UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM CB
TENDER OFFER/RIGHTS OFFERING NOTIFICATION FORM
Please place an X in the box(es) to designated the appropriate rule provision(s)
relied upon to file this Form:
Securities Act Rule 801 (Rights Offering) [ ]
Securities Act Rule 802 (Exchange Offer) [x]
Exchange Act Rule 13e-4(h)(8) (Issuer Tender Offer) [ ]
Exchange Act Rule 14d-1(c) (Third Party Tender Offer) [x]
Exchange Act Rule 14e-2(d) (Subject Company Response) [ ]
Filed or submitted in paper if permitted by Regulation S-T Rule 101(b)(8) [ ]
Note: Regulation S-T Rule 101(b)(8) only permits the filing or submission of a
Form CB in paper by a party that is not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.
IXOS SOFTWARE AG
-------------------------
(Name of Subject Company)
-------------------------
(Translation of Subject Company's Name into English (if applicable)
Germany
---------
(Jurisdiction of Subject Company's Incorporation or Organization)
OPEN TEXT CORPORATION
-------------------------
(Name of Person(s) Furnishing Form)
Bearer Ordinary Shares
---------------
(Title of Class of Subject Securities)
46600V108
-----------
(CUSIP Number of Class of Securities (if applicable)
Robert Hoog
Chief Executive Officer
IXOS SOFTWARE AG
Bretonischer Ring 12
D-85630 Grasbrunn/Munich
Federal Republic of Germany
+49.(0)89.4629.2400
------------------
(Name, Address (including zip code) and Telephone Number (including area code)
of Person(s) authorized to Receive Notices and Communications on Behalf of
Subject Company)
December 1, 2003
------------------
(Date Tender Offer/Rights Offering Commenced)
PART I - INFORMATION SENT TO SECURITY HOLDERS
ITEM 1. HOME JURISDICTION DOCUMENTS
The following documents are attached as exhibits to this Form:
Exhibit Number Description
-------------- -----------
1. Mandatory Internet Access Page to be Accepted By US holders
Prior to Viewing the Public Takeover Bid
2. Public Takeover Bid, dated December 1, 2003, made by 2016091
Ontario, Inc. to the shareholders of IXOS Software AG
ITEM 2. INFORMATIONAL LEGENDS
Pursuant to German law, the materials are being disseminated to shareholders
solely though a Web portal. The required legends have been included in the
access page attached as Exhibit No. 1 that must be viewed and accepted by US
holders prior to accessing the portal and viewing the materials.
PART II - INFORMATION NOT REQUIRED TO BE SENT TO SECURITY HOLDERS
(1) Not applicable
(2) Not applicable.
(3) Not applicable.
PART III - CONSENT TO SERVICE OF PROCESS
A written irrevocable consent and power of attorney on Form F-X is being
filed by the company concurrently with the furnishing of this Form.
PART IV - SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
OPEN TEXT CORPORATION
By: /s/ Sheldon Polansky
----------------------
Sheldon Polansky
Secretary
Date: December 4, 2003
Public Takeover Bid made by 2016091 Ontario Inc. to the shareholders of IXOS
Software AG
The following document is an offer document (the Offer Document) prepared
in connection with a public tender offer (the Offer) by 2016091 Ontario Inc., a
wholly-owned subsidiary of Open Text Corporation, to acquire the shares of IXOS
Software Aktiengesellschaft. The Offer is being made in accordance with German
law, in particular the German Law on Securities Acquisition and Takeovers (the
WpUG). The publication of the Offer Document on this website is in compliance
with the publication obligations under the WpUG.
Legal note
The following information is for shareholders of IXOS Software
Aktiengesellschaft (IXOS) resident in the United States or Canada.
This exchange offer is made for the securities of a foreign company. The
offer is subject to disclosure requirements of a foreign country that are
different from those of the United States. Financial statements included in the
document, if any, have been prepared in accordance with foreign accounting
standards that may not be comparable to the financial statements of United
States companies.
It may be difficult for you to enforce your rights and any claim you may
have arising under the federal securities laws, since the issuer is located in a
foreign country, and some or all of its officers and directors may be residents
of a foreign country. You many not be able to sue a foreign company or its
officers or directors in a foreign court for violations of the U.S. securities
laws. It may be difficult to compel a foreign company and its affiliates to
subject themselves to a U.S. court's judgment.
You should be aware that the issuer may purchase securities otherwise than
under the exchange offers, such as in open market or privately negotiated
purchases.
This voluntary takeover bid by 2016091 Ontario Inc. (the Bidder), a
wholly-owned subsidiary of Open Text Corporation, is a public tender offer to
acquire shares under the WpUG. Exemptive relief from the Canadian takeover bid
requirements has been granted in connection with this Offer being made to IXOS
shareholders resident in the Canadian Provinces of British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, Newfoundland, New
Brunswick and Prince Edward Island.
The English version of the Offer Document is an English convenience
translation of the German language Offer Document, which is being made available
to all the shareholders of IXOS and is subject to German law, in particular the
WpUG. There is no intention to make a public tender offer under another
jurisdiction. No announcements, registrations, authorizations or permits have
been applied for or arranged under the Offer Document and/or the Offer outside
the Federal Republic of Germany. IXOS shareholders will not, therefore, be able
to invoke investor protection legislation of jurisdictions outside Germany.
The Bidder has published this Offer Document in compliance with ss. 14
para. 3 WpUG through an announcement on the Internet at www.2016091ontario.de.
The Offer Document is also available to IXOS shareholders, free of charge, at
Commerzbank Aktiengesellschaft, ZGS-CMAD, DLZ 2, Mainzer Landstrasse 153, 60327
Frankfurt am Main, Fax 069 136-44598. The notice will be published in the
Financial Times Deutschland.
Publication of the Offer Document on the Internet, the notice in the
Financial Times Deutschland and the availability of the Offer Document at
Commerzbank AG, Frankfurt am Main, are intended to ensure compliance with the
WpUG. They are not intended to constitute publication of an offer under
non-German law or to constitute public advertising for the takeover bid. The
publication, dispatch, dissemination or disclosure of the Offer Document may be
subject to restrictions outside Germany. Shareholders of IXOS who are resident,
domiciled or have their normal abode outside the Federal
2
Republic of Germany should therefore note the information contained under the
heading "Important Information for Shareholders of IXOS" of the Offer Document.
Persons who obtain possession of this Offer Document outside the Federal
Republic of Germany or who wish to accept the Offer and are subject to the
securities laws of jurisdictions other than the Federal Republic of Germany must
inform themselves of, and comply with, such securities laws. The Bidder cannot
guarantee that the dispatch, distribution or dissemination of the Offer Document
or acceptance of the Offer outside the Federal Republic of Germany will comply
with the securities laws of jurisdictions other than the Federal Republic of
Germany.
The information contained in the specified publications is based on the
level of knowledge at the time of the respective publication. Attention is drawn
to the fact that not all the information provided on this Internet page is
continuously updated.
The reader hereby confirms that they have read the notice above.
I agree to the notice [ ]
[OBJECT OMITTED]
-------------------------------------------------------------------------------
Publication pursuant to sec. 14 (3) of German Securities Acquisition
and Takeover Act (WpUG)
-------------------------------------------------------------------------------
Shareholders of IXOS Software Aktiengesellschaft resident
outside the Federal Republic of Germany should
observe the information contained in the chapter
"Important information for shareholders of IXOS" on page 5 f.
of the Offer Document.
2016091 Ontario Inc.
OFFER DOCUMENT
PUBLIC TAKEOVER BID
by
2016091 Ontario Inc.
185 Columbia Street West
Waterloo, Ontario N2L 5Z5, Canada
to the shareholders of Ixos Software Aktiengesellschaft
for the acquisition of their shares
in
IXOS Software Aktiengesellschaft
Technopark 1
Bretonischer Ring 42
D-85630 Grasbrunn
for a payment of a cash consideration of EUR 9.00 per IXOS Share
or
alternatively, at the election of the IXOS Shareholder, 0.5220 of an Open Text
Share for each IXOS Share and 0.1484 of a warrant, each whole warrant
exercisable to purchase one Open Text Share for up to one year after the Closing
Day of the Offer at a strike price of US $20.75 (= EUR 18.19, calculated on the
basis of the Exchange Rate) per share
IXOS Shareholders may elect in respect of all or part of their
IXOS Shares to receive either Cash Consideration or
Alternative Share and Warrant Consideration.
-------------------------------------------------------------------------------
Each IXOS Shareholder should carefully consider the investment considerations
and risks of this Alternative Share and Warrant Consideration set forth in
Appendix 1, paragraph VII, and the risk factors respecting the
Offered Open Text Warrants under Section 7.2.4.3.
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Acceptance Period: 01. December 2003 to 16. January 2004, 12:00 h (local time
Frankfurt/Main)
--------------------------------------------------------------------------------
IXOS Shares:
International Securities Identification No. (ISIN) DE0005061501
(Securities Code No. [WKN] 506 150)
Tendered IXOS Shares (Cash Consideration):
International Securities Identification No. (ISIN) DE0001359396
(Securities Code No. [WKN] 135 939)
--------------------------------------------------------------------------------
2
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Tendered IXOS Shares (Alternative Share and Warrant Consideration):
International Securities Identification No. (ISIN) DE0001359388
(Securities Code No. [WKN] 135 938)
Offered Open Text Shares:
International Securities Identification No. (ISIN) CA6837151068
(Securities Code No. [WKN] 899 027)
Offered Open Text Warrants:
International Securities Identification No. (ISIN) CA 6837151142
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3
TABLE OF CONTENTS
1. Summary of the Offer......................................................................................8
2. Takeover Bid..............................................................................................9
2.1. Subject..............................................................................................9
2.1.1. Cash offer...................................................................................9
2.1.2. Alternative offer...........................................................................10
2.1.3. General......................................................................................10
2.2. Period for Acceptance...............................................................................10
2.3 Extensions of the Acceptance Period.................................................................10
2.4 Additional Acceptance Period........................................................................11
3. Bidder .................................................................................................11
3.1. Corporate and Financial Data of the Bidder and the Open Text Group..................................11
3.2. Open Text Group.....................................................................................11
3.3. Business Activities of the Bidder and the Open Text Group...........................................12
4. Description of IXOS Software AG..........................................................................12
4.1. Corporate and Financial Data of IXOS Software AG....................................................12
4.2. Business Activities of IXOS.........................................................................13
5. Background to the Takeover Bid...........................................................................13
5.1. Economic Reasons for the Takeover Bid...............................................................13
5.2. Current Shareholding of 2016091 Ontario in IXOS.....................................................14
5.3. Business Combination Agreements with IXOS...........................................................14
5.4. Treatment of Stock Options of IXOS..................................................................14
5.5. Support of the Business Combination by Shareholders.................................................15
6. Intentions of 2016091 Ontario in Relation to the Future Business Activities of IXOS......................15
7. Consideration............................................................................................16
7.1. Cash Consideration..................................................................................16
7.1.1. Extent of the Cash Consideration............................................................16
7.1.2. Adequacy of the Cash Consideration..........................................................16
7.2. Alternative Share and Warrant Consideration.........................................................17
7.2.1. Summary of the Alternative Share and Warrant Consideration..................................17
7.2.2. Important remarks on the Alternative Share and Warrant Consideration........................17
7.2.3. Adequacy of the Alternative Share and Warrant Consideration.................................18
7.2.4. Content of the Alternative Share and Warrant Consideration..................................19
7.2.4.1 Offered Open Text-Shares...........................................................19
7.4.2.2 Offered Open Text Warrants.........................................................19
7.2.4.3. Risk factors associated with Offered Open Text Warrants............................22
7.2.4.4. Limitations on trading in Offered Open Text Shares, Offered Open Text Warrants and
Open Text Shares issued on the basis of the Offered Open Text Warrants.............23
7.3. Information on payments or other monetary in-kind benefits for members of the board or the
supervisory board of IXOS, and on agreements with members of the institution.....................24
7.4. Prior Acquisitions and Possible Parallel Acquisitions...............................................24
8. Execution of the Offer...................................................................................24
8.1. Cash Offer..........................................................................................24
8.1.1 Acceptance of the Cash Offer................................................................24
8.1.2 Settlement of the Offer.....................................................................26
8.2. Alternative Share and Warrant Offer.................................................................26
8.2.1 Acceptance of the Alternative Share and Warrant Offer.......................................26
8.2.2 Settlement of the Alternative Share and Warrant Consideration...............................28
8.3 Costs of the Acceptance.............................................................................29
8.3.1. Cash offer..................................................................................29
8.3.2. Alternative Share and Warrant Consideration.................................................29
8.4 Central Settlement Agent............................................................................29
8.5 Trading with Tendered IXOS Shares (Cash Consideration / Alternative Share and Warrant Consideration)29
8.6 Reprocessing in the Case of Non-fulfillment of Condition Precedents and Occurrence of Conditions
Subsequent.......................................................................................29
4
8.7 Execution of the Offer in the Case of Acceptance during the Extended/Additional Acceptance Period...29
8.8 Situation of the IXOS Shareholders who do not accept the Takeover Bid...............................30
9. Offer Terms..............................................................................................31
10. Financing................................................................................................32
10.1. Financing Measures for Cash Consideration........................................................32
10.2. Availability of Share and Warrant Consideration..................................................33
10.3. Loan Agreement...................................................................................33
10.4. Financing Confirmation...........................................................................34
11. Effects on the Assets, Financial and Earnings Situation of 2016091 Ontario...............................34
11.1. 2016091 Ontario..................................................................................34
11.1.1. Effects in the case of exclusive acceptance of the cash offer...............................34
11.1.2. Effects in case of exclusive acceptance of the Alternative Offer............................35
11.2. Open Text Group..................................................................................35
11.2.1. Exclusive acceptance of the Cash Offer......................................................36
11.2.2. Exclusive acceptance of the Alternative Offer...............................................37
12. Right of Withdrawal......................................................................................38
12.1. Right of Withdrawal in the Event of Change in the Takeover Bid...................................38
12.2. Right of Withdrawal in the Event of Competing Bids...............................................38
13. Publication of the Offer Document / Notifications........................................................38
14. Official Proceedings (Behordliche Verfahren).............................................................39
15. Accompanying Bank........................................................................................39
16. Information according to sec. 2 no. 2 WpUG Offer Ordinance (WpUG-Angebotsverordnung) in conjunction
with sec. 7 Sales Prospectus Act (Verkaufsprospektgesetz) and Sales Prospectus Ordinance
(Verkaufsprospekt-VO)....................................................................................39
17. Applicable Law...........................................................................................39
18. Tax Law Information......................................................................................39
19. Declaration of the Acceptance of Responsibility..........................................................39
Appendix 1 Information according to sec. 2 no. 2 WpUG Offer Ordinance
(WpUG-Angebotsverordnung) in connection with sec. 7 Sales
Prospectus Act (Verkaufsprospektgesetz) and Sales Prospectus
Ordinance (Verkaufsprospekt-VO)
Appendix 2 Warrant Indenture
Appendix 3 Stock prices and trading volumes of Open Text Shares
Appendix 4 Structure Chart Open Text Group
Appendix 5 Cash Confirmation Letter
All Appendices form a part of this Offer Document and must be read in connection
with this Offer Document.
---------
Unless otherwise indicated, all amounts included in this Offer Document are
expressed in Euro. Unless otherwise indicated, all amounts included in Appendix
1 are expressed in US-Dollars.
---------
5
Important Information for Shareholders of IXOS
Execution of the Takeover Bid; publication of the Offer Document
This voluntary public Takeover Bid (Takeover Bid) by 2016091 Ontario Inc.
(2016091 Ontario or the Bidder) is a public bid to acquire shares of IXOS
Software Aktiengesellschaft (IXOS) under the rules of the German Securities
Acquisition and Takeover Act ("WpUG") and German Securities and Takeover
Ordinance (WpUG-Angebotsverordnung).
Appendix 1 (Information according to sec. 2 no. 2 WpUG Offer Ordinance
(WpUG-Angebotsverordnung) in connection with sec. 7 Sales Prospectus Act
(Verkaufsprospektgesetz) and Sales Prospectus Ordinance (Verkaufsprospekt-VO)
and Appendix 2 (Warrant Indenture), Appendix 3 (stock prices and trading volumes
of Open Text-Shares) and Appendix 4 (structure chart Open Text Group) and
Appendix 5 (Cash Confirmation Letter) form a part of this Offer Document and
must be read in connection with this Offer Document. No further documents exist,
which form part of this Offer Document. 2016091 Ontario will publish a
convenience translation of the German Offer Document which is non-binding and
not approved by the German financial services authorities (Bundesanstalt fur
Finanzdienstleistungsaufsicht-BaFin); the German Offer Document remains the
authoritative and binding document under which this Offer is made.
The offer is directed at all shareholders of the IXOS Software
Aktiengesellschaft (IXOS) and will be executed only pursuant to German law, in
particular pursuant to the WpUG and the WpUG Angebotsverordnung. In the United
States of America (USA) the Bidder is relying on exemptions from the tender
offer and registration provisions of U.S. federal securities legislation. An
exemption order has been obtained from Canadian provincial securities regulators
exempting the Bidder from the provisions of Canadian provincial securities
legislation regulating takeovers. For information on the restrictions on the
trading of Offered Open Text Shares and Offered Open Text Warrants acquired
under this Offer by persons in the USA and Canada see Section 7.2.3.
No further publications, registrations, admissions and approvals of this Offer
Document and/or this Offer outside of Germany have been applied for or
initiated. IXOS-Shareholders may be unable to rely on the application of foreign
laws respecting shareholder protection.
The Bidder has published this offer document and the non-binding English
translation in accordance with sec. 14 para. (3) WpUG through an official
announcement on the Internet under www.2016091ontario.de. The Offer Document is
also available for all shareholders of IXOS free of charge from Commerzbank
Aktiengesellschaft, ZGS-CMAD, DLZ 2, Mainzer Landstra(beta)e 153, 60327
Frankfurt am Main, Telefax-Nr. 069 136-44598 (Commerzbank AG). Notification of
the information is given in the Financial Times Deutschland.
The by-laws of Open Text and the audited consolidated financial statements of
Open Text for the financial years ended June 30, 2003, 2002 and 2001 can be
reviewed during the Acceptance Period at the registered office of Open Text, 185
Columbia Street West, Waterloo, Ontario NL2 5Z5, Canada and - with exception of
the by-laws - on the website www.opentext.com.
The Bidder expressly indicates that it reserves the option to acquire IXOS
Shares outside this Offer.
Distribution of the Offer Document by third parties and by depositary banks
Irrespective of the statements set out below, this Offer may be accepted by all
IXOS-Shareholders in accordance with the terms of this Offer Document.
IXOS-Shareholders, who wish to accept this Offer outside of Germany, as well as
any person who receives a copy of this Offer Document outside of Germany, are
requested to comply with the following.
2016091 Ontario has published this Offer Document in accordance with the
regulations of the WpUG as described in Section 13 of this Offer Document. A
further publication of this Offer Document or this Offer, especially outside of
Germany, has not taken place and is not intended.
6
This Offer and this Offer Document shall not constitute the filing, publication
or any other advertisement for an offer in accordance with laws and regulations
of any jurisdiction other than the German jurisdiction. This Offer Document has
only been published on the internet to comply with the regulations of the WpUG
and this is not intended to constitute the filing of an offer in accordance with
the laws of foreign jurisdictions or the publication or advertisement of this
Offer and this Offer document in accordance with the laws of foreign
jurisdictions.
The forwarding, distribution or delivery of this Offer Document or other
information and the acceptance of the Offer may be subject to the requirements
of a legal system other than that of Germany. Therefore, unless required by
applicable law of a jurisdiction outside the Federal Republic of Germany, the
Bidder will not forward, distribute or deliver this Offer Document or other
information outside Germany. This Offer Document or any other information shall
therefore not be published, dispersed or delivered either directly or indirectly
by third parties outside Germany to the extent that this is prohibited by the
applicable foreign jurisdiction or dependent on the compliance with governmental
procedures or authorizations or further requirements and that have not been
complied with.
Persons who acquire a copy of this Offer Document outside of Germany or wish to
accept this Offer and for who capital markets regulations and other legal
requirements other than those of Germany apply, are requested to inform
themselves about those requirements and to comply with them.
Should this Offer Document or other information be forwarded, distributed or
delivered outside Germany by a person other than the Bidder in contravention of
the foregoing, the Bidder accepts no responsibility for the forwarding,
distribution or delivery of this Offer Document complying with the laws of legal
systems other than that in Germany, the United States and Canada. The Bidder and
the persons acting together with the Bidder disclaim any responsibility for
compliance of this Offer or the acceptance of this Offer outside of Germany with
all relevant applicable foreign laws other than the laws of Germany, the United
States and Canada. Any responsibility of the Bidder for non-compliance with laws
other than the laws of Germany, the United States and Canada is expressly
excluded.
2016091 Ontario has not authorized any third party to provide any information on
this Offer, this Offer Document or the Offered Open Text Shares or the Offered
Open Text Warrants, other than information contained in this Offer Document
including Appendices 1 - 5 or, in respect of the approval of the shareholders of
Open Text of the issuance of the Offered Open Text-Shares and the Common Shares
underlying the Offered Open Text-Warrants pursuant to this Offer, documents that
have been filed in accordance with Canadian provincial securities laws. If any
third party has provided any other information, it should not be considered a
statement of the Bidder in connection with the acceptance of this Offer.
Notwithstanding the restrictions above concerning the forwarding, distribution
or delivery of the Offer Document, the Offer may be accepted by all IXOS
Shareholders in accordance with the terms of this Offer Document and the
applicable statutory provisions.
7
Status of the information contained in the Offer Document
All details, views, intentions and statements (also directed to the future) are
based - unless expressly stated otherwise - on currently available information,
planning and certain assumptions of 2016091 Ontario Inc. and Open Text
Corporation, 185 Columbia Street West, Waterloo, Ontario, NL2 5Z5, Canada (Open
Text) at the time of publication specified on the Offer Document and could
possibly change in the future. The information on IXOS contained in this Offer
Document is based on the publicly available sources of information, in
particular the business report of IXOS, and on a due diligence examination,
which was limited in terms of time and scope.
Furthermore, updates and changes to the information given in this Offer Document
will only be published insofar as this is required by statutory provisions;
legal publication requirements, especially sec. 23 WpUG remain untouched.
Exchange rates (the Exchange Rates), if not expressly indicated otherwise in
this document:
US$ in Euro as of November 7, 2003: 1 US$ = EUR 0,87673
CAN$ in Euro as of November 7, 2003: 1 Can$ = EUR 0,65511
8
1. Summary of the Offer
The following summary comprises only a selection of the information contained in
the Offer Document. As the summary does not contain all information that might
be important for the IXOS Shareholders, it should be read in conjunction with,
and is qualified by, the more detailed information contained elsewhere in this
Offer Document.
Bidder: 2016091 Ontario Inc., Waterloo, Ontario, Canada
Target company: IXOS Software Aktiengesellschaft, Grasbrunn,
Germany
Subject of the offer: Acquisition of all bearer shares in IXOS
Software Aktiengesellschaft traded under the
ISIN DE 0005061501 (WKN 506 150) each with a
proportional value of EUR 1.00 of the registered
share capital and dividend entitlement as from
the financial year beginning on 1. July 2003
(IXOS Share).
Addressees of the Offer All IXOS-Shareholders
Cash Consideration: Either, EUR 9.00 per IXOS Share (the Cash
Consideration)
Alternative Share and EUR 9.00 per IXOS Share (the Cash Consideration)
Warrant Consideration:
Alternatively, IXOS Shareholders may elect to
receive 0.5220 of a common share of Open Text
(the Open Text Share) for each IXOS Share (the
Offered Open Text Share) and 0.1484 of a warrant
for each IXOS Share (the Offered Open Text
Warrant), each whole warrant exercisable to
purchase one Open Text Share for up to one year
after the Closing Day of the offer at a strike
price of US $20.75 (= EUR 18.19 calculated at the
Exchange Rate) per share (the Alternative Share
and Warrant Consideration)
IXOS Shareholders may elect in respect of all or
part of their IXOS Shares to receive either Cash
Consideration or Alternative Share and Warrant
Consideration.
The Alternative Share and Warrant Consideration
will consist of whole Offered Open Text Shares
and whole Offered Open Text Warrants; in
calculating the Alternative Share and Warrant
Consideration for Tendered IXOS Shares fractional
Offered Open Text Shares and fractional Offered
Open Text Warrants will be rounded down.
The Alternative Share and Warrant Consideration
does not fulfill the requirements of a return
service in accordance with ss. 31 para. 2 of the
WpUG. However, it is admissible as an optional,
alternative return service according to the
conditions of the WpUG. The Alternative Share and
Warrant Consideration provides any IXOS
Shareholder wishing to participate in the
development of Open Text and the associated
activities of both companies with an alternative
return service to that in cash.
The exchange ratio between the Offered Open Text
Shares and the Offered Open Text Warrants under
the terms of the Alternative Share and Warrant
Consideration were established by 2016091 Ontario
after full assessment in accordance with
negotiations with IXOS. This Alternative Share
and Warrant Consideration has not been ratified
for appropriateness either by BaFin or an
auditor.
Each IXOS Shareholder should carefully consider
the investment considerations and risks of this
Alternative Share and Warrant Consideration set
forth in Appendix 1, paragraph VII, and the risk
factors respecting the Offered Open Text Warrants
under Section 7.2.4.3.
Furthermore, each IXOS Shareholder should
consider the additional information on the
Alternative Share and Warrant Consideration as
set out in Section 7.2.2.
Acceptance Period: 01. December 2003 until 16. January 2004, 12:00 h
(local time Frankfurt/Main)
Conditions: The Takeover Bid and the contracts entered into
by way of acceptance of this offer are subject to
different conditions precedent and conditions
subsequent described under Section 9.
9
Acceptance: In order to accept this Offer, IXOS Shareholders
must declare their acceptance through a written
declaration vis a vis a securities services
company (Depositary Bank) and instruct their
Depositary Bank to re-book the IXOS Shares in the
event they wish to accept this Offer for the Cash
Consideration under ISIN DE0001359396 (WKN 135
939) and in the event they wish to accept this
Offer for the Alternative Share and Warrant
Consideration under ISIN DE0001359388 (WKN 135
938) at Clearstream Banking AG. The acceptance
will become effective upon re-booking of the IXOS
Shares in respect of which the Offer shall be
accepted under the respective aforementioned ISIN
/ WKN at Clearstream Banking AG no later than
17.30 h on the second banking day
(Frankfurt/Main) after the acceptance deadline.
The acceptance is free of charge for the
shareholders of IXOS. All costs associated with
the acceptance and transfer of the IXOS Shares,
in particular the costs and fees charged by the
deposit banks, will be borne by 2016091 Ontario
Inc. Any charges by deposit banks outside the
Federal Republic of Germany, however, must be
borne by the IXOS Shareholder.
