-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FAq+/sDrzNFcRm67gbdonJrhEOaTc6R09yjYYTe70exuWz5jXqEPLGX5p2gzzASw Pwu8RxpEOWgtJ5PNfuwM/w== 0000912057-97-018131.txt : 19970520 0000912057-97-018131.hdr.sgml : 19970520 ACCESSION NUMBER: 0000912057-97-018131 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURA SOFTWARE CORP CENTRAL INDEX KEY: 0000895021 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942874178 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21010 FILM NUMBER: 97609702 BUSINESS ADDRESS: STREET 1: 1060 MARSH RD CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 4153219500 MAIL ADDRESS: STREET 1: 1060 MARSH ROAD CITY: MENLO PARK STATE: CA ZIP: 94025 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD TO COMMISSION FILE NUMBER: 0-21010 --------------------- CENTURA SOFTWARE CORPORATION (Exact name of registrant as specified in its charter) CALIFORNIA 94-2874178 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1060 MARSH ROAD, MENLO PARK, 94025 CALIFORNIA (Address of principal executive (Zip Code) offices)
Registrant's telephone number, including area code: (415) 321-9500 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE PER SHARE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ As of April 30, 1997, there were 15,293,066 shares of the Registrant's Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CENTURA SOFTWARE CORPORATION FORM 10-Q for the Quarter Ended March 31, 1997 INDEX
PAGE NUMBER ----------- PART I FINANCIAL INFORMATION Item 1. Financial Statements and Supplementary Data a) Condensed consolidated balance sheets at March 31, 1997 and December 31, 1996............ 1 b) Condensed consolidated statements of operations for the three months ended March 31, 1997 and 1996................................................................................. 2 c) Condensed consolidated statements of cash flows for the three months ended March 31, 1997 and 1996................................................................................. 3 d) Notes to condensed consolidated financial statements..................................... 4-5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................... 6-15 PART II OTHER INFORMATION Item 1. Legal Proceedings................................................................... 16 Item 2. Changes in Securities............................................................... 16 Item 3. Defaults in Senior Securities....................................................... 16 Item 4. Submission of Matters to a Vote of Security Holders................................. 16 Item 5. Other Information................................................................... 16 Item 6. Exhibits and Reports on Form 8-K.................................................... 16
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CENTURA SOFTWARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 1997 31, 1996 ----------- ----------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents.......................................... $ 4,263 $ 6,669 Short-term investments............................................. 1,565 2,065 Accounts receivable, less allowances of $2,780 and $2,826.......... 9,524 13,574 Inventories........................................................ 81 216 Other current assets............................................... 3,408 3,300 ----------- ----------- Total current assets............................................. 18,841 25,824 Property and equipment, at cost, net of accumulated depreciation..... 3,374 3,622 Capitalized software, at cost, net of accumulated amortization....... 4,098 4,226 Long-term investments................................................ 1,070 1,221 Other assets......................................................... 1,748 1,812 ----------- ----------- Total assets..................................................... $ 29,131 $ 36,705 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Current portion of long-term debt.................................. $ 279 $ 336 Accounts payable................................................... 4,269 5,683 Accrued compensation and related expenses.......................... 3,895 2,484 Other accrued liabilities.......................................... 1,349 4,313 Accrued litigation expenses........................................ 209 6,733 Deferred revenue................................................... 19,061 21,891 ----------- ----------- Total current liabilities........................................ 29,062 41,440 Long-term debt, less current portion................................. 10,000 10,032 Other long-term liabilities.......................................... 2,348 2,156 ----------- ----------- Total liabilities................................................ 41,410 53,628 ----------- ----------- Shareholders' Deficit: Preferred stock, no par value; 2,000 shares authorized; none issued........................................................... -- -- Common stock, par value $.01 per share; 60,000 shares authorized; 15,238 shares and 13,728 shares issued and outstanding........... 69,671 63,047 Cumulative translation adjustment.................................. (428) (513) Accumulated deficit................................................ (81,522) (79,457) ----------- ----------- Total shareholders' deficit...................................... (12,279) (16,923) ----------- ----------- Total liabilities and shareholders' deficit...................... $ 29,131 $ 36,705 ----------- ----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1 CENTURA SOFTWARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- Net revenues: Product................................................................................... $ 9,514 $ 10,931 Service................................................................................... 4,086 4,462 --------- --------- Net revenues............................................................................ 13,600 15,393 --------- --------- Cost of revenues: Product................................................................................... 1,366 1,246 Service................................................................................... 2,119 2,195 --------- --------- Cost of revenues........................................................................ 3,485 3,441 --------- --------- Gross profit.......................................................................... 10,115 11,952 --------- --------- Operating expenses: Sales and marketing....................................................................... 6,623 6,753 Research and development.................................................................. 2,703 2,901 General and administrative................................................................ 1,693 1,641 Acquisition expense....................................................................... 261 -- --------- --------- Total operating expenses................................................................ 11,280 11,295 --------- --------- Operating income (loss)............................................................... (1,165) 657 Other income (expense): Interest income........................................................................... 55 194 Interest expense.......................................................................... (214) (187) Foreign currency loss..................................................................... (731) (181) --------- --------- Income (loss) before income taxes........................................................... (2,055) 483 Provision for income taxes.................................................................. 10 162 --------- --------- Net income (loss)........................................................................... $ (2,065) $ 321 --------- --------- --------- --------- Net income (loss) per share................................................................. $ (.14) $ .03 --------- --------- --------- --------- Weighted average common shares and equivalents.............................................. 15,224 12,665 --------- --------- --------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 CENTURA SOFTWARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net income (loss).......................................................................... $ (2,065) $ 321 Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization............................................................ 1,383 1,191 Provision for doubtful accounts.......................................................... 12 10 Provision for sales returns and allowances............................................... 94 474 Changes in assets and liabilities: Accounts receivable.................................................................... 3,944 799 Inventories............................................................................ 135 114 Other current assets................................................................... (108) (1,216) Other assets........................................................................... 2 14 Accounts payable and accrued liabilities............................................... (2,967) (3,489) Deferred revenue....................................................................... (2,830) (656) Accrued litigation expense............................................................. 9 -- Other long-term liabilities............................................................ 192 123 --------- --------- Net cash used in operating activities................................................ (2,199) (2,315) --------- --------- Cash flows from investing activities: Maturities of investments.................................................................. 652 4,046 Purchases of investments................................................................... (1) (180) Proceeds from sale of property and equipment............................................... 69 52 Acquisitions of property and equipment..................................................... (511) (429) Capitalization of software costs........................................................... (466) (827) Capitalization of other intangibles........................................................ (37) (15) --------- --------- Net cash provided by (used in) investing activities.................................. (294) 2,647 --------- --------- Cash flows from financing activities: Repayment of note payable.................................................................. (89) (81) Repayment of capital lease obligations..................................................... -- (12) Proceeds from issuance of common stock, net................................................ 91 204 --------- --------- Net cash provided by financing activities............................................ 2 111 --------- --------- Effect of exchange rate changes on cash and cash equivalents................................. 85 18 --------- --------- Net increase (decrease) in cash and cash equivalents......................................... (2,406) 461 Cash and cash equivalents at beginning of period............................................. 6,669 9,865 --------- --------- Cash and cash equivalents at end of period................................................... $ 4,263 $ 10,326 --------- --------- --------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 CENTURA SOFTWARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES METHOD OF PREPARATION. The condensed consolidated balance sheet as of March 31, 1997 and the condensed consolidated statements of operations and cash flows for the three months ended March 31, 1997 and 1996 have been prepared by Centura Software Corporation (the "Company") without audit. In the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations, and cash flows have been made for all periods presented. The financial data should be reviewed in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations for the three month period ended March 31, 1997, are not necessarily indicative of the operating results to be expected for the full year. The December 31, 1996 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. COMPUTATION OF NET INCOME (LOSS) PER SHARE. Net income (loss) per share is computed using the weighted average number of common and common equivalent shares outstanding. Common stock equivalents (using the modified treasury stock method) have been included in the computation when dilutive. Convertible debentures, which are not common stock equivalents, are excluded in a fully diluted calculation of earnings (loss) per share because their effect is antidilutive. RECENT ACCOUNTING PRONOUNCEMENT. Effective for both interim and annual financial statements for the periods ending after December 15, 1997, the Company will adopt Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share", which replaces primary and fully diluted earnings per share computed in accordance with Accounting Principles Board Opinion No. 15 with a calculation called Basic Earnings Per Share and Diluted Earnings Per Share. Basic Earnings Per Share will be calculated by dividing income available to common shareholders by weighted average common shares outstanding. Diluted Earnings Per Share is calculated by dividing income available to common shareholders by the assumed conversion of all potentially dilutive securities under the treasury stock method. Early adoption is prohibited. The adoption of SFAS 128 would not have had a material impact on the Company's earnings per share for the three months ended March 31, 1997. RECLASSIFICATIONS. In order to conform to the condensed consolidated statement of cash flows for the three months ended March 31, 1997, certain reclassifications have been made to the condensed consolidated statement of cash flows for the three months ended March 31, 1996. 