDENT
under ARDENT's Directors' Stock Option Plan and (iii) 700,000 shares of
ARDENT Common Stock for issuance to employees of ARDENT under ARDENT's
Employee Stock Purchase Plan (the "ARDENT Stock Purchase Plan"). As of
November 18, 1998, of the aggregate of 8,600,000 shares of ARDENT Common
Stock reserved for issuance upon exercise of options therefor, 4,872,147
shares remained subject to outstanding options and 1,199,919 shares were
reserved for future grant. In addition, pursuant to the ARDENT Stock
Purchase Plan, 61,531 shares of ARDENT Common Stock will be issuable to the
participants therein for the offering period ending February 19, 1999,
provided that all participants continue to contribute at current levels
(assuming the purchase price of such shares to be 85% of the fair market
value of the ARDENT Common Stock on the first day of such offering period).
Except as set forth in the ARDENT Schedules or the ARDENT SEC Reports and
for shares of ARDENT Capital Stock issuable in connection with business
combinations or acquisitions of technology pursuant to agreements which are
entered into after the date hereof, there are no other equity securities,
options, warrants, calls, rights, commitments or agreements of any
character to which ARDENT is a party or by which it is bound obligating
ARDENT to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of ARDENT or obligating ARDENT to grant, extend or enter into any
such equity security, option, warrant, call, right, commitment or
agreement.
(c) The shares of ARDENT Common Stock to be issued pursuant to the
Merger and upon exercise of Substitute Options will, upon issuance, be duly
authorized, validly issued, fully paid and non-assessable.
SECTION 3.04. Authority; No Conflict.
(a) ARDENT and SUB have all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of
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this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
ARDENT and SUB. This Agreement has been duly executed and delivered by
ARDENT and SUB and constitutes the valid and binding obligations of ARDENT
and SUB, enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy and other similar laws and general principles
of equity.
(b) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under
(i) any provision of the Certificate of Incorporation or By-laws of ARDENT
or SUB or (ii) any mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to ARDENT,
any of its subsidiaries or their respective properties or assets, other
than any such conflicts, violations, defaults, terminations, cancellations
or accelerations which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on ARDENT or
materially impair ARDENT's or SUB's ability to consummate the transactions
contemplated hereby.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to ARDENT and SUB and their respective subsidiaries in connection
with the execution and delivery of this Agreement by ARDENT and SUB or the
consummation by ARDENT and SUB of the transactions contemplated hereby,
except for (i) the filing of a pre-merger notification report under the HSR
Act, (ii) the filing of the Form S-4 Registration Statement with the SEC,
(iii) the filing of the Certificate of Merger with the Delaware Secretary
of State, (iv) the filing of a Form 8-K with the SEC, (v) the listing of
the shares on the Nasdaq National Market, and (vi) such other consents,
authorizations, filings, approvals and registrations which if not obtained
or made could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on ARDENT or materially impair
ARDENT's or SUB's ability to consummate the transactions contemplated
hereby.
SECTION 3.05. SEC Filings; ARDENT Financial Statements.
(a) ARDENT has timely filed all forms, reports and documents required
to be filed with the SEC since January 1, 1996. All such required forms,
reports and documents are referred to herein as the "ARDENT SEC Reports."
As of their respective dates, the ARDENT SEC Reports (i) complied in all
material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such ARDENT SEC Reports and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
None of ARDENT's subsidiaries is required to file any forms, reports or
other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the ARDENT SEC Reports,
including any ARDENT SEC Reports filed after the date hereof until the
Closing, (i) complies (or will comply, as the case may be) as to form in
all material respects with the published rules and regulations of the SEC
with respect thereto, (ii) has been (or will be, as the case may be)
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes thereto) and (iii) fairly presents (or will
present, as the case may be) in all material respects the consolidated
financial position of ARDENT and its subsidiaries as at the respective
dates thereof and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements do not (or will not, as the case may be) include footnote
disclosure of the type associated with audited financial statements and
were or are (or will
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be, as the case may be) subject to normal and recurring year-end
adjustments described therein. The unaudited consolidated balance sheet of
ARDENT and its subsidiaries as of June 30, 1998 is hereinafter referred to
as the "ARDENT Balance Sheet."
(c) Except as disclosed in the ARDENT Schedules, as of the date
hereof, there are no material amendments or modifications to agreements,
documents or other instruments which previously had been filed by ARDENT
with the SEC pursuant to the Securities Act or the Exchange Act or any
other agreements, documents or other instruments which have not yet been
filed with the SEC but which are or will be required to be filed by ARDENT.
SECTION 3.06. Liabilities. Except (a) for liabilities incurred in the
ordinary course of business consistent with past practice, (b) for transaction
expenses incurred in connection with this Agreement, (c) for liabilities set
forth on the ARDENT Balance Sheet, (d) for liabilities which have or may be
incurred in connection with acquisitions of businesses or technologies by ARDENT
or its subsidiaries, (e) as set forth in the ARDENT Schedules or (f) other
liabilities that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on ARDENT, since the date of the ARDENT
Balance Sheet, none of ARDENT, SUB or any of ARDENT's subsidiaries has incurred
any liabilities that would be required to be reflected or reserved against in a
consolidated balance sheet of ARDENT and its subsidiaries prepared in accordance
with generally accepted accounting principles as applied in preparing the
consolidated balance sheet of ARDENT and its subsidiaries as of the date of the
ARDENT Balance Sheet.
SECTION 3.07. Intellectual Property. ARDENT and its subsidiaries either
own, are licensed, or otherwise possess legally enforceable rights to all
patents, trademarks, trade names, service marks, copyrights and applications
therefor, schematics, technology, trade secrets, know-how, computer software (in
both source code and object code form), and other tangible or intangible
proprietary information, materials and rights (collectively, "ARDENT
Intellectual Property Rights") as are necessary in connection with the business
of ARDENT and its subsidiaries, taken as a whole, except where the failure to
have such rights to ARDENT Intellectual Property Rights could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
ARDENT. To ARDENT's knowledge, neither ARDENT nor any of its subsidiaries has
infringed any Third Party Intellectual Property Rights, other than any
infringements that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on ARDENT.
SECTION 3.08. Litigation. Except as disclosed in ARDENT Schedules or in
ARDENT SEC Reports filed prior to the date of this Agreement, there is no suit,
action, arbitration, demand, claim or proceeding pending or, to the knowledge of
ARDENT, threatened against ARDENT or any of its subsidiaries, except for suits,
actions, arbitrations, demands, claims and proceedings which could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on ARDENT; nor is there any material judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against ARDENT or any of its subsidiaries, except for judgments, decrees,
injunctions, rules and orders which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on ARDENT. No
investigation or review by any Governmental Entity with respect to ARDENT or any
of its subsidiaries is pending or threatened, except investigations or reviews
that could not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on ARDENT.
SECTION 3.09. Employee Benefits.
(a) Except as could not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on ARDENT, (i) each ARDENT
Plan complies with ERISA, the Code and all other applicable statutes and
governmental rules and regulations, and (ii) there has been no failure to
make any contribution or pay any amount due to any ARDENT Plan as required
by Section 412 of the Code or Section 302 of ERISA, and no ARDENT Plan, nor
any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.
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(b) To the knowledge of ARDENT, there are no actions, suits or claims
pending or threatened (other than routine claims for benefits) with respect
to any ARDENT Plan which would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on ARDENT. Neither ARDENT
nor any of its ERISA Affiliates has incurred or would reasonably be
expected to incur any material liability under or pursuant to Title IV of
ERISA. No prohibited transactions described in Section 406 of ERISA or
Section 4975 of the Code have occurred which could reasonably be expected
to result in material liability to ARDENT or its subsidiaries.