Trading with Tendered IXOS Trading of the Tendered IXOS Shares on the
Shares: Frankfurt stock exchange (geregelter Markt -
Prime Standard) is envisaged from December 3,
2003 until January 12, 2003.
International IXOS Shares
Securities ISIN DE 0005061501
Identification Number: (WKN 506 150)
Tendered IXOS Shares (Cash Consideration)
ISIN DE0001359396
(WKN 135 939)
Tendered IXOS Shares (Alternative Share and
Warrant Consideration)
ISIN DE0001359388
(WKN 135 938)
Publication: The Offer Document approved on 28. November 2003
was subsequently published on 01. December 2003
by announcement on the Internet under
www.2016091ontario.de and by the availability of
copies for free distribution from Commerzbank AG,
and by announcement in the Financial Times
Deutschland. All notifications in conjunction
with this Takeover Bid will be published by
announcement on the Internet under
www.2016091ontario.de and by a reprint in the
Financial Times Deutschland.
Acquisition of shares during Neither 2016091 Ontario nor Open Text has
the Takeover Bid: acquired any IXOS Shares since the publication of
2016091 Ontario's decision to make the Takeover
Bid on 21. October 2003 until the time of
publication of this Offer Document. Although
2016091 Ontario reserves the right to acquire
additional IXOS Shares outside the takeover bid
procedures, there are no concrete intentions for
such an acquisition at the present time.
2. Takeover Bid
2.1. Subject
2.1.1. Cash offer
The Bidder hereby offers to all shareholders of IXOS Software Aktiengesellschaft
(each individually IXOS Shareholder and jointly IXOS Shareholders) to acquire
their non-par-value bearer shares in IXOS Software Aktiengesellschaft (ISIN DE
0005061501, WKN 506 150), each with a proportional amount of EUR 1.00 in the
registered share capital per share and with dividend entitlement from the
financial year beginning on 1. July 2003 in return for
EUR 9.00 per IXOS Share
10
on the terms of this Offer Document (Takeover Bid or Offer).
2.1.2. Alternative offer
The Bidder hereby offers as an alternative to all IXOS Shareholders, to acquire
their non-par-value shares in IXOS Software Aktiengesellschaft (ISIN
DE0005061501 [WKN 506 150]) each with a proportional amount of EUR 1.00 and with
dividend entitlement from the financial year beginning 1st July 2003 in return
for at the election of each IXOS Shareholder
0.5220 of a common share of Open Text (ISIN CA6837151068, WKN 899 027) with
dividend entitlement from the financial year beginning on 1. July 2003 for each
IXOS Share and 0.1484 of a warrant (ISIN CA6837151142), each whole warrant
exercisable to purchase one Open Text Share for up to one year after the Closing
Day (as defined hereinafter) at a strike price of US $20.75 (= EUR 18.19
calculated at the Exchange Rate) per share
on the terms of this Offer Document (Takeover Bid or Offer).
2.1.3. General
IXOS Shareholders may elect in respect of all or part of their IXOS Shares to
receive either Cash Consideration or Alternative Share and Warrant
Consideration.
"Closing Day" shall be the day on which the transfer of title to the Tendered
IXOS Shares pursuant to the provisions of this Offer Document (Section 8.2)
becomes legally effective.
This Offer aims at gaining control over IXOS Software Aktiengesellschaft and is
therefore a takeover bid pursuant to sec. 29 (1) WpUG. The Bidder published its
decision to make the Takeover Bid on 21. October 2003.
2.2. Period for Acceptance
The period for the acceptance of this Takeover Bid (Acceptance Period) begins
with the publication of this Offer Document on
01. December 2003
and ends on
16. January 2003, 12.00 h (local time Frankfurt/Main)
The execution of this Offer in case of acceptance is described in Section 8.
2.3 Extensions of the Acceptance Period
In the event of a change to this Offer published within the last two weeks
before the end of the Acceptance Period or in the event the Bidder waives one or
all of the conditions set forth in Section 9, the Acceptance Period will be
automatically extended for two weeks (Extended Acceptance Period). This shall
also apply if the changed offer infringes legal provisions.
If an offer to acquire IXOS Shares is made by a third party (Competing Offer)
during the Acceptance Period, the expiry of the Acceptance Period shall be
determined by the expiry of the period for acceptance of the competing offer if
the Acceptance Period expires before the expiry date of the period for
acceptance of the competing offer. This shall also apply if the competing offer
is changed or prohibited or infringes legal provisions.
If a shareholders' meeting of IXOS concerning the offer is convened after
publication of the offer document, the period for acceptance shall end on
February 9, 2003.
The settlement of the Offer in case of acceptance during the Extended Acceptance
Period is described in Section 8 below.
11
2.4 Additional Acceptance Period
If on expiry of the Acceptance Period the conditions precedent under Section 9
are fulfilled and the conditions subsequent under Section 9 have not occurred,
the IXOS Shareholders who have not accepted the Offer during the Acceptance
Period can accept the Offer within two weeks of publication of the result of
this Offer by the Bidder in accordance with sec. 23 para. 1 sent. 1 No. 2 WpUG
(Additional Acceptance Period). The Additional Acceptance Period is expected to
start on 23. January 2004 and will end on February 6, 2004. On expiry of the
Additional Acceptance Period, the Offer can no longer be accepted.
The execution of the Offer in the case of acceptance during the Additional
Acceptance Period is described in Section 8.8.
3. Bidder
3.1. Corporate and Financial Data of the Bidder and the Open Text Group
2016091 Ontario is a corporation duly incorporated under the laws of the
Province of Ontario, Canada, and the address of its registered office is 185
Columbia Street West, Waterloo, Ontario N2L 5Z5, Canada. It was incorporated on
September 18, 2002.
2016091 Ontario is a 100 % subsidiary of Open Text Corporation, 185 Columbia
Street West, Waterloo, Ontario N2L 5Z5, Canada. The sole purpose of 2016091
Ontario Inc. is the holding of the shares of IXOS within the group whose parent
company is Open Text (Open Text Group). Open Text has entered into an agreement
with the Bidder to provide the liquid funds and Open Text Shares as well as Open
Text Warrants necessary for the acquisition of the shares of IXOS under the
offer.
Apart from 2016091 Ontario no other persons within the meaning of sec. 2 par. 5
WpUG have acted in common with 2016091 Ontario for the purposes of this Takeover
Bid. There are no voting rights resulting from shares in IXOS attributed to the
Bidder pursuant to sec. 30 WpUG.
3.2. Open Text Group
The parent company of Open Text Group, Open Text, is a corporation duly
incorporated under the laws of the Province of Ontario, Canada, and has its
registered office in 185 Columbia Street West, Waterloo, Ontario, Canada.
Open Text Group is one of the leading companies in the field of development and
sale of software for Enterprise Content Management (ECM). Open Text is a market
leader in Collaboration and Knowledge Management and has delivered innovative
ECM software that brings people together to share knowledge, achieve excellence,
deliver innovation, and enhance processes. Open Text began with the successful
deployment of the world's first search engine technology for the Internet.
Today, as the leading global supplier of Collaboration and Content Management
software for the enterprise, Open Text supports fifteen million seat licenses
across 10,000 corporate deployments in 31 countries and 12 languages throughout
the world. In the financial year ended on June 30, 2003 the consolidated sales
(in US-GAAP) of the Open Text Group totaled EUR 170.6 (US$ 177.7) million with a
consolidated asset total on June 30, 2003 of EUR 206.3 (US$ 238.7) million. The
consolidated net income for the year of the Open Text Group for the financial
year ended on June 30, 2003 was EUR 26.7 (US$ 27.8) million. The Open Text Group
had an average workforce during the financial year ended on June 30, 2003 of
1,097 employees. (The figures indicated above have been converted by using the
US$-EUR-exchange rates as of June 30, 2003 given by the Bank of Canada.)
As of September 30, 2003 Open Text Group had consolidated worldwide sales for
the first quarter of its fiscal year 2003/2004 of EUR 39.3 (US$ 44.2) million
with a consolidated interim balance sheet total on September 30, 2003 of EUR
208.0 (US$242.4) million. The consolidated net income for the first quarter of
the Open Text Group of the financial year 2003/2004 ended on September 30, 2003
was EUR 3.0 (US$3.4) million. On September 30, 2003 the Open Text Group had
1,168 employees. (The figures indicated above have been converted by using the
US$-EUR-exchange rate as of September 30, 2003 as given by the Bank of Canada.)
12
3.3. Business Activities of the Bidder and the Open Text Group
The Bidder has not pursued any business activities prior to this Takeover Bid.
The Open Text Group has activities in the following lines of business:
Open Text develops, markets, licenses and supports Collaboration and Knowledge
Management Software for use on intranets, extranets and the Internet. Open
Text's principal product line is Livelink(R), a leading collaboration and
knowledge management software product for global enterprises. The software
enables users to capture as well as find electronically stored information, work
together in creative and collaborative processes, perform group calendaring and
scheduling, and distribute or make available to users across networks or the
Internet the resulting work product and other information. This collaborative
environment enables ad hoc teams to form quickly across functional and
organizational boundaries, which enables information to be accessed by employees
using any standard Web browser. Fully Web-based with open architecture,
Livelink(R) provides rapid out-of-the-box deployment, accelerated adoption, and
low cost of ownership. Open Text provides integrated solutions that enable
people to use information and technology more effectively at departmental levels
and across enterprises. Open Text offers its solutions both as end-user
stand-alone products and as fully integrated modules, which together provide a
complete solution that is easily incorporated into existing enterprise business
systems. Although most of Open Text's technology is proprietary in nature, Open
Text does on occasion include certain third party software in its products.
4. Description of IXOS Software AG
4.1. Corporate and Financial Data of IXOS Software AG
IXOS Software Aktiengesellschaft is a stock corporation registered in the
commercial register of the local court (Amtsgericht) of Munich under HRB 116
846. As of November 26, 2003, the registered share capital of IXOS amounted to
EUR 21,554,884 and was divided into 21,554,884 non-par-value bearer shares, each
with a proportionate amount of EUR 1.00 in the registered share capital. There
also existed conditional share capital I in the amount of EUR 870,116,
conditional share capital II in the amount of EUR 261,980, conditional share
capital III in the amount of EUR 298,233, conditional share capital IV in the
amount of EUR 500,000 as well as authorized share capital IV in the amount of
EUR 3,000,000 and authorized share capital V in the amount of EUR 7,762,329.
IXOS has issued stock options under several stock option schemes in the
aggregate amount of 2,965,201 IXOS Shares, to be exercised under the terms and
conditions set forth in the stock option schemes (Stock Option Scheme). As of
November 26, 2003, 1,390,670 of the stock options are outstanding, each
providing rights to one IXOS Share. Only some of 354,277 options are currently
exercisable and in the money and can therefore lead to a contingent capital
increase by a maximum of 354,277 IXOS-Shares until the deadline of the
additional acceptance period.
Before exercise of option After exercise of all
354,277 options
------------------------ ------------------------ ----------------------
Issued share capital 21,554,884 21,909,161
------------------------ ------------ -------------
Contingent capital I 870,116. 515,839
------------------------ ------------ -------------
Contingent capital II 261,980 261,980
------------------------ ------------ -------------
Contingent capital III 298,233 298,233
------------------------ ------------ -------------
Contingent capital IV 500,000 500,000
------------------------ ------------ -------------
Authorized capital IV 3,000,000 3,000,000
------------------------ ------------ -------------
Authorized capital V 7,762,329 7,762,329
------------------------ ------------ -------------
There are no additional subscription rights to IXOS Shares other than those from
the issued options from the share option program, i.e. no option rights,
conversion privileges or other subscription rights. The aforementioned IXOS
authorized capital has to date not been approved for issuance by the IXOS board
and IXOS has committed itself in the Business Combination Agreement (section
5.3) with the Bidder not to issue any fresh capital or any authorized capital
until the closing day of the Offer.
13
IXOS Shares are admitted for trading on the regulated market (geregelter Markt)
of the Frankfurt Stock Exchange (Prime Standard) using the ticker symbol "XOS"
(ISIN: DE0005061501 [WKN 506 150]). IXOS Shares are included in the TecDax. In
the U.S. representing an entitlement to a specific number of IXOS Shares,
American Depositary Shares [ADSs] are traded on the NASDAQ stock exchange using
the ticker symbol "XOSY".
4.2. Business Activities of IXOS
IXOS is a leading provider of Enterprise Content Management (ECM) solutions.
IXOS solutions optimize and expedite business processes, reduce costs, minimize
risk and enhance the competitiveness of companies. In addition to its product
portfolio, IXOS offers a broad spectrum of services, including global 24x7
customer support and a global team of highly qualified consultants. Another
advantage is its close partnerships with leading international IT providers and
system integrators. Large corporations in widely varied industries have chosen
IXOS as a dependable, strategic partner. As of June 30, 2003 some 2,715
installations around the globe with more than 2 million users benefit from
IXOS's long years of expertise in the field of business content management.
With offices in 17 countries and a network of certified Distributors and
Resellers for the rest of the world, IXOS operates globally.
IXOS is represented by 14 subsidiaries in key industrial centers worldwide (IXOS
Group). The headquarters are in Grasbrunn, near Munich. The development work of
IXOS SOFTWARE AG is concentrated in the Munich region and in Kempten (Germany),
San Mateo (U.S.A.), Prague (Czech Republic), and Basel (Switzerland). The Basel
site is a development center only, and was added to IXOS' locations when Obtree
Technologies, Inc. was acquired in fiscal year 2002/2003. There are sales and
service teams at all IXOS locations with the exception of Basel and Obtree
Technologies UK Limited which ceased operations. After the balance sheet date
June 30, 2003, IXOS SOFTWARE AG formed the IXOS SOFTWARE NORDIC A/S subsidiary,
which is responsible for sales and services in Denmark, Sweden, Norway, and
Finland. Also additional subsidiaries in France and Spain have been formed in
order to strengthen IXOS' presence in the countries concerned.
In the business year ending on June 30, 2003 IXOS Group had (all accounting
under the principles of US GAAP) consolidated worldwide sales of EUR 127.1
million with a consolidated balance sheet total on June 30, 2003 of EUR 108.3
million. The consolidated net loss for the year of the IXOS Group for the
financial year ended on June 30, 2003 was EUR (4.0) million. On June 30, 2003
the IXOS Group had 919 employees.
As of September 30, 2003 IXOS Group had consolidated worldwide sales for the
first quarter of its fiscal year 2003/2004 of EUR 30.1 million with a
consolidated interim balance sheet total on September 30, 2003 of EUR 100.3
million. The consolidated net loss for the first quarter of the IXOS Group for
the first quarter of the financial year 2003/2004 ended on September 30, 2003
was EUR (1.9) million. On September 30, 2003 the IXOS Group had 911 employees.
5. Background to the Takeover Bid
5.1. Economic Reasons for the Takeover Bid
In order to be successful as a provider of enterprise content management ("ECM")
solutions systems it is necessary to offer comprehensive solutions. The software
solutions have to contain web and content management functions, integrated
collaboration and search functions and provide solutions for business processes.
Market consolidation through the takeover of ECM vendors is enabling financially
strong players in this segment to expand their key business by widening their
range of offered products and by obtaining synergies in the ECM sector.
It is the intention of the Bidder and Open Text through the combination of Open
Text and IXOS to offer the most complete ECM solution to meet the needs of
current and prospective customers and provide for extensive worldwide presence.
The Bidder and Open Text believe that a combined Open Text and IXOS will be able
to offer customers a combination of technologies, solution flexibility and
platform choice, all delivered from a single, financially stable company they
can partner with for the long term.
14
In the longer term it is the intention of the Bidder and Open Text to provide
one-stop-shopping for comprehensive ECM solutions designed to manage the
complete lifecycle of information across the organization, from creation to
archiving.
The geographic focus of both Open Text and IXOS is considered highly
complementary. Approximately 60% of Open Text's revenue comes from North
America, approximately 36% from Europe, and approximately 4% from Asia Pacific.
Approximately 60% of the IXOS<180>s revenue comes from Europe, approximately 30%
from North America, and approximately 10% from Asia Pacific The combined
companies' world-wide presence will make it the largest single vendor of ECM
software. Managing mission critical content for global enterprises requires ECM
software vendors to have a sufficient critical mass, a global presence, and the
financial stability to support enterprises for the long term, and Open Text and
IXOS, intend to, by combining their businesses, achieve such critical mass.
It is the objective of the Bidder and Open Text to provide customers with access
to a wide range of new technologies to manage growing volumes of information and
improve collaboration. IXOS customers will gain access to Open Text's leading
Collaborative Solutions, and Open Text's customers will gain access to IXOS'
Content Archiving and Management Software. The companies' solutions will cover
every phase of the information lifecycle in a large organization: collaborative
creation of Content; publishing of Content inside and outside the enterprise;
processing of information throughout the enterprise; and providing reliable,
secure and compliant long-term storage. The solutions will also integrate the
key sources of information and drivers of business processes: ERP, CRM and
e-mail systems. These integrated capabilities have become essential for large
companies facing the increasing demands of corporate governance laws and other
industry regulations worldwide. It is Open Text's objective to provide the most
comprehensive solution for Information Lifecycle Management and leverage the
installed customer base of Open Text and IXOS in order to realize significant
cross and up-selling opportunities and accelerate growth worldwide.
5.2. Current Shareholding of 2016091 Ontario in IXOS
2016091 Ontario currently has no shareholding in IXOS.
5.3. Business Combination Agreements with IXOS
In an agreement dated 21 October 2003, the Bidder, Open Text and IXOS entered
into a business combination agreement (the Business Combination Agreement)
whereby the Bidder agreed to make, and IXOS agreed to support, the Offer. Both
companies` management teams believe that there is an excellent opportunity to
combine the businesses of both companies in order to create a more efficient and
effective, global entity.
Under the Business Combination Agreement IXOS has undertaken to support the
Takeover Bid, insofar as this is legally permissible. This agreement was
concluded by IXOS without knowledge of this Offer Document and the decision by
the board of management and the supervisory board of IXOS to sign the agreement
was based purely on the knowledge of the Bidder's intentions on 21 October 2003.
5.4. Treatment of Stock Options of IXOS
In the Business Combination Agreement IXOS has undertaken to use its reasonable
commercial efforts to ensure that all options to acquire IXOS-Shares that are,
prior to the close of business on the Banking Day immediately preceding the
initial Expiration Date, (i) "in the money" and (ii) exercisable under the
respective option plans, will be exercised. For Clarification: The holder of
IXOS-Shares issued upon exercise of such options will be able to tender these
shares in accordance with the terms and conditions of this Offer.
With respect to all other options validly issued under the IXOS's Stock Option
Schemes, Open Text has agreed vis a vis IXOS to offer, at its choice, either an
appropriate amount of replacement stock options in Open Text or reasonable
compensation.
15
5.5. Support of the Business Combination by Shareholders
IXOS Shareholders General Atlantic Partners (Bermuda), L.P., GAP Coinvestment
Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co, KG, which collectively hold
approximately 26 % of the shares and voting rights, have already irrevocably
undertaken vis a vis Open Text to accept the Offer under the terms set forth in
this Offer Document.
6. Intentions of 2016091 Ontario in Relation to the Future Business Activities
of IXOS
Following the successful completion of this takeover bid, IXOS will become a
subsidiary of Open Text. It is the intention of 2016091 Ontario and Open Text to
then examine the feasibility of the possibilities described below together with
the management board of IXOS. Insofar as exact plans exist, these are based on
information about IXOS from public sources and on the information gained by
2016091 Ontario within the framework of a due diligence examination.
2016091 Ontario reserves the right following the completion of this takeover bid
to propose to IXOS the conclusion of a profit transfer and controlling
agreement. In this case the remaining shareholders must be assured a settlement
payment that could be calculated on the basis of the earnings situation of IXOS
to date and its future earnings profitability expectations as an average
dividend for each share; on the basis of the earnings situation of IXOS to date,
this settlement payment could be zero or higher. Furthermore, the remaining
shareholders must be made an offer for the acquisition of their shares against
an adequate settlement payment; this could correspond to the price offered in
this takeover bid, but could also be higher or lower.
Should 2016091 Ontario after the execution of this offer or at a later date hold
at least 95 % of the share capital of IXOS, 2016091 Ontario reserves the right
to propose to the shareholders' meeting of IXOS a transfer of the shares of the
minority shareholders to 2016091 Ontario according to sec. 327 a ff. of the
German Corporation Act (AktG) against payment of an adequate cash settlement
(squeeze-out). The cash settlement to be offered in accordance with these
provisions could correspond to the price offered in this Takeover Bid, but could
also be higher or lower.
Furthermore 2016091 Ontario reserves the right to propose a shareholders'
meeting of IXOS to withdraw from the regulated market of the Frankfurt Stock
Exchange and to de-list the IXOS Shares. Should it be necessary according to the
applicable law in this case to offer to acquire the remaining minority
shareholders of IXOS against payment of an adequate cash settlement. The cash
settlement to be offered in accordance with these provisions could correspond to
the price offered in this Takeover Bid, but could also be higher or lower.
2016091 Ontario also reserves the right to propose to a shareholders' meeting of
IXOS to change the form of IXOS to a partnership (Kommanditgesellschaft) or to a
limited liability company (Gesellschaft mit beschrankter Haftung). IXOS would
then be obliged to offer those shareholders of IXOS who have declared their
opposition to the minutes of meeting on the resolution concerning the change of
form an adequate settlement payment against withdrawal from the company in its
new legal form. As a consequence of the change in legal form, the listing of the
IXOS Shares on all stock exchanges on which they are currently listed would be
terminated.
Following the successful completion of this takeover bid, 2016091 Ontario will
strive to achieve an adequate representation on the supervisory board of IXOS.
According to the present plans, 2016091 Ontario intends to work together in
future with the board of management of IXOS and with the management of the other
members of the IXOS Group.
2016091 Ontario and the parent company Open Text reserve the right to integrate
the IXOS products and their distribution channels into the Open Text Group.
After completion of a successful takeover, it is the intent that Open Text Group
will be organized into two divisions. It is the current intention of 2016091
Ontario that the North American-based division, with operational headquarters in
Chicago, will have global responsibility for collaboration and knowledge
management solutions as well as North American responsibility for operations.
Furthermore, it is intended that the European-based division, headquartered in
Munich, will have global responsibility for Content Management and Archiving as
16
well as European responsibility for operations; it is the intention of 2016091
Ontario to then continue IXOS as an independent company at its current seat and
to make IXOS the head of the Open Text European-based operations. Currently,
2016091 Ontario has no intention to discontinue or relocate any branches or
locations (Niederlassungen und Betriebsstatten) of IXOS. As of the date of this
Offer Document, 2016091 Ontario intends to appoint IXOS' Chief Executive Officer
(Vorstandsvorsitzender), Robert Hoog, the head of the European organization for
Open Text. It is expected by 2016091 Ontario, that after completion of the
takeover and after the integration of the Open Text and IXOS solutions, Open
Text and IXOS, with more than 2,000 employees worldwide, including more than 500
developers, will create an entity that can lead and be successful in the dynamic
market of ECM.
A liquidation of IXOS is not intended. It has not been decided, whether all or a
portion of the assets of IXOS will after a successful takeover be employed
different from their present use. No exact plans have been drawn up either with
respect to the products and business activities of IXOS and its subsidiaries
within the Open Text Group other than those described above. The same applies
also with respect to the subsidiaries, branches and locations (Betriebsstatten)
of IXOS. At the time of publication of the offer document, the Bidder has no
intention of urging IXOS to undertake major future obligations outside its
normal field of business activities.
2016091 Ontario will try to increase productivity within IXOS and its
subsidiaries and Open Text and its subsidiaries in the context of obtaining
synergies through a combined organization. It is therefore possible, that
2016091 Ontario during the takeover process or hereafter in a thorough
examination of the cost structure of IXOS and for Open Text Group decides, that
adjustments of the headcounts and measures for a further improvement in the
productivity at IXOS and its subsidiaries may be needed; 2016091 Ontario
expressly reserves this possibility. Furthermore, however, no fundamental
changes in the working conditions and in the organization or representation of
the employees are planned.
The details and form of the integration of IXOS into the Open Text Group - going
beyond the holding of a majority interest in IXOS - shall be examined during the
period of the takeover bid and following the conclusion of the takeover bid.
7. Consideration
7.1. Cash Consideration
7.1.1. Extent of the Cash Consideration
The offered consideration consists of EUR 9.00 per IXOS Share (Cash
Consideration).
7.1.2. Adequacy of the Cash Consideration
The Cash Consideration represents an adequate consideration in the view of the
Bidder.
The minimum price to be offered to the IXOS shareholders according to sec. 31
nos. 1 and 7 WpUG in connection with sec. 4 and 5 WpUG Offer Ordinance as a
minimum consideration for their IXOS shares is established by applying the
higher value
o of the weighted average national stock price of the IXOS share for the
last three months before the announcement of the decision to submit
the present takeover offer on 21 October 2003 (Average Three-Month
Price) and
o the highest consideration that was offered as agreed by the bidder or
one of the persons acting jointly with the bidder or their
subsidiaries for the acquisition of IXOS shares for the last three
months prior to the announcement of the present offer documents
(Three-Month High Price).
The Average Three-Month Price, calculated by BaFin and announced under
Mindestpreise gemass Wertpapiererwerbs- und Ubernahmegesetz (minimum prices
according to WpUG) on the BaFin website, amounts to EUR 6.70 as of 20th October
2003.
17
No securities transactions were agreed or carried out that are required to be
made known as pre-purchases according to sec. 2 no. 7 WpUG Offer Ordinance. Such
transactions do not therefore affect the requirements for the minimum price.
Accordingly the minimum price that must be offered to the shareholders of IXOS
for IXOS shares according to sec. 5 no. 1 WpUG Offer Ordinance amounts to EUR
6.70 (weighted average national stock price during the three months prior to the
announcement of the decision to submit the present takeover offer on 21st
October 2003).
In setting the offer price, 2016091 Ontario took into consideration the stock
price of the IXOS shares on the stock exchange during the months prior to the
announcement of the Offer. In the view of the Bidder the consideration
established on this basis is attractive and adequate. The consideration in cash
represents a 34% premium on the basis of the weighted three-month average prior
to the announcement of the decision to make the Offer.
7.2. Alternative Share and Warrant Consideration
7.2.1. Summary of the Alternative Share and Warrant Consideration
Alternatively, at the election of the IXOS Shareholder 2016091 Ontario offers in
exchange for each IXOS Share, 0.5220 of an Offered Open Text Share and 0.1484 of
a Offered Open Text Warrant, each whole warrant exercisable to purchase one Open
Text Share for up to one year after the Closing Day at a strike price of US
$20.75 per share. (= EUR 18.19 calculated based on the rate of exchange)
(Alternative Share and Warrant Consideration).