2. LITIGATION On May 2, 1994, a lawsuit was filed against the Company and certain of its officers and directors, by a holder of the Company's common stock, on his own behalf and purportedly on behalf of a class of others similarly situated. The lawsuit was subsequently amended, and alleged that the Company made false and misleading statements and failed to disclose material information relating to existing business conditions and the Company's prospects and that officers and directors violated the insider trading laws. The plaintiff was seeking damages of an unstated amount. The Company reached a binding settlement agreement with plaintiffs' counsel in this lawsuit, and gained court approval on September 30, 1996. Under the terms of the agreement, the Company would provide $3 million and 1,875,000 shares to a fund to be distributed among the members of the plaintiff 4 CENTURA SOFTWARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. LITIGATION (CONTINUED) class. The Company also agreed to supplement this payment with up to 625,000 additional shares in the event the value of its common stock was less than an average price of $6.00 per share during certain twenty day trading periods specified by the Court. The Company's directors and officers' liability insurer paid approximately $2 million of the cash contribution to the settlement fund. The Company paid the remaining cash settlement during 1996. The 1995 financial statements include $15.3 million in litigation expense for the agreement and associated legal expenses. As of March 31, 1997, the Company has distributed all common stock shares as required by the settlement agreement. As of March 31, 1997, to the best of the Company's knowledge there were no other pending actions, potential actions, claims or proceedings against the Company that were likely to result in potential damages that would have a material adverse impact on the Company's financial statements. As noted in the "Risk Factors" in Item 2, the Company exists in a volatile legal and regulatory environment and it is not possible to anticipate or estimate the potential adverse impact of unknown claims or liabilities against the Company, its officers and directors, and as such no estimate is made in the Company's financial statements for such unknown claims or liabilities. 3. TERMINATION OF MERGER AGREEMENT WITH INFOSPINNER INC. On January 6, 1997, the Company entered into a definitive agreement (the "Agreement") to acquire InfoSpinner, Inc. ("InfoSpinner") of Richardson, Texas. The completion of the transaction was subject to the approval of both companies' shareholders as well as other legal requirements. Additionally, under the terms of the Agreement, either party had the right to terminate the transaction if the merger had not been consummated by April 30, 1997. As of April 30, 1997, the Company did not obtain the majority vote of the shareholders required for the approval of the proposed merger, and as a result, the board of directors of InfoSpinner elected to exercise its right to terminate the transaction. In addition to the Agreement, the companies also entered into a distributorship agreement (the "Distributorship Agreement") on January 6, 1997, which grants the Company the right to distribute InfoSpinner's Foresite Web Integration Server on a worldwide basis. The Distributorship Agreement remains in full force and effect. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of certain of the risk factors set forth below and elsewhere in this Quarterly Report on Form 10-Q. In evaluating the Company's business, prospective investors should carefully consider the following factors in addition to the other information presented in this report. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I-Item 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. RESULTS OF OPERATIONS: NET PRODUCT REVENUES. Net product revenues decreased 13% to $9.5 million for the quarter ended March 31, 1997, from $10.9 million for the quarter ended March 31, 1996. The decrease in net product revenues is primarily attributable to decreased sales of SQLWINDOWS products, resulting from the introduction of the CENTURA product line during May 1996, and decreased sales of SQLBASE products partially offset by new revenues generated by sales of the Company's CENTURA product and FORESITE the Internet integration products sold by the Company pursuant to the Distributorship Agreement with InfoSpinner, Inc. Channel sales provided 50% and 47% of net product revenues, and corporate sales provided 50% and 53% of net product revenues for the quarters ended March 31, 1997 and 1996, respectively. International sales accounted for $6.1 million or 63% and $7.4 million or 67% of net product revenues for the quarters ended March 31, 1997 and 1996, respectively. The decrease in international sales of $1.3 is primarily due to decreased sales in the Asia Pacific and Latin America areas, caused in large part by distributor problems in Japan and Brazil which the Company is currently addressing. NET SERVICE REVENUES. Net service revenues decreased 8% to $4.1 million for the quarter ended March 31, 1997, from $4.5 million for the quarter ended March 31, 1996, primarily due to the reduction in professional services and customer training, which was handled by channel partners. International sales accounted for 38% and 39% of total net service revenues for the quarters ended March 31, 1997 and 1996, respectively. COST OF PRODUCT REVENUES. Cost of product revenues includes the cost of subcontracted production and the amortization of capitalized software. Cost of product revenues increased 10% to $1.4 million for the quarter ended March 31, 1997, from $1.2 million for the quarter ended March 31, 1996, primarily due to the increased amortization of capitalized software related to the CENTURA product line for the quarter ended March 31, 1997. Cost of product revenue as a percentage of product revenues was 14% and 11% for the quarters ended March 31, 1997 and 1996. In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed", the Company capitalizes internal development costs on a project when the technological feasibility of such project has been determined. The Company ceases capitalizing such expenses when the products derived from the project are released for sale. The capitalized costs are then amortized ratably over the useful life of the products, generally estimated to be two to three years. Amortization of capitalized software costs, which include the software purchased from third parties, increased to $594,000 for the three months ended March 31, 1997 from $316,000 for the three months ended March 31, 1996. COST OF SERVICE REVENUES. Cost of service revenues consists primarily of personnel costs related to maintenance, training and technical support. Cost of service revenues remained constant at $2.1 million 6 and $2.2 million for the quarters ended March 31, 1997 and 1996, respectively. Cost of service revenues as a percentage of net service revenues was 52% and 49% for the quarters ended March 31, 1997 and 1996, respectively. The increase in percentage is a result of decreased net service revenue. SALES AND MARKETING EXPENSES. For the quarter ended March 31, 1997, the Company spent $6.6 million, or 49% of net revenues, in sales and marketing activities, compared to $6.8 million, or 44% of net revenues, for the quarter ended March 31, 1996. The reduction in sales and marketing expense reflects the Company's commitment to control spending, while continuing its worldwide marketing efforts. RESEARCH AND DEVELOPMENT EXPENSES. The table below sets forth gross research and development expenses, capitalized software development costs, and net research and development expenses in dollar amounts and as a percentage of net revenues for the periods indicated:
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Gross research and development expenses............................... $ 3,019 $ 3,728 Capitalized internal software development costs....................... (316) (827) --------- --------- Net research and development expenses................................. $ 2,703 $ 2,901 --------- --------- --------- --------- As a Percentage of Net Revenues: Gross research and development expenses............................. 22% 24% Net research and development expenses............................... 20% 19%
The decrease in gross research and development expenses, and capitalized internal software development costs reflects the fact that the Company accelerated development to have the CENTURA product line ready for sale during the second quarter of 1996. Gross research and development costs have decreased correspondingly since the initial release date of the CENTURA product. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses remained relatively constant at $1.7 million for the first quarter of 1997 and $1.6 million for the first quarter of 1996. OTHER INCOME (EXPENSE), NET. Other income (expense), net is comprised of interest income, interest expense, and gains or losses on foreign currency transactions. For the quarter ended March 31, 1997 other income (expense), net was $(0.9) million, compared to $(0.2) million for the quarter ended March 31, 1996. The net increase in expense is primarily attributable to a reduction in interest income resulting from decreased cash, cash equivalents and investments of $11.5 million between March 31, 1997 and 1996, and increased foreign currency loss resulting primarily from the strengthening of the United States Dollar against the British Pound and German Mark between December 31, 1996 and March 31, 1997. PROVISION FOR INCOME TAXES. The provision for income taxes was insignificant for the first quarter of 1997 and $0.2 million in the first quarter of 1996. The provision primarily relates to foreign withholding taxes. Due to the Company's existing net operating loss position with regard to prior years, no tax provision was made for income in this quarter. LIQUIDITY AND CAPITAL RESOURCES: At March 31, 1997, the Company had a deficit working capital position of $10.2 million due principally to deferred revenues of $19.1 million. Net cash used in operating activities for the quarter ended March 31, 1997 was $2.2 million, which resulted primarily from the net loss, decrease in accounts payable and accrued liabilities, and decrease in deferred revenues offset by the decrease in accounts receivable, and depreciation and amortization expense for the quarter. Cash used in investing activities totaled $0.3 million, which 7 related primarily to the capitalization of software development costs of $0.5 million and the purchases of property and equipment of $0.5 million offset by the maturities of short-term investments of $0.7 million. During March 1995, the Company entered into an unsecured floating rate convertible subordinated note and related agreement with Computer Associates International, Inc. (the "CA Agreement") for $10.0 million. The note matures in 1998 and is convertible into common stock at the Company's option on the maturity date for a number of shares based on the market price of the Company's common stock at the time of conversion. Interest on the note is the one-month LIBOR plus 1.25% and is payable quarterly. At the Company's