(c) As used herein, "ARDENT Plan" means a "pension plan" (as defined
in Section 3(2) of ERISA), a "welfare plan" (as defined in Section 3(1) of
ERISA), or any bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan, arrangement or
understanding, in each case established, maintained or contributed to by
ARDENT or any of its ERISA Affiliates or as to which ARDENT or any of its
ERISA Affiliates or otherwise may have any material liability.
SECTION 3.10. Registration Statement; Proxy Statement/Prospectus. Other
than with respect to the information supplied by PRISM, the Registration
Statement shall not, at the time the Registration Statement is filed with the
SEC and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements included therein not misleading. The information
supplied by ARDENT for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to stockholders, at the time of PRISM
Stockholders' Meeting or at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading. The Proxy
Statement will comply (with respect to information relating to ARDENT or SUB) as
to form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder. If at any time prior to the Effective Time any
event relating to ARDENT, SUB or any of their respective affiliates, officers or
directors should be discovered by ARDENT or SUB which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
ARDENT or SUB will promptly inform PRISM. Notwithstanding the foregoing, ARDENT
and SUB make no representation or warranty with respect to any information
supplied by PRISM which is contained in any of the foregoing documents.
SECTION 3.11. Board Approval. The Board of Directors of ARDENT has, as of
the date hereof, approved this Agreement and the Merger.
SECTION 3.12. Brokers' and Finders' Fees. ARDENT has not incurred, and
will not incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement, the Merger or any transaction contemplated hereby, except for a fee
due to Volpe Brown Whelan & Company, LLC at the Effective Time.
SECTION 3.13. Operations of SUB. SUB is a direct, wholly-owned subsidiary
of ARDENT, was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by PRISM and ARDENT Pending the
Merger. During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, unless
the other party shall otherwise agree in writing, each of PRISM and ARDENT shall
conduct its business and shall cause the businesses of its subsidiaries to be
conducted only in, and each of PRISM and ARDENT and its subsidiaries shall not
take any action except in, the ordinary course of business and in a manner
consistent with past practice; and each of PRISM and
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ARDENT shall use reasonable efforts to preserve the business organization of it
and its subsidiaries, to keep available the services of the present officers,
key employees and consultants of it and its subsidiaries and to preserve the
present relationships of it and its subsidiaries with customers, suppliers and
other persons with which it or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, except as contemplated by
this Agreement, neither PRISM nor ARDENT, nor any of their respective
subsidiaries shall, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time do, or propose to do, any of the following without the prior
written consent of the other party:
(a) amend or otherwise change its Certificate of Incorporation,
By-laws or ARDENT Rights Plan;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class (other than the sale or issuance of common stock
upon the exercise of outstanding options) or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including, without
limitation, any phantom interest) of PRISM or ARDENT, as the case may be,
or any of their respective subsidiaries; provided that consent for grants
of employee stock options to newly hired employees pursuant to existing
stock option plans consistent with past practice shall not be unreasonably
withheld;
(c) sell, pledge, dispose of or encumber any of its assets or any
assets of its subsidiaries, except for (i) sales of products (or licenses
thereto) and services in the ordinary course of business consistent with
past practice, (ii) dispositions of obsolete or worthless assets, and (iii)
sales of immaterial assets not in excess of $25,000 in the aggregate;
(d) except as is contemplated by Section 5.05 and Section 5.06, alter
the price or accelerate, amend or change the period (or permit any
acceleration, amendment or change) of exercisability of options or
restricted stock granted under the Employee Plans (including stock option
plans) or authorize cash payments in exchange for any options granted under
any of such plans;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly owned
subsidiary of PRISM may declare and pay a dividend to PRISM and a wholly
owned subsidiary of ARDENT may pay a dividend to a wholly owned subsidiary
of ARDENT, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or
permit any subsidiary to repurchase, redeem or otherwise acquire, any of
its securities or any securities of its subsidiaries, or propose to do any
of the foregoing;
(f) sell, transfer, license, sublicense or otherwise dispose of any
PRISM Intellectual Property Rights or ARDENT Intellectual Property Rights,
as the case may be, or amend or modify any existing agreements with respect
to any PRISM Intellectual Property Rights or ARDENT Intellectual Property
Rights, as the case may be, or Third Party Intellectual Property Rights,
other than nonexclusive licenses in the ordinary course of business
consistent with past practice or amendments or modifications that would
not, individually or in the aggregate, have a material adverse effect on
PRISM or ARDENT, as the case may be; provided, however, that PRISM may,
without ARDENT's consent, enter an agreement with Reuters on terms
substantially similar to those furnished to ARDENT;
(g) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee (other than guarantees of bank
debt of such party's subsidiaries entered into in the ordinary course of
business and except for a line of credit by PRISM currently under
negotiation in an amount not to exceed $10,000,000) or endorse or otherwise
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as an accommodation become responsible for, the obligations of any person,
or make any loans or advances, except in each case in the ordinary course
of business consistent with past practice; (iii) enter into or amend any
PRISM Material Contract, other than in the ordinary course of business
consistent with past practice; (iv) authorize any capital expenditures or
purchase of fixed assets which are, in the aggregate, in excess of $25,000
for such party and its subsidiaries taken as a whole; or (v) enter into or
amend any contract, agreement, commitment or arrangement to effect any of
the matters prohibited by this Section 4.01;
(h) except for increases in salary or wages of employees of such party
or its subsidiaries who are not officers of such party consistent with past
practice, increase the compensation payable or to become payable to its
officers or employees, or grant any severance or termination pay to, or
enter into any employment or severance agreement with any director, officer
(except for officers who are terminated on an involuntary basis) or other
employee of such party or any of its subsidiaries, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, stock purchase,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any current or former directors, officers or employees,
except, in each case, as may be required by law, and except for ministerial
updating of plans and trusts which does not affect the benefits thereunder;
(i) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, the capitalization of software development costs, payments of
accounts payable and collection of accounts receivable);
(j) make any material tax election inconsistent with past practices or
settle or compromise any material Federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations except to
the extent the amount of any such settlement has been reserved for on the
balance sheet contained in the most recently filed ARDENT SEC Report or
PRISM SEC Report, as the case may be;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
then the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of such party or incurred in
the ordinary course of business and consistent with past practice; or
(l) take any action which would make any of the representations or
warranties of such party contained in this Agreement materially untrue or
incorrect or prevent such party from performing in all material respects or
cause such party not to perform in all material respects its covenants
hereunder.
SECTION 4.02. No Solicitation by PRISM or ARDENT.
(a) During the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective
Time, neither PRISM nor ARDENT shall, directly or indirectly, through any
officer, director, employee, representative or agent of PRISM or ARDENT, as
the case may be, or any of its subsidiaries, solicit, encourage, or,
subject to the applicable fiduciary duties of the respective directors of
PRISM and ARDENT, as determined by such directors in good faith after
consultation with and based upon the advice of legal counsel, negotiate,
approve or recommend any inquiries or proposals regarding any merger, sale
of assets, sale of shares of capital stock (including without limitation by
way of a tender offer) or similar transactions involving PRISM or ARDENT,
as the case may be, or any of their respective subsidiaries (any of the
foregoing inquiries or proposals being referred to herein as an
"Acquisition Proposal").
(b) Either party shall immediately notify the other party after
receipt of any Acquisition Proposal or any request for nonpublic
information relating to such party or any of its subsidiaries in connection
with an Acquisition Proposal or for access to the properties, books or
records of such party
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or any subsidiary by any person that informs the Board of Directors or
officers of such party or such subsidiary that it intends to make, or has
made, an Acquisition Proposal. Such notice to the other party shall be made
orally and in writing and shall indicate in reasonable detail the identity
of the offeror and the terms and conditions of such proposal, inquiry or
contact.