7.2.2. Important remarks on the Alternative Share and Warrant Consideration
The Alternative Share and Warrant Consideration does not fulfill the
requirements of a consideration according to sec. 31 no. 2 WpUG. It is however a
voluntary, alternative share and warrant consideration admissible according to
the stipulations of the WpUG. The Alternative Share and Warrant Consideration is
made in order to offer an alternative consideration to the Cash Consideration to
those shareholders of IXOS who wish to participate through an equity instrument
in the development of Open Text and the combined business of both companies.
The exchange ratio between the Open Text Shares and Open Text Warrants under the
Alternative Share and Warrant Consideration has been determined by 2016091
Ontario at its sole discretion following negotiation with IXOS. This Alternative
Share and Warrant Consideration has neither been audited for adequacy by BaFin
nor by an auditor.
Each IXOS Shareholder should carefully consider the investment considerations
and risks of this Alternative Share and Warrant Consideration set forth in
Appendix 1, paragraph VII, and the risk factors respecting the offered Open Text
warrants under Section 7.2.4.3.
No fractional shares or warrants will be issued under this Tender Offer to IXOS
Shareholders electing to receive the Share and Warrant Consideration. Fractions
of Offered Open Text Shares and Offered Open Text Warrants arising from the
conversion of IXOS Shares into Open Text Share and Warrants will be rounded down
to the next whole share or warrant as is shown in the following example:
Example of Calculation of Alternative Share and Warrant Consideration
----------------- -------------------- --------------------- ---------------------- -----------------
Offered
Tendered Open Text Shares Offered Offered Offered Open Text
IXOS Shares (before rounding) Open Text Warrants Open Text Shares Warrants (after
(before rounding) (after rounding) rounding)
----------------- -------------------- --------------------- ---------------------- -----------------
294 153.468 43.6296 153 43
----------------- -------------------- --------------------- ---------------------- -----------------
18
On 8 October 2003, the Open Text Board of Directors declared a stock dividend,
payable on the basis of one common share, with the same rights as all existing
Open Text shares, for each Open Text share held on 22 October 2003 at 17.00 h
(local time in Toronto). This share dividend doubled the number of existing
shares and effectively achieved a two-for-one split of the outstanding Open Text
shares (stock dividend). All references to Open Text shares or information about
Open Text shares in this document, excluding the references in the audited
consolidated balance sheets as at 30 June 2001 to 2003 and the Open Text
financial data for the financial years ended 30 June 1999 - 2003, have been
adjusted to take account of the stock dividend.
7.2.3. Adequacy of the Alternative Share and Warrant Consideration
In the opinion of the Bidder, the Alternative Share and Warrant Consideration
also is an adequate consideration.
The Open Text Shares are listed and traded over the facilities of the Nasdaq
National Market (Nasdaq) under the stock symbol OTEX and the facilities of the
Toronto Stock Exchange (TSX) under the stock symbol OTC. The Nasdaq is the
market with the highest trading volumes on which the Open Text Shares trade,
with over 24 million Open Text Shares traded in the three-month period prior to
announcement of Open Text's intent to make the Tender Offer on October 21, 2003
(the Three-Month Period).
In the Three-Month Period, the weighted average trading price for the Open Text
Shares (taking the effects of the share dividend into consideration) was EUR
15.17 per share (the Weighted Average Stock Price). This weighted average
trading price was calculated by multiplying the following factors:
o the US dollar closing price of the Open Text Shares for each trading day
on Nasdaq in the Three-Month Period (Appendix 3, obtained from Nasdaq
through an online request at www.nasdaqtrader.com and payment of a service
fee) by
o the aggregate number of Open Text Shares traded on Nasdaq on each trading
day (Appendix 3, obtained from Nasdaq through an online request at
www.nasdaqtrader.com and payment of a service fee) by
o the noon buying rates for each day of the Three-Month Period for Euros
using US dollars on each trading day as certified by the New York Federal
Reserve Bank for customs purposes (published by the New York Federal
Reserve Bank at www.ny.frb.org/markets/fxrates/noon.cfm),
and dividing that product by the aggregate number of Open Text Shares traded on
Nasdaq in the Three Month Period (the resulting number is then divided by two
to reflect the Stock Dividend).
Using the Weighted Average Stock Price of the Open Text Shares as calculated
above, the Offered Open Text Shares offered for each IXOS Share can be valued at
approximately EUR 7.92 per share. This is calculated by multiplying the Weighted
Average Stock Price of approximately EUR 15.17 by 0.5220, being the exchange
ratio between one IXOS Share and the Offered Open Text Shares.
Using the Weighted Average Stock Price and the Black-Scholes pricing model the
Offered Open Text Warrants offered for each IXOS Share can be valued at
approximately EUR 0.42 per warrant. This is calculated by multiplying the
Black-Scholes value of approximately EUR 2.86 per warrant by 0.1484, being the
exchange ratio between one IXOS Share and the Offered Open Text Warrants.
The Black-Scholes pricing model is a commonly accepted method of valuing
securities such as the Offered Open Text Warrants that represent a right to
acquire an equity security at a future date. The Black-Scholes value for the
Offered Open Text Warrants set forth above was computed using the term of the
Offered Open Text Warrant of one year, and based on assumptions of a volatility
of 60 %, an interest rate of 3 %, and a dividend yield of nil. The strike price
of the Offered Open Text Warrants was converted at the October 20, 2003 exchange
rate per the Bank of Canada.
Using the same method of calculation as described above for the period of 30
days prior to announcement of Open Text's intent to make the Offer on October
21, 2003, the Offered Open Text Shares offered for each IXOS Share can be valued
at approximately EUR 9.03 and the Offered Open Text Warrants offered for each
IXOS Share can be valued at approximately EUR 0.59.
19
The above calculations reflect market prices and conditions for a particular
period of time, and will produce different results depending upon the time frame
selected and assumptions made. Any IXOS Shareholder considering the Offer or
evaluating the Alternative Share and Warrant Consideration should consider all
information contained in the Offer Document and its Appendices. IXOS
Shareholders are encouraged to consult their financial advisers in connection
with their consideration of the Offer.
7.2.4. Content of the Alternative Share and Warrant Consideration
7.2.4.1 Offered Open Text-Shares
Subject to such shareholder approval, as described in Section 10.2, the issuance
of Offered Open Text Shares and the Offered Open Text Warrants for the purposes
of the Tender Offer has been approved by the Board of Directors of Open Text,
which has agreed to issue up to 15,060,000 new registered common shares of Open
Text without par value at the direction of 2016091 Ontario for consideration in
kind, i.e. for Tendered IXOS Shares. For further information on Open Text and on
Open Text Shares please refer to Appendix 1.
In considering whether to accept the Alternative Share and Warrant
Consideration, the investment considerations (Appendix 1, sec. VII) should also
be read carefully as well as the risk factors respecting the offered Open Text
Warrants (Appendix 1,sec. IV no. 11).
For information on trading in Open Text Shares, see subsection 7.2.3.
No fractional rights of Offered Open Text Shares will be issued and those IXOS
Shareholders who have chosen the Alternative Share and Warrant Consideration
will not be entitled to a cash payment or other consideration in respect of any
fractional rights to Offered Open Text Shares. In the calculation of the
Alternative Share and Warrant Consideration for IXOS Shares submitted for
exchange, fractional rights to Offered Open Text Shares will be rounded down to
the next whole share.
7.4.2.2 Offered Open Text Warrants
The following is a summary only of the terms of the Offered Open Text Warrants
and is given subject to the more detailed provisions of the Warrant Indenture
(Warrant Conditions) referred to below in Appendix 2.
In considering whether to accept the Alternative Share and Warrant Consideration
the investment considerations (Appendix 1, sec. VII) as well as the risk factors
respecting the Offered Open Text Warrants (Appendix 1, sec. IV no. 11) should be
read carefully.
7.2.4.2.1. Issuance of the Warrants
The Offered Open Text Warrants will be created and issued under a warrant
indenture (the Warrant Indenture) dated as of November 28, 2003 between Open
Text and Computershare Trust Company of Canada (the Warrant Trustee), a copy of
which is appended as Appendix 2 to this Offer Document. Subject to adjustment as
described below, each whole Offered Open Text Warrant will entitle its holder to
purchase one Open Text Share at a price of U.S. $ 20.75 (= EUR 18,19 calculated
at the Exchange Rate) (the Exercise Price), on or before 5:00 p.m. (Toronto
time) on the date one year after the Closing Day (the Expiry Date).
The settlement procedure and issuance of Warrant Certificates are explained in
Section 8.2.2 below.
7.2.4.2.2. Exercising the Offered Open Text Warrants
Note: The costs resulting from exercising the Offered Open Text Warrants as well
as for the deposit of the Open Text shares received following settlement are to
be borne by the exercising owners of the Offered Open Text Warrants. To assess
these costs, owners should consult with their custodian or
20
their stockbroker. Such costs can exceed those costs that result from the
exercise and deposit of warrants that a domestic issuer has detailed nationally.
The owner of an Offered Open Text Warrant exercises their right under the
warrant for the acquisition of Open Text shares (Exercising the Warrant), if
they, where appropriate, through their custodian or their stockbroker submit the
following documents to the head office named for the transfer in Toronto
(Ontario/Canada) prior to or on the Expiry Date by 17.00 h (local time in
Toronto, Canada):
(1) the provided Warrant through physical submission (in case of collective
deposit (Girosammelverwahrung) the custodian bank is to initiate the
submission);
(2) the properly completed and signed subscription form (as defined and
represented in the warrant conditions) specifying the number of Open
Text Shares that the owner intends to acquire (provided that this does
not exceed the number of shares that the owner has a right to acquire
pursuant to the Warrant(s)) and
(3) a valid check, a money order, or a bill of exchange drawn on a bank,
issued in a legal tender of the United States of America and payable to
the nominal value or as an order instrument to Open Text or the Warrant
Trustee in Toronto, where the sum must correspond to the exercising
price for each Open Text share subscribed to at the time of Exercising
the Warrant.
Offered Open Text Warrants not exercised prior to the stated time on the Expiry
Date will expire without value.
The owner of an Offered Open Text Warrant receives Open Text shares on the
effective Exercising of the Warrant. These shares will not be traded in the USA
and cannot be sold to persons residing in the USA. These shares will be tradable
on the TSX. They can only be traded on the unlisted securities market in Germany
if a securities service company creates the appropriate requirements for this.
For the negotiability of these shares on a stock exchange or on the unlisted
securities market also see subsection 7.2.4.4 below.
Share certificates that represent the Open Text Shares and after exercising the
Offered Open Text Warrants are transferable, are handed to the owner of a
warrant or according to their instructions to their bank, stockbroker or a
different representative.
The costs for Exercising the Warrants, the issuance of the documents, custodian
costs and other costs linked to Exercising the Warrant are not borne by the
Bidder. These costs can be greater as the costs for similar transactions that
concern shares or warrants in a German company.
7.2.4.2.3. Fractional rights of Offered Open Text Warrants
No fractional rights of Offered Open Text Warrants will be issued and IXOS
Shareholders who have chosen the Alternative Share and Warrant Consideration
will not be entitled to any cash payment or other consideration in respect of
any fractional rights to Offered Open Text Warrants. In the calculation of the
Alternative Share and Warrant Consideration for the exchange of submitted IXOS
shares, fractional rights to Offered Open Text Warrants will be rounded down to
the next whole warrant.
7.2.4.2.4. Protection of Warrant Holders against Dilution
The Warrant Indenture contains provisions designed to protect the holders of the
Offered Open Text Warrants against dilution upon the happening of certain
events, provided that in each case all applicable stock exchange and regulatory
approvals are obtained. If any stock dividend or distribution of Open Text
Shares or securities convertible into Open Text Shares other than as "dividends
paid in the ordinary course" (as defined therein) occurs, or if any subdivision,
consolidation, change or reclassification of the Open Text Shares or any
consolidation, amalgamation, arrangement or merger of Open Text with another
corporation or the transfer of all or substantially all of Open Text's assets
occurs, a proportionate adjustment or change will be made in the number and kind
of securities issuable on the exercise of the Offered Open Text Warrants. The
Offered Open Text Warrant Indenture provides that the exercise price per Open
Text Share will be subject to adjustment in certain events, including:
21
(a) the subdivision or consolidation of Open Text Shares or the issue to
all or substantially all the holders of Open Text Shares of a stock
dividend or other distribution of Open Text Shares or securities
convertible into Open Text Shares other than a distribution to such
holders as "dividends paid in the ordinary course" (as defined
therein);
(b) the issue of rights, options or warrants to all or substantially all
the holders of Open Text Shares, entitling them to acquire (i) Open
Text Shares at a price less than 95% of the "Current Market Price" of
the Open Text Shares or (ii) securities convertible into Open Text
Shares where the conversion price at the date of issue of such
convertible securities is less than 95% of the "Current Market Price"
of the Open Text Shares; and
(c) the distribution to all or substantially all of the holders of Open
Text Shares of (i) shares of any other class, (ii) rights, options or
warrants to acquire Open Text Shares or securities convertible into
Open Text Shares or property or other assets of Open Text, (iii)
evidences of indebtedness or (iv) property or other assets of Open Text
(other than those referred to above and excluding in each case
dividends paid in the ordinary course).
"Current Market Price" of a Open Text Share at any date means the price per
share equal to the weighted average price at which the Open Text Shares have
traded (i) on Nasdaq, or (ii) if the Open Text Shares are not traded on Nasdaq,
on a recognized exchange or market, or (iii) if the Open Text Shares are not
traded on such recognized exchange or market, on the over-the-counter market,
during the 20 consecutive trading days (on each of which at least 500 Open Text
Shares are traded in board lots) ending on the fifth trading day immediately
prior to such date as reported by such market or exchange in which the Open Text
Shares are then trading or quoted.
No adjustment in the exercise price or in the number of Open Text Shares
purchasable upon exercise will be required to be made (a) unless the cumulative
effect of such adjustment or adjustments will change the exercise price by at
least 1% or the number of Open Text Shares purchasable upon exercise by at least
one-hundredth of a share, (b) if holders of Offered Open Text Warrants are
entitled to participate in any event described above as though they had
exercised their warrants prior to the occurrence of such event or (c) in respect
of the issue of Open Text Shares (i) pursuant to the exercise of the Offered
Open Text Warrants issued pursuant to the Warrant Indenture, (ii) in respect of
the issue from time to time of "dividends paid in the ordinary course" (as
defined in the Warrant Indenture), or (iii) pursuant to any stock options, stock
option plans or stock purchase plans or other benefit plans.
7.2.4.2.5. Transfer of Offered Open Text Warrants
A holder of an Offered Open Text Warrant may instruct its bank or broker to
transfer or sell its Offered Open Text Warrant(s).
The Offered Open Text Warrants will not be listed on any stock exchange. Resale
of the Offered Open Text Warrants and the Open Text Shares underlying the
Offered Open Text Warrants may be subject to resale restrictions under
applicable securities legislation. Holders of the Offered Open Text Warrants and
the Open Text Shares underlying the Offered Open Text Warrants should consult
with their own advisors regarding compliance with the requirements of such
legislation applicable to such resale.
7.2.4.2.6. Repurchase of Offered Open Text Warrants by Open Text
Under the Warrant Indenture, Open Text may purchase in the market, by private
contract or otherwise, all or any portion of the Offered Open Text Warrants on
such terms as Open Text may determine.
7.2.4.2.7. Voting Rights of Holders of Offered Open Text Warrants
The holders of Offered Open Text Warrants will have no voting right or other
right attaching to the status of Open Text Shares.
22
7.2.4.2.8. Rights of a Warrant Holder Meeting
In addition to all other powers conferred upon holders of Offered Open Text
Warrants by the Warrant Indenture or by law, the holders of Offered Open Text
Warrants at a meeting will have the power, exercisable from time to time by
"extraordinary resolution" (as defined in the Warrant Indenture), subject to
regulatory approval to, among other things, agree to any modification of the
rights of holders of Offered Open Text Warrants or to remove the Warrant Trustee
and appoint a successor warrant trustee pursuant to the terms of the Warrant
Indenture.
7.2.4.2.9. Governing law
The Warrant Indenture is governed by the laws of the Province of Ontario, Canada
as well as the federal laws of Canada applicable therein.
7.2.4.3. Risk factors associated with Offered Open Text Warrants
IXOS shareholders, when considering whether to accept the Alternative Share and
Warrant Consideration, should also consider, in addition to further information
contained within Appendix 1 the following risk factors that affect warrants in
general and the Offered Open Text Warrants in particular. Similar considerations
also apply to future investors who may acquire the Offered Open Text Warrants
described above through a subsequent transaction other than via the securities
market.
General risks associated with warrants
General valuation risks
The Offered Open Text Warrants will not be traded on any securities exchange.
They are however transferable securities and are thus subject to the rules of
supply and demand. Warrants may not give rise to claims nor entitle the holder
to receive dividends. The investor is therefore able to make a profit only from
sale of the warrants for a price higher than he paid or by timely exercise of
the warrants if, in the latter case, the market value of the underlying security
(the Open Text Share) is higher than the warrant exercise price.
Risk of loss through changes in the market value of the underlying security
Changes in the market value of the underlying security, in this case the Open
Text Share that underlies the rights under the warrants, can reduce the value of
the warrant. A reduction in value such as this may in particular arise if the
market value of the underlying security, the Open Text Share, falls below the
exercise price. It should be noted that the value of the warrant consistently
changes disproportionately with the change in the market value of the underlying
security; this may also lead to the warrant becoming worthless. This
disproportionate change in the value of the warrant in comparison to the
underlying security is referred to as the leverage effect. This leverage effect
becomes particularly pronounced where the remaining exercise period of the
warrant is very short; at the end of the exercise period the warrant lapses and
is of no value.
The risk of diminution in value and of loss in full
The rights vested in the warrants may lapse or suffer a diminution in value,
since these warrant rights are time-limited. In particular, where there is a
secondary acquisition of a warrant, the risk of a loss of value rises as the
remaining exercise period decreases.
The purchase of warrants, irrespective of the financial viability of the issuing
entity, may lead to a loss in full of the amount invested by the investor due to
disadvantageous market developments, the application of restrictions contained
within the warrant or the expiry of the time-limit.
If the investor's expectations with regard to market developments are not
fulfilled and in particular if the market value of the Open Text Share does not
rise above the warrant exercise price, then the warrant lapses and loses its
value in full. The same applies if the investor declines or neglects to exercise
the rights vested in his warrant. In the case of an IXOS shareholder who has
accepted the Alternative
23
Share and Warrant Consideration, the loss equals the value of the IXOS shares
surrendered in order to acquire the warrants. Where a warrant is acquired in a
secondary market, the loss equals the purchase price paid for the warrant
together with associated purchase costs.
Deals which preclude or mitigate risk
It cannot be assumed that during the warrant exercise period that transactions
may be entered into which can preclude or mitigate the risk of losing the
investment made in the acquisition of the warrant. In addition it may be
impossible after exercise to dispose of shares acquired or of other rights at a
price that matches the exercise price paid together with associated costs.
Particular risks associated with the Offered Open Text Warrants
Increased costs
The investor should note that the costs associated with the exercise of the
Offered Open Text Warrants and the costs associated with the disposal of the
Open Text Shares after exercise may total more than those that could arise in
connection with comparable warrants issued by European institutions. The
investor is advised to make inquiries concerning this matter with his bank or
stockbroker. Significant transaction costs of this nature can reduce the
investor's profits or increase any losses arising.
No securities market transactions in Offered Open Text Warrants
It is not the intention to permit Offered Open Text Warrants to be traded on the
securities market. As a result, the investor will generally be able to dispose
of any Offered Open Text Warrants acquired only with great difficulty or
possibly not at all, since it is conceivable that parties interested in
purchasing the warrants cannot be found. The investor cannot therefore rely on
being able to make profits by disposing of warrants during the exercise period.
In most cases the opportunity for an investor to make profits from the warrant
is therefore limited to an increase in the market value of the Open Text Share
in relation to the exercise price of the Offered Open Text Warrant.
No trading in the U.S. of Open Text-Shares issued upon exercise of Offered Open
Text Warrants
Open Text Shares acquired through exercise of the Offered Open Text Warrants may
not be disposed of on the Nasdaq. See sec. 7.2.4.4 of the Offer Document in this
regard.
7.2.4.4. Limitations on trading in Offered Open Text Shares, Offered Open Text
Warrants and Open Text Shares issued on the basis of the Offered Open
Text Warrants
No trade of shares in the USA or resale to persons residing in the USA: Offered
Open Text Warrants, Open Text Shares issued on the basis of the Offered Open
Text Warrants and Offered Open Text Warrants may not be offered or sold to or in
agency for or for the benefit of a US-resident person, unless a statutory
exemption applies, as set out in the US Securities Act 1933 or in other
applicable domestic share legislation. Certificates for Offered Open Text
Shares, Open Text Shares issued on the basis of Offered Open Text Warrants and
Offered Open Text Warrants will contain legends to this effect.
A statutory exemption to the registration requirements of relevant USA federal
securities legislation in respect of the resale of Offered Open Text Shares, of
Open Text Shares issued on the basis of Offered Open Text Warrants and of
Offered Open Text warrant may in general be available if such shares are sold on
the Toronto Stock Exchange (TSX), conditional upon such shares not being
knowingly sold to a US-resident person and on a declaration to this effect being
produced and made available to the transfer agent for the Open Text Shares,
Computershare Trust Company of Canada.
Additionally, it should be noted that the resale of Offered Open Text Shares and
Open Text shares issued on the basis of Offered Open Text Warrants may in
general be carried out only in accordance with the prevailing regulations of the
relevant securities market on the Nasdaq (but see USA above) or the TSX or
through over-the-counter trading on the securities markets in Berlin-Bremen,
Frankfurt/Main, Munich and Stuttgart in Germany. The resale of Offered Open Text
Shares, of Open Text
24
Shares issued on the basis of Offered Open Text Warrants
and Offered Open Text Warrants may under certain circumstances be subject to
certain limitations on resale in accordance with the relevant statutory
regulations. Holders of Offered Open Text Shares, of Open Text Shares issued on
the basis of Offered Open Text Warrants and of Offered Open Text Warrants should
consult their own advisors with regard to compliance with the statutory
requirements applicable to such a resale.
Note: Trading in, selling, transferring or holding Offered Open Text Shares and
Offered Open Text Warrants can be more expensive in Canada and the USA than
trading in, selling, transferring or holding Offered Open Text Shares and
Offered Open Text Warrants in Germany. In addition it is to be noted that
persons in Germany who do not trade in or hold listed securities on a European
stock exchange will under certain circumstances have to bear costs greater than
those associated with trading in securities listed on a European Stock Exchange;
consultation with advisors, banks or stockbrokers is this regard is recommended.
7.3. Information on payments or other monetary in-kind benefits for
members of the board or the supervisory board of IXOS, and on
agreements with members of the institution
No member of the management board or the supervisory board of IXOS has been
granted or promised any payments or other monetary in-kind benefits by the
Bidder or any other person acting in cooperation with the Bidder in connection
with the present Offer.
7.4. Prior Acquisitions and Possible Parallel Acquisitions
2016091 Ontario holds no shares in IXOS at the time of the publication of this
Offer.
Although 2016091 Ontario does not currently have any specific intention of
directly or indirectly acquiring IXOS Shares or having IXOS Shares acquired
outside the bid procedure via the stock exchange or outside the stock exchange
before the end of the Acceptance Period of the Takeover Bid, the Bidder reserves
the right to make such acquisitions insofar as this is permitted by German law.
Should 2016091 Ontario acquire IXOS Shares or have IXOS Shares acquired directly
or indirectly, 2016091 Ontario will publish the number of acquired shares and
voting rights, indicating the type and value of the consideration provided in
each case, without undue delay by a notification on the internet under
www.2016091ontario.de and in the Financial Times Deutschland and will notify the
Federal Institute for the Supervision of Financial Services (Bundesanstalt fur
Finanzdienstleistungsaufsicht) accordingly.
8. Execution of the Offer
8.1. Cash Offer
8.1.1 Acceptance of the Cash Offer
IXOS Shareholders may accept the Offer only within the Acceptance Period (for
details of execution of the Offer in the case of acceptance within the
Additional Acceptance Period, see Section 8.7). In order to accept this Offer
and elect to receive Cash Consideration, IXOS shareholders must:
(a) declare their acceptance of this Offer through the written declaration
(Declaration of Acceptance) vis a vis a securities depository services
company (Depositary Bank); and
(b) instruct the Depositary Bank to re-book the IXOS Shares in respect of
which they wish to accept this Offer for a payment of a cash
consideration of EUR 9.00 per IXOS Share (Tendered IXOS Shares (Cash
Consideration)) under ISIN DE0001359396 (WKN 135 939) at Clearstream
Banking AG.
Until settlement of the Offer (cf. Section 8.1.2), the Tendered IXOS Shares
(Cash Consideration) stipulated in the Declaration of Acceptance will remain in
the deposit account of the accepting IXOS Shareholder, but will be re-booked
under ISIN DE0001359396 (WKN 135 939) at Clearstream Banking AG. The Declaration
of Acceptance will only become valid once the book-entry transfers of the IXOS
Shares under ISIN DE0001359396 (WKN 135 939) has been performed in a timely
manner at
25
Clearstream Banking AG. The Depositary Bank will arrange for the
book-entry transfers to be performed after receipt of the Declaration of
Acceptance. If the Declaration of Acceptance is given to the Depositary Bank
within the Acceptance Period, the book-entry transfers of the Tendered IXOS
Shares (Cash Consideration) at Clearstream Banking AG will be deemed to have
been duly effected if the book-entry transfers have been effected by the second
bank working day (Frankfurt am Main/Germany) after the expiry of the Acceptance
Period by 17:30 (local time Frankfurt/Main, Germany) at the latest. The IXOS
Shares referred to in the Declaration of Acceptance, for which the book-entry
transfers have been made under ISIN DE0001359396 (WKN 135 939) will be
identified as "Tendered IXOS Shares (Cash Consideration)".