option interest payments may be deferred until the principal is due. Material covenants of the Company under the CA Agreement include the Company's agreement to: pay and discharge its material obligations and liabilities, including tax obligations; continue to engage in business of the same general type currently conducted; refrain from declaring any dividend or from repurchasing or redeeming its common stock or indebtedness; refrain from consolidating or merging (except where the Company is the surviving corporation and incurs no event of default under such note); refrain from incurring senior or pari passu indebtedness or from creating or incurring encumbrances or liens, other than certain permitted liens on its properties. The agreement also requires the Company to maintain a minimum market capitalization of $40.0 million commencing on (and including) November 1, 1997, and continuing through the duration of the note (the "Minimum Market Capitalization Requirement"). If the Company does not meet the Minimum Market Capitalization Requirement, the Company will lose the option to convert the note into common stock, and all outstanding principal and interest will be due and payable on the conversion date, May 1, 1998. Additional financing may be required to meet NASDAQ minimum net worth requirements, fund continuing operations, as well as, to pay the unsecured floating rate convertible subordinated note and related outstanding interest with CA. The Company believes that expected cash flows from operations and existing cash balances, may not meet the Company's currently anticipated working capital and capital expenditure requirements for the next 12 months. The Company is exploring several options to raise cash for operational or other needs. There can be no assurance that financing will be available on reasonable terms or at all. Any additional equity financing will result in dilution to the Company's shareholders. The Company's capital requirements also may be affected by acquisitions of businesses, products and technologies that are complementary to the Company's business, which the Company considers from time to time. The Company regularly evaluates such opportunities. Any such transaction, if consummated, may further reduce the Company's working capital or require the issuance of equity. FACTORS THAT MAY AFFECT FUTURE RESULTS RECENT COMPANY LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS. The Company has experienced in the past and expects in the future to continue to experience significant fluctuations in quarterly operating results. There can be no assurance that the restructuring of the Company's business strategies and tactics, commenced in early 1996, will be successful or that the Company will be able to achieve or sustain any such profitability on a quarterly or annual basis. The Company's product licensing arrangements are subject to sell-through revenue recognition which makes estimation of revenue dependent on reporting by the Company's resellers and distributors and extremely uncertain. In addition, quarterly operating results of the Company will depend on a number of other factors that are difficult to forecast, including, general market demand for the Company's products; the size and timing of individual orders during a quarter; the Company's ability to fulfill such orders; introduction, localization or enhancement of products by the Company; delays in the introduction and/or enhancement of products by the Company and its competitors; market acceptance of new products; reviews in the industry press concerning the products of the Company or its competitors; software "bugs" or other product quality problems; competition and pricing in the software industry; sales mix among distribution channels; customer order deferrals in anticipation of new products; reduction in demand for existing products and shortening of product life cycles as a result of new product introductions; changes in operating expenses; changes in the Company's strategy; personnel 8 changes; foreign currency exchange rates; mix of products sold; inventory obsolescence; product returns and rotations; and general economic conditions. Sales of the Company's products also may be negatively affected by delays in the introduction or availability of new hardware and software products from third parties. The Company's financial results also may vary as a result of seasonal factors including year and quarter end purchasing and the timing of marketing activities, such as industry conventions and tradeshows. Although the Company has operated historically with little or no backlog of traditional boxed product shipments, it has experienced a seasonal pattern of product revenue decline between the fourth quarter and the succeeding first quarter, contributing to lower worldwide product revenues and operating results during such quarters. It has generally realized lower European product revenues in the third quarter as compared to the rest of the year. The Company has also experienced a pattern of recording a substantial portion of its revenues in the third month of a quarter. As a result, product revenues in any quarter are dependent on orders booked in the last month. Because the Company's staffing and other operating expenses are based in part on anticipated net revenues, a substantial portion of which may not be generated until the end of each quarter, delays in the receipt or shipment of orders, including delays that may be occasioned by failures of third party product fulfillment firms to produce and ship products, or the actual loss of product orders can cause significant variations in operating results from quarter to quarter. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in sales of the Company's products in relation to the Company's expectations could have an immediate adverse impact on the Company's business, operating results and financial condition. To the extent that the Company's expenses precede or are not subsequently followed by increased revenues, its business, operating results and financial condition could be materially and adversely affected. In addition, the Company currently intends to increase its operating expenses to primarily fund increases in its sales and marketing operations and expand distribution channels. To the extent that such expenses precede or are not subsequently followed by increased net revenues, the Company's business, operating results and financial condition could be materially and adversely affected. Due to the foregoing factors, it is likely that the Company's operating results for some future quarter will fall below the expectations of securities analysts and investors. In such event, the trading price of the Company's common stock could be materially and adversely affected. VOLATILITY OF THE COMPANY'S COMMON STOCK PRICE. The market for the Company's common stock is highly volatile. The trading price of the Company's common stock fluctuated widely in 1996 and the first three months in 1997 and may continue to be subject to wide fluctuations in response to quarterly variations in operating and financial results, announcements of new products or customer contracts by the Company or its competitors, litigation and other factors. Any shortfall in revenue or earnings from levels expected by securities analysts or others could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, the Company may not learn of, or be able to confirm, revenue or earnings shortfalls until late in the fiscal quarter or following the end of the quarter, which could result in an even more immediate and adverse effect on the trading of the Company's common stock. Finally, the Company participates in a highly dynamic industry, which often results in significant volatility of its common stock price. NEED FOR ADDITIONAL EQUITY FINANCING. The Company may be required to seek additional equity financing to meet NASDAQ minimum net worth requirements, continuing operations, as well as, pay the unsecured floating rate convertible subordinated note and related outstanding interest with CA. Furthermore, the Company must achieve a reasonable operating performance to satisfy its current and future financing needs. There can be no assurance that financing will be available on reasonable terms or at all. Any additional equity financing will result in dilution to the Company's shareholders. NEW PRODUCT RISKS; RAPID TECHNOLOGICAL CHANGE. The markets for the Company's software products and services are characterized by rapid technological developments, evolving industry standards, swift 9 changes in customer requirements and computer operating environments, and frequent new product introductions and enhancements. As a result, the success of the Company depends substantially upon its ability to continue to enhance its existing products, develop and introduce in a timely manner new products incorporating technological advances and meet increasing customer expectations, all on a timely and cost-effective basis. To the extent one or more competitors introduce products that better address customer needs, the Company's business could be adversely affected. The Company currently markets the following primary products: CENTURA, SQLWINDOWS, SQLBASE and SQLHOST, as well as FORESITE, the Internet integration product, sold by the Company on a non-exclusive basis pursuant to the Distributorship Agreement with InfoSpinner, Inc. Its strategy is centered on the successful delivery and market acceptance of its CENTURA products and FORESITE product. The release of the CENTURA line of products occurred in May 1996. The Company's success will also depend on the ability of its products to perform well with existing and future leading, industry-standard application software products intended to be used in connection with RDBMS. Any failure to deliver these products as scheduled or their failure to achieve early market acceptance as a result of competition, technological change, failure of the Company to timely release new versions or upgrades, the failure of such upgrades to achieve market acceptance or otherwise, could have a material adverse effect on the business, operating results and financial condition of the Company. In addition, commercial acceptance of the Company's products and services could be adversely affected by critical or negative statements or reports by industry and financial analysts concerning the Company and its products, or other factors such as the Company's financial performance. If the Company is unable to develop and introduce new products or enhancements to existing products in a timely manner in response to changing market conditions or customer requirements, its business, operating results and financial condition could be materially and adversely affected. The Company depends substantially upon internal efforts for the development of new products and product enhancements. The Company has in the past experienced delays in the development of new products and product versions, which resulted in loss or delays of product revenues, and there can be no assurance that the Company will not experience further delays in connection with its current product development or future development activities. Also, software products as complex as those offered by the Company may contain undetected errors when first introduced or as new versions are released. The Company has in the past discovered software errors in certain of its new products and enhancements, respectively, after their introduction. Although the Company has not experienced material adverse effects resulting from any such errors to date, there can be no assurance that errors will not be found in new products or releases after commencement of commercial shipments, resulting in adverse product reviews and a loss of or delay in market acceptance, which could have a material adverse effect upon the Company's business, operating results and financial condition. From time to time, the Company or its competitors may announce new products, product versions, capabilities or technologies that have the potential to replace or shorten the life cycles of the Company's existing products. The Company has historically experienced increased returns of a particular product version following the announcement of a planned release of a new version of that product. The Company provides allowances for anticipated returns, and believes its existing policies result in the establishment of allowances that are adequate, and have been adequate in the past, but there can be no assurance that product returns will not exceed such