(c) Both parties shall immediately cease and cause to be terminated
any existing discussions or negotiations with any parties (other than with
the other party hereto) conducted heretofore with respect to any of the
foregoing. Neither party shall release any third party from any
confidentiality or standstill agreement to which such party is a party.
(d) Both parties shall use reasonable efforts to ensure that the
officers and directors of PRISM and ARDENT and their respective
subsidiaries and any investment banker or other advisor or representative
retained by such party are aware of, and comply with, the restrictions
described in this Section 4.02.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Proxy Statement/Prospectus; Registration Statement.
As promptly as practicable after the execution of this Agreement, ARDENT
and PRISM shall prepare and file with the SEC (with appropriate requests for
confidential treatment) a preliminary form of the Proxy Statement and other
proxy materials related thereto. Following clearance of the Proxy Statement by
the SEC, ARDENT shall prepare and file with the SEC the Registration Statement,
containing the prospectus which is a part of the Proxy Statement, in connection
with the registration under the Securities Act of the shares of ARDENT Common
Stock to be issued in the Merger. PRISM and ARDENT shall cause the Registration
Statement and the Proxy Statement to comply in all material respects with the
Securities Act, the Exchange Act and the rules and regulations thereunder. Each
of PRISM and ARDENT shall use reasonable efforts to have or cause the
Registration Statement to become effective (including clearing the Proxy
Statement with the SEC) as promptly as practicable, and shall take all actions
required under any applicable federal or state securities laws in connection
with the issuance of shares of ARDENT Common Stock pursuant to the Merger.
Without limiting the generality of the foregoing, each of PRISM and ARDENT
agrees to use all reasonable efforts, after consulting with the other party, to
respond promptly to any comments made by the SEC with respect to the Proxy
Statement (including each preliminary version thereof) and the Registration
Statement (including each amendment and supplement thereto). Each of PRISM and
ARDENT shall, and shall cause it respective representatives to, fully cooperate
with the other party and its respective representatives in the preparation of
the Proxy Statement and the Registration Statement, and shall, upon request,
furnish the other party with all information concerning it and its affiliates,
directors, officers and stockholders as the other may reasonably request in
connection with the preparation of the Proxy Statement and the Registration
Statement. The Proxy Statement shall include the determination and
recommendation of the Board of Directors of PRISM that its respective
stockholders vote in favor of the approval and adoption of this Agreement and
the Merger; provided, however, that the Board of Directors of PRISM may
withdraw, modify or change such recommendation if such Board of Directors
determines in good faith, based upon the advice of outside counsel, that making
such recommendation, or the failure to so withdraw, modify or change its
recommendation, or the failure to recommend any other offer or proposal, could
reasonably be deemed to cause the members of such Board of Directors to breach
their fiduciary duties under applicable law. As promptly as practicable after
the Registration Statement shall have become effective, PRISM shall cause the
Proxy Statement to be mailed to its respective stockholders. Thereafter, PRISM
and ARDENT shall each notify the other as promptly as practicable upon becoming
aware of any event or circumstance which should be described in an amendment of,
or a supplement to, the Proxy Statement or the Registration Statement, and PRISM
and ARDENT shall each notify the other as promptly as practicable after the
receipt by it of any written or oral comments of the SEC on, or of any written
or oral request by the SEC for amendments or supplements to, the Proxy Statement
or the Registration Statement, and shall
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promptly supply the other with copies of all correspondence between it or any of
its representatives and the SEC with respect to any of the foregoing filings.
SECTION 5.02. Stockholders Meeting. PRISM shall call and hold the PRISM
Stockholders Meeting as promptly as practicable for the purpose of voting upon
the approval of the Merger, and PRISM shall use reasonable efforts to hold the
PRISM Stockholder Meeting as soon as practicable after the date on which the
Registration Statement becomes effective. PRISM shall use reasonable efforts to
solicit from its stockholders proxies in favor of the approval of the Merger,
and subject to the applicable fiduciary duties of the directors of PRISM, as
determined by such directors in good faith after consultation with and based
upon the advice of legal counsel shall take all other action necessary or
advisable to secure the vote or consent of stockholders required by the Delaware
Law to obtain such approvals.
SECTION 5.03. Access to Information; Confidentiality. Upon reasonable
notice and subject to restrictions contained in any confidentiality agreement to
which PRISM or ARDENT may be subject (from which PRISM and ARDENT shall each use
reasonable efforts to be released), PRISM and ARDENT shall each (and shall cause
each of their subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, PRISM and ARDENT shall each
(and shall cause each of their subsidiaries to) furnish promptly to the other
all information concerning its business, properties and personnel as such other
party may reasonably request, and PRISM and ARDENT shall each make available to
the other the appropriate individuals (including attorneys, accountants and
other professionals) for discussion of the other's business, properties and
personnel as either ARDENT or PRISM may reasonably request. Each party shall
keep such information confidential in accordance with the terms of the
Confidentiality Agreement, dated November 17, 1998 (the "Confidentiality
Agreement"), between ARDENT and PRISM.
SECTION 5.04. Consents; Approvals. PRISM and ARDENT shall each use
reasonable best efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States and
foreign governmental and regulatory rulings and approvals), and PRISM and ARDENT
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by PRISM and
ARDENT and the consummation by them of the transactions contemplated hereby.
PRISM and ARDENT shall furnish all information required to be included in the
Proxy Statement and the Registration Statement, or for any application or other
filing to be made pursuant to the rules and regulations of any United States or
foreign governmental body in connection with the transactions contemplated by
this Agreement.
SECTION 5.05. Stock Options.
(a) At the Effective Time, the obligation to issue shares under each
outstanding option to purchase PRISM Common Stock (each a "Stock Option")
granted under PRISM's 1992 Stock Option Plan, 1996 Equity Incentive Plan
and 1996 Directors Stock Option Plan, each as amended (collectively, the
"PRISM Stock Option Plans"), shall be deemed assumed by ARDENT and each
such option shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such Stock Option prior to
the Effective Time, the whole number (disregarding any fractional shares)
of ARDENT Common Stock as the holder of such Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (not taking into
account whether or not such option was in fact exercisable), at a price per
share equal to (x) the aggregate exercise price for PRISM Common Stock
otherwise purchasable pursuant to such Stock Option, divided by (y) the
number of shares of ARDENT Common Stock deemed purchasable pursuant to such
Stock Option, provided, however, that the exercisability or the other
vesting of the assumed options and the underlying stock shall continue to
be determined by reference to stock option agreements executed pursuant to
PRISM's Stock Option Plans, and provided, further, that references in any
Stock Option to PRISM, the board of directors of PRISM or any committee
thereof, and any PRISM Stock Option Plan shall,
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commencing at the Effective Time, unless inconsistent with the context, be
to ARDENT, the board of directors of ARDENT or a committee thereof, and
ARDENT's 1986 Stock Option Plan (for officers) or 1995 Non-Statutory Option
Plan (for non-officers), respectively.
(b) As soon as practicable after the Effective Time, ARDENT shall
deliver to each holder of an outstanding Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto and such Stock Option
shall continue in effect on the same terms and conditions (including
further anti-dilution provisions and subject to the adjustments required by
this Section 5.05 after giving effect to the Merger). ARDENT shall comply
with the terms of all such Stock Options and ensure, to the extent required
by, and subject to the provisions of, any such PRISM Stock Plan that Stock
Options which qualified for special tax treatment prior to the Effective
Time continue to so qualify after the Effective Time. ARDENT shall take all
corporate action necessary to reserve for issuance a sufficient number of
ARDENT Common Stock for delivery pursuant to the terms set forth in this
Section 5.05.
(c) ARDENT shall use reasonable efforts after the Effective Time to
maintain the effectiveness of a registration statement under the Securities
Act with respect to the issuance by ARDENT of shares of ARDENT Common Stock
which may be issued pursuant to the PRISM Options as provided for above in
this Section 5.05.