By declaring their acceptance of this offer each IXOS Shareholder
(1) instructs its Depositary Bank to initially leave the IXOS Shares
stipulated in the Declaration of Acceptance in its deposit account, but
to make the book-entry transfers for IXOS Shares stipulated in the
Declaration of Acceptance without delay under the ISIN DE0001359396
(WKN 135 939) at Clearstream Banking AG;
(2) instructs its Depositary Bank in turn to instruct and to authorize
Clearstream Banking AG to make the shares under the ISIN DE0001359396
(WKN 135 939) available to Commerzbank AG, Frankfurt am Main, as
Central Settlement Agent into its deposit account at Clearstream
Banking AG for transfer to the Bidder immediately following expiry of
the Extended/Additional Acceptance Period and confirmation by the
Bidder to the Central Settlement Agent that all conditions precedent
pursuant to Section 9 have been fulfilled at the time of the expiry of
the Acceptance Period and none of the conditions subsequent pursuant to
Section 9 have occurred at the time of the expiry of the Acceptance
Period or, as the case may be and if applicable, all conditions
pursuant to Section 9 at the time of the expiry of the Acceptance
Period, have been waived;
(3) instructs the Depositary Bank to transfer the title to the IXOS Shares
stipulated in the Declaration of Acceptance to Commerzbank AG in favor
of the Bidder in return for simultaneous (Zug um Zug) payment of the
Cash Consideration to the account of the accepting IXOS Shareholder in
case and to the extent the IXOS Shareholder elects to receive the Cash
Consideration, in each case immediately following expiry of the
Additional Acceptance Period and confirmation by the Bidder to the
Central Settlement Agent that all conditions precedent pursuant to
Section 9 have been fulfilled at the time of the expiry of the
Acceptance Period and none of the conditions subsequent pursuant to
Section 9 have occurred at the time of the expiry of the Acceptance
Period or, as the case may be and if applicable, all conditions
pursuant to Section 9 at the time of the expiry of the Acceptance
Period, have been waived;
(4) declares that its Tendered IXOS Shares (Cash Consideration) will, at
the time of the transfer of title, be solely owned by it as well as
unencumbered by any third-party rights;
(5) instructs and empowers the Depositary Bank and Commerzbank AG (as
Central Settlement Agent) under exemption from the rules concerning the
prohibition of self-contracting in accordance with sec. 181 of the
German Civil Code (BGB) to take all necessary and appropriate measures
and to make and receive the corresponding declarations. In particular,
Commerzbank AG and the Depositary Bank are authorized to procure the
transfer of title to the Tendered IXOS Shares (Cash Consideration) to
the Bidder;
(6) instructs and authorizes its Depositary Bank and possible intermediate
custodians to instruct and authorize Clearstream Banking AG to transmit
to the Bidder and the Central Settlement Agent in favor of the Bidder
on each trading day the number of Tendered IXOS Shares (Cash
Consideration) for which book-entry transfers have been made under ISIN
DE0001359396 (WKN 135 939) at Clearstream Banking AG into the
Depositary Bank's deposit account with Clearstream Banking AG.
Upon acceptance of this Offer, the accepting IXOS Shareholder and the Bidder
enter into an agreement for the sale, or as the case may be, for the exchange of
the Tendered IXOS Shares (Cash Consideration) on the terms and conditions of
this Offer. In addition, by accepting the Offer, the accepting IXOS Shareholders
and the Bidder agree on the transfer of title to the Tendered IXOS Shares (Cash
26
Consideration) on the terms and conditions of this Offer. Upon transfer of the
title to the Tendered IXOS Shares (Cash Consideration), all rights associated
with these shares, including dividend entitlements as from the financial year
beginning on 1. July 2003, pass to the Bidder.
The directives, instructions and powers of attorney mentioned in the paragraphs
(1) to (6) are granted irrevocably in the interest of a smooth and efficient
execution of this Offer. They shall lapse only in the event of a valid
withdrawal (cf. Section 12) from the contract concluded by acceptance of this
Offer.
8.1.2 Settlement of the Offer
The Tendered IXOS Shares (Cash Consideration) remain initially in the deposit
account of the submitting IXOS Shareholders. The Tendered IXOS Shares (Cash
Consideration) will be re-booked under ISIN DE0001359396 (WKN 135 939) at
Clearstream Banking AG. If the Tendered IXOS Shares (Cash Consideration) are
transferred, the purchaser will remain bound to the Declaration of Acceptance
made by the IXOS Shareholder submitting the shares.
Title to the Tendered IXOS Shares (Cash Consideration) specified in the
acceptance declaration is transferred to the Bidder no earlier than three bank
working days (Frankfurt/Main, Germany), but no later than seven (7) bank working
days (Frankfurt/Main, Germany) after expiry of the Additional Acceptance Period
and fulfillment of all conditions precedent pursuant to Section 9 at the time of
expiry of the Acceptance Period and none of the conditions subsequent have
occurred until the time of expiry of the Acceptance Period or, as the case may
be and to the extent applicable, waiver of the conditions precedent and
subsequent. With the transfer, the Tendered IXOS Shares (Cash Consideration)
will be transferred from the ISIN DE0001359396 (WKN 135 939) and from the
deposit accounts of the submitting shareholders and into the deposit account No.
7004 of Commerzbank AG, Frankfurt/Main as Central Settlement Agent at
Clearstream Banking AG.
With credit at the respective Depositary Bank 2016091 Ontario has fulfilled all
obligations to credit the Cash Consideration. It is the obligation of the
Depositary Banks to credit the Cash Consideration to the shareholder.
8.2. Alternative Share and Warrant Offer
8.2.1 Acceptance of the Alternative Share and Warrant Offer
IXOS Shareholders may accept the Offer only within the Acceptance Period (for
details of execution of the Offer in the case of acceptance within the
Extended/Additional Acceptance Period, see Section 8.7). In order to accept this
Offer and elect to receive the Alternative Share and Warrant Consideration, IXOS
Shareholders must:
(a) declare their acceptance of this Offer through the written declaration
(Declaration of Acceptance) vis a vis a Depositary Bank;
(b) instruct their Depositary Bank to re-book the IXOS Shares in respect of
which they wish to accept the Alternative Share and Warrant Offer
(Tendered IXOS Shares [Alternative Share and Warrant Consideration])
under ISIN DE0001359388 (WKN 135 938) at Clearstream Banking AG; and
(c) elect whether they wish to receive Offered Open Text Shares which
should be traded,
(i) in the unregulated market in Germany (Frankfurter
Wertpapierborse, Frankfurt/Main, as well as Wertpapierborse
Berlin-Bremen, Munich and Stuttgart), or
(ii) over the Toronto Stock Exchange.
Until settlement of the Offer (cf. Section 8.2.2), the Tendered IXOS Shares
(Alternative Share and Warrant Consideration) stipulated in the Declaration of
Acceptance will remain in the deposit account of the accepting IXOS Shareholder,
but will be re-booked under ISIN DE0001359388 (WKN 135 938) at Clearstream
Banking AG. The Declaration of Acceptance will only become valid once the
book-entry transfers of the IXOS Shares under ISIN DE0001359388 (WKN 135 938)
has been performed in a timely manner at Clearstream Banking AG. The Depositary
Bank will arrange for the book-entry transfers to be performed after receipt of
the Declaration of Acceptance. If the Declaration of Accep-
27
tance is given to the Depositary Bank within the Acceptance Period, the
book-entry transfers of the Tendered IXOS Shares (Alternative Share and Warrant
Consideration) at Clearstream Banking AG will be deemed to have been duly
effected if the book-entry transfers have been effected by the second bank
working day (Frankfurt am Main/Germany) after the expiry of the Acceptance
Period by 17:30 (local time Frankfurt/Main, Germany) at the latest. The IXOS
Shares referred to in the Declaration of Acceptance, for which the book-entry
transfers have been made under ISIN DE0001359388 (WKN 135 938) will be
identified as "Tendered IXOS Shares (Alternative Share and Warrant
Consideration)".
By declaring their acceptance of this offer each IXOS Shareholder
(1) instructs its Depositary Bank to initially leave the IXOS Shares
stipulated in the Declaration of Acceptance in its deposit account, but
to make the book-entry transfers for IXOS Shares stipulated in the
Declaration of Acceptance without delay under the ISIN DE0001359388
(WKN 135 938) at Clearstream Banking AG;
(2) instructs its Depositary Bank in turn to instruct and to authorize
Clearstream Banking AG to make the shares under the ISIN DE0001359388
(WKN 135 938) available to Commerzbank AG, Frankfurt am Main, as
Central Settlement Agent into its deposit account at Clearstream
Banking AG for transfer to the Bidder immediately following expiry of
the Extended/Additional Acceptance Period and confirmation by the
Bidder to the Central Settlement Agent that all conditions precedent
pursuant to Section 9 have been fulfilled at the time of the expiry of
the Acceptance Period and none of the conditions subsequent pursuant to
Section 9 have occurred at the time of the expiry of the Acceptance
Period or, as the case may be and if applicable, all conditions
pursuant to Section 9 at the time of the expiry of the Acceptance
Period, have been waived;
(3) instructs its Depositary Bank to transfer the title to the IXOS Shares
stipulated in the Declaration of Acceptance to Commerzbank AG in favor
of the Bidder in return for simultaneous (Zug um Zug) delivery of the
Alternative Share and Warrant Consideration, in each case immediately
following expiry of the Additional Acceptance Period and confirmation
by the Bidder to the Central Settlement Agent that all conditions
precedent pursuant to Section 9 have been fulfilled at the time of the
expiry of the Acceptance Period and none of the conditions subsequent
pursuant to Section 9 have occurred at the time of the expiry of the
Acceptance Period or, as the case may be and if applicable, all
conditions pursuant to Section 9 at the time of the expiry of the
Acceptance Period, have been waived;
(4) declares that its Tendered IXOS Shares (Alternative Share and Warrant
Consideration) will, at the time of the transfer of title, be solely
owned by it as well as unencumbered by any third-party rights;
(5) instructs and empowers its Depositary Bank and Commerzbank AG (as
Central Settlement Agent) under exemption from the rules concerning the
prohibition of self-contracting in accordance with sec. 181 of the
German Civil Code (BGB) to take all necessary and appropriate measures
and to make and receive the corresponding declarations. In particular,
Commerzbank AG and the Depositary Bank are authorized to procure the
transfer of title to the Tendered IXOS Shares (Alternative Share and
Warrant Consideration) to the Bidder; and
(6) instructs and authorizes its Depositary Bank and possible intermediate
custodians to instruct and authorize Clearstream Banking AG to transmit
to the Bidder and the Central Settlement Agent in favor of the Bidder
on each trading day the number of Tendered IXOS Shares (Alternative
Share and Warrant Consideration) for which book-entry transfers have
been made under ISIN DE0001359388 (WKN 135 938) at Clearstream Banking
AG into the Depositary Bank's deposit account with Clearstream Banking
AG.
Upon acceptance of this Offer, the accepting IXOS Shareholder and the Bidder
enter into an agreement for the sale, or as the case may be, for the exchange of
the Tendered IXOS Shares (Alternative Share and Warrant Consideration) on the
terms and conditions of this
28
Offer. In addition, by accepting the Offer, the accepting IXOS Shareholders and
the Bidder agree on the transfer of title to the Tendered IXOS Shares
(Alternative Share and Warrant Consideration) on the terms and conditions of
this Offer. Upon transfer of the title to the Tendered IXOS Shares (Alternative
Share and Warrant Consideration), all rights associated with these shares,
including dividend entitlements as from the financial year beginning on 1. July
2003, pass to the Bidder.
The directives, instructions and powers of attorney mentioned in the paragraphs
(1) to (6) of this Section 8.2.1.are granted irrevocably in the interest of a
smooth and efficient execution of this Offer. They shall lapse only in the event
of a valid withdrawal (cf. Section 12) from the contract concluded by acceptance
of this Offer.
8.2.2 Settlement of the Alternative Share and Warrant Consideration
The Tendered IXOS Shares (Alternative Share and Warrant Consideration) remain
initially in the deposit account of the submitting IXOS Shareholders. The
Tendered IXOS Shares (Alternative Share and Warrant Consideration) will be
re-booked under ISIN DE0001359388 (WKN 135 938) at Clearstream Banking AG. If
the Tendered IXOS Shares (Alternative Share and Warrant Consideration) are
transferred, the purchaser will remain bound to the Declaration of Acceptance
made by the IXOS Shareholder submitting the shares.
Approximately on or before the 15th bank working day in Frankfurt/Main after
expiry of the Additional Acceptance Period and (possibly) after expiry of any
Extended Acceptance Period title to the Tendered IXOS Shares (Alternative Share
and Warrant Consideration) will be transferred to the Bidder. This transfer will
be effected concurrently with the transfer of the Offered Open Text Shares and
the Offered Open Text Warrants to the IXOS Shareholders having accepted the
Alternative Share and Warrant Consideration.
The Bidder and Open Text have taken arrangements to provide for the necessary
Offered Open Text Shares ISIN CA6837151068 (WKN 899 027) and Offered Open Text
Warrants (ISIN CA6837151142) (see Section 10.2). At the time of closing of the
Tender Offer, the Warrant Agent will issue a global certificate representing all
of the Offered Open Text Warrants issuable to IXOS Shareholders having elected
to receive the Alternative Share and Warrant Consideration as defined in this
Offer Document in the name of the nominee Canadian Depositary for Securities.
The global certificate will be deposited with CIBC Mellon Toronto in favor of
Commerzbank's account number COCF 1002002 for distribution by Commerzbank AG.
Commerzbank AG will from thereon procure that each IXOS Shareholder having
validly elected the Alternative Share and Warrant Consideration will receive
title to the Offered Open Text Shares and Offered Open Text Warrants on the
respective IXOS Shareholder's depositary account on a fiduciary basis within 15
bank working days in Frankfurt am Main following the end of the extended
acceptance period. In the case of Offered Open Text Warrants, such IXOS
Shareholder may also request, through its bank or broker, to Computershare Trust
Company of Canada, 100 University Avenue, 9th Floor, Toronto, Ontario M5J 2Y1,
that physical certificates representing its Offered Open Text Warrants be issued
in its name or, at the direction of the IXOS Shareholder of an Offered Open Text
Warrant, in the name of its broker, bank or other agent.
There will be no compensation for fractional Offered Open Text Shares or Offered
Open Text Warrants (see in detail Section 7).
With credit at the respective Depositary Bank 2016091 Ontario has fulfilled all
obligations to credit the Offered Open Text Shares and Offered Open Text
Warrants. It is the obligation of the Depositary Banks to credit the Offered
Open Text Shares and Offered Open Text Warrants to the shareholder.
After having procured the crediting of the Offered Open Text Shares and the
Offered Open Text Warrants to the Depositary Bank of the respective IXOS
Shareholder, the Bidder has fulfilled its obligations to transfer and credit the
Offered Open Text Shares and the Offered Open Text Warrants. It is the duty of
the Depositary Banks to credit the Offered Open Text Shares and the Offered Open
Text Warrants to the securities account of the respective IXOS Shareholder.
29
8.3 Costs of the Acceptance
8.3.1. Cash offer
In principle, the acceptance of this Offer (Cash Offer) via a Depository Bank in
Germany is free of all costs and charges for the IXOS Shareholders participating
in this offer. However, any fees charged by depositary banks outside Germany
must be borne by the respective IXOS Shareholder.
8.3.2. Alternative Share and Warrant Consideration
In principle, the acceptance of this offer (Alternative Share and Warrant
Consideration) via a Depository Bank in Germany is free of all costs and charges
for the IXOS Shareholders participating in this offer. Any fees charged by
depository banks outside Germany, however, must be borne by the respective IXOS
Shareholder.
The IXOS Shareholder in selecting the Alternative Share and Warrant
Consideration may under certain circumstances incur costs for the keeping of the
offered Open Text Shares or the Offered Open Text Warrants and, moreover, costs
arising out of exercising the Offered Open Text Shares and Offered Open Text
Warrants, and of keeping the Open Text Shares acquired through exercising the
Offered Open Text Warrants. The IXOS shareholder should contact its Depositary
Bank or his stockbroker for details of these costs.
8.4 Central Settlement Agent
2016091 Ontario has appointed Commerzbank AG, Frankfurt/Main as Central
Settlement Agent.
8.5 Trading with Tendered IXOS Shares (Cash Consideration / Alternative
Share and Warrant Consideration)
Trading of the Tendered IXOS Shares (Cash Consideration) and Tendered IXOS
Shares (Alternative Share and Warrant Consideration) on the Frankfurt stock
exchange (Geregelter Markt - Prime Standard) is envisaged from December 3, 2003
until January 12, 2004.
8.6 Reprocessing in the Case of Non-fulfillment of Condition Precedents
and Occurrence of Conditions Subsequent
In the event that the conditions precedent indicated in Section 9 below, are not
fulfilled or one of the conditions subsequent indicated in Section 9 has
occurred and the Bidder has not waived such offer conditions, this Takeover Bid
will not be executed. The Tendered IXOS Shares (Cash Consideration) and the
Tendered IXOS Shares (Alternative Share and Warrant Consideration) will then
immediately be re-booked to ISIN DE0005061501 (WKN 506 150). Following
re-booking, the shares will again be tradable under ISIN DE0005061501 (WKN 506
150).
8.7 Execution of the Offer in the Case of Acceptance during the
Extended/Additional Acceptance Period
The instructions for the execution of the Takeover Bid described in Section 8.1
to 8.6 apply correspondingly also for the acceptance of the Offer during the
Extended/Additional Acceptance Period. Accordingly, IXOS Shareholders can accept
the Offer during the Extended/Additional Acceptance Period by
(a) declaring their acceptance of this Offer through the Declaration of
Acceptance vis a vis the Depositary Bank; and
(b) instructing their Depositary Bank to re-book the IXOS Shares under ISIN
DE0001359396 (WKN 135 939) at Clearstream Banking AG in case they wish
to accept this Offer for the Cash Consideration and under ISIN
DE0001359388 (WKN 135 938) at Clearstream Banking AG in case they wish
to accept this Offer for the Alternative Share and Warrant
Consideration.
30
The Declaration of Acceptance shall take effect only upon re-booking of the IXOS
Shares tendered into the respective aforementioned ISIN / WKN at Clearstream
Banking AG. The Depositary Bank shall procure the re-booking of the Tendered
IXOS Shares (Cash Consideration) and of the Tendered IXOS Shares (Alternative
Share and Warrant Consideration) upon receipt of the Declaration of Acceptance
pursuant to paragraph (a) above. If the Declaration of Acceptance pursuant to
paragraph (a) is made to the Depositary Bank during the Extended/Additional
Acceptance Period, the re-booking of the shares into the respective
aforementioned ISIN / WKN shall be deemed to have been duly effected if the
book-entry transfers have been effected by the second bank working day
(Frankfurt am Main/Germany) after the expiry of the Extended/Additional
Acceptance Period by 17:30 (local time Frankfurt/Main, Germany) at the latest.
The IXOS Shares referred to in the Declaration of Acceptance, for which the
book-entry transfers have been made under respective aforementioned ISIN / WKN
will be identified as "Tendered IXOS Shares (Cash Consideration)" and as
"Tendered IXOS Shares (Alternative Share and Warrant Consideration)".
Trading of the Tendered IXOS Shares during the Additional Acceptance Period on
the Frankfurt stock exchange (Geregelter Markt - Prime Standard) is not planned.
8.8 Situation of the IXOS Shareholders who do not accept the Takeover Bid
Shareholders of IXOS who do not accept this Offer continue to be shareholders of
IXOS. The shareholders of IXOS who do not intend to accept this Offer should,
however, take the following into account, in addition to the adequacy of the
consideration:
(a) The present price of the IXOS Shares reflects the fact that on 21
October 2003 the bidder published its decision to make a takeover
offer. After the execution of the Takeover Bid it is possible that -
depending on the percentage of acceptance - the trading volume of the
shares that have not been submitted for acceptance of the Takeover Bid
decreases. Furthermore the closing of this takeover may lead to a
higher volatility of the IXOS share price.
(b) Should 2016091 Ontario hold at least 95 % of the registered share
capital of IXOS after the execution of this Takeover Bid, the
shareholders meeting of IXOS may, upon request of 2016091 Ontario,
resolve the transfer of the shares of the other shareholders of IXOS to
2016091 Ontario in return for payment of an appropriate cash settlement
pursuant to sec. 327 et seq. German Stock Corporation Act (AktG)
("squeeze-out").
(c) If this Takeover Bid is successful, it may be possible, that the
shareholders' meeting of IXOS with the votes of 2016091 Ontario -
holding at least 67% of the absolute number of votes, but holding
possibly more than 75 % of the votes present at one shareholders'
meeting - resolves the conclusion of a domination agreement with
2016091 Ontario as dominating and IXOS as dependent company. If such
domination agreement is concluded 2016091 Ontario would be entitled to
issue binding instructions to the management board if IXOS with respect
to the management of IXOS. If, in addition, a profit and loss
absorption agreement is concluded, 2016091 Ontario would absorb the
entire profits of IXOS. In both cases, 2016091 Ontario would be under
an obligation to reimburse any annual loss of IXOS, would have to grant
minority shareholders an appropriate annual guaranteed dividend or
compensation payment and would have to offer to minority shareholders
to acquire their IXOS Shares in return for payment of an adequate cash
settlement (in lieu of a guaranteed dividend or compensation payment).
(d) In the event that this Takeover Bid is successful, the shareholders
meeting of IXOS that has to decide on the appropriation of the profit
for the financial year beginning on 1. July 2003. The shareholders
could decide not to declare a dividend.
(e) In the event that this Takeover Bid is successful, the shareholders'
meeting of IXOS with the votes of 2016091 Ontario - holding at least 67
% of the absolute number of votes, but holding possibly more than 75 %
of the votes present at one shareholders' meeting, may decide to
terminate the listing of the shares on the regulated market of the
Frankfurt Stock Exchange (de-listing). In case of a de-listing an offer
to the outstanding shareholders to acquire their shares against an
adequate cash settlement would be required. Should IXOS Shares be de-
31
listed at the Frankfurt Stock Exchange, for example because of their
low liquidity, this would severely limit the possibility of selling
IXOS Shares.
(f) Should the shareholders meeting of IXOS decide on a change of the legal
form of IXOS into a partnership (Kommanditgesellschaft) or a limited
liability company (GmbH), IXOS would be obliged to offer those
shareholders of IXOS who have declared their opposition to the minutes
of the meeting on the resolution concerning the change of the legal
form an adequate cash settlement payment against withdrawal from the
company in its new legal form. As a consequence of the change in legal
form, the listing of the IXOS Shares on all stock exchanges, including
NASDAQ on which they are currently listed, would be terminated (see (e)
above).
(g) The cash settlement to be offered or paid in the above mentioned cases
would have to be based on the circumstances prevailing at IXOS at the
time of the adoption of the resolution by the shareholders meeting of
IXOS. It could be higher or lower than the price offered here.
9. Offer Terms
The share purchase and transfer agreements concluded as a result of the
acceptance of this Takeover Bid come into force
- only with the occurrence of all the following offer conditions
precedent described until the expiry of the offer period under a) and
- only if the offer conditions subsequent described under b) do not occur
until the expiry of this Offer
or
- - as described under c) - in the event of a waiver by the Bidder of
individual or all offer conditions.
a) Condition precedent:
(aa) The sum of
(i) the total number of IXOS Shares for which this Offer was
effectively accepted, plus
(ii) the number of IXOS Shares acquired by the Bidder outside the
Offer,
- amounts to at least 67% of the total number of shares of IXOS
outstanding (ausgegeben) (the Minimum Tender Condition) at the
time of expiry of the Acceptance Period, including any
statutory extensions but excluding the mandatory acceptance
period pursuant to sec. 16 para. 2 of the Takeover Act (the
Expiration Date) including stocks of employees and managers of
IXOS AG exercising their stock option rights until the
Expiration Date, but excluding IXOS shares owned (i) by IXOS,
(ii) by a company that is dependent of or majority-owned by
IXOS, (iii) by a third party but held for the account of the
IXOS or of a company dependent of or majority-owned by IXOS.
Warning: The acceptance threshold of more than 67% of voting
rights must be fulfilled by the end of the Acceptance Period
on the basis of binding share acquisition contracts.
(bb) The approval of Open Text's shareholders at a meeting of shareholders
of the issuance of the maximum number of Offered Open Text Shares and
Open Text Shares underlying the Offered Open Text Warrants issuable
under this Tender Offer, as described in Section 10.2.
b) Conditions subsequent:
(aa) The publication by IXOS of any new facts in the meaning of section 15
of the German Securities Trading Act (Wertpapierhandelsgesetz-WpHG)
which, after careful com-
32
mercial evaluation (always on the basis of the consolidated balance
sheet in accordance with the US-GAAP), may in the view of the IXOS
Board of Management result in a decrease of the assets of IXOS Group,
with exception of intangible assets, of at least EUR 10.0 million or
more which result in liabilities from warranties, bonds (Burgschaften),
guarantees, debt accessions (Schuldbeitritt) or claims for damages
against IXOS Software AG of at least EUR 10.00 million or more in each
case, unless such liabilities or claims from warranties, bonds
(Burgschaften), guarantees, debt accessions (Schuldbeitritt) or claims
for damages would result from the takeover by 2016091 Ontario. This
condition does not apply to facts that have been booked in the
consolidated balance sheet for the year ending 30 June 2003 drawn up
and audited in accordance with US-GAAP or provided for as accruals.
Such a valuation shall be carried out on the basis of IXOS` previous
valuation, accounting and evaluation principles and reporting practice.
(bb) The issuance of new IXOS-Shares, warrants or options, with the
exception of such IXOS-Shares which are issued upon exercise of
currently outstanding options granted under the IXOS Stock Option
Scheme in accordance with their current terms and conditions on or
prior to the Expiration Date.
c) The Bidder may, at its option, waive any or all of the above conditions
precedent and conditions subsequent, insofar as this is legally
permissible.
10. Financing
10.1. Financing Measures for Cash Consideration
The total number of shares issued by IXOS is 21,554,884. Considering the price
2016091 Ontario will have to pay under transactions envisaged under Section 7
above, the maximum payment obligation for the acquisition of the shares (100 %
of the shares issued by IXOS) amounts to EUR 193.993.956, plus an amount of EUR
9.00 for each IXOS-Share issued pursuant to the exercise of any option granted
under the IXOS Stock Option Scheme. 354.277 options are available for exercise
under the stock options program and which are in the money (see Section 4.1
above). This may lead to a further commitment of EUR 3.188.493. If all these
options are exercised, and all previously issued IXOS shares are surrendered, a
Bidder commitment to pay EUR 197.182.449 may therefore result.
Royal Bank of Canada has made a binding promise to 2016091 Ontario to grant
loans for a total amount of EUR 123.00 million which are subject only to terms
which are usual for acquisition financings and which may be used only for the
purpose of acquiring IXOS Shares. Finally, the parent of 2016091 Ontario, Open
Text, has undertaken with Royal Bank of Canada to provide 2016091 Ontario with
all further funds which may be required for the performing of this Offer by way
of shareholder loans and it has shown to the bank that it possesses sufficient
free cash in order to comply with this undertaking and agreed to maintain funds
on deposit with Royal Bank of Canada. On this basis, Royal Bank of Canada Europe
Limited, which also belongs to the Royal Bank of Canada group and which is a
securities services enterprise (Wertpapierdienstleistungsunternehmen)
independent of the bidder and licensed in the United Kingdom, has issued the
financing confirmation pursuant to sec. 13 para. 1 sent. 2 WpUG, which is
attached hereto as Appendix 5. The Bidder will have sufficient funds to complete
the tender offer through utilization of the credit facilities provided by the
Royal Bank of Canada to the Bidder (cf. Section 10.3) and the cash balances of
Open Text, which has committed under the RBC credit agreement (cf section 10.3)
to ensure that the Bidder will have sufficient liquid funds to complete the
tender offer. Open Text has agreed under the RBC-credit agreement (10.3) to keep
a deposit of at least US$ 85,000,000 with the banks connected with the credit
grantors, which shall only be released for the purpose of the Bidder to fulfill
its payment obligations under this Offer.