allowances in the future. The announcement of currently planned or other new products may cause customers to delay their purchasing decisions in anticipation of such products, which could have a material adverse effect on business, operating results and financial condition of the Company. HIGHLY COMPETITIVE MARKETS. The markets for software products such as the Company's products are intensely competitive, subject to rapid change and characterized by constant demand for new product features, pressure to accelerate the release of new products and product enhancements and to reduce prices. A number of companies currently offer products that compete directly or indirectly with one or more of the Company's products. Competitors of the Company include, among others, providers of 10 sophisticated database software, originally designed and marketed primarily for use with mainframes and minicomputers, including IBM, Informix Corporation, Ingres, Oracle and Sybase. The Company also faces competition from providers of PC-based software products, including Microsoft and Borland. These competitors offer database server products and front-end tools designed for stand-alone PCs but may currently or may in the future offer additional integrated PC client/server software. In addition, the Company faces competition from providers of software specifically developed for the PC client/server market, including front-end tools offered by Sybase's Powersoft Division, Microsoft, and Forte, and connectivity software competitors, such as IBI Systems, Inc. and Sybase's Micro DecisionWare Division. The Company also faces potential competition from vendors of applications development tools based on 4GLs or CASE technologies. With the emergence of the World Wide Web as an important platform for application development and deployment, additional competitors or potential competitors have emerged. Many of the Company's competitors or potential competitors have longer operating histories and significantly greater financial, managerial, technical, and marketing resources, as well as greater name recognition and a larger installed base, than the Company. A variety of potential actions by any of these competitors, including a reduction of product prices, increased promotion, announcement or accelerated introduction of new or enhanced products or features, acquisitions of software applications or technologies from third parties, the formation of strategic alliances, product giveaways or product bundling could have a material adverse effect on the business, operating results and financial condition of the Company. The Company's products experienced increased competition in 1995, 1996 and the first quarter of 1997, resulting in loss of market share. Present or future competitors may be able to develop products comparable or superior to those offered by the Company or adapt more quickly to new technologies or evolving customer requirements. Such competition has in the past and may again in the future result in price reductions and/or loss of market share and has in the past and may again in the future have a material adverse effect on the Company's business, operating results and financial condition. In particular, while the Company is currently developing additional product enhancements that it believes address customer requirements, there can be no assurance that the development or introduction of these additional product enhancements will be successfully completed on a timely basis or that these product enhancements will achieve market acceptance. Accordingly, there can be no assurance that the Company will be able to continue to compete effectively in its markets, that competition will not intensify or that future competition will not have a material adverse effect on the Company's business, operating results and financial condition. MARKET ACCEPTANCE OF PC CLIENT/SERVER SYSTEMS. Substantially all of the Company's revenues have been derived from the licensing of software products for PC client/server systems. Licenses of such products are expected to continue to account for substantially all of the Company's revenues for the foreseeable future. With the increasing focus on enterprise-wide systems, some customers may opt for solutions that favor mainframe or mini-computer solutions. Accordingly, some companies may abandon use of PC client/server systems, which could have a material adverse effect on the Company's future success. COMPONENTIZED MARKETS. The advent of so-called componentized software may alter the way in which customers buy software. As specific software functionality can be bundled into smaller units or objects rather than in broad, highly functional products such as the Company's development tools, customers may be less willing to buy such broad, highly functional products. If such a trend continues, there can be no assurance that the Company will be able to repackage and efficiently distribute its products in such componentized packages. The costs and efforts necessary to package and distribute such components are largely unknown. Failure of the Company to introduce componentized products successfully and cost-effectively could have a material adverse effect on the Company's business, operating results and financial condition. 11 INTERNET SOFTWARE MARKET. The market for Internet software in general, and the segments of such market addressed by the FORESITE products sold by the Company on a non-exclusive basis pursuant to a Distributorship Agreement with InfoSpinner, Inc. and the Company's other products are relatively new. The future financial performance of the Company will depend in part on the continued expansion of this market and these market segments and the growth in the demand for FORESITE products and other products developed by the Company, as well as increased acceptance of the Company's products by MIS professionals. There can be no assurance that the Internet software market and the relevant segments of the market will continue to grow, that the Company will be able to respond effectively to the evolving requirements of the market and market segments, or that MIS professionals will accept the Company's products. If the Company is not successful in developing, marketing, localizing and selling applications that gain commercial acceptance in these markets and market segments on a timely basis, the Company's business, operating results and financial condition could be materially and adversely affected. DEPENDENCE UPON DISTRIBUTION CHANNELS. The Company relies on relationships with value-added resellers and distributors for a substantial portion of its sales and revenues. Some of the Company's resellers and distributors also offer competing products. Most of the Company's resellers and distributors are not subject to any minimum purchase requirements, can cease marketing the Company's products at any time, and may from time to time be granted stock exchange or rotation rights. The introduction of new and enhanced products may result in higher product returns and exchanges. Any product returns or exchanges in excess of recorded allowances could have a material adverse effect on the Company's business, operating results and financial condition. The Company also maintains strategic relationships with a number of vertical software vendors and other technology companies for marketing or resale of the Company's products. Any termination or significant disruption of the Company's relationship with any of its resellers or distributors, or the failure by such parties to renew agreements with the Company, could materially and adversely affect the Company's business, operating results and financial condition. Since 1994 the Company has reduced its resources devoted to North American corporate sales and also decreased its expenditures on corporate and product marketing. The Company expects to rely increasingly on third-party channels for sales of packaged product while focusing its corporate sales efforts on larger opportunities. Failure of the Company to successfully implement, support and manage the sales strategies could have a material adverse effect on the Company. The distribution channels through which client/server software products are sold have been characterized by rapid change, including consolidations and financial difficulties of distributors, resellers and other marketing partners including certain of the Company's current distributors. The bankruptcy, deterioration in financial condition or other business difficulties of a distributor or retailer could render the Company's accounts receivable from such entity uncollectible, which could result in a material adverse effect on the Company's business, operating results and financial condition. There can be no assurance that distributors will continue to purchase the Company's products or provide the Company's products with adequate promotional support. Failure of distributors to do so could have a material and adverse effect on the Company's business, operating results and financial condition. In a number of markets, including rapidly growing client/server markets such as Japan, Korea, China/ Hong Kong and Brazil, the Company has entered into quasi-exclusive multi-year agreements with independent companies that have also licensed the use of the Company's name. These agreements are in place to increase the Company's opportunities and penetration in such markets where the rapid adoption of client/server technologies is anticipated. While the Company believes that to date these agreements have increased the Company's penetration in these markets, there can be no certainty that this performance will continue nor that these relationships will remain in place. The Company's future cost of maintaining its business in these markets could increase substantially if these agreements are not renewed. 12 DEPENDENCE ON THIRD PARTY ORGANIZATIONS. The Company is increasingly dependent on the efforts of third party "partners", including consultants, system houses and software developers to implement, service and support the Company's products. These third parties increasingly have opportunities to select from a very broad range of products from the Company's competitors, many of whom have greater resources and market acceptance than the Company. In order to succeed, the Company must actively recruit and sustain relationships with these third parties. There can be no assurance that the Company will be successful in recruiting new partners or in sustaining its relationships with its existing partners. INTERNATIONAL SALES AND OPERATIONS. A key component of the Company's strategy is continued expansion into international markets, and the Company currently anticipates that international sales, particularly in new and emerging markets, will continue to account for a significant percentage of total revenues. The Company will need to retain effective distributors, and hire, retain and motivate qualified personnel internationally to maintain and/or expand its international presence. There can be no assurance that the Company will be able to successfully market, sell, localize and deliver its products in these international markets. In addition to the uncertainty as to the Company's ability to sustain or expand its international presence, there are certain risks inherent in doing business on an international level, such as unexpected changes in regulatory requirements and government controls, problems and delays in collecting accounts receivable, tariffs, export license requirements and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, political and economic instability, fluctuations in currency exchange rates, seasonal reductions in business activity during summer months in Europe and certain other parts of the world, restrictions on the export of critical technology, and potentially adverse tax consequences, which could adversely impact the success of international operations. Sales of products by the Company currently are denominated principally in U.S. dollars. Accordingly, any increase in the value of the U.S. dollar as compared to currencies in overseas markets would increase the foreign currency-denominated cost of the Company's products, which may negatively affect the Company's sales in those markets. In addition, effective copyright and trade secret protection may be limited or unavailable under the laws of certain foreign jurisdictions. There can be no assurance that one or more of such factors will not have a material adverse effect on the Company's international operations and, consequently, on the Company's