SECTION 5.06. PRISM Employee Stock Purchase Plan. PRISM shall take such
actions as are necessary to cause the last business day of the "Payment Period"
as such term is used in the PRISM Stock Purchase Plan applicable to the current
offering period to be on or before the last trading day on which shares of PRISM
Common Stock are traded on the Nasdaq Stock Market immediately prior to the
Effective Time (the "Final PRISM Purchase Date"); provided, however, that any
such change in the Final PRISM Purchase Date shall be conditioned upon the
consummation of the Merger. On the Final PRISM Purchase Date, PRISM shall apply
the funds credited as of such date under the PRISM Stock Purchase Plan within
each participant's payroll withholdings account to the purchase of whole shares
of PRISM Common Stock in accordance with the terms of the PRISM Stock Purchase
Plan. The cost to each participant in the PRISM Stock Purchase Plan for shares
of PRISM Common Stock shall be the lower of 85% of the average market price of
PRISM Common Stock on the Nasdaq Stock Market on (i) the first business day of
the then current offering period, or (ii) the last trading day on or prior to
the Final PRISM Purchase Date.
SECTION 5.07. Notification of Certain Matters. PRISM shall give prompt
notice to ARDENT, and ARDENT shall give prompt notice to PRISM, of (i) the
occurrence or non- occurrence of any event which would cause any representation
or warranty made by the respective parties in this Agreement to be materially
untrue or inaccurate, and (ii) any failure of PRISM or ARDENT, as the case may
be, to materially comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.07 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice, and provided further, that failure to give such notice shall not be
treated as a breach of covenant for the purposes of Sections 6.02(b) or
6.03(b)unless the failure to give such notice results in material prejudice to
the other party.
SECTION 5.08. Further Action; Tax Treatment. Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to
otherwise satisfy or cause to be satisfied all conditions precedent to its
obligations under this Agreement. The foregoing covenant shall not include any
obligation by ARDENT to agree to divest, abandon, license or take similar action
with respect to any assets (tangible or intangible) of ARDENT or PRISM. Both
ARDENT and PRISM shall each use reasonable efforts to cause the Merger to
qualify, and will not (either before or after consummation of the Merger) take
any actions which could prevent the Merger from qualifying, as a reorganization
within the meaning of Section 368(a) of the Code.
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SECTION 5.09. Public Announcements. ARDENT and PRISM shall consult with
each other before issuing any press release or other public statement with
respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement without the prior consent of the other
party, which shall not be unreasonably withheld; provided, however, that a party
may, without the prior consent of the other party, issue such press release or
make such public statement as may upon the advice of counsel be required by law
if it has used reasonable efforts to consult first with the other party.
SECTION 5.10. Listing of ARDENT Common Stock on Nasdaq. ARDENT shall use
reasonable efforts to cause the shares of ARDENT Common Stock to be issued in
the Merger to be approved for quotation on the Nasdaq National Market prior to
the Effective Time.
SECTION 5.11. Accountant's Comfort Letters. PRISM and ARDENT shall each
use reasonable efforts to cause PriceWaterhouseCoopers LLP and Deloitte & Touche
LLP to deliver to ARDENT or PRISM, as the case may be, a letter covering such
matters as may be requested by ARDENT or PRISM, with respect to such matters as
are customarily addressed in certified public accountant's "comfort" letters
with respect to the type of transactions contemplated by this Agreement.
SECTION 5.12. Pooling Accounting Treatment. PRISM and ARDENT shall use
reasonable efforts to avoid taking any action which would adversely affect the
ability of both parties to treat the Merger as a pooling of interests and shall
take such action as may be reasonably required to negate the impact of any past
actions which would adversely impact the ability of ARDENT or PRISM, as the case
may be, to treat the Merger as a pooling of interests provided that PRISM shall
not be required to take any action with respect to negating such prior actions
if the effect would be adverse to its employees.
SECTION 5.13. Indemnification; Directors' and Officers' Insurance. All
rights to indemnification now existing in favor of the present or former
directors or officers of PRISM or any of its subsidiaries as provided in PRISM's
Certificate of Incorporation and Bylaws, or in the certificate or articles of
incorporation, by-laws or similar documents of any such subsidiaries, in effect
as of the date hereof shall, with respect to matters occurring prior to the
Effective Time, survive the Merger and continue in full force and effect after
the Effective Time. All rights to indemnification in respect of any such claim
or claims shall continue until disposition of such claim or claims. ARDENT and
PRISM further agree that all rights to indemnification now existing in favor of
the present or former directors or officers of PRISM or any of its subsidiaries
in any indemnification agreement between such person and PRISM or any such
subsidiary, as the case may be, shall survive the Merger and continue in full
force and effect in accordance with the terms of such agreement. Until the third
anniversary of the Effective Time, ARDENT shall maintain in effect with respect
to matters occurring prior to the Effective Time, to the extent available, the
policy of directors' and officers' liability insurance currently maintained by
PRISM on behalf of its officers and directors and those of its subsidiaries;
provided, however, that, with the consent in writing of a majority of the
persons who are directors of PRISM immediately prior to the Effective Time,
which consent shall not unreasonably be withheld, ARDENT may substitute therefor
a policy containing coverage, terms and conditions which are no less
advantageous to the present or former directors and officers of PRISM.
Notwithstanding anything to the contrary contained in this Agreement, the
provisions of this Section 5.13 shall survive the Effective Time and are
intended to be for the benefit of, and shall be enforceable by, each present and
former director and officer of PRISM.
SECTION 5.14. Employee Benefits.
(a) With respect to each ARDENT Plan, each ARDENT employee employed by
PRISM immediately prior to the Effective Time shall receive credit for all
service performed for PRISM; such service credit shall apply for all
purposes, including but not limited to, any vacation, sick time, insurance
or other benefits and any eligibility or vesting requirements under any
ARDENT Plan.
(b) As of the Effective Time, each ARDENT employee employed by PRISM
immediately prior to the Effective Time shall be enrolled in the Group
Health Benefit Plan for Employees of ARDENT, or any successor plan thereto
("Group Health Plan") and shall be entitled to participate
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in the Group Health Plan without limitation or exclusion for any
preexisting conditions applicable to any such employee or his enrolled
dependents, except to the extent that any such preexisting condition
limitation or exclusion applied to such individual under the group health
plan provided by PRISM prior to the Effective Time. For purposes of
participation in the Group Health Plan, each ARDENT employee employed by
PRISM immediately prior to the Effective Time shall also receive credit for
all payments made toward deductible, co-payment and out-of-pocket limits
under the group health plan of PRISM in which such employee was a
participant immediately prior to the Effective Time for the plan year which
includes the Effective Time as if such payments had been made for similar
purposes for such period under the Group Health Plan by an employee
employed by ARDENT immediately prior to the Effective Time.
SECTION 5.15. HSR Act Filings. To the extent required in connection with
the transactions contemplated by this Agreement, each of ARDENT and PRISM shall
promptly make or cause to be made any and all required filings under the HSR Act
and will request early termination of the waiting period required under the HSR
Act. The parties agree to cooperate and promptly respond to any inquiries or
investigations initiated by the Federal Trade Commission or the Department of
Justice in connection with any such filings.