33
10.2. Availability of Share and Warrant Consideration
As a consequence of the listing of the Open Text Shares on the Nasdaq National
Market in the United States, the issuance of the maximum number of Open Text
Shares and Open Text Shares underlying the Offered Open Text Warrants issuable
under this Tender Offer is subject to the approval of Open Text's shareholders
pursuant to Rule 4350(i)(1)(C)(ii)a of the National Association of Securities
Dealers. Under this rule, shareholder approval, which shareholder meeting is
scheduled to take place in the middle of December 2003, is required if a listed
company proposes to issue a number of its common shares in connection with an
acquisition of shares of another company that is equal to or in excess of 20 %
of the number of the listed company's common shares outstanding before the
issuance. This rule requires approval of the proposed issuance of shares by a
majority of the votes cast on the matter by holders of the listed company's
common shares present in person or represented by proxy at a meeting of such
shareholders.
A maximum of up to 15,060,000 Open Text Shares, including the Open Text Shares
underlying the Offered Open Text Warrants, will be issued under this Offer,
assuming that all shareholders of IXOS elect to receive the Alternative Share
and Warrant Consideration rather than Cash Consideration. As there were
40,326,567 Open Text Shares issued and outstanding at November 11, 2003, the
issuance of the Open Text Shares under this Offer is subject to the approval of
holders of Open Text Shares in accordance with the rule of the National
Association of Securities Dealers described above. Accordingly, Open Text has
issued to holders of its outstanding Open Text Shares a notice of a meeting of
the holders of Open Text Shares, to be held in mid-December 2003, together with
a management information circular in respect of that meeting, at which holders
of Open Text Shares will be requested to consider, and if deemed advisable,
approve the issuance of up to 15,060,000 Open Text Shares, including those
underlying the Offered Open Text Warrants, under this Offer.
Subject to such shareholder approval, the issuance of Offered Open Text Shares
and the Offered Open Text Warrants under the Offer has been approved by the
Board of Directors of Open Text, which has agreed to issue such securities at
the direction of 2016091 Ontario in consideration for the issuance of additional
common shares of 2016091 Ontario to Open Text.
Receipt of the approval of the holders of common shares by Open Text described
above is a condition precedent to the conclusion of the share purchase and
transfer agreements to result from the acceptance of this Offer, as discussed
under Section 9 a) (bb) of this offer document.
10.3. Loan Agreement
Pursuant to a senior secured credit and guarantee facility agreement dated
November [10], 2003 (the Credit Agreement) between 2016091 Ontario (as
borrower), Open Text (as guarantor), Royal Bank of Canada (as Administrative
Agent), Royal Bank of Canada Europe Limited (as cash confirmation letter issuing
bank), RBC Capital Markets and a syndicate of Canadian resident lenders, 2016091
Ontario has arranged to borrow up to EUR 123,000,000 (the Credit Facilities) in
order to finance the acquisition of the IXOS Shares. The Credit Facilities
consist of a bridge credit facility (the Bridge Loan) of up to Euro 53,000,000
(or the equivalent amount in US Dollars) (the Tranche A Facility) and a term
credit facility of up to EURO 70,000,000 (or the equivalent amount in US
Dollars) (the Tranche B Facility). Amounts outstanding under the Credit
Facilities bear interest at a floating rate. Subject to prepayment, the Tranche
A Facility will mature and be repayable in full on or before the date which is
270 days after the date of initial funding and the Tranche B Facility will
mature and be repayable in full before the date which is 364 days after the date
of initial funding. These facilities are subject to certain terms and
conditions, which includes maintaining a minimum stockholders' equity and a
certain relationship between loan undertakings and amounts settled with Open
Text throughout the drawing period. Open Text and Open Text Inc. have guaranteed
the payment and performance of the obligations of 2016091 Ontario under the
Credit Agreement. Each of Open Text, Open Text Inc. and 2016091 Ontario have
granted the lenders a fixed and floating charge over all of its respective
assets to secure its respective obligations under the Credit Agreement and
guarantee, as applicable. 2016091 Ontario has agreed to cause IXOS and certain
of its subsidiaries to guarantee the obligations of 2016091 Ontario under the
Credit Agreement and to grant security rights to their respective assets in
favor of the lenders as soon as practicable to the extent permitted by law.
34
10.4. Financing Confirmation
The Royal Bank of Canada Europe Ltd. with head office in London, United Kingdom,
an independent securities services enterprise, has provided the Cash
Confirmation Letter confirming the availability of funds as in the Appendix 5
required according to sec. 13 para. (1) WpUG.
11. Effects on the Assets, Financial and Earnings Situation of
2016091 Ontario
The information contained in this Section includes views and future-oriented
statements of 2016091 Ontario. They represent the current opinion of 2016091
Ontario in relation to possible future events and are based solely on available
information as well as on a number of assumptions of 2016091 Ontario that can be
either correct or false. Additionally, the following statements are based on the
assumption that the Bidder acquires on the basis of this Offer and through other
agreements during or in conjunction with this Offer all the outstanding shares
of IXOS . This information is also given under the assumption that 354,277 of
the issued stock options of IXOS (as described in Section 4.1) will have been
exercised until the expiry of the Additional Acceptance Period.
11.1. 2016091 Ontario
The financial year of 2016091 Ontario ends on June 30. 2016091 Ontario is
without any operative activities as of now. The corporation has started its
commercial activity with the publication of this tender offer concerning the
purchase of the IXOS-shares. As a consequence of the lack of operating
activities, 2016091 Ontario has no material revenues or annual profit to date.
At the time of publication of this Offer Document, 2016091 Ontario has a balance
sheet total of EUR 65.51 (= Canadian ss. 100.00 calculated at the Exchange Rate)
and owns liquid funds of EUR 65.51. At the same time the assets side of the
balance sheet is offset on the liabilities side of the balance sheet by share
capital of EUR 65.51.
11.1.1. Effects in the case of exclusive acceptance of the cash offer
The following calculations are based on the assumption that the Bidder will only
make cash payment of the Cash Consideration in settlement of the IXOS Shares
Equity funds of the equivalent in CAN $ of at least EUR 74,182,449.00 for the
acquisition of the IXOS Shares will be provided to 2016091 Ontario in the form
of a capital increase against cash consideration with 2016091 Ontario by Open
Text. Funds of up to EUR 123,000,000.00 will be provided by the credit
institutions under the Credit Facilities as laid out in Section 10.3 above. For
the purposes of the pro forma information given below, it is assumed that EUR
74,182,449.00 will be provided as consideration for equity and EUR
123,000,000.00 will be provided as a loan. Furthermore, it will be assumed that
all share options that (i) have a strike price not exceeding the value of the
current offer and that (ii) are exercisable under the relevant stock option
plan, will be exercised at a price of EUR 9.00 per share as part of this offer;
the number of these options totals 354,277.
As a result of the execution of the Takeover Bid, the following consequences for
the assets, financial and earnings situation of the Bidder can be expected:
a) The financial assets of the Bidder will increase from EUR 65.51 by EUR
197,182,449 to EUR 197,182,515(costs of the takeover are not yet
included) representing the acquired IXOS Shares.
b) Liquid funds of the Bidder will rise from EUR 65.51 by EUR
197,182,449to EUR 197,182,515.
c) The balance sheet total of the Bidder will increase from
EUR 65.51 by EUR 197,182,449 to EUR 197,182,515.
d) The liabilities of the Bidder will increase from EUR 0.00 by EUR
123,000,000 to EUR 123,000,000 (assuming that Open Text will not
provide more than EUR 74,182,449 as capital contribution for equity).
35
e) The net cash assets of the Bidder will increase from EUR 65.51 by EUR
74,182,449 to EUR 74,182,515.
f) Effect on the profitability: The shares acquired within the framework
of this Takeover Bid have an effect on the profitability of the Bidder
only insofar as interest has to be paid by the Bidder under the Credit
Facilities. If an amount of EUR 123,000,000 will actually be called by
the Bidder, the interest for the whole term of the Credit Facilities
will amount to approximately EUR 5.2 million.
11.1.2. Effects in case of exclusive acceptance of the Alternative Offer
The following calculations are based on the assumption that the Bidder will only
issue the Alternative Share and Warrant Consideration in consideration for the
IXOS shares.
Equity funds of the equivalent in CAN $ of at least EUR 74,182,449.00 for the
acquisition of the IXOS Shares will be provided to 2016091 Ontario in the form
of a capital increase against cash consideration with 2016091 Ontario by Open
Text (if cash is required by Bidder). Funds of up to EUR 123,000,000.00 will be
provided by the credit institutions under the Credit Facilities as laid out in
Section 10.3 above. For the purposes of the pro forma statement set out below,
it is assumed that all options that (i) are in the money and (ii) are exercised
in accordance with the relevant share option plan at a price of EUR 9.00 per
share under this Offer; the number of warrants is 354,277.
The following results on the part of the Bidder can be expected as a result of
implementation of the takeover offer:
a) The Bidder's financial assets will increase by EUR 182,722,403 from EUR
65.51 to 182,722,469 (excluding takeover costs), which includes the
acquired IXOS shares.
b) The Bidder's liquid assets will remain at EUR 65.51.
c) The Bidder's balance sheet total will increase by EUR 182,722,403 from
EUR 65.51 to EUR 182,722,469.
d) The Bidder's debts will remain at EUR 0.00.
e) The Bidder's net assets will increase by EUR 182,722,403 from EUR
65.51 to EUR 182,722,469.
f) Consequences for profitability: the acquisition of shares under this
takeover offer does not affect profitability of the Bidder.
11.2. Open Text Group
This Section describes effects of the takeover on individual financial data of
the combined balance sheet and combined profit and loss account for the Open
Text Group for the financial year ended June 30, 2003. The data shown is taken
from the consolidated accounts of Open Text Group as of June 30, 2003 published
by Open Text in accordance with US securities law. The following data shows all
the financial data without giving consideration to the acquisition of IXOS and
next to it the pro forma data, which has been prepared under the assumption that
2016091 Ontario acquires a majority participation in IXOS for the Open Text
Group and that consequently IXOS must be included in the consolidated financial
statement of Open Text (on the basis of the consolidated financial statement of
Open Text as of June 30, 2003 and the annual report of IXOS as of June 30,
2003). For the purpose of the unaudited condensed combined pro forma balance
sheet and profit and loss account, an acquisition of 100 % of the share capital
of IXOS has been assumed and an unchanged continuation of the IXOS business
activities as to date by the Open Text Group. This information is also given
under the assumption that 354,277 of the issued stock options of IXOS (as
described in Section 4.1) will have been exercised prior to the expiry of the
Additional Acceptance Period. Both the consolidated financial statement of Open
Text and the reports of IXOS were prepared in accordance with US-GAAP.
36
For the purposes of this unaudited (pro forma) financial report in short form,
the estimated probable purchase price for all the IXOS Shares has been split
between tangible and intangible assets of IXOS. As soon as this purchase has
been completed, Open Text will engage independent experts to assist the
management of Open Text in calculating the value price of the intangible assets
acquired in the takeover of IXOS. As this has not yet happened, for the purposes
of these unaudited condensed combined pro forma financial statements, the entire
excess of the purchase price over the estimated fair values of net assets
acquired has been allocated to goodwill. Additionally, for the purpose of these
unaudited condensed combined pro forma financial statements, the total cost of
the acquisition of IXOS by Open Text has been valued based only on the expected
cost to acquire the shares of IXOS in accordance with this Tender Offer. As soon
as this takeover has been completed, the final purchase price that Open Text
will record in its consolidated financial statements will include other items,
including direct costs to complete this transaction. As a result, the final
purchase price reported by Open Text may increase substantially from that used
for the purposes of the attached unaudited condensed combined pro forma
financial statements.
For the purposes of the following unaudited pro forma condensed combined income
statement, IXOS's historical amounts of amortization of acquired intangible
assets have been eliminated as these amounts do not carry forward following an
acquisition.
All acquired intangible assets of IXOS arising from this acquisition by Open
Text have been allocated to goodwill, and no amount has been allocated to
specifically identifiable intangible assets. It is to be anticipated, however,
that an allocation to specifically identifiable intangible assets will be made
for purposes of the final purchase price allocation should this acquisition be
completed. It is also to be expected that depreciation expense on acquired fixed
assets will have to be taken into consideration after completion of the
purchase.
These unaudited pro forma condensed combined financial information should not be
used exclusively to evaluate the Offer, and it may not be indicative of the
historical results that would have occurred had Open Text Corporation and IXOS
been combined during these time periods or the future results that may be
achieved after the completion of the business combination.
For the purposes of these pro forma combined statements, the Bidder has used the
US$-EUR-exchange rates as of June 30, 2003, and the average for the year ended
June 30, 2003 given by the Bank of Canada.
11.2.1. Exclusive acceptance of the Cash Offer
In addition, it has been assumed that 100% of the shares transferred by IXOS
Shareholders will be transferred in consideration for the Cash Consideration
offered by 2016091 Ontario.
a) Effects on the Balance Sheet
(TEUR) Open Text Group Open Text Group
2002/2003 Pro-forma 2002/2003
Assets
Fixed Assets 66.447 216.950
- of which goodwill 27.918 160.075
Current Assets 138.790 79.495
- liquid funds 100.738 0
Deferred expenses 3.060 10.454
Balance sheet sum 206.297 306.899
Liabilities
Net current liabilities 140.360 140.360
Short-term liabilities 3.858 6.802
Liabilities 27.695 111.837
- of which financial liabilities 0 62.870
Deferred income 34.384 47.900
Balance sheet sum 206.297 306.899
37
b) Effects on the Profit and Loss Account
(TEUR) Open Text Group Open Text Group
2002/2003 Pro-forma 2002/2003
revenues (net) 170.616 297.735
EBITDA 36.433 37.005
EBIT 28.518 27.077
EBT 29.697 21.807
Net annual profit 26.647 18.360
For the year ended June 30, 2003, through the takeover of IXOS, the EBITDA of
the Open Text Group would increase from EUR 36.433 million by EUR 0.572 million
to approximately EUR 37.005 million as a consequence of the contribution by
IXOS. The EBIT of the Open Text Group would drop by EUR 1.441 million to EUR
27.077 million as a result of IXOS' loss for the year. This reduction in the
EBIT would have been larger if Open Text had not allocated its entire excess of
the purchase price over the estimated fair value of the net tangible assets to
goodwill, which resulted in no incremental amortization of acquired intangible
assets. The income of Open Text from interest would decrease by approximately
EUR 1.000 million as a consequence of the use of liquid funds and short-term
securities to finance the acquisition.
The net profit for the year ended June 30, 2003 of Open Text Group would as a
sum of all the effects and without considering any synergy effects as well as
under the assumption of a tax rate of 10% decrease from EUR 26.647 million to
approximately EUR 18.360 million (the tax rate applies to the year ended June
30, 2003 only. It will most probably increase during the next years.) This
decrease would have been more significant had Open Text not allocated its entire
excess of the purchase price over the estimated fair value of the net tangible
assets of the IXOS Group to goodwill, which resulted in no incremental
amortization of acquired intangible assets.
11.2.2. Exclusive acceptance of the Alternative Offer
In addition, it has been assumed that 100% of the shares transferred by IXOS
Shareholders will be transferred in consideration for the Alternative Share and
Warrant Consideration offered by 2016091 Ontario. In this scenario, it is also
assumed that all shareholders exercise the Offered Open Text Warrants provided
as part of this consideration. It is also assumed for the purposes of valuing
the Open Text Shares that the value attributable to each Open Text Share is
based on its closing price on October 20, 2003 per the Nasdaq and the Bank of
Canada rate for the same day.
a) Effects on the Balance Sheet
(Thousand EUR) Open Text Group Open Text Group
2002 /2003 Pro-forma 2002/2003
Assets
Fixed Assets 64,447 212.008
- of which goodwill 27,918 155,134
Current Assets 138,790 271.399
- liquid funds 100,738 191,904
Deferred expenses 3,060 10,454
Balance sheet sum 206,297 493,861
Liabilities
Net current liabilities 140,360 390.192
Short-term liabilities 3,859 6.802
Liabilities 27,695 48.967
- of which financial liabilities 0 0
Deferred income 34,384 47.900
Balance sheet sum 206,297 493,861
38
b) Effects on the Profit and Loss Account
(Thousand EUR) Open Text Group Open Text Group
2002/2003 Pro-forma
2002/2003
revenues (net) 170,616 297,735
EBITDA 36,433 37,005
EBIT 28,518 27,077
EBT 29,697 21,807
Net annual profit 26,647 18,360
For the year ended June 30, 2003, through the takeover of IXOS, the EBITDA of
the Open Text Group would increase from EUR 36.433 million by EUR 0.572 million
to approximately EUR 37.005 million as a consequence of the contribution by
IXOS. The EBIT of the Open Text Group would drop by EUR 1.441 million to EUR
27.077 million as a result of IXOS' additional losses for the year. This
reduction in the EBIT would have been larger if Open Text had not allocated its
entire excess of the purchase price over the estimated fair value of the net
tangible assets to goodwill, which resulted in no incremental amortization of
acquired intangible assets.
The net profit for the year ended June 30, 2003 of Open Text Group would as a
sum of all the effects and without considering any synergy effects as well as
under the assumption of a tax rate of 10% decrease from EUR 26.647 million to
approximately EUR 25.360 million (the tax rate applies to the year ended June
30, 2003 only. It will most probably increase during the next years.) This
decrease would have been more significant had Open Text not allocated its entire
excess of the purchase price over the estimated fair value of the net tangible
assets of the IXOS Group to goodwill, which resulted in no incremental
amortization of acquired intangible assets.
12. Right of Withdrawal
12.1. Right of Withdrawal in the Event of Change in the Takeover Bid
In case of a change in the Takeover Bid, the IXOS Shareholders have the right to
withdraw their acceptance until the end of the (possibly extended) term of
acceptance (cf. 2.2), if they have accepted the original bid before the
publication of the change.
12.2. Right of Withdrawal in the Event of Competing Bids
The shareholders of IXOS that have already accepted the Takeover Bid can
withdraw from the contract, if a competing bid is made during the (possibly
extended) term of acceptance (cf. 2.2), provided they have accepted the original
bid before the publication of the competing bid.
13. Publication of the Offer Document / Notifications
The offer document will be published on 01. December 2003 by announcement in the
Internet under www.2016091ontario.de and by the provision of copies for
distribution free of charge to Commerzbank AG, ZGS-CMAD, DLZ 2, Mainzer
Landstrasse 153, 60327 Frankfurt am Main, Telefax-Nr. 069 136-44598, and
notification of the publication in the Financial Times Deutschland.
The bidder will announce the shares acquired by him through the acceptance of
the Takeover Bid by the shareholders including the amount of the stake of the
share capital and the voting rights according to sec. 23 para. (1) WpUG
- Weekly after publication of the offer document,
39
- Daily in the last week prior to expiry of the Acceptance Period,
- Immediately on expiry of the Acceptance Period and
- Immediately on expiry of the Additional Acceptance Period.
All announcements will be published on the Internet under www.2016091ontario.de
and in the Financial Times Deutschland.
14. Official Proceedings (Behordliche Verfahren)
The undertaking of this Tender Offer is not subject to any approval or
authorization of supervisory authorities, especially cartel authorities, with
the exception that the publication of this Offer Document and its Appendices
must be permitted by BaFin.
15. Accompanying Bank
Commerzbank AG has advised 2016091 Ontario in the preparation and execution of
this Takeover Bid. Commerzbank AG is also coordinating the technical handling of
the Takeover Bid.
16. Information according to sec. 2 no. 2 WpUG Offer Ordinance
(WpUG-Angebotsverordnung) in conjunction with sec. 7 Sales Prospectus Act
(Verkaufsprospektgesetz) and Sales Prospectus Ordinance
(Verkaufsprospekt-VO)
Further information on Open Text and on Offered Open Text Shares and on Offered
Open Text Warrants, which are offered as an alternative consideration for
Tendered IXOS Shares, are attached hereto in Appendix 1.
17. Applicable Law
This Takeover Bid and the corresponding contracts of purchase are exclusively
governed by the laws of the Federal Republic of Germany. The Offered Open Text
Shares and the Offered Open Text Warrants are governed by Canadian law and any
applicable securities legislation.
18. Tax Law Information
The IXOS Shareholders are advised to obtain tax advice relating to their
individual tax position before acceptance of this Offer.
19. Declaration of the Acceptance of Responsibility
2016091 Ontario Inc. with head office in Waterloo, Ontario, Canada, assumes
responsibility for the content of this offer document. The corporation affirms
that the information included in this publication (sec. 14 para. (3) S. 1 WpUG)
is correct and that no important facts have been omitted.
Waterloo, Ontario, December 01, 2003
----------------------------------------------------
2016091 Ontario Inc.
(Sheldon Polansky, Officer)
Appendix 1
Information according to sec. 2 no. 2 WpUG Offer Ordinance
(WpUG-Angebotsverordnung) in connection with sec. 7 Sales Prospectus Act and
Sales Prospectus Ordinance (Verkaufsprospektgesetz und Verkaufsprospekt-VO)
2
Appendix 1:
Information according to sec. 2 no. 2 WpUG Offer Ordinance
(WpUG-Angebotsverordnung) in connection with sec. 7 Sales Prospectus Act and
Sales Prospectus Ordinance (Verkaufsprospektgesetz und Verkaufsprospekt-VO)
of the
Offer Circular
for
the public Takeover Offer
of
2016091 Ontario Inc.
Waterloo, Ontario Canada
to all shareholders of
IXOS Software Aktiengesellschaft
Grasbrunn, Germany
to exchange their IXOS Shares
- as an alternative to the Cash Consideration and
at the election of the IXOS Shareholder -
for each IXOS Share 0.5220 of an Open Text Share and 0.1484 of a warrant, each
whole warrant exercisable to purchase one OpenText Share for up to one year
after the Closing Day of the Offer at a strike price of
US$ 20.75 per share
Each IXOS Shareholder should carefully consider the investment considerations
and risks of this alternative share and warrant consideration set forth in
Appendix 1, paragraph VII, and the risk factors respecting the
offered Open Text warrants under Section 7.2.4.3.
-------------------------------------------------------------------------------
Offer Period: December 1, 2003 until
January 16, 2004, 12:00 h (local Frankfurt/Main time)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
This Appendix 1 (disclosures in accordance with Section 2 Para 2 of the Bid
Regulations in connection with Section 7 of the Prospectus Act) is an annex to
the Public Tender Offer Document and does form an integral part of this public
tender offer document and should be read only in connection with this document.
-------------------------------------------------------------------------------
3
Table of contents:
I. General Information....................................................6
1. Object of this Prospectus...........................................6
2. Responsibility for the Contents of this Prospectus..................6
3. Availability of Documents for Inspection............................6
4. Forward looking Statement...........................................6
5. Definitions.........................................................7
II. Summary of this Prospectus.............................................8
III. Rights in connection with Offered Open Text Shares....................10
1. Shareholders' Meeting and Voting Rights............................10
2. Pre-emptive rights.................................................11
3. Reduction of share capital.........................................11
4. Liquidation of the Company.........................................11
5. Amendment and alteration of rights of shareholders.................11
6. Dividends and dividend policy......................................11
7. Stock Markets on which the shares are traded.......................11
8. Share Certificates and Registration................................12
9. Transfer of Shares.................................................12
10. Transfer of Capital Restrictions of Canada.........................13
11. Delivery of Offered Open Text Shares...............................13
IV. Offered Open Text Warrants...........................................14
1. Issuance of the Offered Open Text Warrants.........................14
2. Exercise of the Offered Open Text Warrants.........................14
3. Fractional rights of Offered Open Text Warrants....................15
4. Availability of Open Text Shares underlying the Offered Open
Text Warrants......................................................15
5. Protection of Warrant Holders against Dilution.....................15
6. Transfer of Offered Open Text Warrants.............................16
7. Repurchase of Offered Open Text Warrants by Open Text..............16
8. Voting Rights of Holders of Offered Open Text Warrants.............16
9. Rights of a Warrant Holder Meeting.................................16
10. Governing Law......................................................16
11. Risks concerning warrants in general...............................17
V. Payment and Depositary Agent, Transfer Agent and Registrar............18
VI. Open Text Corporation.................................................18
1. Open Text and its subsidiaries.....................................18
a) Incorporation, Name, Registered Office..........................18
b) Subsidiaries of Open Text.......................................19
c) Legal structure, Applicable Law, Purpose of Open Text...........20
d) Public registration of Open Text................................20
e) Fiscal Year.....................................................20
2. Open Text Group, Position of Open Text within the Open Text Group..20
3. Capital Structure of Open Text.....................................20
a) Share Capital, Shareholder Rights...............................20
b) Employee Stock Options..........................................21
c) Past Capital Increases..........................................22
d) Current Capital Increases and Undertakings for Capital Increases22
e) Authorized Capital..............................................23
f) Shareholders of Common Shares...................................23
4. Business Activities of Open
Text..................................................................23
a) Main Areas of Business..........................................23
b) Patents, Licenses, Contracts or New Procedures of Production on
which the Business of Open Text depends.........................34
c) Legal Proceedings, Litigation...................................35
d) Current investments of Open Text (excluding investments in
financial assets)...............................................36
4
e) Property........................................................36
5. Management and Employees...........................................37
a) Board of Directors..............................................37
b) Officers........................................................40
c) Open Text Shares held by the Members of the Board of Directors
and the Named Officers..........................................41
d) Stock Options held by the Members of the Board of Directors and
the Named Officers..............................................42
e) Employees.......................................................43
VII. Risk
Factors..................................................................43
1. Technological Development, Market
Acceptance...............................................................43
2. Competition...........................................................44
3. Intellectual Property Rights..........................................45
4. Acquisition of Ixos...................................................45
5. Dependence on Key Personnel...........................................46
6. Liability for Defects and Errors......................................46
7. International Expansion and Operations................................47
8. Expansion of Product Line.............................................47
9. Interest Rate Risks...................................................48
10. Foreign Currency Risk................................................48
11. Management of Growth.................................................49
12. Fluctuation of Quarterly Results.....................................49
13. Distributors.........................................................50
14. Third Party Software.................................................50
15. Infrastructure Software..............................................50
16. Sales Cycles.........................................................51
17. Volatility of Shares.................................................51
18. Limitations on trading in Offered Open Text Shares, Offered Open
Text Warrants and Open Text Shares issued on the basis of the
Offered Open Text Warrants...........................................51
VIII. Financial Information................................................53
1. Financial Data.....................................................53
a) Critical Accounting Policies and Estimates......................55
b) Results of Operations...........................................57
2. Consolidated Financial Statements as of June 30, 2003, including
Management's Report, Report of Independent Auditors, Balance
Sheets and Notes to Consolidated Balance Sheets....................59
a) Management's Report Financial Statement June 30, 2003...........59
b) Report of Independent Auditors Financial Statements June 30,
2003............................................................60
c) Consolidated Balance Sheets.....................................61
3. Quarterly Report FORM
10-Q..................................................................86
4. Material changes Consolidated Balance Sheet as of June 30, 2003
and/or Interim Financial Report as of September 30, 2003.............122
5. Statutory Auditors................................................122
IX. Taxation............................................................122
1. Taxation of Shareholder in Canada and United States of America....122
a) Canadian Federal Income Tax Considerations.....................122
b) United States Federal Income Taxation..........................123
2. Taxation of Shareholders in Germany...............................125
a) Taxation of Dividends..........................................126
b) Taxation of Capital Gains......................................126
c) Shareholders who are not tax-resident in Germany...............127
d) Inheritance or Gift Taxes......................................127
e) Other Taxes....................................................127
3. Taxation in general and taxation of Shareholders in other
Countries.........................................................127
4. Taxation of Open Text.............................................127
X. Business Developments and Prospects of Open Text.....................128
1. Latest Business Developments of Open Text.........................128
2. Business Prospects of Open Text...................................129
5
Unless otherwise indicated, all amounts included in this Appendix are expressed
in U.S. dollars.