business, operating results and financial condition. DEPENDENCE ON KEY PERSONNEL. The Company's future performance is substantially dependent on the performance of its executive officers and key product development, technical, sales, marketing and management personnel. The Company does not have employment or non-competition agreements with any of its employees except Sam Inman, the Company's CEO and President. The loss of the services of any executive officer or other key technical or management personnel of the Company for any reason could have a material adverse effect on the business, operating results and financial condition of the Company. The future success of the Company also depends on its continuing ability to identify, hire, train, motivate and retain other highly qualified technical and managerial personnel. Competition for such personnel is intense and the Company has experienced difficulty in identifying and hiring qualified engineering and software development personnel. There can be no assurance that the Company will be able to attract, assimilate or retain other highly qualified technical and managerial personnel in the future. The inability to attract and retain the necessary technical and managerial personnel could have a material and adverse effect upon its business, operating results and financial condition. PROPRIETARY RIGHTS. The success and ability of the Company to compete is dependent in part upon the Company's proprietary technology. While the Company relies on trademark, trade secret and copyright laws to protect its technology, the Company believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and customer support are more essential to establishing and maintaining a technology leadership position. The Company has one patent with respect to its SQLWINDOWS and CENTURA products. The Company believes that the ownership of patents is not presently a significant factor in its business and that its success does 13 not depend on the ownership of patents, but primarily on the innovative skills, technical competence and marketing abilities of its personnel. Also, there can be no assurance that others will not develop technologies that are similar or superior to the Company's technology. The source code for the Company's proprietary software is protected both as a trade secret and as a copyrighted work. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use their products or technology without authorization, or to develop similar technology independently. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. The Company generally enters into confidentiality or license agreements with its employees, consultants and vendors, and generally controls access to and distribution of its software, documentation and other proprietary information. Despite efforts to protect proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that is regarded as proprietary. Policing such unauthorized use is difficult. There can be no assurance that the steps taken by the Company will prevent misappropriation of the Company's technology or that such agreements will be enforceable. In addition, litigation may be necessary in the future to enforce intellectual property rights, to protect trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results and financial condition. There can be no assurance that third parties will not claim infringement by the Company with respect to current or future products, and the Company expects that it will increasingly be subject to such claims as the number of products and competitors in the client/server and Internet connectivity software market grows and the functionality of such products overlaps with other industry segments. In the past, the Company has received notices alleging that its products infringe trademarks of third parties. The Company has historically dealt with and will in the future continue to deal with such claims in the ordinary course of business, evaluating the merits of each claim on an individual basis. There are currently no material pending legal proceedings against the Company regarding trademark infringement. Any such third party claims, whether or not they are meritorious, could result in costly litigation or require the Company to enter into royalty or licensing agreements. Such royalty or license agreements, if required, may not be available on terms acceptable to the Company, or at all. If the Company was found to have infringed upon the proprietary rights of third parties, it could be required to pay damages, cease sales of the infringing products and redesign or discontinue such products, any of which could have a material adverse effect on the Company's business, operating results and financial condition. MANAGEMENT OF POTENTIAL GROWTH; INTEGRATION OF POTENTIAL ACQUISITIONS. In recent years, the Company has experienced both expansion and contraction of its operations each of which has placed significant demands on the Company's administrative, operational and financial resources. To manage future growth, if any, the Company must continue to improve its financial and management controls, reporting systems and procedures on a timely basis and expand, train and manage its work force. There can be no assurance that the Company will be able to perform such actions successfully. The Company intends to continue to invest in improving its financial systems and controls in connection with higher levels of operations. Although the Company believes that its systems and controls are adequate for the current level of operations, the Company anticipates that it may need to add additional personnel and expand and upgrade its financial systems to manage any future growth. The Company's failure to do so could have a material adverse effect upon the Company's business, operating results and financial condition. In the future, the Company may make acquisitions of complementary companies, products or technologies. Managing acquired businesses entails numerous operational and financial risks, including difficulties in assimilating acquired operations, diversion of management's attention to other business concerns, amortization of acquired intangible assets and potential loss of key employees or customers of acquired operations. There can be no assurance that the Company will be able to effectively achieve growth, or manage any such growth, and failure to do so could have a material adverse effect on the Company's operating results. 14 LEGAL PROCEEDINGS. There are currently no material pending legal proceedings against the Company or any of its subsidiaries, other than ordinary routine litigation incidental to the business of the Company. The Company operates, however, in a complex and volatile industry in which disputes, litigation, regulatory proceedings and other actions are a necessary risk of doing business. There can be no assurance that the Company will not participate in such legal proceedings and that the costs and charges will not have a material adverse impact on the Company's future success. 15 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On May 2, 1994, a lawsuit was filed against the Company and certain of its officers and directors, by a holder of the Company's common stock, on his own behalf and purportedly on behalf of a class of others similarly situated. The lawsuit was subsequently amended, and alleged that the Company made false and misleading statements and failed to disclose material information relating to existing business conditions and the Company's prospects and that officers and directors violated the insider trading laws. The plaintiff was seeking damages of an unstated amount. The Company reached a binding settlement agreement with plaintiffs' counsel in this lawsuit, and gained court approval on September 30, 1996. Under the terms of the agreement, the Company would provide $3 million and 1,875,000 shares to a fund to be distributed among the members of the plaintiff class. The Company also agreed to supplement this payment with up to 625,000 additional shares in the event the value of its common stock was less than an average price of $6.00 per share during certain twenty day trading periods specified by the Court. The Company's directors and officers' liability insurer paid approximately $2 million of the cash contribution to the settlement fund. The Company paid the remaining cash settlement during 1996. The 1995 financial statements include $15.3 million in litigation expense for the agreement and associated legal expenses. As of March 31, 1997, the Company has distributed all common stock shares as required by the settlement agreement. ITEM 2. CHANGES IN SECURITIES -- NOT APPLICABLE ITEM 3. DEFAULTS IN SENIOR SECURITIES -- NOT APPLICABLE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- NOT APPLICABLE ITEM 5. OTHER INFORMATION -- NOT APPLICABLE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
EXHIBIT NUMBER DESCRIPTION - ----------- --------------------------------------------------------------------------------------------------- 10.21* Distributorship Agreement dated January 6, 1997 between Centura Software Corporation and InfoSpinner, Inc.
- ------------------------ * Indicates that portions have been omitted for which confidential treatment was granted by the Securities and Exchange Commission pursuant to an order dated April 2, 1997. (b) Reports on Form 8-K -- Not Applicable 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTURA SOFTWARE CORPORATION Date: May 15, 1997 By: /s/ RICHARD A. GELHAUS ----------------------------------------- Richard A. Gelhaus, SENIOR VICE PRESIDENT OF FINANCE AND OPERATIONS, CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 17 EX-10.21 2 EXHIBIT 10.21 AN "XXX" INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND EXCHANGE COMMISSION EXHIBIT 10.21 DISTRIBUTORSHIP AGREEMENT THIS DISTRIBUTORSHIP AGREEMENT (this "Agreement") is made this 6th day of January, 1997 (the "Effective Date"), by and between Centura Software Corporation, a California corporation, having its principal office at 1060 Marsh Road, Menlo Park, California 94025 ("Distributor"), and InfoSpinner, Inc., a Delaware corporation, having its principal office at 1702 Drake Drive, Richardson, Texas 75081, U.S.A. ("INFO"). ARTICLE 1. GRANT OF DISTRIBUTORSHIP. 1.01 LICENSE GRANT. Subject to the terms and conditions of this Agreement, INFO grants and Distributor accepts during the Term of this Agreement an nonexclusive, nontransferable right to reproduce, market and license use of the INFO products listed on Exhibit A (the "Products") but only to Customers (as defined below) located in the territory set forth on the signature page hereto (the "Territory"). For the avoidance of doubt, "Products" as used herein shall not include any Kanji or other non-English language or localized version of any INFO product. Distributor may appoint subdistributors provided that any such subdistributor shall be bound by an enforceable writing for INFO's benefit to all the limitations, disclaimers and restrictions of this Agreement. Except as provided in Section 3.01, Distributor is not entitled to receive any source code or source documentation with respect to the Products. "Customer" means any third party which is granted a license by Distributor or a subdistributor to use (and not to redistribute) internally on a single designated hardware and software system any Product(s). A Customer's location shall be where the Product(s) are installed. 1.02 OWNERSHIP. Notwithstanding anything else, as between the parties, INFO retains (i) all title to, and, except as expressly and unambiguously licensed herein, all rights in and to the Products, all copies and derivative works therefore (by whomever produced) and all related documentation and materials, (ii) all of their service marks, trademarks, tradenames or any other designations (and notwithstanding anything else herein, Distributor may not use any name, mark or designation used by INFO, except for use in advertising or marketing the Products in accordance with the terms and conditions contained herein) and (iii) all copyrights, patent rights trade secret rights and other proprietary rights in the Products. 1.03 DISTRIBUTOR USE OF PRODUCTS. Distributor may use the Products solely to fulfill its marketing, support, and maintenance responsibilities under this Agreement. 