SECTION 5.16. Stockholder Litigation. Each of ARDENT and PRISM shall give
the other the reasonable opportunity to participate in the defense of any
stockholder litigation arising in connection with the transactions contemplated
hereby against ARDENT or PRISM, as applicable, and its directors.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose and no similar proceeding in respect of the Proxy
Statement shall have been initiated or threatened by the SEC;
(b) Stockholder Approval. The Agreement and the Merger shall have
been approved by the requisite vote of the stockholders of PRISM;
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
(each an "Injunction") (i) preventing the consummation of the Merger or
(ii) seeking to prohibit or limit the Surviving Corporation due to the
consummation of the Merger from exercising all material rights and
privileges pertaining to its ownership of all or a material portion of the
business or assets of PRISM, ARDENT or any of their respective
subsidiaries, shall be in effect, nor shall any proceeding brought by any
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be
pending; and there shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal;
(d) Tax Opinions. ARDENT and PRISM shall have received written
opinions of Choate, Hall & Stewart and Fenwick & West LLP, respectively, in
form and substance reasonably satisfactory to them to the effect that the
Merger will constitute a reorganization within the meaning of Section
368(a) of the Code; and
(e) HSR Act. The waiting period under the HSR Act applicable to the
transactions contemplated by this Agreement shall have expired or been
terminated.
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SECTION 6.02. Additional Conditions to Obligation of ARDENT and SUB. The
obligations of ARDENT and SUB to effect the Merger are also subject to the
following conditions:
(a) Representations and Warranties. The representations and
warranties of PRISM contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time, except for (i)
changes contemplated or permitted by this Agreement, (ii) those
representations and warranties which address matters only as of a specified
date (which shall remain true and correct as of such date), and (iii) where
the failure to be true and correct would not have a Material Adverse Effect
upon PRISM, and ARDENT and SUB shall have received a certificate to such
effect at the closing signed by the President and Chief Financial Officer
of PRISM;
(b) Agreements and Covenants. PRISM shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by PRISM on or prior to the
Effective Time, and ARDENT and SUB shall have received a certificate to
such effect signed by the President and Chief Financial Officer of PRISM;
SECTION 6.03. Additional Conditions to Obligation of PRISM. The
obligation of PRISM to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of ARDENT and SUB contained in this Agreement shall be true and
correct in all material respects on and as of the Effective Time, except
for (i) changes contemplated or permitted by this Agreement, (ii) those
representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), and
(iii) where the failure to be true and correct would not have a Material
Adverse Effect upon ARDENT, and PRISM shall have received a certificate to
such effect signed by the President and Chief Financial Officer of ARDENT;
(b) Agreements and Covenants. ARDENT and SUB shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by ARDENT on or
prior to the Effective Time, and PRISM shall have received a certificate to
such effect signed by the President and Chief Financial Officer of ARDENT;
(c) No Trigger of ARDENT Rights Plan. No event shall have occurred
that has or would result in the triggering of any right or entitlement of
stockholders of ARDENT under the ARDENT Rights Plan, or will occur as a
result of the consummation of the Merger.
(d) Listing of ARDENT Common Stock on Nasdaq. ARDENT shall have
caused the shares of ARDENT Common Stock to be issued in the Merger to be
approved for quotation on the Nasdaq National Market prior to the Effective
Time.
ARTICLE VII
TERMINATION
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of either PRISM or ARDENT:
(a) by mutual written consent duly authorized by the Boards of
Directors of ARDENT and PRISM; or
(b) by either ARDENT or PRISM if the Merger shall not have been
consummated by April 30, 1999 (the "Outside Date"), provided that the right
to terminate this Agreement under this Section 7.01(b) shall not be
available to any party whose willful failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of
the Merger to occur on or before such date; or
(c) by either ARDENT or PRISM if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a non-appealable final order,
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decree or ruling or taken any other action, in each case having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger,
except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under Section 5.08; or
(d) by either ARDENT or PRISM, if, at the PRISM Stockholders Meeting
(including any adjournment or postponement thereof), the requisite vote of
the stockholders of PRISM shall not have been obtained; or
(e) by ARDENT or PRISM, upon a breach of any representation, warranty,
covenant or agreement on the part of PRISM or ARDENT, respectively, set
forth in this Agreement such that the conditions set forth in Section
6.02(a) or 6.02(b), or Section 6.03(a) or 6.03(b), would not be satisfied
(a "Terminating Breach"), provided, however, that if such Terminating
Breach is curable prior to the Outside Date, by ARDENT or PRISM, as the
case may be, through the exercise of its reasonable efforts and for so long
as ARDENT or PRISM, as the case may be, continues to exercise such
reasonable efforts, neither PRISM nor the ARDENT, respectively, may
terminate this Agreement under this Section 7.01(e); or
(f) by ARDENT, if (i) the Board of Directors of PRISM shall fail to
recommend the Merger or shall withdraw, modify or change its recommendation
of the Merger in a manner adverse to ARDENT or shall have resolved to do
any of the foregoing; (ii) after the receipt by PRISM of an Acquisition
Proposal, ARDENT requests in writing that the Board of Directors of PRISM
reconfirm its recommendation of this Agreement and the Merger to the
stockholders of PRISM and the Board of Directors of PRISM fails to do so
within 10 business days after its receipt of ARDENT's request; (iii) the
Board of Directors of PRISM shall have recommended to the stockholders of
PRISM an Alternative Transaction (as defined in Section 7.03(e)); (iv) a
tender offer or exchange offer for 20% or more of the outstanding shares of
PRISM Common Stock is commenced (other than by ARDENT or an affiliate of
ARDENT) and the Board of Directors of PRISM recommends that the
stockholders of PRISM tender their shares in such tender or exchange offer;
or (v) for any reason PRISM fails to call and hold the PRISM Stockholders'
Meeting by the Outside Date (provided that ARDENT's right to terminate this
Agreement under such clause (v) shall not be available if at such time
PRISM would be entitled to terminate this Agreement under Section 7.01(e)
without giving effect to the cure period).
SECTION 7.02. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.03 and Section 8.01 hereof, and (ii) nothing herein shall relieve any
party from liability for any willful breach hereof.
SECTION 7.03. Fees and Expenses. (a) Except as set forth in this
Section 7.03, all fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses if the Merger is not consummated and by
ARDENT or the Surviving Corporation if the Merger is consummated, to the
extent such expenses are solely and directly related to such Merger in
accordance with the guidelines established in Revenue Ruling 73-54, 1973-1
C.B. 187; provided, however, that, if the Merger is not consummated, ARDENT
and PRISM shall share equally all fees and expenses, other than attorneys'
fees, incurred in relation to the printing of the Proxy Statement
(including any preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and any amendments
or supplements thereto.
(b) PRISM shall pay ARDENT a termination fee of $5 million upon the
earliest to occur of the following events:
(i) the termination of this Agreement by either ARDENT or PRISM
pursuant to Section 7.1(d) if (A) the requisite votes of the
stockholders of PRISM to approve the Merger shall not have been
obtained, (B) a proposal for an Alternative Transaction (as defined
below)
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involving PRISM shall have been publicly announced prior to the PRISM
Stockholders' Meeting, and (C) either a definitive agreement for an
Alternative Transaction involving PRISM is entered into, or an
Alternative Transaction involving PRISM is consummated, within eighteen
months of such termination;
(ii) the termination of this Agreement by ARDENT pursuant to
Section 7.1(f); or
(iii) the termination of this Agreement by either ARDENT or PRISM
pursuant to Section 7.1(d) if (A) the requisite vote of the stockholders
of PRISM to approve the Merger shall not have been obtained, (B) one or
more of the stockholders of PRISM party to the PRISM Stockholder Support
Agreement failed to approve the Merger or otherwise breached such
agreement, and (C) if such stockholder had voted for the Merger or not
otherwise breached, the Merger would have been approved by the PRISM
stockholders.
PRISM's payment of a termination fee pursuant to this subsection
shall be the sole and exclusive remedy of ARDENT against PRISM and any
of its subsidiaries and their respective directors, officers, employees,
agents, advisors or other representatives with respect to the
occurrences giving rise to such payment; provided that this limitation
shall not apply in the event of a willful breach of this Agreement by
PRISM.