On October 8, 2003, the Board of Directors of Open Text declared a stock
dividend, payable on the basis of one common share, having the same rights as
all existing common shares of Open Text (the Common Share[s]), for each Common
Share held as of 5:00 p.m. (Toronto time) on October 22, 2003. This dividend
doubled the number of Common Shares outstanding, and effectively achieved a
two-for-one split of the outstanding Common Shares (the "Stock Dividend"). All
references to Common Shares or Common Share data in this Appendix 1 to the Offer
Document, other than references in the audited consolidated financial statements
as at and for the year ended June 30, 2001 to 2003, and financial information of
Open Text as at and for the years ended June 30, 1999 to 2003, have been
adjusted to give effect to the Stock Dividend.
Open Text Corporation was formed by the amalgamation on July 1,2003 of the
predecessor Open Text Corporation, which was incorporated on June 26, 1991, with
that predecessor corporation's wholly-owned subsidiaries, Centrinity Inc. and
SoftArc Inc. pursuant to articles of amalgamation filed under the Ontario
Business Corporations Act. All references to Open Text Corporation in this
Appendix 1 to the Offer Document include Open Text Corporation and its
predecessor corporation (see also page 18).
6
I. General Information
1. Object of this Prospectus
The object (Gegenstand) of this prospectus are up to 11,725,655 new Common
Shares of Open Text Corporation (Open Text, and together with related companies
which must be consolidated in accordance with US-GAAP, Open Text Group) without
par value (the Offered Open Text Shares) and up to 3,333,500 Common Share
purchase warrants, each whole warrant exerciseable to purchase one Common Share
of Open Text for up to one year after the Closing Day of the Offer at a strike
price of US$ 20.75 (the Offered Open Text Warrants). The Offered Open Text
Shares and the Offered Open Text Warrants will be issued by the board of
directors of Open Text (the Board of Directors) pursuant to the Tender Offer,
subject to approval by the Shareholders' Meeting of Open Text of the issuance of
up to 15,060,000 Common Shares of Open Text (which includes the Common Shares
underlying the Offered Open Text Warrants) at the Shareholders' Meeting of Open
Text which is scheduled to take place on December 11, 2003. A detailed
description of the required shareholder approval is set out in Section VI. 3 (e)
below. Holders of the Offered Open Text Shares will be eligible to receive any
dividends for the fiscal year ending on June 30, 2004 declared by the Board of
Directors after the Closing day. A description of the Offered Open Text Shares
and of the Offered Open Text Warrants is contained in Sections III and IV
respectively below.
2. Responsibility for the Contents of this Prospectus
The Bidder, 2016091 Ontario Inc, Waterloo, Ontario, Canada, and Open Text
Corporation, Waterloo, Ontario, Canada, assume responsibility for the
completeness and accuracy of this Appendix. The Bidder and Open Text confirm
that, to the best of their knowledge and after having made all reasonable
inquiries, the information given in this Appendix as at the date hereof or any
earlier date referred to in this Appendix is in all material respects in
accordance with the facts and does not omit anything likely to affect the import
of such information in any material respect.
3. Availability of Documents for Inspection
The articles of amalgamation of Open Text, and the Audited Consolidated
Financial Statements of Open Text as at and for the years ended June 30, 2003,
2002 and 2001 may be obtained from and are available for inspection during the
Tender Offer at the registered office of Open Text, 185 Columbia Street West,
Waterloo, Ontario NL2 5Z5, Canada, and - except for the articles of amalgamation
- on the website www.opentext.com as well as at Commerzbank Aktiengesellschaft,
ZGS-CMAD, DLZ 2 , Mainzer Landstra(beta)e 153, 60327 Frankfurt am Main, during
normal business hours.
4. Forward looking Statement
Certain statements in this Appendix constitute forward-looking statements. Any
statements that express or involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives, assumptions or future
events or performance or the outcome of litigation (often, but not always, using
words or phrases such as "believes", "expects" or "does not expect", "is
expected", "anticipates" or "does not anticipate", or "intends" or stating that
certain actions, events or results "may", "could", "would", "might" or "will" be
taken or achieved) are not statements of historical fact, but are
"forward-looking statements". Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of Open Text, or developments in Open
Text's business or in its industry, to differ materially from the anticipated
results, performance, achievements or developments expressed or implied by such
forward- looking statements. Any forward-looking statements should be considered
in light of: risks involved in whether and when the proposed acquisition will be
completed and, if completed, in the integration of IXOS into the Company; costs
related to the business combination; expected cost savings from the acquisition
may not be fully realized or realized within the expected time frame; revenue of
the combined company may be lower than expected; the possibility of technical,
logistical or planning issues in connection with deployments; legislative or
regulatory changes may adversely affect the businesses in which the companies
are engaged; economic and politi-
7
cal conditions in the United States and abroad; changes that may occur in the
securities or capital markets; and the risks and uncertainties discussed in Sec.
VI. below. Readers should not place undue reliance on any such forward-looking
statements, which speak only as of the date they are made. Forward-looking
statements are based on management's current plans, estimates, opinions and
projections, and Open Text assumes no obligation to update forward-looking
statements if assumptions related to these plans, estimates, opinions and
projections should change.
5. Definitions
All definitions used in the Tender Offer Document are valid also, if not
expressly defined otherwise herein, for this Appendix 1.
II. Summary of this Prospectus
The following summary comprises only a selection of the information contained in
this Appendix 1 to the offer document. As the summary does not contain all
information that might be important for the IXOS Shareholders, it should be read
in conjunction with the more detailed information contained elsewhere in the
offer document and its appendices.
Offered Open Text Shares: Up to 11,725,655 registered Common Shares
without par value subject to Open Text
shareholder approval.
Rights involved with Offered The Offered Open Text Shares will be issued
Open Text Shares: from the same class, and therefore have the
same rights as, the outstanding existing Open
Text Common Shares.
The Offered Open Text Shares carry the right of
one vote per share at all meetings of holders
of Common Shares of Open Text.
The Offered Open Text Shares are entitled to
dividends in such amount as is determined by
the Board of Directors; such entitlement to
dividends declared after the Closing Day in the
fiscal year ending on June 30, 2004.
Offered Open Text Warrants: Up to 3,333,500 Offered Open Text Warrants
subject to Open Text shareholder approval.
Rights involved with the Each whole Offered Open Text Warrant will
Offered Open Text Warrants: be exercisable to purchase one Open
Text Share for up to one year after the
Closing Day of the Offer at a strike
price of US$ 20.75.
General Information on Open Principal place of business: Waterloo, Ontario, Canada
Text:
Address: 185 Columbia Street West
Waterloo, Ontario N2L 5Z5, Canada
The Common Shares of Open Text are currently
listed on the Nasdaq National Market System
("Nasdaq") and on the Toronto Stock Exchange
("TSX") and are included in the following
unregulated markets in Germany: Frankfurt stock
exchange, Berlin-Bremen stock exchange,
Stuttgart stock exchange and Munich stock
exchange.
Capital of Open Text: Issued and Outstanding Share Capital: 40,321,917 registered
Common Shares without par value
Business of Open Text: Development and Distribution of
Content Management Software.
Countries in which Open Text has subsidiaries in:
Austria, Australia, Barbados, Canada, France,
Germany, Ireland, Korea, Mexico, Netherlands,
Sweden, Switzerland, United Kingdom, USA
Revenues for year ended June 30, 2003: US$177,725,000
Revenues for three months ended September 30, 2003: US$544,85,000
Income from operations for year ended June 30, 2003: US$26,918,000
Income from operations for three months
ended September 30, 2003: US$4,943,000
Net Income for year ended June 30, 2003: US$27,757,000
Net Income for three months ended
September 30, 2003: US$3,354,000
Number of Employees as of June 30, 2003: 1,196
Number of Employees as of September 30, 2003: 1,168
9
External Auditor: KPMG LLP Chartered Accountants, North York,
Ontario, Canada.
ISIN Code for Open Text Common CA683715106
Shares:
ISIN Code for Offered Open CA 6837151142
Text Warrants:
10
III. Rights in connection with Offered Open Text Shares
The following is a summary only of the rights involved with the Offered Open
Text Shares. IXOS Shareholders are asked to contemplate before taking the
decision to choose the Alternative Share and Warrant Consideration next to other
indications in this prospectus the description of the general risks involved
with the business of Open Text and with the investment in shares in general (see
pages 43 ss).
1. Shareholders' Meeting and Voting Rights
Rights resulting from Offered Open Text-Shares are covered especially in the
Business Corporation Act of the Province of Ontario, Canada (OBCA), which is the
jurisdiction under which Open text has been founded, and in the by-laws of Open
Text.
Holders of Common Shares of Open Text are entitled to notice of and to attend
all meetings of the shareholders of Open Text (Shareholders' Meeting), except
meetings at which holders of another specified class of shares are exclusively
entitled to vote, and are entitled to one vote for each common share held on all
votes taken at such meetings. There are no cumulative voting rights. Subject to
certain rights under the Business Corporations Act (Ontario) (the "OBCA") (being
the legislation under which Open Text was incorporated) permitting the
requisitioning of a Shareholders Meeting by (i) shareholders holding 5% or more
of the shares carrying the right to vote at a Shareholders Meeting; (ii) an
individual director of the Board of Directors; or (iii) the Ontario Superior
Court of Justice, the Board of Directors is eligible to call a Shareholders'
Meetings.
Pursuant to Open Text's By-laws (Satzung), a quorum for a meeting of holders of
Common Shares occurs when persons not being less than two in number and holding
or representing by proxy not less than 33 1/3 % of the issued and outstanding
Common Shares entitled to vote at such meetings are present, unless a higher
number is designated by the Board of Directors.
Matters subject to approval at a Shareholders' Meeting must be approved by the
majority of the votes cast by shareholders present or represented by proxy at
the meeting, unless otherwise provided for by the applicable corporate or
securities law or unless otherwise provided for by the by-laws and the articles
of Open Text. An approval by a majority of votes cast at a meeting of
shareholders is required in connection with the election of directors and the
appointment of auditors.
A special majority, being two-thirds of the votes cast at a meeting of
shareholders by shareholders present or represented by proxy is required for the
approval of certain matters specified in the OBCA. These include: a change of
corporate name; the creation of a new class of shares; a change to the legal
designation, or name, of all or any of Open Text's shares, or an addition,
change or removal of any rights, privileges, restrictions and conditions,
including rights to accrued dividends, in respect of all or any of the issued or
unissued shares of Open Text; a change of the shares of Open Text, whether
issued or unissued, into a different number of shares of the same class or
series or into the same or a different number of shares of other classes or
series; authorization of the Board of Directors to divide any class of any
issued shares into series and to fix the number of shares in each series and the
rights, privileges, restrictions and conditions thereof and any revocation,
diminishment or enlargement of such authority; authorization of the Board of
Directors to change the rights, privileges, restrictions and conditions attached
to unissued shares of any series, and any revocation, diminishment or
enlargement of such authority; an increase or decrease in the number or minimum
or maximum number of directors; an addition, change or removal of a restriction
on the issue, transfer or ownership of shares of any class or series of shares
of Open Text; an amalgamation of Open Text with any other corporation (other
than a subsidiary corporation); a plan of arrangement involving Open Text; a
continuance of Open Text under the laws of another jurisdiction; a sale, lease
or exchange of all or substantially all of the property of Open Text; and a
voluntary winding-up or dissolution of Open Text.
11
2. Pre-emptive rights
Holders of the Common Shares of Open Text have no pre-emptive or subscription
rights in cases of increases of the registered share capital of Open Text. They
furthermore do not have redemption nor conversion rights. All outstanding Common
Shares are, and the Offered Open Text Shares will be, fully paid and
non-assessable.
3. Reduction of share capital
Under the OBCA, Open Text may by a special resolution of its Shareholders'
Meeting reduce the "stated capital account" required to be maintained for each
class of shares, which reflects the full amount of consideration it receives on
the issuance of shares, as determined by the Board of Directors (the Stated
Capital). A reduction in stated capital for any purpose, including the
distribution to the holders of its issued shares of any class of an amount not
exceeding the stated capital of the class, must be approved by a special
resolution of the Shareholders' Meeting. Open Text may not take any action to
reduce its stated capital if there are reasonable grounds for believing that:
(a) Open Text is or, after the taking of such action, would be unable to
pay its liabilities as they became due; or
(b) after the taking of such action, the realizable value of Open Text's
assets would be less than the aggregate of its liabilities.
4. Liquidation of the Company
In the event of any liquidation, dissolution or winding up of Open Text, the
holders of Common Shares will be entitled to receive rateably the assets of Open
Text remaining after payment of debts and liabilities, subject to any
preferences that might be applicable to any Preferred Shares issues in the
future.
5. Amendment and alteration of rights of shareholders
In accordance with the provisions of the OBCA, the amendment of certain rights
of holders of a class of shares, including Common Shares, requires the approval
of not less than two-thirds of the votes cast by the holders of such shares
voting at a special meeting of such holders; see Section III.1. In certain
circumstances in which the rights of Common Shares may be amended, however,
holders of Common Shares have the right under the OBCA to dissent from such
amendment and require Open Text to pay them the then fair value of the Common
Shares.
6. Dividends and dividend policy
The holders of Common Shares are entitled to receive such dividends as the Board
of Directors in its discretion may declare out of funds legally available
therefore, regardless of whether dividends are declared on any other class of
shares. The Board of Directors are prohibited from paying a dividend under the
OBCA if there are reasonable grounds for believing that:
(a) Open Text is or, after the payment, would be unable to pay its liabilities
as they became due; or
(b) the realizable value of Open Text's assets would thereby be less than the
aggregate of (i) its liabilities and (ii) its Stated Capital of all classes
of shares.
Open Text has never paid cash dividends on its Common Shares. Open Text
currently intends to retain earnings, if any, for use in its business and does
not anticipate paying any cash dividends in the foreseeable future.
7. Stock Markets on which the shares are traded
The Common Shares have traded on the NASDAQ National Market since January 23,
1996 under the symbol "OTEX". The Common Shares have traded on the Toronto Stock
Exchange ("TSX") since June
12
26, 1998 under the symbol "OTC". The Common Shares are also included in the
unregulated market (Freiverkehr) in Germany at the following stock exchanges:
Frankfurt Stock Exchange, Berlin-Bremen stock exchange and Stuttgart stock
exchange.
8. Share Certificates and Registration
The Common Shares of Open Text are registered and share certificates
representing all of Open Text's outstanding Common Shares have been issued in
the name of its registered shareholders. Open Text's transfer agent and
registrar, Computershare Trust Company of Canada, (the Transfer Agent) maintains
a register of all registered shareholders and issues share certificates at the
request of the registered shareholder in connection with an exchange or transfer
of shares represented thereby. Registered shareholders may transfer their common
shares on direction to Computershare Trust Company of Canada, 100 University
Avenue, 9th Floor, Toronto, Ontario M5J 2YI. On the registration of Offered Open
Text Shares please refer to section 11 below.
9. Transfer of Shares
Under the OBCA there are no restrictions to the transfer of Common Shares.
Beneficial ownership in registered Common Shares is transferred by agreement
between the owner and the purchaser of a share, and transfer of registered
ownership is effected by providing notice of the transfer to the Transfer Agent.
Sales of Common Shares may be made through the facilities of Nasdaq or the TSX,
subject to the rules of the applicable exchange.
It should be noted, that European residents who wish to trade non-European
securities may incur higher costs than are usual in the trade of European
securities; it is recommended to consult with advisors or brokers regarding fees
applicable to such resale.
For transfer restrictions under certain applicable securities laws, please refer
to Section 2.2.3 of the Offer Document. The holders of Offered Open Text-Shares
and the holders of Open Text-Shares underlying the Offered Open Text-Warrants
are requested to contact their advisers and brokers to ensures compliance with
the above mentioned restrictions.
No trade of shares in the USA or resale to persons residing in the USA: Offered
Open Text Warrants, Open Text Shares issued on the basis of the Offered Open
Text Warrants and Offered Open Text Warrants may not be offered or sold to or in
agency for or for the benefit of a US-resident person, unless a statutory
exemption applies, as set out in the US Securities Act 1933 or in other
applicable domestic share legislation. Certificates for Offered Open Text
Shares, Open Text Shares issued on the basis of Offered Open Text Warrants and
Offered Open Text Warrants will contain legends to this effect.
A statutory exemption to the registration requirements of relevant USA federal
securities legislation in respect of the resale of Offered Open Text Shares, of
Open Text Shares issued on the basis of Offered Open Text Warrants and of
Offered Open Text warrant may in general be available if such shares are sold on
the Toronto Stock Exchange (TSX), conditional upon such shares not being
knowingly sold to a US-resident person and on a declaration to this effect being
produced and made available to the transfer agent for the Open Text Shares,
Computershare Trust Company of Canada.
Additionally, it should be noted that the resale of Offered Open Text Shares and
Open Text shares issued on the basis of Offered Open Text Warrants may in
general be carried out only in accordance with the prevailing regulations of the
relevant securities market on the Nasdaq (but see USA above) or the TSX or
through over-the-counter trading on the securities markets in Berlin-Bremen,
Frankfurt/Main, Munich and Stuttgart in Germany. The resale of Offered Open Text
Shares, of Open Text Shares issued on the basis of Offered Open Text
13
Warrants and Offered Open Text Warrants may under certain circumstances be
subject to certain limitations on resale in accordance with the relevant
statutory regulations. Holders of Offered Open Text Shares, of Open Text Shares
issued on the basis of Offered Open Text Warrants and of Offered Open Text
Warrants should consult their own advisors with regard to compliance with the
statutory requirements applicable to such a resale.
Note: Trading in, selling, transferring or holding Offered Open Text Shares and
Offered Open Text Warrants can be more expensive in Canada and the USA than
trading in, selling, transferring or holding Offered Open Text Shares and
Offered Open Text Warrants in Germany. In addition it is to be noted that
persons in Germany who do not trade in or hold listed securities on a European
stock exchange will under certain circumstances have to bear costs greater than
those associated with trading in securities listed on a European Stock Exchange;
consultation with advisors, banks or stockbrokers is this regard is recommended.
There is no limitation imposed by Canadian law or by the articles or other
charter documents of Open Text on the right of a non-resident to hold or vote
Common Shares or Preferred Shares of Open Text with voting rights (collectively,
"Voting Shares"), other than as provided in the Investment Canada Act (the
"Investment Act"), as amended by the World Trade Organization Agreement
Implementation Act (the "WTOA Act"). The Investment Act generally prohibits
implementation of a reviewable investment by an individual, government or agency
thereof, corporation, partnership, trust or joint venture that is not a
"Canadian", as defined in the Investment Act (a "non-Canadian"), unless, after
review, the minister responsible for the Investment Act is satisfied that the
investment is likely to be a net benefit to Canada. An investment in Voting
Shares of Open Text by a non-Canadian (other than a "WTO Investor", as defined
below) would be reviewable under the Investment Act if it were an investment to
acquire direct control of Open Text, and the value of the assets of Open Text
were US$5.0 million or more. Except for certain economic sectors with respect to
which the lower threshold would apply, an investment in Voting Shares of Open
Text by a WTO Investor would be reviewable under the Investment Act if it were
an investment to acquire direct control of Open Text, and the value of the
assets of Open Text equaled or exceeded $223 million CDN. A non-Canadian,
whether a WTO Investor or otherwise, would acquire control of Open Text for
purposes of the Investment Act if he or she acquired a majority of the Voting
Shares of Open Text. The acquisition of less than a majority, but at least
one-third of the Voting Shares of Open Text, would be presumed to be an
acquisition of control of Open Text, unless it could be established that Open
Text was not controlled in fact by the acquirer through the ownership of Voting
Shares. In general, an individual is a WTO Investor if he or she is a "national"
of a country (other than Canada) that is a member of the World Trade
Organization ("WTO Member") or has a right of permanent residence in a WTO
Member. A corporation or other entity will be a WTO investor if it is a "WTO
Investor-controlled entity" pursuant to detailed rules set out in the Investment
Act. The United States is a WTO Member.
Certain transactions involving Voting Shares of Open Text would be exempt from
the Investment Act, including: (i) an acquisition of Voting Shares of Open Text
if the acquisition were made in connection with the person's business as a
trader or dealer in securities; (ii) an acquisition of control of Open Text in
connection with the realization of a security interest granted for a loan or
other financial assistance and not for any purpose related to the provisions of
the Investment Act; and (iii) an acquisition of control of Open Text by reason
of an amalgamation, merger, consolidation or corporate reorganization, following
which the ultimate direct or indirect control of Open Text, through the
ownership of voting interests, remains unchanged.
10. Transfer of Capital Restrictions of Canada
Canada has no system of exchange controls. There is no law, government decree or
regulation in Canada restricting the export or import of capital or affecting
the remittance of dividends, interest or other payments to a non-resident holder
of Common Shares, other than withholding tax requirements.
11. Delivery of Offered Open Text Shares
Refer to Section 8.2.2 of the Offer Document.
14
IV. Offered Open Text Warrants
The following is a summary only of the terms of the Offered Open Text Warrants
and is given subject to the more detailed provisions of the Warrant Indenture
(Warrant Conditions) referred to below in Appendix 2.
IXOS Shareholders are asked to contemplate before taking the decision to choose
the Alternative Share and Warrant Consideration next to other indications in
this prospectus the description of the general risks involved in connection with
warrants (see pages 17 ss) as well as the notes on Risk Factors in Section VII
below.
1. Issuance of the Offered Open Text Warrants
The Offered Open Text Warrants will be created and issued under a warrant
indenture (the Warrant Indenture) dated as of November 28, 2003 between Open
Text and Computershare Trust Company of Canada (the Warrant Trustee), a copy of
which is appended as Appendix 2 to this Offer Document. Subject to adjustment as
described below, each whole Offered Open Text Warrant will entitle its holder to
purchase one Open Text Share at a price of U.S. $ 20.75 (= EUR 18,19 calculated
at the Exchange Rate) (the Exercise Price), on or before 5:00 p.m. (Toronto
time) on the date one year after the Closing Day (the Expiry Date).
The settlement procedure and issuance of Warrant Certificates are explained in
Section 8.2.2 of the Offer Document.
2. Exercise of the Offered Open Text Warrants
Note: The costs resulting from exercising the Offered Open Text Warrants as well
as for the deposit of the Open Text shares received following settlement are to
be borne by the exercising owners of the Offered Open Text Warrants. To assess
these costs, owners should consult with their custodian or their stockbroker.
Such costs can exceed those costs that result from the exercise and deposit of
warrants that a domestic issuer has detailed nationally.
The owner of an Offered Open Text Warrant exercises their right under the
warrant for the acquisition of Open Text shares (Exercising the Warrant), if
they, where appropriate, through their custodian or their stockbroker submit the
following documents to the head office named for the transfer in Toronto
(Ontario/Canada) prior to or on the Expiry Date by 17.00 h (local time in
Toronto, Canada):
(1) the provided Warrant through physical submission (in case of collective
deposit (Girosammelverwahrung) the custodian bank is to initiate the
submission);
(2) the properly completed and signed subscription form (as defined and
represented in the warrant conditions) specifying the number of Open
Text Shares that the owner intends to acquire (provided that this does
not exceed the number of shares that the owner has a right to acquire
pursuant to the Warrant(s)) and
(3) a valid check, a money order, or a bill of exchange drawn on a bank,
issued in a legal tender of the United States of America and payable to
the nominal value or as an order instrument to Open Text or the Warrant
Trustee in Toronto, where the sum must correspond to the exercising
price for each Open Text share subscribed to at the time of Exercising
the Warrant.
Offered Open Text Warrants not exercised prior to the stated time on the Expiry
Date will expire without value.
The owner of an Offered Open Text Warrant receives Open Text shares on the
effective Exercising of the Warrant. These shares will not be traded in the USA
and cannot be sold to persons residing in the USA. These shares will be tradable
on the TSX. They can only be traded on the unlisted securities market in
15
Germany if a securities service company creates the appropriate requirements for
this. For the negotiability of these shares on a stock exchange or on the
unlisted securities market also see subsection 7.2.4.4 of the Offer Document.
Share certificates that represent the Open Text Shares and after exercising the
Offered Open Text Warrants are transferable, are handed to the owner of a
warrant or according to their instructions to their bank, stockbroker or a
different representative.
The costs for Exercising the Warrants, the issuance of the documents, custodian
costs and other costs linked to Exercising the Warrant are not borne by the
Bidder. These costs can be greater as the costs for similar transactions that
concern shares or warrants in a German company.
3. Fractional rights of Offered Open Text Warrants
No fractional rights of Offered Open Text Warrants will be issued and IXOS
Shareholders who have chosen the Alternative Share and Warrant Consideration
will not be entitled to any cash payment or other consideration in respect of
any fractional rights to Offered Open Text Warrants. In the calculation of the
Alternative Share and Warrant Consideration for the exchange of submitted IXOS
shares, fractional rights to Offered Open Text Warrants will be rounded down to
the next whole warrant.
4. Availability of Open Text Shares underlying the Offered Open
Text Warrants
The Board of Directors of Open Text has approved the issuance of up to 3,333,500
registered Common Shares without par value, which will be reserved for Warrant
holders exercising their Offered Open Text Warrants. The issuance of the Open
Text Shares underlying the Offered Open Text Warrants is subject to approval of
the shareholders meeting of Open Text which is scheduled to take place during
the month of December.