1.04 STANDARD LICENSE AGREEMENT. Distributor shall license the Products pursuant to Distributor's standard terms and conditions, which will be, and shall whenever revised, be approved in writing by INFO, which approval shall not be unreasonably withheld. Distributor shall assure that its standard License Agreement with subdistributors and its standard End-User License Agreement with Customers (the "License Agreements") conform to all requirements of this Agreement. Specifically, but without limitation, the License Agreements shall incorporate in substance the provisions herein regarding confidentiality, limited warranty, limitation of liability/damages, and all restrictions upon disclosure, reproduction, or duplication of the Products. In addition, if the Product is distributed to Customers via the Internet or by other electronic means, the Customer shall be required to affirmatively acknowledge acceptance of the license by "clicking" on an acceptance button or other similar means. Distributor shall not modify the substantive content of its License Agreements, as approved by INFO without the further prior written approval of INFO. Distributor and its subdistributors authorized hereunder may execute License Agreements written in other than the English language. In the event of any discrepancy between the non-English 1 and the English versions, the latter shall control. Distributor shall represent to INFO that such non-English version is an accurate translation of the English version, and Distributor shall be responsible for compliance of its distributors, affiliates, agents and customers with the terms and conditions herein regarding confidentiality, limited warranty, limitation of liability, damages, and all restrictions upon disclosure, reproduction, or duplication of the Products. 1.05 PRODUCT ENHANCEMENTS. (a) During the Term of this Agreement, INFO shall provide Distributor with modifications, upgrades, or improvements to the Products, or any part thereof, that INFO may from time to time make available that: (i) is identified as a new release of a Product, (ii) contains a modification, upgrade or improvement to the Product, (iii) is not a separately priced software component (and does not include any software that INFO distributes as a separate product) and (iv) is made commercially generally available by INFO (a "Product Enhancement"). Each such Product Enhancement will be deemed a "Product" for purposes of this Agreement, including royalty calculations. (b) INFO shall in good faith (but with no further obligation) consider any functionality changes or modifications to the Products specifically requested by Distributor to facilitate integration with Distributor products and/or exploitation of the Products in the Territory. Any such modifications which INFO commits to undertake shall be the subject of a separate agreement between the parties and shall not be deemed "Product Enhancements" for purposes of this Agreement. 1.06 DELIVERY OF PRODUCT AND DOCUMENTATION. INFO will provide Distributor with two production masters of each Product and any Product Enhancement, and will provide two copies of the documentation for each Product and any Product Enhancement. Distributor is responsible for duplicating Products, any Product Enhancements and all documentation for distribution to Customers. ARTICLE 2. TERM AND RENEWAL. 2.01 TERM. This Agreement shall commence on the above date and shall continue for three (3) years unless earlier terminated pursuant to Section 11.01. 2.02 RENEWAL. This Agreement shall automatically renew for an unlimited number of successive one-year periods, unless terminated as provided in Section 11.01 or either party notifies the other party thirty (30) days prior to renewal that it wishes to negotiate a change to this Agreement. In case of renegotiation, renewal will not be effective unless the negotiated changes are mutually agreed to in writing by the parties. ARTICLE 3. ESCROW & SUPPORT. 3.01 ESCROW. Within 60 days after the Effective Date, INFO and Distributor shall enter into a Software Source Code Escrow Agreement with a reputable third party escrow agent that is reasonably acceptable to the parties (the "Escrow Agreement"), which Escrow Agreement shall provide for the release of the source code of the Products to Distributor in the event that INFO becomes insolvent, whether voluntary or involuntary, or if any process or judicial proceeding is instituted against INFO by attachment or levy or execution, in insolvency or bankruptcy, or in receivership (and such process or proceeding is not resolved within 120 days thereafter), or if any general assignment is made or attempted to be made for the benefit of creditors by such party. 2 AN "XXX" INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND EXCHANGE COMMISSION 3.02 BACKLINE SUPPORT AND MAINTENANCE FEE. Distributor shall be responsible for all Customer support for the Products. During the term of this Agreement, INFO shall provide 20 hours of backline support (I.E., support that requires access and manipulation of the Product source code) per month directly to Distributor's designated INFO product support manager in exchange for an annual backline support fee of $XXXXX. INFO's sole obligation with respect to any Product or documentation errors will be to use all diligent efforts to correct, at its expense, any reproducible error about which it receives written notice within a reasonable period of time after discovery. INFO's support obligations contained in this Section 3.03 are contingent upon proper use of the Product(s) and shall not apply if a Product (i) is modified by Distributor or by any other party without INFO's prior written approval; (ii) is otherwise tampered with; or (iii) if it is used on or with a version of a hardware or software product which INFO does not support at the time of such use. ARTICLE 4. MARKETING AND ADVERTISING. 4.01 DISTRIBUTOR MARKETING EFFORTS AND SALES TARGETS. (a) Distributor shall, during the Term of this Agreement, use its best efforts to market, advertise, distribute and otherwise promote the distribution, licensing and use of Products in the Territory on a continuing basis. (b) Distributor will provide nonbinding forecasts of monthly sales for the upcoming six (6) months on a rolling basis, prior to the start of the month. Such forecasts and updates shall include such information with respect to future sales of the Products as INFO shall reasonably request. 4.02 DISTRIBUTOR STAFF COMMITMENT. Unless INFO agrees otherwise in writing, all Distributor Customer support activities regarding the Product(s) shall be performed by Distributor's employees. Distributor shall commit a sufficient number of trained and qualified personnel to market and promote the Product(s) and agrees to maintain at least an adequate number of trained staff personnel. 4.03 USE OF INFO TRADEMARKS AND/OR TRADE NAMES. Distributor shall, at its option and without separate charge, use INFO's service marks, trademarks and/or trade names identified in Exhibit C hereto (to which INFO may add or delete from time to time upon 60 days prior written notice to Distributor) in any advertising, marketing, technical, or other materials produced or distributed by Distributor pursuant to this Agreement. In using such service marks, trademarks and/or trade names, Distributor shall clearly indicate INFO's ownership rights to such service marks, trademarks and/or trade names. Distributor shall not acquire any rights in or to such service marks, trademarks or trade names by virtue of use, and shall immediately cease use upon termination of this Agreement. Distributor shall promptly notify INFO of any third party use of the same or similar service marks, trademarks or trade names which may infringe upon INFO proprietary rights; and shall cooperate with INFO in prosecution of any such infringement(s). Distributor will not contest the use by or authorized by INFO of any trademark or application or registration therefor, whether during or after the term of this Agreement. In connection with its use of INFO's service marks, trademarks and/or trade names, Distributor will comply with INFO's quality control standards then in effect. Upon notice from INFO that Distributor has materially failed to comply with such standards, Distributor shall use its best efforts to cure such non-compliance. In the event that Distributor does not cure such noncompliance within a reasonable period of time (not to exceed 30 days) after first receipt of notice from INFO, INFO shall have the right to suspend Distributor's use of the applicable service mark, trademark and/or trade name until non-compliance has been cured to INFO's reasonable satisfaction. 3 ARTICLE 5. INSTALLATION, PRODUCT SUPPORT, TECHNICAL SERVICES. Distributor shall be solely responsible for, and shall use its best efforts to ensure, proper installation of the Product(s). Distributor shall be the sole Customer contact regarding, and shall be responsible for, promptly providing Customers with installation, technical services (i.e., maintenance), correction of errors, current Product documentation (including appropriate translations prepared at its expense), Product related training, and Product Enhancements (including documentation appropriately translated at its expense). Distributor may request INFO assistance if Distributor is reasonably unable to meet Customer requests relating to the Product(s) as long as the Product(s) are installed on hardware and software environments which INFO supports, and upon terms that are mutually agreed upon by the parties. ARTICLE 6. FEES/ROYALTIES; TAXES. 6.01 RECOMMENDED LICENSE AND MAINTENANCE FEES. (a) All royalties and maintenance fees due INFO hereunder shall be based upon the then current U.S. Dollar Product License and Maintenance Fees Schedule attached as Exhibit A (the "Fees Schedule"). INFO will advise Distributor in writing of changes in the Fees Schedule at least thirty (30) days prior to the effective date of such changes. (b) Distributor shall have the right to determine the pricing of the Products in the Territory (which may differ from the prices suggested on the Fees Schedule), however, License Fee Royalties to be paid to INFO by Distributor shall be based on the U.S. Dollar prices set forth in the Fees Schedule. 6.02 PAYMENT OF ROYALTIES. (a) Distributor shall pay to INFO the non-refundable (except as set forth on Exhibit B) Advance Payment (the "Advance") in the amount and according to the payment schedule set forth in Exhibit B. In addition, Distributor will pay INFO royalties on each (i) copy of a Product distributed and (ii) Product maintenance agreement in effect in accordance with Exhibit B. (b) Distributor shall report within forty-five days after the end of each calendar quarter all Royalties due to INFO for Product licenses or maintenance agreements for which Distributor directly or indirectly receives payment pursuant to such Product license or maintenance agreement. Along with such report, Distributor will pay the Royalties due to INFO, with an offset for advance Royalty payments in accordance with the schedule set forth in Exhibit B, if any are outstanding at such time. 6.03 DELINQUENT PAYMENT. If any payment provided in Section 6.02 shall remain unpaid following the time prescribed therefor, Distributor shall pay INFO, in addition to the payment then owing, interest thereon at 18% per annum, or at the maximum interest rate allowed by law, if such rate is lower, for the period such payment is delinquent. 6.04 TAXES AND DUTIES. In addition to all license and maintenance fees due hereunder, Distributor shall pay all taxes, duties, import, customs and export fees (including, but not limited to any withholding taxes imposed by any government entity), and any other charges or assessments established by any governmental agency, except taxes imposed on INFO based on its net income. ARTICLE 7. CONFIDENTIALITY. 7.01 CONFIDENTIALITY OF PRODUCT(S). Unless expressly provided otherwise herein, the Product(s), together with all Product Enhancements, materials and knowledge related thereto and any other items identified by INFO as "confidential", are provided to Distributor and any Customer, and their respective employees, agents and representatives, in confidence and shall not be duplicated or disclosed by any of them in any form for the use or benefit of any other person or entity. Neither Distributor nor any Customer shall reproduce, transcribe, imitate, reverse engineer, or decompile the Products. Provided that the recipient has executed a confidentiality agreement that restricts his right to use or disclose the Product 4 or other confidential information that is at least as restrictive as Distributor's obligation under this Section 7.01, Distributor or any Customer may disclose relevant aspects of the Product(s) to each other and to their respective employees, agents or representatives to the extent that such disclosure is reasonably necessary to Distributor's use of the Product(s) pursuant to this Agreement, or to Customer's use pursuant to the applicable License Agreement, provided that Distributor shall take all reasonable steps to ensure that the Product(s) are not disclosed or duplicated in contravention of this Agreement including, but not limited to, execution of written confidentiality agreements by appropriate persons. 