(c) [Intentionally Omitted]
(d) The fees payable pursuant to Section 7.03(b) shall be paid
concurrently with the first to occur of the events described in Section
7.03(b)(i), (ii) or (iii).
(e) As used in this Agreement, "Alternative Transaction" means either
(i) a transaction pursuant to which any third party acquires more than 20%
of the outstanding shares of PRISM Common Stock, pursuant to a tender offer
or exchange offer or otherwise, (ii) a merger or other business combination
involving PRISM pursuant to which any third party (or the stockholders of a
third party) acquires more than 20% of the outstanding shares of PRISM
Common Stock or the entity surviving such merger or business combination,
(iii) any other transaction pursuant to which any third party acquires
control of assets (including for this purpose the outstanding equity
securities of Subsidiaries of PRISM, and the entity surviving any merger or
business combination including any of them) of PRISM having a fair market
value (as determined by the Board of Directors of PRISM in good faith)
equal to more than 20% of the fair market value of all the assets of PRISM
and their respective subsidiaries, taken as a whole, immediately prior to
such transaction, or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of
the foregoing.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc. Except as otherwise provided in this Section 8.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that the agreements set
forth in Article I and Section 5.05 and 5.13 shall survive the Effective Time
indefinitely and those set forth in Section 7.02 and Section 7.03 shall survive
termination indefinitely. The Confidentiality Agreement shall survive
termination of this Agreement as therein provided.
SECTION 8.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered to the parties at the following addresses (or
at such other address for a party as shall be specified by like changes
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of address shall be effective upon receipt) or sent by electronic transmission,
with confirmation received, to the telecopy number specified below:
(a) If to ARDENT or SUB:
ARDENT SOFTWARE, INC.
50 Washington Street
Westboro, MA 01581-1021
Fax No. (508) 389-8767
Attention: Peter Gyenes, President
With a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02110
Fax No. (617) 248-4000
Attention: Richard N. Hoehn, Esq.
(b) If to PRISM:
PRISM SOLUTIONS, INC.
1000 Hamlin Court
Sunnyvale, CA 94306
Fax No.
Attention: Warren M. Weiss
President and Chief Executive Officer
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Fax No. (650) 494-1417
Attention: Jacqueline A. Daunt, Esq.
SECTION 8.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation,
any partnership or joint venture in which PRISM (either alone, or through
or together with any other subsidiary) has, directly or indirectly, an
interest of five percent of more;
(b) "business day" means any day other than a day on which banks in
Boston are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common
control") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
or policies of a person, whether through the ownership of stock, as trustee
or executor, by contract or credit arrangement or otherwise;
(d) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(e) "subsidiary" or "subsidiaries" of PRISM, ARDENT, the Surviving
Corporation or any other person means any corporation, partnership, joint
venture or other legal entity of which PRISM, the Surviving Corporation,
ARDENT or such other person, as the case may be, (either alone or through
or together with any other subsidiary) owns, directly or indirectly, more
than 50% of the stock or
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other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 8.04. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that after approval
of the Merger by the stockholders of PRISM and ARDENT, no amendment may be made
which by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by PRISM and ARDENT.
SECTION 8.05. Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto, (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, and (c) waive compliance with any of the agreements
or conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
SECTION 8.06. Severability. If any term or other provision of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
SECTION 8.07. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, through the date hereof with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other person any rights or remedies hereunder.
SECTION 8.08. Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that ARDENT may assign all or any of their
rights hereunder to any affiliate provided that no such assignment shall relieve
the assigning party of its obligations hereunder.
SECTION 8.09. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement (other than Section 5.13), express or implied, is intended to or shall
confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
SECTION 8.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware,
without regard to the choice of law provisions thereof.
SECTION 8.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms
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and provisions hereof in any court of the United States or any state thereof
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
SECTION 8.13. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
* * * * * * * *
IN WITNESS WHEREOF, ARDENT, SUB and PRISM have caused this Agreement to be
executed under seal as of the date first written above by their respective
officers thereunto duly authorized.
ARDENT SOFTWARE, INC.
By: /s/ PETER GYENES
------------------------------------
Name: Peter Gyenes
Title: Chairman of the Board and
and Chief Executive Officer
PRISM SOLUTIONS, INC.
By: /s/ WARREN M. WEISS
------------------------------------
Name: Warren M. Weiss
Title: President and Chief Executive
Officer
AQUARIUS ACQUISITION CORP.
By: /s/ PETER GYENES
------------------------------------
Name: Peter Gyenes
Title: Chairman of the Board and
and Chief Executive Officer
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ANNEX II
FAC/EQUITIES
A DIVISION OF FIRST ALBANY CORPORATION
53 STATE STREET
29TH FLOOR
BOSTON, MA 02109
November 19, 1998
The Board of Directors
Prism Solutions, Inc.
1000 Hamlin Court
Sunnyvale, CA 94089
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of Prism Solutions, Inc. (the "Company") of the
merger (the "Merger") with and into Ardent Software, Inc. ("Ardent"), which will
be the surviving entity, pursuant to an Agreement dated November 19, 1998
between the Company and Ardent (the "Agreement"). We understand that pursuant to
the Merger and as more fully described in the Agreement, each issued and
outstanding share of Prism Common Stock, par value $.001 per share, shall be
converted into the right to receive 0.13124 shares of Ardent Common Stock, par
value $.01 per share.
First Albany Corporation ("First Albany"), as a customary part of its
investment banking business, is engaged on a regular basis in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and valuations for corporate,
estate and other purposes. We regularly publish research reports regarding
various industry sectors.
In connection with and in preparation for rendering this opinion, we have
reviewed, analyzed and relied upon certain information bearing upon the
financial and operating condition of the Company and Ardent, including: the
Agreement; publicly available financial statements and related information of
the Company and Ardent, as of and for the fiscal years ended December 31, 1997
and 1996 and the quarters ended September 30, 1998, June 30, 1998 and March 31,
1998; publicly available information concerning the historical prices at which
the common stock of the Company and Ardent have been transferred on the Nasdaq
National Market System; and other financial information concerning the business
and operations of the Company and Ardent made available to us from published
sources and from the Company, including certain internal financial and operating
budgets, analyses and forecasts of the Company prepared by its management. We
have also discussed with members of the senior management of the Company and
Ardent the past and current business operations, financial condition and future
prospects of the Company and Ardent, as well as other matters believed to be
relevant to our analysis. Further, we considered such other information,
financial studies, analyses and investigations, and financial, economic and
market criteria which we deemed relevant to our analysis including, to the
extent publicly available, the financial terms of transactions we believe are
comparable. We have also compared the Company and Ardent from a financial point
of view with certain other companies in the business intelligence industry which
we have deemed to be relevant. Our opinion is based on market, economic and
other conditions as they existed and could be evaluated by us prior to the date
hereof.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to us by the Company or Ardent, or otherwise publicly
available, and the other information as described in the preceding paragraph,
and have assumed that there have been no material changes in the Company's or
Ardent's business operations, financial condition or prospects since the
respective dates of such information. We have relied on advice of counsel to the
Company as to all legal matters with respect to the Company, the Merger and the
Agreement, including the legal status of litigation involving the Company. We
have not independently
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verified this information, nor have we had such information verified. For the
purposes of rendering this opinion, we have not conducted a physical inspection
of any of the assets, properties or facilities of the Company or Ardent, nor
have we made or obtained any independent evaluation or appraisals of any such
assets, properties or facilities.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Agreement, without any
further amendments thereto, and without waiver by the Company of any of the
conditions to its obligations thereunder. We have also assumed that the Merger
will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended, and all other applicable
federal and state statutes, rules and regulations.