5. Protection of Warrant Holders against Dilution
The Warrant Indenture contains provisions designed to protect the holders of the
Offered Open Text Warrants against dilution upon the happening of certain
events, provided that in each case all applicable stock exchange and regulatory
approvals are obtained. If any stock dividend or distribution of Open Text
Shares or securities convertible into Open Text Shares other than as "dividends
paid in the ordinary course" (as defined therein) occurs, or if any subdivision,
consolidation, change or reclassification of the Open Text Shares or any
consolidation, amalgamation, arrangement or merger of Open Text with another
corporation or the transfer of all or substantially all of Open Text's assets
occurs, a proportionate adjustment or change will be made in the number and kind
of securities issuable on the exercise of the Offered Open Text Warrants. The
Offered Open Text Warrant Indenture provides that the exercise price per Open
Text Share will be subject to adjustment in certain events, including:
(a) the subdivision or consolidation of Open Text Shares or the issue to
all or substantially all the holders of Open Text Shares of a stock
dividend or other distribution of Open Text Shares or securities
convertible into Open Text Shares other than a distribution to such
holders as "dividends paid in the ordinary course" (as defined
therein);
(b) the issue of rights, options or warrants to all or substantially all
the holders of Open Text Shares, entitling them to acquire (i) Open
Text Shares at a price less than 95% of the "Current Market Price" of
the Open Text Shares or (ii) securities convertible into Open Text
Shares where the conversion price at the date of issue of such
convertible securities is less than 95% of the "Current Market Price"
of the Open Text Shares; and
(c) the distribution to all or substantially all of the holders of Open
Text Shares of (i) shares of any other class, (ii) rights, options or
warrants to acquire Open Text Shares or securities convertible into
Open Text Shares or property or other assets of Open Text, (iii)
evidences of indebtedness
16
or (iv) property or other assets of Open Text (other than those
referred to above and excluding in each case dividends paid in the
ordinary course).
"Current Market Price" of a Open Text Share at any date means the price per
share equal to the weighted average price at which the Open Text Shares have
traded (i) on Nasdaq, or (ii) if the Open Text Shares are not traded on Nasdaq,
on a recognized exchange or market, or (iii) if the Open Text Shares are not
traded on such recognized exchange or market, on the over-the-counter market,
during the 20 consecutive trading days (on each of which at least 500 Open Text
Shares are traded in board lots) ending on the fifth trading day immediately
prior to such date as reported by such market or exchange in which the Open Text
Shares are then trading or quoted.
No adjustment in the exercise price or in the number of Open Text Shares
purchasable upon exercise will be required to be made (a) unless the cumulative
effect of such adjustment or adjustments will change the exercise price by at
least 1% or the number of Open Text Shares purchasable upon exercise by at least
one-hundredth of a share, (b) if holders of Offered Open Text Warrants are
entitled to participate in any event described above as though they had
exercised their warrants prior to the occurrence of such event or (c) in respect
of the issue of Open Text Shares (i) pursuant to the exercise of the Offered
Open Text Warrants issued pursuant to the Warrant Indenture, (ii) in respect of
the issue from time to time of "dividends paid in the ordinary course" (as
defined in the Warrant Indenture), or (iii) pursuant to any stock options, stock
option plans or stock purchase plans or other benefit plans.
6. Transfer of Offered Open Text Warrants
A holder of an Offered Open Text Warrant may instruct its bank or broker to
transfer or sell its Offered Open Text Warrant(s).
The Offered Open Text Warrants will not be listed on any stock exchange. Resale
of the Offered Open Text Warrants and the Open Text Shares underlying the
Offered Open Text Warrants may be subject to resale restrictions under
applicable securities legislation. Holders of the Offered Open Text Warrants and
the Open Text Shares underlying the Offered Open Text Warrants should consult
with their own advisors regarding compliance with the requirements of such
legislation applicable to such resale.
7. Repurchase of Offered Open Text Warrants by Open Text
Under the Warrant Indenture, Open Text may purchase in the market, by private
contract or otherwise, all or any portion of the Offered Open Text Warrants on
such terms as Open Text may determine.
8. Voting Rights of Holders of Offered Open Text Warrants
The holders of Offered Open Text Warrants will have no voting right or other
right attaching to the status of Open Text Shares.
9. Rights of a Warrant Holder Meeting
In addition to all other powers conferred upon holders of Offered Open Text
Warrants by the Warrant Indenture or by law, the holders of Offered Open Text
Warrants at a meeting will have the power, exercisable from time to time by
"extraordinary resolution" (as defined in the Warrant Indenture), subject to
regulatory approval to, among other things, agree to any modification of the
rights of holders of Offered Open Text Warrants or to remove the Warrant Trustee
and appoint a successor warrant trustee pursuant to the terms of the Warrant
Indenture.
10. Governing Law
The Warrant Indenture is governed by the laws of the Province of Ontario, Canada
as well as the federal laws of Canada applicable therein.
17
11. Risks concerning warrants in general
IXOS shareholders, when considering whether to accept the Alternative Share and
Warrant Consideration, should also consider, in addition to further information
contained within Appendix 1 the following risk factors that affect warrants in
general and the Offered Open Text Warrants in particular. Similar considerations
also apply to future investors who may acquire the Offered Open Text Warrants
described above through a subsequent transaction other than via the securities
market.
a) General risks associated with warrants
(1) General valuation risks
The Offered Open Text Warrants will not be traded on any securities exchange.
They are however transferable securities and are thus subject to the rules of
supply and demand. Warrants may not give rise to claims nor entitle the holder
to receive dividends. The investor is therefore able to make a profit only from
sale of the warrants for a price higher than he paid or by timely exercise of
the warrants if, in the latter case, the market value of the underlying security
(the Open Text Share) is higher than the warrant exercise price.
(2) Risk of loss through changes in the market value of the underlying security
Changes in the market value of the underlying security, in this case the Open
Text Share that underlies the rights under the warrants, can reduce the value of
the warrant. A reduction in value such as this may in particular arise if the
market value of the underlying security, the Open Text Share, falls below the
exercise price. It should be noted that the value of the warrant consistently
changes disproportionately with the change in the market value of the underlying
security; this may also lead to the warrant becoming worthless. This
disproportionate change in the value of the warrant in comparison to the
underlying security is referred to as the leverage effect. This leverage effect
becomes particularly pronounced where the remaining exercise period of the
warrant is very short; at the end of the exercise period the warrant lapses and
is of no value.
(3) The risk of diminution in value and of loss in full
The rights vested in the warrants may lapse or suffer a diminution in value,
since these warrant rights are time-limited. In particular, where there is a
secondary acquisition of a warrant, the risk of a loss of value rises as the
remaining exercise period decreases.
The purchase of warrants, irrespective of the financial viability of the issuing
entity, may lead to a loss in full of the amount invested by the investor due to
disadvantageous market developments, the application of restrictions contained
within the warrant or the expiry of the time-limit.
If the investor's expectations with regard to market developments are not
fulfilled and in particular if the market value of the Open Text Share does not
rise above the warrant exercise price, then the warrant lapses and loses its
value in full. The same applies if the investor declines or neglects to exercise
the rights vested in his warrant. In the case of an IXOS shareholder who has
accepted the Alternative Share and Warrant Consideration, the loss equals the
value of the IXOS shares surrendered in order to acquire the warrants. Where a
warrant is acquired in a secondary market, the loss equals the purchase price
paid for the warrant together with associated purchase costs.
(4) Deals which preclude or mitigate risk
It cannot be assumed that during the warrant exercise period that transactions
may be entered into which can preclude or mitigate the risk of losing the
investment made in the acquisition of the warrant. In addition it may be
impossible after exercise to dispose of shares acquired or of other rights at a
price that matches the exercise price paid together with associated costs.
18
b) Particular risks associated with the Offered Open Text Warrants
(1) Increased costs
The investor should note that the costs associated with the exercise of the
Offered Open Text Warrants and the costs associated with the disposal of the
Open Text Shares after exercise may total more than those that could arise in
connection with comparable warrants issued by European institutions. The
investor is advised to make inquiries concerning this matter with his bank or
stockbroker. Significant transaction costs of this nature can reduce the
investor's profits or increase any losses arising.
(2) No securities market transactions in Offered Open Text Warrants
It is not the intention to permit Offered Open Text Warrants to be traded on the
securities market. As a result, the investor will generally be able to dispose
of any Offered Open Text Warrants acquired only with great difficulty or
possibly not at all, since it is conceivable that parties interested in
purchasing the warrants cannot be found. The investor cannot therefore rely on
being able to make profits by disposing of warrants during the exercise period.
In most cases the opportunity for an investor to make profits from the warrant
is therefore limited to an increase in the market value of the Open Text share
in relation to the exercise price of the Offered Open Text Warrant.
(3) No trading in the U.S. of Open Text-Shares issued upon exercise of
Offered Open Text Warrants
Open Text Shares acquired through exercise of the Offered Open Text Warrants may
not be disposed of on the Nasdaq. See sec. 7.2.4.4 of the offer document in this
regard.
V. Payment and Depositary Agent, Transfer Agent and Registrar
Payment and Depositary Agent is Computershare Trust Company of Canada, 100
University Avenue, 9th Floor, Toronto, Ontario M5J 2YI, Canada, which will be
responsible for the payment of dividends, if any, and for the deposit of Common
Shares in cases, where such deposit is required by the law or by articles or
by-laws. Computershare Trust Company of Canada is also the transfer agent and
registrar and therefore also responsible for the issuance of new share
certificates and for maintaining the register of registered shareholders for
Open Text.
VI. Open Text Corporation
1. Open Text and its subsidiaries
a) Incorporation, Name, Registered Office
The business of Open Text began with the predecessor of the present corporation,
which was also named Open Text Corporation. This predecessor Open Text
Corporation was incorporated on June 26, 1991 pursuant to its articles of
incorporation under the OBCA.
On July 1, 2003, the predecessor Open Text Corporation and two of that
predecessor corporation's wholly owned subsidiaries, Centrinity Inc. and SoftArc
Inc., were amalgamated (Verschmelzung durch Neugrundung) and thereby formed the
present Open Text Corporation. The listing of the common shares of the
predecessor Open Text Corporation has been replaced by a listing of the Common
Shares of the present Open Text Corporation.
19
Open Text's principal executive and registered offices are located at 185
Columbia Street West, Waterloo, Ontario, Canada N2L 5Z5, and its telephone
number at that location is + 1 (519) 888-7111. Open Text's World Wide Web
homepage address is www.opentext.com.
b) Subsidiaries of Open Text
Corporation Name Jurisdiction
SER Solutions Software GmbH Austria
Open Text Pty Ltd. Australia
INVOLV International Corporaiton Barbados
Lava Systems (Barbados) Inc. Barbados
Molton Systems SRL Barbados
2015603 Ontario Ltd Canada
2016090 Ontario Inc. Canada
2016091 Ontario Inc. Canada
b2bScene Inc. Canada
Brokercom Inc. Canada
Centrinity Inc. Canada
Corechange Canada Inc. Canada
iNVOLV Corporation Canada
Open Text Acquisition Corp. Canada
Open Text Corporation Canada
Open Text EDC Solutions Inc. Canada
SoftArc Inc. Canada
Open Text Corporation SARL France
Corechange GmbH Germany
Gauss Interprise AG Germany
Open Text GmbH Germany
SER eGovernment Deutschland GmbH Germany
Centrinity Ltd. Ireland
Corechange Korea Korea
Open Text Mexico S.de RL de CV Mexico
Corechange BV Netherlands
Gauss Interprise BV Netherlands
Open Text International BV Netherlands
Gauss Interprise S.L. Spain
Corechange Svenska AB Sweden
Gauss Interprise AB Sweden
Mediaflow AB Sweden
Open Text AB Sweden
Gauss Interprise (Schweiz) AG Switzerland
Open Text AG Switzerland
Centrinity UK Ltd. UK
Corechange Ltd. UK
Gauss Interpirse (UK) Ltd. UK
Open Text UK Ltd. UK
Base4 Corp USA
Bluebird Systems Inc. USA
Corechange Inc. USA
20
Gauss Interprise Inc. USA
Information Dimensions International Corp USA
iNVOLV Inc. USA
MC2 Learning Systems (USA) Inc. USA
Open Text Inc. USA
Open Text Eloquent Inc. USA
For further details refer to Structure Chart, Appendix 4.
c) Legal structure, Applicable Law, Purpose of Open Text
Open Text is a company incorporated under the laws of the Province of Ontario,
Canada as a Canadian stock corporation. No purpose of the company is specified
in Open Text's articles of amalgamation, and no restriction on the business that
it may carry on or on the powers it may exercise is contained therein.
d) Public registration of Open Text
The articles of amalgamation of Open Text and other documents required to be
filed by Open Text under the OBCA are available to the public upon payment of a
fee from the Ontario Ministry of Consumer and Business Services, 393 University
Ave., 2nd Floor, Toronto, Ontario.
e) Fiscal Year
The fiscal year of Open Text begins July 1 and ends June 30 of each calendar
year.
2. Open Text Group, Position of Open Text within the Open Text Group
Open Text is the parent company of the Open Text Group with subsidiaries and
branches in 15 countries.
Please see the structure chart in Appendix 4.
3. Capital Structure of Open Text
a) Share Capital, Shareholder Rights
As of November 11, 2003, Open Text had 40,325,067 Common Shares issued and
outstanding. As of this date Open Text has not issued any Preferred Shares. The
Common Shares and Preferred Shares have no par value or nominal value.
Common Shares
See III. 1. for description of Common Shares.
Preferred Shares
Preferred Shares may, at any time and from time to time, be issued in one or
more series, each series to consist of such number of shares as may, before the
issue thereof, be fixed by the Board of Directors. The Board of Directors may,
before issuance and subject to the provisions applicable to the Preferred
Shares, determine the designation, rights, privileges, restrictions and
conditions attaching to the Preferred Shares of each series. Preferred Shares of
each series shall, with respect to the payment of dividends and the distribution
of assets or return of capital in the event of liquidation, dissolution or
winding up of Open Text, whether voluntary or involuntary, or any other return
of capital or distribution of the assets of Open Text among its shareholders for
the purpose of winding up its affairs, rank on a parity with Preferred Shares of
every other series and be entitled to preference over the Common Shares and over
any other shares of Open Text ranking junior to the Preferred Shares. In
addition to and without limiting the generality of the foregoing, if any amount:
21
(a) of cumulative dividends, whether or not declared, or declared
non-cumulative dividends; or
(b) payable on return of capital in the event of the liquidation,
dissolution or winding-up of Open Text,
in respect of Preferred Shares of a series is not paid in full, the Preferred
Shares of the series shall participate rateably with the Preferred Shares of all
other series of the same class in respect of,
(c) all accumulated cumulative dividends, whether or not declared, and all
declared non-cumulative dividends; or
(d) all amounts payable on return of capital in the event of the
liquidation, dissolution or winding-up of Open Text,
as the case may be.
There are no registration rights outstanding in respect of any shares of Open
Text granted by Open Text. Registration rights are granted by issuers to holders
of its securities, that are subject to resale restriction under applicable
securities laws, that enable the holder to resell its securities pursuant to a
prospectus prepared and filed by the issuer.
b) Employee Stock Options
As of September 30, 2003, options to purchase an aggregate of 5,912,128 Common
Shares had been previously granted and are outstanding under all of the
Company's stock option plans exercisable at prices ranging from $0.08 to $20.00.
Options to purchase 4,347,164 Common Shares were fully vested and the remaining
options vest over the next four years.
A maximum of 5,600,000 Common Shares are reserved for issuance pursuant to Open
Text's 1998 Option Plan. Under the 1998 Option Plan, non-transferable options to
purchase Common Shares may be granted to all employees, directors, officers and
persons providing services to the Company and its subsidiaries based on the
eligibility criteria set forth in the 1998 Option Plan. The exercise price of
any option to be granted under the 1998 Option Plan is determined by the Board
of Directors, but shall not be less than the closing price of the Common Shares
on the day immediately preceding the date of grant on the quotation system or
stock exchange which had the greatest volume of trading of Common Shares.
Options granted under the 1998 Option Plan may have a term of up to ten years.
No person may be granted options to purchase Common Shares under the 1998 Option
Plan or receive Common Shares pursuant to any other share compensation
arrangement exceeding 5% of the outstanding Common Shares. Grants of options to
purchase Common Shares under the 1998 Option Plan or receipt of Common Shares
pursuant to any other share compensation arrangement to insiders, taken together
as a group, may not exceed 15% of the outstanding Common Shares. In addition,
within any one-year period, no insider and such insider's associates, may
receive Common Shares issued pursuant to all share compensation arrangements
exceeding 5% of the outstanding Common Shares.
The 1998 Option Plan is administered by the Compensation Committee, which has
the authority, subject to the terms of the 1998 Option Plan, to approve the
persons to whom options may be granted, the exercise price, the number of shares
subject to each option, the time or times at which all or a portion of each
option may be exercised and certain other provisions relating to each option,
including vesting provisions.
Under the 1998 Option Plan, options vest over a period specified by the Board of
Directors at the time of grant. The Board of Directors has established a
four/year vesting period for options granted to officers and employees under the
1998 Option Plan. If an option holder resigns or ceases to be an employee or
director of the Company or ceases to be engaged by the Company, vested options
held by such holder may be exercised prior to the 90th day following such
occurrence. If an option holder ceases to be an employee or director of the
Company or ceases to be engaged by the Company for cause or breach of duty, no
options held by such holder may be exercised, and the option holder shall have
no rights to any Com-
22
mon Shares in respect of such options following the date of
notice of such cessation or termination, except in accordance with a written
agreement with the Company.
With the approval of the 1998 Option Plan on June 23, 1998 by the Board, no
further options have been or will be issued under any of the previous options
plans of the Company, namely, the 1995 Flexible Stock Incentive Plan, the 1995
Supplementary Stock Option Plan and the 1995 Directors Stock Option Plan.
c) Past Capital Increases
After formation Open Text Corporation increased its share capital several times.
More recent capital increases have been:
In January 1996, Open Text completed an initial public offering of 8,000,000
common shares with net proceeds of $61.4 million. Open Text received net
proceeds of approximately $20.6 million from sale of securities in private
placements during fiscal 1996 before the completion of the public offering.
In June 1998, Open Text completed a public offering of 3,500,000 common shares
issuable upon the conversion of special warrants that were previously issued.
Open Text received net proceeds of approximately $36.4 million from the sale of
such special warrants.
In August 1999, Open Text completed a public offering of 6,000,000 common shares
issuable upon the conversion of special warrants that were previously issued.
Open Text received net proceeds of approximately $102 million from the sale of
such special warrants.
On October 8, 2003, Open Text declared a stock dividend, payable on the basis of
one Common Share for each Common Share held as of 5:00 p.m. (Toronto time) on
October 22, 2003. This dividend doubled the number of Common Shares outstanding,
and effectively achieved a two-for-one split of the outstanding Common Shares.
d) Current Capital Increases and Undertakings for Capital Increases
On October 21, 2003 the Board of Directors resolved to issue approximately
202,140 registered Common Shares without par value as partial consideration in
kind, namely for the contribution of all of the shares of SER Solutions Software
GesmbH and for the contribution of all of the shares of SER eGovernment
Deutschland GmbH. The right to subscribe to the new Common Shares has been
granted to SER Beteiligung eGovernment Deutschland GmbH (SER). On October 23,
2003, 115,510 Common Shares were issued to an escrow agent for SER. The number
of Common Shares issued on October 23, 2003 was calculated based on a value of
2,000,000 EUR and the 20 day weighted moving average closing price of the Common
Shares on NASDAQ for the period ended October 22, 2003.
In an agreement with SER, Open Text undertook to issue on July 1, 2005,
additional registered Common Shares without par value to SER. The number of
Common Shares to be issued on July 1, 2005 is to be calculated based on a value
of 1,500,000 EUR and the 20 day weighted moving average closing price of the
Common Shares on NASDAQ for the period ended December 31. 2004.
On October 22, 2003, the Board of Directors of Open Text approved the
acquisition by 2016091 Ontario, its wholly-owned subsidiary, by way of tender
offer for all of the issued and outstanding IXOS Shares for consideration, at
the election of the holder of IXOS Shares, of either (i) EUR 9 or (ii) 0.5220 of
a common share of the Corporation (a "Share") and 0.1484 of a Common Share
purchase warrant, each whole warrant exercisable to purchase a Common Share for
up to one year after the Closing Day for an exercise price of US$20.75 per share
(a "Warrant"), for each IXOS Share tendered. In consideration for the issuance
to Open Text by 2016091 Ontario of additional common shares in the capital of
2016091 Ontario, the Board of Directors of Open Text resolved to issue to IXOS
Shareholders tendering IXOS Shares under this offer, at the direction of 2016091
Ontario, up to 15,060,000 Common Shares, 11,725,500 of
22
which will be issued directly to or for the benefit of IXOS Shareholders and the
balance of 3,334,500 of which would be issued upon the exercise of up to
3,334,500 Warrants.
e) Authorized Capital
Unlike concepts known in Germany, the authorization of the Board of Directors of
Open Text to issue new share capital of Open Text is not limited, but consists
of an unlimited number of Common Shares and Preferred Shares that are issuable
upon terms approved by the Board of Directors. The Common Shares are listed on
the TSX and the Nasdaq. Nasdaq rules require that an issuance of a number of
common shares that is greater than 20% of the issued and outstanding Common
Shares must be approved by a majority of the holders of outstanding Common
Shares. Accordingly, holders of Common Shares are asked to approve the issuance
of up to 15,060,000 Common Shares (including the Common Shares underlying the
Offered Open Text Warrants) pursuant to the Tender Offer. To become effective,
this resolution must be approved by a majority of the votes cast by shareholders
present in person or represented by proxy at the meeting of shareholders of Open
Text which has been scheduled to be held on December 11, 2003.
f) Shareholders of Common Shares
Open Text is not aware of any shareholder that beneficially owns, directly or
indirectly, or exercises control or direction over, securities carrying more
than 10% of the voting rights attached to any class of outstanding voting
securities of Open Text other than FMR Corp., which, based on publicly filed
documents, beneficially owns or exercises control or direction over 4,112,900
representing approximately 10.20 % of the Common Shares of Open Text outstanding
as at October 31, 2003.
4. Business Activities of Open Text
a) Main Areas of Business
Open Text(TM) is an enterprise content management (ECM) vendor licensing
Web-based software that provides a collaborative work environment and an
integrated knowledge management system to enable organizations to capitalize on
their collective knowledge, work more effectively across geographies and
functional boundaries, and leverage best practices across the enterprise. Open
Text's software enables organizations to effectively address a diverse range of
business needs including managing information, unifying globally distributed
teams, capturing market opportunities, accelerating product cycles, improving
customer and partner relationships, and altering business strategies.
Open Text develops, markets, licenses and supports collaboration and knowledge
management software for use on intranets, extranets and the Internet. Open
Text's principal product line is Livelink(R), a leading collaboration and
knowledge management software product for global enterprises. The software
enables users to capture as well as find electronically stored information, work
together in creative and collaborative processes, perform group calendaring and
scheduling, and distribute or make available to users across networks or the
Internet the resulting work product and other information. This collaborative
environment enables ad hoc teams to form quickly across functional and
organizational boundaries, which enables information to be accessed by employees
using any standard Web browser. Fully Web-based with open architecture, Livelink
provides rapid out-of-the-box deployment, accelerated adoption, and low cost of
ownership. Open Text provides integrated solutions that enable people to use
information and technology more effectively at departmental levels and across
enterprises. Open Text offers its solutions both as end-user stand-alone
products and as fully integrated modules, which together provide a complete
solution that is easily incorporated into existing enterprise business systems.
Although most of Open Text's technology is proprietary in nature, Open Text does
on occasion include certain third party software in its products.
Open Text believes two key factors distinguish Livelink from competing
alternatives. First, unlike collaborative software developed for client/server
environments, Livelink was designed from the outset to run on the Internet. As
Web-based technology, Livelink scales easily and rapidly to thousands of users,
giga-
24
bytes of data, and millions of documents. Second, unlike solutions offering
tools for users to build custom collaborative applications, Livelink is a
ready-to-install application. It has open architecture, is easy to customize and
requires no special development for project teams to quickly become productive.
As a result, time required to deploy the software is shorter than competing
alternatives, allowing companies to enhance their ability to realize their
return on investment quickly.
As an extension to its solutions-based offerings, Open Text also provides
professional services, training, documentation and technical support services to
accelerate its customers' implementation of, and satisfaction with, its
products. Open Text believes its ability to offer a high level of customer
support and service is critical to its success. Open Text's major products are
typically licensed with an annual maintenance contract, which for a fee of
approximately 20% of the list price of the licensed software system, entitles
the customer to remote support, product updates and maintenance releases. For
additional fees, Open Text also offers training and consulting services and
provides integration services for the purpose of customizing Open Text's
software to specific customer needs. Open Text also maintains a "business
partner support program" that provides training and support for systems
integrators, independent software vendors ("ISVs") and value-added resellers
("VARs").
In the seven years since the introduction of the Livelink product line, Livelink
has achieved significant market acceptance. Organizations with tens of thousands
of users are deploying Livelink for business-critical applications. Numerous
Value Added Resellers ("VARs"), solution providers, technology partners,
application service providers ("ASPs"), and systems integrators have joined Open
Text's Livelink Affinity Partner program since its inception. The Affinity
Partner program is comprised of a collection of "best of breed" organizations
who partner with Open Text to offer value-add services to Open Text's customers
and prospects who are implementing Livelink and other of Open Text's products.
Business, technical, and marketing relationships have also been formed with
industry leaders such as Adobe, Hewlett Packard, Microsoft, Netscape, Oracle,
Sun, Bearing Point, Siemens Business Services, and SAP. Open Text's Affinity ASP
program offers organizations a cost-effective way to deploy and support mission
critical applications. ASP's provide specialized hosted collaborative
applications to inter-company communities under a subscription-based business
model. As an ASP, Open Text is responsible for demand creation and should have
preferential access to target communities.
Open Text has consistently sought to broaden its technology base and product
offerings and to strengthen its sales and customer support capabilities through
acquisitions. Open Text assesses each potential acquisition target with specific
emphasis on three main factors. First, Open Text seeks to acquire businesses
with technologies that can be integrated with its existing technologies to
create new products and enhance the existing product family. Second, Open Text
seeks to acquire businesses with experienced IT development and management
personnel that may have specific domain expertise. Third, Open Text seeks to
acquire businesses that offer a new distribution channel or customer base for
Open Text's products.
aa) Products and Technology
In August 2003, Open Text released Livelink 9.2, the latest release of Open
Text's flagship product. The Livelink Web server runs on a variety of computing
platforms, including Microsoft(TM) Windows NT(TM), Microsoft Windows 2000(TM),
Sun SPARC/Solaris(TM), and Hewlett-Packard HP-UX(TM) operating systems. Livelink
provides a comprehensive combination of collaborative knowledge management
services, custom workspaces, and a modular architecture with value-added
application modules. This latest release of Livelink includes English, French,
German, and Japanese language versions. Livelink is certified with a variety of
relational database management systems: Microsoft SQL Server(TM), Oracle 9i(TM),
and Sybase Adaptive Server(TM), HTTP servers (iPlanet Web Server Enterprise
Edition(TM) and Microsoft Internet Information Server(TM)), and Web browsers
(Netscape Navigator(TM) and Microsoft Internet Explorer(TM)).