7.02 CONFIDENTIALITY OF AGREEMENT. Distributor and INFO shall not disclose the terms and conditions of this Agreement to anyone other than: (i) its employees who reasonably acquire such knowledge in the ordinary course and scope of their employment; (ii) its agents or representatives whose assigned duties reasonably require that such disclosure be made, or to the extent that such disclosure is reasonably necessary for use of the Products; (iii) Customers, to the extent reasonably necessary to license the Product(s) or to comply with the provisions hereof; and (iv) third parties in connection with a potential financial transaction or similar arrangement. 7.03 DUTY TO ASSIST. In the event of any violation or suspected violation of any provision of this Article 8, Distributor shall immediately notify INFO and shall, at its expense, assist INFO in the enforcement of such provision against any employee, agent or representative of Distributor or Customer. 7.04 DISCLOSURE REQUIRED BY LAW. Nothing in this Article 8 shall in any way restrict disclosure by either party pursuant to any law, the order of any court or governmental agency, or the rules or regulations of any governmental agency having jurisdiction governing the installation location. However, Distributor shall immediately notify INFO in writing of any attempt of attachment, levy, or execution upon or against the Product(s) and provide INFO with all reasonable assistance and cooperation to limit or suppress such disclosure. 7.05 SURVIVAL. Provisions of this Article 8 shall survive termination of this Agreement in accordance with Article 12. ARTICLE 8. LIMITED WARRANTIES. 8.01 EXPRESS WARRANTIES. INFO warrants that it has the right to enter into this Agreement and to grant Distributor the right to license or use the Product(s) in accordance with this Agreement. 8.02 DISCLAIMER OF WARRANTIES. DISTRIBUTOR HEREBY EXPRESSLY AGREES AND ACKNOWLEDGES THAT THE FOREGOING WARRANTIES CONTAINED IN SECTION 8.01 ARE IN LIEU OF ANY AND ALL OTHER WARRANTIES. INFO DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE REGARDING DISTRIBUTOR'S OR CUSTOMER'S APPLICATION OR USE OF THE PRODUCTS, AND NONINFRINGEMENT. 8.03 LIMITATION OF LIABILITY/DAMAGES. Distributor agrees that notwithstanding anything else in this agreement, INFO will not be liable with respect to any subject matter of this Agreement under any contract, negligence, strict liability or other legal or equitable theory (i) for any damages arising out of use of Product, except those arising from patent or copyright infringement as provided in Article 10, and including, but not limited to, breach of any warranty, (ii) for any amount in excess of the lesser of actual direct damages to Distributor or the total amount of payments paid by Distributor to INFO pursuant to Section 6.02 during the twelve (12) months preceding the events or occurrences giving rise to the damage, (iii) for the cost of procurement of substitute goods, services or technology; and (iv) in any event, for any damages incurred by Distributor, Customer, or by any other person, organization or entity as a result of Distributor's, or its Customer's, misuse of the Product(s), even if INFO had been advised of the possibility 5 of such damages. INFO shall not be liable for any consequential, special, or incidental damages, lost proceeds, or for any claim or demand against Distributor by any other person, organization, or entity, except for patent or copyright infringement as provided in Article 10. 8.04 TIME LIMITATION. Any legal proceeding based upon or arising out of this Agreement must be instituted within one (1) year from the date of occurrence of the events upon which such legal proceeding is based. ARTICLE 9. PATENT OR COPYRIGHT INFRINGEMENT. If any alleged infringement of patent or copyright is asserted against Distributor based upon its use or license of the Product(s), INFO will indemnify Distributor in investigation of such claims, in preparation and defense against such claims, or in settlement thereof, provided that INFO shall have received from Distributor notice of said claim within fifteen (15) days of the assertion thereof; and further provided that INFO shall have the exclusive right, if it so chooses, to control and direct the investigation, defense, or settlement of such claims; and further provided that INFO shall receive the complete cooperation and assistance of Distributor. In the event an infringement is determined or, if required by settlement, INFO may substitute for the Product and documentation substantially equivalent programs and documentation, or, alternatively, INFO may procure for Distributor the right to continue distributing the Product. If the claim is based on the fact that Distributor or any third party has modified the Product without INFO authorization, Distributor shall reimburse INFO for any and all costs associated with its investigation and defense of said claim(s). The foregoing obligation of INFO does not apply with respect to the Products or portions or components thereof (i) made in whole or in part in accordance to Distributor's specifications, (ii) which are modified after shipment by any party other INFO, if the alleged infringement relates to such modification, (iii) combined with other non-INFO products, processes or materials where the alleged infringement relates to such combination, (iv) where Distributor continues allegedly infringing activity after being notified thereof or after being informed of modifications that would have avoided the alleged infringement, or (v) where Distributor's use of the Products is incident to an infringement not resulting primarily from the Product. ARTICLE 10. RECORDS, REPORTS AND AUDITS. 10.01 REQUIRED RECORDS. Distributor shall prepare and maintain, at its expense, complete and accurate books and records documenting its reproduction and licensing of Product(s) and rendering of support and maintenance pursuant to this Agreement; and its receipt of all fees in or relating thereto. Distributor shall maintain such books and records for a minimum of three (3) years from the later of the date of the last time of license granted hereunder or provision of services, respectively. 10.02 REPORTS TO INFO. Distributor shall, at its expense, provide INFO a quarterly written report of Distributor's marketing, licensing and support activities pursuant to this Agreement. Such reports shall include, all fees due INFO and confirm Distributor's receipt of fees from Customers upon which fees are calculated; all taxes paid by Distributor applicable to the Product(s); License Agreement terminations; a summary of Product support activities and Product operational problems. Reports are due within a reasonable time after the quarter end to which such report relates. In addition, Distributor shall promptly provide INFO with such other reports and in such manner as INFO may reasonably request from time to time. AUDIT. During the Term of this Agreement and for one (1) year thereafter, INFO shall have the right, at its expense and upon reasonable written notice to Distributor to have the relevant records of Distributor reviewed by INFO's outside certified public accountant to verify Distributor's performance hereunder. Provided, however, that such examination shall take place at a place and time mutually convenient to Distributor and INFO and no more than once per calendar year. 6 ARTICLE 11. TERMINATION AND REMEDIES. 11.01 TERMINATION. This Agreement may be terminated: (a) upon 10 days notice, if Distributor fails to make any payments required by this Agreement when due; (b) in the event either party fails materially to fulfill its obligations hereunder, the other party shall notify the non-complying party in writing of the breach and the reasons therefor. If the non-complying party fails to remedy the breach within thirty (30) days from the date of receipt of such notice, or, in the event such breach cannot be remedied within thirty (30) days, the breaching party has not undertaken substantial efforts to cure the breach (and in any event, cured such breach within 60 days of first notice thereof), the other party may immediately terminate this Agreement by giving written notice of termination to the non-complying party; notwithstanding the foregoing, however, INFO may terminate this Agreement immediately upon notice if Distributor violates any provision of Article 8; or if either party becomes insolvent, whether voluntary or involuntary, or if any process or judicial proceeding is instituted against such party by attachment or levy or execution, in insolvency or bankruptcy, or in receivership, or if any general assignment is made or attempted to be made for the benefit of creditors by such party, this Agreement may be terminated by the other party immediately upon written notice. 11.02 EFFECT OF TERMINATION. Neither the right to terminate nor the actual termination of this Agreement as provided in this Article 12 shall limit the non-breaching party from pursuing whatever relief it deems appropriate for such breach in accordance with the provisions of this Agreement. Termination of this Agreement for any reason shall not relieve Distributor of its obligation to make full payment to INFO for any amounts due hereunder, as well as payment of taxes then due or which shall become due hereunder subsequent to termination hereof, pertaining to any License Agreement which is outstanding after termination. Within a reasonable time of termination, which shall not occur prior to Distributor's completion of its existing maintenance obligations to Customers (and in no event, later than one year after the date of termination of this Agreement), Distributor shall, at its expense, return to INFO all copies of the Product(s) and related materials, and of other materials developed by or belonging to INFO which are in Distributor's possession or control. Concurrently, a duly authorized officer of Distributor shall certify in writing to INFO that all such materials have been returned to INFO. 11.03 REMEDIES. (a) Distributor acknowledges that, except for damages resulting from breach of its monetary obligations to INFO hereunder, it would be difficult for INFO to measure damages arising from Distributor's breach of any provision of this Agreement; that injury to INFO from such breach would be incalculable and irremediable; and that money damages would, therefore, be an inadequate remedy for such breach. Accordingly, INFO shall have, in addition to any other remedies available, the right to preliminary or permanent injunctive relief enjoining such breach, or attempted breach, by Distributor. (b) Distributor shall indemnify and hold INFO harmless from any and all claims, losses, liabilities and costs (including reasonable attorneys' fees) resulting from Distributor's or its subdistributors, resellers, employees, affiliates or other agents of any kind marketing, licensing, or servicing the Product(s), including, but not limited to, inadequate installations, maintenance, or Customer assistance, or breach of Distributor's other obligations hereunder or under any License Agreement. ARTICLE 12. GENERAL PROVISIONS. 12.01 RELATIONSHIP OF PARTIES. Neither party shall represent that it is an agent of or for the other party. Both parties acknowledge that the relationship of Distributor to INFO hereunder shall be, and at all times shall remain, that of independent contractor. Except as otherwise provided herein, Distributor shall 7 have no right or authority to assume, create or enlarge any obligation or commitment on behalf of INFO and shall not represent itself as having the authority to bind INFO in any manner whatsoever. 12.02 ASSIGNMENT. Except as otherwise expressly provided herein, neither party shall assign nor otherwise transfer its rights or obligations under this Agreement without the prior written consent of the other party. However, (i) either may assign and delegate this Agreement to a third party in connection with a merger or sale of substantially all of its assets without the other party's prior consent and (ii) this Agreement shall be binding on any successor in interest to all or substantially all of INFO's assets or business or any purchaser of the ownership rights of any of the Products. 