We have not been asked to consider, and this opinion does not address, the
relative merits of the Merger as compared to any alternative business strategy
that may exist for the Company. It should be noted that our opinion does not
purport to represent any view as to what the trading value of Ardent Common
Stock actually will be when the rights to receive shares of Ardent Common Stock
are issued to the common stockholders of the Company following consummation of
the transaction. The actual trading value of such Ardent Common Stock could be
higher or lower depending upon changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Furthermore, any valuation of securities is
only an approximation subject to uncertainties and contingencies, all of which
are difficult to predict and are beyond our control. Our opinion has been
prepared solely for the benefit of the Board of Directors of the Company for use
in its consideration of the Merger and does not constitute a recommendation to
any shareholder of the Company as to how such shareholder should vote on the
Merger. This opinion may not be used or referred to by the Company, or quoted or
disclosed to any person in any manner, without our prior written consent; which
consent is hereby given for the inclusion of this opinion in the Proxy
Statement/Prospectus to be filed with the Securities and Exchange Commission in
connection with the Merger. In furnishing this opinion, we do not admit that we
are experts within the meaning of the term "experts" as used in the Securities
Act and the rules and regulations promulgated thereunder, nor do we admit that
this opinion constitutes a report or valuation within the meaning of Section 11
of the Securities Act.
In connection with the Merger, we are acting as financial advisor to the
Company and, in connection with that service, will receive a financial advisory
fee for rendering this opinion. We have acted as a market maker for the
Company's common stock and for Ardent's common stock and have otherwise engaged
in transactions in the Company's common stock and in Ardent's common stock for
our own account and for the accounts of our clients. Accordingly, at any time,
we may have a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that the
consideration to be received by the stockholders of the Company pursuant to the
Merger is fair to such stockholders from a financial point of view, as of the
date hereof.
Very truly yours,
FIRST ALBANY CORPORATION
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the extent permitted under Section 102(b)(7) of the Delaware corporation
law, the charter of Ardent Software, Inc. (the "Company") eliminates personal
liability of its directors for monetary damages for breach or alleged breach of
their duty of care. The Ardent charter also allows Ardent to indemnify its
directors and officers for liabilities and expenses that they may incur in their
capacities as directors and officers. In general, Section 145 of the Delaware
corporation law permits a corporation to indemnify its directors and officers
from civil liability for actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, the best interests of the corporation.
Additionally, Section 145 of the Delaware corporation law allows a corporation
to indemnify its directors and officers from criminal liability for actions that
the director or officer had no reasonable cause to believe were unlawful.
The merger agreement provides that all rights to indemnification of present
or former directors or officers of Prism will continue after the merger. In
addition, the merger agreement provides that Ardent will maintain the current
liability insurance policy for Prism's officers and directors for three years
after the date that the merger becomes effective.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
2.1 -- Agreement and Plan of Merger and Reorganization dated as of
November 19, 1998 by and among the Company, Sub and Prism
attached as Annex I to the proxy statement/ prospectus
forming a part of this Registration Statement).
3.2 -- Second Restated Certificate of Incorporation of the
Company.(1)
3.3 -- By-laws of the Company, as amended and restated effective as
of March 17, 1992.(1)
3.3a -- Amendment to By-laws effective February 10, 1994.(3)
3.3b -- Amendment to By-laws effective February 10, 1998.(12)
3.4 -- Certificate of Designations, Rights, Preferences and
Privileges of Series A Junior Preferred Stock.(7)
4.1 -- Rights Agreement dated as of June 12, 1996 between the
Company and State Street Bank and Trust Company, as Rights
Agent.(7)
4.2 -- First Amendment to Rights Agreement dated as of September
30, 1997 between the Company and State Street Bank and Trust
Company, as Rights Agent.(9)
*5.1 -- Legal Opinion of Choate, Hall & Stewart.
*8.1 -- Opinion of Choate, Hall & Stewart regarding tax aspects of
the merger.
*8.2 -- Opinion of Fenwick & West LLP regarding tax aspects of the
merger.
10.1a -- 1986 Stock Option Plan, as amended and restated.(2)
10.1d -- 1986 Stock Option Plan, as amended and restated effective
October 7, 1997.(10)
10.2 -- 1991 Director Stock Option Plan, as amended and restated.(2)
10.2b -- Amendment to 1991 Director Stock Option Plan effective
January 31, 1995.(10)
10.2c -- Amendment to 1991 Director Stock Option Plan effective July
29, 1996.(10)
10.6 -- Restated Registration Rights Agreement dated as of April 10,
1992 between the Company and certain of its stockholders.(1)
10.11a -- Lease dated as of May 5, 1994 between the Company and 50
Washington Street Associated Limited Partnership.(4)
*10.11b -- Lease between the Company and 50 Washington Street
Associated Limited Partnership as amended as of March, 1998.
10.18a -- Employee Stock Purchase Plan, as amended and restated.(2)
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*10.18b -- Employee Stock Purchase Plan, as amended and restated
effective as of October 7, 1997.
10.23 -- Split Dollar Life Insurance Agreement between the Company
and James K. Walsh dated as of October 12, 1993.(3)
10.27 -- Split Dollar Life Insurance Agreement between the Company
and Jason E. Silvia dated as of April 27, 1994.(6)
10.28 -- Asset Purchase Agreement between the Company and
Constellation Software, Inc. dated February 15, 1994.(5)
10.31 -- 1995 Non-Statutory Stock Option Plan, as amended and
effected January 1, 1996.(10)
*10.31a -- 1995 Non-Statutory Stock Option Plan, as amended December
15, 1998.
10.32 -- Split Dollar Life Insurance Agreement between the Company
and Charles F. Kane dated as of December 15, 1995.(10)
10.33 -- Split Dollar Life Insurance Agreement between the Company
and Peter L. Fiore dated as of September 15, 1996.(10)
10.34 -- Split Dollar Life Insurance Agreement between the Company
and Peter Gyenes dated as of June 15, 1996.(10)
10.39 -- Split Dollar Life Insurance Agreement between the Company
and James D. Foy dated as of April 15, 1997.(9)
10.40 -- Registration Rights Agreement dated February 10, 1998
between the Company and James T. Dresher.(11)
10.42 -- Distribution Agreement dated November, 1995 among System
Builder Software Ltd., SB Tech Pty. Ltd., Desmond Miller and
the Company.(12)
10.43 -- Shareholder Agreement dated November 14, 1995 among certain
Shareholders of the Company and the Company.(12)
*10.44 -- Split Dollar Life Insurance Agreement between the Company
and John G. Akers dated as of May 15, 1998.
*10.45 -- Split Dollar Life Insurance Agreement between the Company
and David Brunel dated as of May 15, 1998.
*10.46 -- Loan and Security Agreement -- Revolving Line of Credit
Loans by the Company to Silicon Valley Bank as of March 27,
1998.
*10.47 -- Agreement of Merger by and among the Company, Dovetail
Acquisition Corp. and IntegraSoft, Inc. dated June 4, 1998.
*21.1 -- Subsidiaries of Ardent.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP.
*27.1 -- Financial Data Schedule.
99.1 -- Prism Proxy Card.
- ---------------
* Previously filed.
(1) Incorporated by reference to the respective exhibit filed with the
Company's Registration Statement on Form S- 1, File No. 33-46533, initially
filed on March 19, 1992.
(2) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-8, File No. 333-00218, filed on January 5,
1996.
(3) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 28, 1994.
(4) Incorporated by reference to the exhibit filed with the Company's Form 8-K
dated May 19, 1994.
(5) Incorporated by reference to the exhibit filed with the Company's Form 8-K
dated March 1, 1994.
(6) Incorporated by reference to the exhibit with the Company's Form 8-K dated
March 29, 1996.
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(7) Incorporated by reference to the respective exhibit of the Company's
Registration Statement on Form 8-A dated July 17, 1996, File No. 000-20059,
filed on July 29, 1996.
(8) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 28, 1996.
(9) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
dated November 12, 1997.
(10) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 31, 1997.
(11) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
dated February 12, 1998.
(12) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-4 dated December 31, 1997, File No.
333-43533, filed on December 31, 1997.
(b) FINANCIAL STATEMENT SCHEDULES
Other financial statement schedules have been omitted since they are either
not required, not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
(c) REPORTS, OPINIONS AND APPRAISALS
The opinion of FAC/Equities, a division of First Albany Corporation
(attached as Annex II to the proxy statement/prospectus included as a part of
this registration statement).
ITEM 22. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore, unenforceable in the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
B. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
C. The Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
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(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
D. The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement through the date
of responding to the request.
E. The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in this
registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Westboro, Commonwealth of
Massachusetts, on March 19, 1999.
ARDENT SOFTWARE, INC.
By: /s/ PETER GYENES
----------------------------------
PETER GYENES, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Peter Gyenes and James K. Walsh, jointly
and severally, his true and lawful attorneys-in-fact and agents with full powers
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities
indicated and on the dates indicated.
NAME CAPACITY DATE
---- -------- ----
/s/ PETER GYENES Chairman of the Board and Chief March 19, 1999
- --------------------------------------------------- Executive Officer (Principal
PETER GYENES Executive Officer)
/s/ CHARLES F. KANE Vice President, Finance and Chief March 19, 1999
- --------------------------------------------------- Financial Officer (Principal
CHARLES F. KANE Financial and Accounting
Officer)
/s/ MARTIN T. HART Director March 19, 1999
- ---------------------------------------------------
MARTIN T. HART
/s/ ROBERT G. CLAUSSEN Director March 19, 1999
- ---------------------------------------------------
ROBERT G. CLAUSSEN
/s/ DAVID BRUNEL Director March 19, 1999
- ---------------------------------------------------
DAVID BRUNEL
/s/ ROBERT S. MORRILL Director March 19, 1999
- ---------------------------------------------------
ROBERT S. MORRILL
II-5
190
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- -------
2.1 -- Agreement and Plan of Merger and Reorganization dated as of
November 19, 1998 by and among the Company, Sub and Prism
(attached as Annex I to the proxy statement/prospectus
forming a part of this Registration Statement)..............
3.2 -- Second Restated Certificate of Incorporation of the
Company.(1).................................................
3.3 -- By-laws of the Company, as amended and restated effective as
of March 17, 1992.(1).......................................
3.3a -- Amendment to By-laws effective February 10, 1994.(3)........
3.3b -- Amendment to By-laws effective February 10, 1998.(12).......
3.4 -- Certificate of Designations, Rights, Preferences and
Privileges of Series A Junior Preferred Stock.(7)...........
4.1 -- Rights Agreement dated as of June 12, 1996 between the
Company and State Street Bank and Trust Company, as Rights
Agent.(7)...................................................
4.2 -- First Amendment to Rights Agreement dated as of September
30, 1997 between the Company and State Street Bank and Trust
Company, as Rights Agent.(9)................................
*5.1 -- Legal Opinion of Choate, Hall & Stewart.....................
*8.1 -- Opinion of Choate, Hall & Stewart regarding tax aspects of
the merger..................................................
*8.2 -- Opinion of Fenwick & West LLP regarding tax aspects of the
merger......................................................
10.1a -- 1986 Stock Option Plan, as amended and restated.(2).........
10.1d -- 1986 Stock Option Plan, as amended and Restated effective
October 7, 1997.(10)........................................
10.2 -- 1991 Director Stock Option Plan, as amended and
restated.(2)................................................
10.2b -- Amendment to 1991 Director Stock Option Plan effective
January 31, 1995.(10).......................................
10.2c -- Amendment to 1991 Director Stock Option Plan effective July
29, 1996.(10)...............................................
10.6 -- Restated Registration Rights Agreement dated as of April 10,
1992 between the Company and certain of its
stockholders.(1)............................................
10.11a -- Lease dated as of May 5, 1994 between the Company and 50
Washington Street Associated Limited Partnership.(4)........
*10.11b -- Lease between the Company and 50 Washington Street
Associated Limited Partnership as amended as of March,
1998........................................................
10.18a -- Employee Stock Purchase Plan, as amended and restated.(2)...
*10.18b -- Employee Stock Purchase Plan, as amended and restated
effective as of October 7, 1997.............................
10.23 -- Split Dollar Life Insurance Agreement between the Company
and James K. Walsh dated as of October 12, 1993.(3).........
10.27 -- Split Dollar Life Insurance Agreement between the Company
and Jason E. Silvia dated as of April 27, 1994.(6)..........
10.28 -- Asset Purchase Agreement between the Company and
Constellation Software, Inc. dated February 15, 1994.(5)....
10.31 -- 1995 Non-Statutory Stock Option Plan, as amended and
effected January 1, 1996.(10)...............................
*10.31a -- 1995 Non-Statutory Stock Option Plan, as amended December
15, 1998....................................................
10.32 -- Split Dollar Life Insurance Agreement between the Company
and Charles F. Kane dated as of December 15, 1995.(10)......
10.33 -- Split Dollar Life Insurance Agreement between the Company
and Peter L. Fiore dated as of September 15, 1996.(10)......
10.34 -- Split Dollar Life Insurance Agreement between the Company
and Peter Gyenes dated as of June 15, 1996.(10).............
191
EXHIBIT
NUMBER
- -------
10.39 -- Split Dollar Life Insurance Agreement between the Company
and James D. Foy dated as of April 15, 1997.(9).............
10.40 -- Registration Rights Agreement dated February 10, 1998
between the Company and James T. Dresher.(11)...............
10.42 -- Distribution Agreement dated November, 1995 among System
Builder Software Ltd., SB Tech Pty. Ltd., Desmond Miller and
the Company.(12)............................................
10.43 -- Shareholder Agreement dated November 14, 1995 among certain
Shareholders of the Company and the Company.(12)............
*10.44 -- Split Dollar Life Insurance Agreement between the Company
and John G. Akers dated as of May 15, 1998..................
*10.45 -- Split Dollar Life Insurance Agreement between the Company
and David Brunel dated as of May 15, 1998...................
*10.46 -- Loan and Security Agreement -- Revolving Line of Credit
Loans by the Company to Silicon Valley Bank as of March 27,
1998........................................................
*10.47 -- Agreement of Merger by and among the Company, Dovetail
Acquisition Corp. and IntegraSoft, Inc. dated June 4,
1998........................................................
*21.1 -- Subsidiaries of Ardent......................................
23.1 -- Consent of Deloitte & Touche LLP............................
23.2 -- Consent of PricewaterhouseCoopers LLP.......................
23.3 -- Consent of PricewaterhouseCoopers LLP.......................
*27.1 -- Financial Data Schedule.....................................
99.1 -- Prism Proxy Card............................................
- ---------------
* Previously filed.
(1) Incorporated by reference to the respective exhibit filed with the
Company's Registration Statement on Form S-1, File No. 33-46533, initially
filed on March 19, 1992.
(2) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-8, File No. 333-00218, filed on January 5,
1996.
(3) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 28, 1994.
(4) Incorporated by reference to the exhibit filed with the Company's Form 8-K
dated May 19, 1994.
(5) Incorporated by reference to the exhibit filed with the Company's Form 8-K
dated March 1, 1994.
(6) Incorporated by reference to the exhibit with the Company's Form 8-K dated
March 29, 1996.
(7) Incorporated by reference to the respective exhibit of the Company's
Registration Statement on Form 8-A dated July 17, 1996, File No. 000-20059,
filed on July 29, 1996.
(8) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 28, 1996.
(9) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
dated November 12, 1997.
(10) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 31, 1997.
(11) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
dated February 12, 1998.
(12) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-4 dated December 31, 1997, File No.
333-43533, filed on December 31, 1997.