12.03 GOVERNMENT APPROVAL AND REPORTS. Upon execution of this Agreement and continuing while this Agreement is in effect, Distributor shall make all required reports to and obtain all requisite approvals from governments in the countries where Product(s) are licensed. INFO reserves the right to participate fully in the preparation of such reports or in obtaining such approvals, including the examination of any and all documents prior to submission to appropriate authorities. If the laws of any country require registration of this Agreement, Distributor agrees to register or cause to be registered, at its sole expense, this Agreement and any such agreements whereby licenses or other rights are granted by Distributor to any of its Customers. 12.04 FORCE MAJEURE. Except for Distributor payments due to INFO pursuant to this Agreement, neither party shall be liable for delays in its performance hereunder due to causes beyond its reasonable control, including, but not limited to, delays occasioned by acts of God, acts of public enemy, civil war, insurrection or riots, fires, floods, explosions, earthquakes or other casualties, or litigation initiated by third parties enjoining, modifying or in any way restricting the performance under this Agreement by one or both of the parties. 12.05 NOTICE. All notices or communications given or sent to either party, except requests for routine technical support services and quarterly reports, shall be by facsimile with confirming hardcopy by certified mail, postage prepaid, and addressed as follows: FOR DISTRIBUTOR: Centura Software Corporation 1060 Marsh Road Menlo Park, CA 94025 FAX: (415) 617-4681 FOR INFO: InfoSpinner, Inc. 1702 Drake Drive Richardson, Texas 75081, U.S.A. FAX: (214) 231-4635 12.06 PROPRIETARY NOTICES. Distributor agrees not to delete, alter, add to or fail to reproduce in and on any copy of the Products and media the name of the Product and any copyright or other proprietary notices appearing in or on any copy, media or master or package materials provided by INFO or which may be reasonably required by INFO in the future. In addition, at the request of INFO, INFO will receive reasonable credit in the initial display within the Product, and all documentation and packaging for Products distributed hereunder. 12.07 PUBLICITY. The parties agrees that they will jointly develop and announce through a press release the relationship established hereunder. The information contained in the press release (or otherwise approved by a party hereto) may be disseminated without regard to Section 7.02 above. 12.08 ENTIRE AGREEMENT. This Agreement, including Exhibits and Schedules attached hereto, constitutes the entire agreement between the parties and supersedes all previous communications, representations or agreements, either written or oral, with respect to the subject matter hereof. 8 12.09 AMENDMENTS AND WAIVER. The provisions of this Agreement may be waived, altered, amended or repealed, in whole or in part, only upon the written consent of both parties. No waiver of a breach of any covenant shall be construed as a waiver of any other or subsequent breach of the same or any other covenant of this Agreement. 12.10 VALIDITY OF AGREEMENT. In the event any provision of this Agreement, or portion thereof, is held by a court having proper jurisdiction to be for any reason unenforceable or invalid, the remaining provisions, or portions thereof shall continue to exist and shall remain in full force and effect. 12.11 APPLICABLE LAW. By adoption of the parties, the State of Texas, U.S.A. is deemed to be the place of contracting and, by agreement of the parties, any claim or controversy relating to this Agreement, its interpretation, performance or validity shall be construed and adjusted in accordance with the law of said State; (except for actions in equity or injunctive relief), the sole jurisdiction and venue for actions related to the subject matter hereof shall be the state and U.S. federal courts having within their jurisdiction the city of Dallas, Texas. Both parties consent to the jurisdiction of such courts and agree that process may be served in the manner provided herein for giving of notices or otherwise as allowed by Texas state or U.S. federal law. IN WITNESS WHEREOF, the parties have executed this Agreement to be effective on the date first written above. INFOSPINNER, INC. By: --------------------------------- Name: --------------------------------- Title: --------------------------------- Date: --------------------------------- DISTRIBUTOR: - ---------------------------------------- By: --------------------------------- Name: --------------------------------- Title: --------------------------------- Date: ---------------------------------
DISTRIBUTOR'S TERRITORY: Worldwide 9 AN "XXX" INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND EXCHANGE COMMISSION EXHIBIT A INFO PRODUCT LICENSE AND MAINTENANCE FEE SCHEDULE
SUGGESTED PRODUCT SUGGESTED LICENSE FEE MAINTENANCE FEE -------------------------------- ----------------------- SINGLE CPU LIST MULTI-CPU LIST DISTRIBUTOR'S LIST PACKAGES PRICE PRICE PRICES - -------------------------------------------------------- --------------- --------------- ----------------------- FORESITE................................................ $ XXX $ XXX One PageBuilder One PageDispatcher One PageServer Software Development Kit (SDK) FORESITE ENTERPRISE..................................... $ XXX $ XXX Two PageBuilders Two PageDispatchers Two PageServers Software Development Kit (SDK)
SUGGESTED PRODUCT SUGGESTED LICENSE FEE MAINTENANCE FEE -------------------------------- ----------------------- SINGLE CPU LIST MULTI-CPU LIST DISTRIBUTOR'S LIST OPTIONAL MODULES PRICE PRICE PRICES - -------------------------------------------------------- --------------- --------------- ----------------------- INTEGRATION MODULE PageBuilder........................................... $ XXX $ XXX EXTENSIBILITY MODULES (PRICED PER PAGESERVER) Client/Server Extension............................... $ XXX $ XXX 3270 Extension........................................ $ XXX $ XXX SQL Database Extension................................ $ XXX $ XXX DEPLOYMENT MODULES PageDispatcher........................................ $ XXX $ XXX PageServer............................................ $ XXX $ XXX APPLICATION MODULE Discussion Forum...................................... $ XXX $ XXX
EXAMPLE: A customer implements a Web Commerce site that requires one Webmaster and two end users to administer. The customer anticipates traffic that requires four PageServers with support for SQL databases and client/server application data sources and a spare PageDispatcher for availability.
QUANTITY --------------------------------------- SINGLE CPU LIST MULTI- CPU ITEM QUANTITY PRICE LIST PRICE - ------------------------------------------------------------------------------- --------------- --------- ----------- ForeSite Enterprise............................................................ 1 $ XXXX $ XXXX Additional PageBuilders........................................................ 1 $ XXXX $ XXXX Additional PageServers......................................................... 2 $ XXXX $ XXXX SLQ Database Extension......................................................... 4 $ XXXX $ XXXX Client/Server Extension........................................................ 4 $ XXXX $ XXXX Total $ XXXX $ XXXX
E-1 AN "XXX" INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND EXCHANGE COMMISSION EXHIBIT B ROYALTY AND MAINTENANCE FEE AND ADVANCE RECOVERY SCHEDULE
CUMULATIVE PRODUCT AND MAINTENANCE LICENSE FEES: PRODUCT ROYALTY RATE MAINTENANCE ROYALTY RATE - ------------------------------------------------------------------- ----------------------- --------------------------- $0 and above....................................................... XX% XX%
CALCULATION: ADVANCE PAYMENT. The total amount of the Advance Payment shall be One Million Five Hundred Thousand Dollars ($1,500,000) which shall be paid according to the following schedule:
DATE: PAYMENT AMOUNT: - ---------------------------------------------------------------------------- ---------------- Effective Date.............................................................. $ XXXXX March 31, 1997.............................................................. $ XXXXX June 1, 1997................................................................ $ XXXXX September 1, 1997........................................................... $ XXXXX December 1, 1997............................................................ $ XXXXX March 1, 1998............................................................... $ XXXXX
provided, however, Distributor shall have the right to terminate this Agreement in addition to its termination rights under Section 11.01 if Merger as set forth in the Agreement and Plan of Reorganization entered into between the parties as of the Effective Date (the "Reorganization Agreement") is not consummated solely as a result of: i) INFO not obtaining the approval of its stockholders required under Sections 6.1(a) or 6.3(f) of the Reorganization Agreement, ii) INFO not delivering fully executed agreements and/or certificates required to be executed and delivered by INFO or its officers, directors, affiliates or employees under Sections 6.1(c) (Employment Agreements), 6.1(e) (Affiliate Agreements), 6.1(f) (Escrow Agreement), 6.3(c) (Third Party Consents), the certificate required under Section 6.3(b) of the Reorganization Agreement, or the legal opinion required under Section 6.3(d) of the Reorganization Agreement; or iii) the termination of the current employment relationship between INFO and Keith Lowery, Andrew Levine, or Ronald Howell, iv) any claim of infringement of patent, copyright or other intellectual property right of a third party is asserted in writing or filed (and not dismissed within 30 days thereafter) in a state or federal court or other court of competent jurisdiction anywhere in the world against Distributor or INFO with respect to the Products and which claim, in the reasonable opinion of Distributor's counsel, has a reasonable legal basis and is based on determinable facts, or v) Keith Lowery has not delivered a fully executed Non-Competition Agreement as referenced in Section 6.3 (g) of the Reorganization Agreement. E-2 AN "XXX" INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND EXCHANGE COMMISSION If Distributor exercises its right to terminate this Agreement as set forth above, INFO shall refund all unused royalty advances to Distributor and Distributor shall have no obligation to make additional royalty advance payments to INFO. ROYALTY. The royalty ("Royalty") with respect to each Product copy distributed or maintenance agreement with Distributor initiated or renewed is calculated by multiplying the Royalty Rate by the Suggested License Fee or Suggested Maintenance Fee for the Product or maintenance agreement as shown on Exhibit A. The Advance Payment Balance is $XXXX as of the Effective Date. The Advance Payment Balance shall be increased by the amount of each additional installment of the Advance Payment paid to INFO and decreased by the amount of the Advance Payment Balance credited against Distributor's Royalty payments to INFO. Distributor's quarterly Royalty payments to INFO shall be reduced by the then current Advance Payment Balance until such time as the current Advance Payment Balance equals zero. When the current Advance Payment Balance equals zero, there shall be no further reduction of any Royalty payments to INFO. Future Advance Payments owing under this Agreement shall be reduced by any Royalty payments paid and not credited against an available Advance Payment Balance. E-3 EXHIBIT C TRADEMARKS INFO has applications for trademarks pending with the United States Patent and Trademark Office ("PTO") on the following, all of which have been acknowledged as received by the PTO. The PTO has not yet examined the applications or taken action thereon. 1. PAGEBUILDER 2. PAGESERVER 3. PAGEMONITOR 4. PAGETESTER 5. FORESITE 6. DYNABOT 7. PAGEDISPATCHER 8. PAGEADAPTOR E-4 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,263 1,565 12,304 2,780 81 18,841 19,055 15,681 29,131 29,062 10,000 0 0 69,671 (81,950) 29,131 9,514 13,600 1,366 3,485 11,280 0 214 (2,055) 10 (2,065) 0 0 0 (2,065) (.14) (.14)
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