Livelink 9.2 significantly improves the ease of use of the system by providing
an improved look and feel, more personalization of appearance options, new
one-click links, one-click "breadcrumbs" that make re-tracing the navigation
path obvious, additional wizards that easily guide users through the project
creation process, and improved project status and reporting capabilities.
Additionally, many other areas of the
25
product, such as Livelink MeetingZone(TM), received incremental improvements and
corrections to identified software deficiencies.
In June 2003, Open Text released Coreport 6.0, an enterprise portal framework
that unifies content from Livelink, other repositories, and a wide range of
enterprise systems in a single interface. The technology for Coreport was
acquired by Open Text from Corechange Inc., and extends Open Text's overall ECM
and content integration capability.
In June 2003 Open Text released Livelink LaunchForce(TM) an application that
offers closed-loop distribution of critical information to distributed
organizations, particularly field-sales groups. This product based on rich-media
technology acquired by Open Text from Eloquent, significantly speeds up training
for sales forces, provides a training and certification solution for compliance
applications, and simultaneously helps large organizations save money.
In February 2003, Open Text released FirstClass 7.1, an integrated suite of
messaging and communications software. This product is the latest version of the
FirstClass Communications Platform, based on technology acquired from Centrinity
Inc., and provides unified email, voice mail and fax mail management.
In November 2002, Open Text released Livelink MeetingZone(TM) 2.0 at its annual
user conference. Livelink MeetingZone adds real-time collaboration capabilities
to Livelink's already extensive asynchronous collaboration capabilities. It
enables members of geographically dispersed teams, to attend real-time virtual
Web meetings, regardless of their location, using a standard Web browser. During
a live meeting session, attendees can view applications shared by the presenter,
conduct group chats, have private conversations, draw on the whiteboard, and
create and view agenda items, notes, tasks, and Web links. When the meeting
ends, all of this information, including a meeting summary, is captured in
Livelink automatically, becoming a permanent part of an organization's knowledge
capital and providing benefits long after the meeting is over. Additionally,
those invitees who missed the meeting can consult the meeting summary to
catch-up on what they missed, and determine the context of new action-items that
have been assigned. Livelink MeetingZone 2.0 specifically provided more
flexibility to improve planning prior to a meeting and to improve follow-up
afterwards. Meeting attendees receive notice prior to the meeting on agenda
topics and required preparation. Additionally, any meeting can be easily
reconvened at a later time enabling participants to address unfinished agenda
items and carry over all the context of the prior meeting sessions.
bb) IT Solutions Based on Livelink
Open Text offers a range of products based on the Livelink software platform.
Each of the Livelink products have the Livelink server and repository at its
foundation and adds to it a set of specialized capabilities designed to address
a particular IT business problem.
o Livelink Enterprise Suite(TM) provides full range of tightly integrated
capabilities, including document management, team collaboration, business
process automation, records management, content management, learning and
skills management and more.
o Livelink for Knowledge Management(TM) enables companies to gather, capture,
organize, and search all of your organization's explicit and tacit
knowledge assets from a central point of access, no matter where they are
located.
o Livelink for Collaboration(TM) enables the best minds in an organization to
form virtual teams to work together more efficiently--to share information,
create project workspaces, conduct online meetings, coordinate schedules,
automate collaborative processes, assign tasks, discuss issues, and much
more--enabling an organization to make better decisions faster.
26
o Livelink for Business Process Management(TM) provides organizations with
powerful tools for automating business processes from end to end, including
sophisticated workflow capabilities, electronic signatures, and a complete
solution for designing and managing electronic forms.
o Livelink for Content Management(TM) is a complete, collaborative solution
for the authoring, management, and dynamic assembly and delivery of content
to the Web. Livelink for Content Management places content creation in the
hands of everyday business users, enabling companies to manage any number
of corporate sites.
o Livelink for Document Management(TM) is a secure, Web-based solution for
managing any type of electronic document. Livelink for Document Management
provides access control, version control and history, full audit trails,
compound documents, renditions, workflow for document review and approval,
full indexing and searching of content and metadata, and much more.
cc) Business Solutions Based on Livelink
Open Text offers a selection of business applications built on the Livelink
platform that enables organizations to address particular business needs. The
following Livelink-based applications are available:
o Livelink for Corporate Governance(TM) provides for the creation,
maintenance, testing, remediation and automation of organizational
processes and their associated risks. The system provides a specialized
workspace for managing Sarbanes-Oxley Section 404 compliance, and also
integrates employee training and certification to ensure that the latest
internal controls, policies, and procedures are followed throughout the
organization.
o Livelink for Learning Management(TM) delivers a comprehensive application
for training management within Livelink. It allows organizations to provide
a virtual classroom and collaborative environment with the advantages of a
Web-based training experience.
o Livelink for Program Management(TM) is a Web-based enterprise program
management application based on Livelink that integrates all areas of an
enterprise-level project into one comprehensive solution. It enables
organizations to automate proprietary program management methodologies
according to predefined "stages" and corresponding "gate" review cycles.
o Livelink for Regulated Documents(TM) was originally designed to meet the
stringent requirements of the pharmaceutical industry. Livelink for
Regulated Documents is a complete solution to securely manage key documents
throughout a controlled lifecycle in compliance with all relevant
regulatory requirements.
o Livelink for Sales Readiness(TM) provides a closed loop training system
aimed specifically at large and distributed field-sales organizations.
Based on rich-media technology this product speeds up training for sales
forces and simultaneously helps large sales organizations save money on
distributing information to their sales force.
o Livelink for Skills Management(TM) provides the ability within Livelink to
catalog, maintain, and assess levels of expertise possessed by employees.
It allows an organization to determine where knowledge required to meet
business objectives already exists within the organization and identifies
where shortfalls exist and training is required.
26
dd) Industry Specific Solutions Based on Livelink
Open Text offers a selection of industry-specific applications built on the
Livelink platform that enables organizations to address industry-specific
business needs. The following Livelink-based applications are available:
o Livelink for Clinicals(TM) provides the knowledge management and
collaboration infrastructures that enable pharmaceutical employees to
share, manage, and analyze clinical trial data throughout the entire
clinical trial process.
o Livelink for Construction Management(TM) is a collaborative Web-based
environment that primary contractors on construction and engineering
projects can use to coordinate the work of many dispersed sub-contractors
and vendors to streamline the design, building, operation, and maintenance
of any construction-related project.
ee) Livelink Development Tools
Livelink is highly scalable, extensible and customizable through the use of the
Livelink SDK(TM) (Software Development Kit). The Livelink SDK consists of the
Livelink Application Program Interface(TM) ("LAPI") and the Livelink
Builder(TM), an object-oriented application development environment designed
specifically for building collaborative intranet solutions. Livelink Builder
offers customers the ability to customize and extend the features of Livelink to
meet their particular needs. Additionally, the Livelink SDK includes LAPI Web
Services, which supports application development in Microsoft.NET and J2EE
environments.
ff) Livelink Optional and Embedded Modules
Open Text offers a wide selection of modules that allow organizations to easily
extend and enhance the functionality of Livelink to suit their evolving business
requirements. The following modules are available separately or bundled as part
of a solution offering described above:
o Livelink Activator(TM) for BASIS(R) enables organizations to integrate
their corporate library into a collaborative enterprise knowledge network.
This module provides an ideal solution for combining the collaborative
features of Livelink with the data collection management features of BASIS.
o Livelink Activator(TM) for CORBA(R) Development Kit enables organizations
to create applications that extend Livelink's functionality and integrate
Livelink with external systems using Common Object Request Broker
Architecture (CORBA) services.
o Livelink Activator(TM) for Lotus Notes(R) makes indexing and retrieving
information stored within Lotus Notes quick and easy.
o Livelink Activator(TM) for SAP/R3(R) allows users to leverage their
existing legacy systems, providing seamless connectivity between the
Livelink Server and the R/3 System.
o Livelink Archive(TM) for SAP(R) R/3(R): Certified by SAP, Livelink Archive
for SAP R/3 is based on SAP's ArchiveLink(R) interface, which links SAP
applications to external storage systems such as Livelink. Livelink Archive
for SAP R/3 enables Livelink to be used as the archive for SAP R/3
documents.
o Livelink Brokered Search(TM) allows users to submit a single search query
to multiple data sources and receive a unified set of results. Brokered
Search combines results from multiple Livelink repositories, Microsoft(R)
Exchange Public Folders, public and internal search engines, as well as
from legacy data sources and other authenticated sites.
28
o Livelink Cataloged Library(TM) allows organizations to extend the reach of
their library and its functionality by making it an integral part of their
enterprise knowledge architecture.
o Livelink Classifications(TM) allows Classification Librarians to define a
taxonomy of classifications in Livelink. When documents are added to the
Livelink repository, they can be associated with a particular
classification by one of the following means: manual, assisted, or
automatic.
o Livelink Directory Services(TM) allows organizations to administer users
and groups for each Livelink server from within a central directory. This
module synchronizes with a central directory service and provides single
logon access for network users.
o Livelink eLink(TM) can be integrated with any standard e-mail application
and enables users to participate in Livelink discussions and receive
enhanced e-mail notification of Livelink events.
o Livelink eSign(TM) adds electronic signature capabilities to Livelink and
also provides enhanced audit trails for signing events, enhanced security
features such as the ability to lock users out after multiple failed log-in
attempts, and the ability to initiate a signing approval workflow from a
document.
o Livelink Explorer(TM) provides Livelink users with access to Livelink
content and functionality from their Microsoft Windows(R) desktop. In
Microsoft Windows Explorer, users can navigate the Livelink hierarchy and
perform all Livelink functions. Users also have direct access to Livelink
from popular desktop productivity tools, such as Microsoft Word(R),
Excel(R), and Outlook(R). In addition, mobile users can also mark content
in Livelink for offline viewing in Microsoft Windows Explorer when they are
not connected to the corporate network.
o Livelink MeetingZone(TM) enables members of geographically dispersed teams,
including customers, suppliers, consultants, and other trading partners, to
attend real-time virtual Web meetings, regardless of their location, using
a standard Web browser, and then save the virtual meeting content in
Livelink automatically.
o Livelink OnTime(TM) allows users to schedule group and project team
meetings. Fully integrated with Livelink, this module provides users with
secure access to other users' personal calendar information, project team
calendars and resources.
o Livelink PDF Forms Professional(TM) enables organizations and users to
collaboratively create, manage and track electronic forms and data
integrating them into standard corporate business processes by creating an
e-form warehouse in Livelink, reducing costs and improving customer
satisfaction.
o Livelink Prospectors(TM) allows users to create their own personalized,
virtual research assistants. Based on custom user preferences, prospectors
scour internal networks and targeted Web sites for information users need
to get their jobs done.
o Livelink Records Management(TM) adds records management functions and
capabilities to Livelink, enabling it to become the first comprehensive,
Web-based, full lifecycle knowledge management and records management
solution for the entire enterprise.
o Livelink Remote Cache(TM) reduces network traffic and improves access speed
for remote users by caching documents, HTML renditions and graphical
content at remote sites.
o Livelink Secure Connect(TM) secures user communications between the
Livelink server and non-Web clients such as Livelink Explorer using
industry-standard cryptographic encryption technology.
o Livelink Spider(TM) crawls across an organization's intranet and/or
targeted sites on the World Wide Web and automatically finds and indexes
new or modified documents, enabling Livelink to maintain an up-to-date,
searchable knowledge base.
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o Livelink UNITE(TM) provides users with a unified, personalizable interface
to one or more Livelink systems. With Livelink UNITE, users can filter
access to Livelink content and services, including workspaces, documents,
meetings, discussions, search, and more, by organizing them into a
personalized set of virtual workspaces and context maps arranged on a
series of tabbed pages.
o Livelink WebDAV(TM) provides a standard-based gateway to Livelink via the
Web Distributed Authoring and Versioning (WebDAV) protocol. Livelink users
can access, create, and manage Livelink folders and documents directly from
popular desktop applications that support WebDAV, including Microsoft(R)
Office and WebFolders and Adobe(R) applications.
o Livelink Wireless(TM) gives mobile professionals access to Livelink's
Web-based collaborative features using a variety of handheld and wireless
devices, including a Web-enabled WAP or iMode cellular telephone, Palm
OS(R) device or RIM Blackberry(TM) pager.
gg) Information Retrieval is Pervasive
Open Text's heritage is rooted in information retrieval, and that heritage is
pervasive throughout the Livelink product. Livelink's Information Retrieval
functionality helps users find and access information from anywhere throughout
the enterprise--including the corporate information repository, corporate Web
sites and across the Internet. Authorized users have on-demand access to
information even if their knowledge-base spans distributed and diverse network
environments. More than full-text search and retrieval, Livelink provides an
integrated set of information retrieval tools, including intelligent agents and
sophisticated reports that give users unprecedented insight into the knowledge,
actions and activities being developed throughout an organization.
Livelink's Information Retrieval provides high performance and linear scaling,
even across millions of documents and terabytes of information. Livelink allows
an organization to build searchable databases of virtually any size by indexing
documents, files and other objects in any standard format, including XML, HTML,
PDF and other popular file formats. It recognizes that documents are often
characterized by complex structures. For example, documents often contain
titles, headings, sections, subsections and paragraphs. Open Text's search
engine can search any number of different user-defined document structures. It
supports SGML and XML, the key international standards for structured documents.
Sophisticated search features include the ability to search a subset of the
index ("slices"), contextual/proximity searching, an advanced query builder
interface, thesaurus support, word stemming, "sounds like" searching, and a
powerful end-user query language. Livelink's Data Flows facilitate moving
information between Livelink and other data sources (e.g., a user could create a
data flow which crawls a number of competitor's Web sites, converts all the
information to PDF format, and indexes it as different slices for searching).
hh) Specialized Products and Solutions
Open Text provides a series of specialized collaboration, content, and
knowledge-based product technologies that are sold independent of, or integrated
with, the Livelink platform. Customers of these products have the confidence of
moving forward with these more specialized products knowing that a single
reliable vendor can deliver comparable functionality integrated into the broader
Livelink platform as their requirements evolve to do so:
o Advanced Messaging and Communication Solutions - FirstClass(R)combines
voice and fax messages to create a truly unified messaging system that
allows users to communicate across a wide range of messaging formats and
devices. As a highly scalable and feature-rich messaging and collaboration
solution, FirstClass converges powerful features such as, e-mail, voice
messaging, fax, shared online work- spaces and instant messaging, enabling
users to effectively communicate and collaborate across a wide range of
messaging formats and devices. Ideally suited for schools, school
districts, higher-education institutions, government agencies, and service
providers, FirstClass enables users
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to securely access and share information anywhere, anytime, using the
device that is most appropriate to them at the time. Because it combines
award-winning collaborative groupware and unified communications
technologies into a single highly scalable message store, FirstClass
provides organizations with one of the lowest total costs of ownership in
the industry.
o Advanced Information Retrieval - In addition to the information retrieval
capabilities that are part of Livelink, Open Text also offers
BRS/Search(TM)and Query Server(TM)from Open Text's BRS Products division.
BRS/Search is a search engine for publishing large quantities of dynamic,
customized information in all Web-based applications requiring
sophisticated functionality and appearance. BRS/Search incorporates
flexible filtering and state-of-the-art search, control, and presentation
tools for enterprise information retrieval. It has been used by thousands
of organizations to quickly design, prototype, and develop applications
that provide real-time access to the organization's islands of information,
memos, reports, competitive intelligence, documents, or any other type of
unstructured data. Query Server is an advanced meta search tool that
broadcasts a single query across a set of Web-enabled search engines,
unifying access to multiple information sources, including repositories,
news feeds, document management systems, intranets, and the Internet.
o Archived Document Collections Management - Open Text also offers the
BASIS(R) software product line to support the management of specialized
corporate and government document collections. Designed for comprehensive
library control, BASIS provides a solution for companies who need
sophisticated searchable access to hybrid document collections consisting
of both documents and metadata. Used by information professionals in major
commercial and government information centers, BASIS provides library
automation, research management, litigation support, intellectual property
protection, content management and competitive intelligence.
BASIS is available as a stand-alone product or as part of a fully
integrated solution with Livelink. The Livelink Activator for BASIS(TM)
integrates the collaborative features of Livelink with the collection
management features of BASIS. This module extends BASIS information
management and library automation functionality to fully exploit Livelink's
rich collaborative features, enabling users to easily access BASIS library
objects and incorporate them into the Livelink environment.
o Certification Management - In order to provide highly effective corporate
management and training solutions for the Financial Services sector, EDC(R)
from Open Text gives users the ability to provide corporate learning and
training programs that will meet regulatory compliance objectives. The EDC
product suite is designed to address a number of needs, including growth in
regulatory reporting requirements, leveraging existing investments in
training content and programs, maintaining detailed registration and
licensing records for compliance management, and the need to manage all of
the detailed records necessary to achieve regulatory compliance.
o Knowledge Delivery - LaunchForce(TM)--an enterprise-class application for
certified knowledge delivery-- uses rich media and rich tracking to quickly
deploy mission-critical information to corporate audiences, whether it be
preparing your sales force to sell a new product line, educating employees
about new policies and procedures, or certifying compliance with complex
regulations. LaunchForce enables closed-loop communication between end
users, subject matter experts, and management--allowing management to
measure the effectiveness of materials, identify gaps in the preparedness
of speakers, drive return on communications investment, and ensure that
corporate initiatives are effective. LaunchForce leverages leading-edge
rich media technology and revolutionary closed-loop content publishing,
tracking, and remediation capabilities to manage and measure the delivery
of information to globally distributed audiences.
o Library Automation - The Techlib(R) product is a specific application that
utilizes BASIS to automate and integrate the main functions of a corporate
or government library. Techlib is an integrated, Web-based solution for
managing, automating and delivering a complete range of library services.
From access and cataloging to circulation, serials control and
acquisitions, Techlib provides users with the ability to manage digital
collections and make the corporate library the focus of an organization's
knowledge resources.
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Techlib can be implemented as a component of BASIS, or as an integrated
solution with Livelink, as the Livelink Cataloged Library(TM) module.
Techlib and Livelink integration gives users consolidated access to
knowledge resources on the intranet, extranet and in the corporate library,
to support decisions, smooth workflow and automate processes.
Web browser and JDBC interfaces have made BASIS applications more
economical to deploy since more people can easily access and exploit the
available information. Furthermore, as organizations continue to encounter
information overload, library science expertise in subject categorization
and classification is being deployed to improve the usability of enterprise
intranet and extranet applications.
o Portal Solutions - Coreport(R) enables organizations to rapidly deploy a
single enterprise integration portal to serve all stakeholders, employees,
customers, investors, partners and others, effectively and securely.
Coreport provides a single, open, strategic framework for deployment,
integration and management of all your enterprise assets. With Coreport
portals, users can create their own portals, add specialized content,
assemble dynamic business processes, and manage online communities.
Livelink Unite is used to connect the Livelink environment to Coreport and
portal frameworks provided by other vendors.
o Records Management - Livelink for Records Management gives users
comprehensive, full lifecycle management of all corporate records and
information holdings, in both paper and electronic format. Livelink for
Records Management allows users to access records management functions from
any standard Web browser. By providing a common interface to access all
forms of information, such as images, paper records and other physical
objects, word processing, spreadsheets, and e-mail, Livelink for Records
Management provides an automated system that removes the complexities of
electronic records management and streamlines processes for end users.
Livelink for Records Management helps global enterprises to secure critical
information, ensure file control, consistency, and collaboration by
supporting record classification, retention and disposition rules,
searching, reporting, and security access. Livelink for Records Management
brings the control of records management into a large intranet or extranet
environments, allowing individuals or groups to easily access and share
corporate information. This records management capability is available on a
stand-alone basis (iRIMS(TM)) or fully integrated into Livelink.
o High-Volume Workflow and Imaging Solutions - Through its Bluebird Systems
division, Open Text offers ODOC(R)and Open Image(R), which provide
high-volume workflow and imaging solutions. ODOC is a powerful, Window
NT-based, Web-enabled object management and workflow system designed to
give organizations the ability to replace labor intensive paper-based work
processes with highly efficient PC-based ones. Offering tight integration
with PeopleSoft(R)technology, the client/server, multi-tier, open
architecture of the ODOC suite enables organizations to achieve the
performance and security they demand in mission-critical, high volume, and
highly distributed environments. The product is particularly well suited
for Accounts Payable applications. Open Image is a high-volume workflow,
imaging and document management solution designed for the financial
services industry.
ii) Product Development
Open Text intends to pursue its strategy of growing the capabilities of its
software offerings through the in-house research and development of new product
offerings as well as the addition of technologies and expertise through the
acquisition of other companies, technologies and products.
During fiscal 2003, Open Text developed Livelink 9.2, and all of its associated
components. The modular architecture of Livelink allows for the release of new
and improved product components independently of the baseline platform. The
modular architecture also supports Open Text's acquisition strategy, allowing
new product components and technologies to be quickly assimilated into Livelink.
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The strategic intent of Open Text's product developments is to allow groups of
users to build up a knowledge base as a natural by-product of doing
collaborative work, without burdening the end-user to do more. Similarly, it
also focuses on improvements whereby the collaborative tools automatically mine
and deliver knowledge in context, thereby making collaborative work more
effective. As an example, development continues on Livelink MeetingZone, a
real-time meeting and collaboration tool, that allows valuable meeting content
to be captured, searched, and reused. Open Text believes that treating meeting
content and context as reusable knowledge objects continues to differentiate
itself from competitor's products.
The product development organization, in coordination with its Professional
Services function, partners, and identified lighthouse customers, continues to
advance the Livelink platform and technology to support rapid development of
knowledge-based applications. During fiscal 2003, Open Text introduced several
such applications to its existing application portfolio such as Livelink for
Clinicals, Livelink for Regulated Documents, and Livelink for Sales Readiness.
As of June 30, 2003, Open Text's research and development team consisted of 305
employees. During fiscal 2003, through the acquisitions of Centrinity,
Corechange, and Eloquent, Open Text acquired new technologies that have been
integrated with its Livelink technology with the goal of producing a more
diverse product offering. Amounts spent on research and development during
fiscal 2003, fiscal 2002, and fiscal 2001 were $29.3 million, $24.1 million, and
$24.3 million, respectively.
jj) Customer Support and Professional Services
Open Text provides most of its customer support activities through telephone
support, since it is able to service most software problems remotely. Open
Text's major products are typically licensed in conjunction with a twelve-month
maintenance contract which renews each year thereafter at the customer's option.
The annual maintenance and support fee is typically 20% of the list price of the
licensed software and entitles the customer to remote support as well as product
updates and maintenance releases. Customers pay for their annual maintenance
contracts at the beginning of the contract, and Open Text recognizes revenues
relating to these services ratably over the term of the related contract. As of
June 30, 2003, Open Text's customer support team consisted of 140 employees.
Open Text offers both training and consulting services, as well as integration
services for the purpose of configuring and adapting Open Text's software to
specific customer needs. Although Open Text's software can be used
"out-of-the-box", customers may desire further specific configurations to their
environment or working processes or similar work to further tailor Open Text's
products to their specifications. Engagements performed by Open Text's
professional services organization are typically billed on a time and materials
basis. As of June 30, 2003, Open Text's professional service group consisted of
229 employees.
kk) Competition
Open Text's products and services compete in several market segments that are at
various stages of maturity and each market has both distinct and overlapping
competitors. These markets include collaboration and team support software,
document management, business process management, content management, learning
management, project management, and portals, each of which is intensely
competitive and subject to rapid technological change. A variety of different
terms are used to describe these markets including Knowledge Management (KM),
Enterprise Content Management (ECM), Smart Enterprise Suites (by Gartner Group),
and the Knowledge Worker Infrastructure (by Meta). It is in the integration of
functionality in these otherwise distinct market segments that Open Text
believes it differentiates itself.
Open Text competes with repository-based collaboration software solutions such
as IBM's Lotus Notes/Domino, iManage and Documentum's eRoom, collaboration
service providers such as WebEx Communications Inc. and Centra Software, and
with e-mail-based collaboration solutions from Microsoft Corporation, IBM
Corporation, and Groove Networks. In the document management market, Open Text
competes with vendors such as Documentum Inc., FileNet Corporation, and
Hummingbird Communica-
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tions ltd.. Companies like FileNet Corporation and Staffware also offer business
process management solutions similar to the forms and workflow capabilities
provided by Open Text. Content management vendors such as Documentum Inc.,
Interwoven Inc., Vignette Corporation, and Stellent Inc. compete aggressively
with Open Text to manage purpose-built content for web sites. In the learning
management market, Open Text competes with e-learning point solutions from
vendors such as Saba Software Inc., Docent Inc., and Centra Software. In the
portal marketplace, Open Text competes with Plumtree and portal solutions from
major infrastructure providers.
Open Text expects competition to increase in the future as the markets for Open
Text's products develop and as additional players enter these markets. Open Text
believes that the principal competitive factors in these markets include the
ability to provide:
o vendor and product reputation;
o versatility to provide a broad range of business solutions;
o full support for functionality required for compliance management
solutions;
o scalable integration of document management, business process
management (i.e., workflow), and related enabling technologies;
o product quality and performance;
o partner relationships with providers of IT infrastructure and
information systems;
o quality of product support; and
o price.
Open Text's competitors can be expected to enhance their existing products or to
develop new products that will further integrate workflow, document management
and collaborative computing features.
Open Text's markets are the subject of intense industry interest, and Open Text
is aware of numerous other major software developers as well as smaller
entrepreneurial companies focusing significant resources on developing and
marketing software products and services that may compete with Open Text
products and services. Numerous releases of products and services that compete
with those of Open Text can be expected in the near future. Moreover, certain of
Open Text's current and potential competitors may bundle their products with
other software in a manner that may discourage users from licensing products
offered by Open Text.
Many of Open Text's current and potential competitors in each of its markets
have longer operating histories and significantly greater financial, technical
and marketing resources, name recognition and installed product base than Open
Text. There can be no assurance that Open Text will be able to compete
effectively with current and future competitors. Increased competition from
existing or potential competitors could result in the reduction of prices and
revenues, reduced margins, and loss of customers and market share, any one of
which would negatively impact Open Text's operating results.
ll) Sales and Marketing
Open Text employs multiple distribution channels, including direct sales,
distributors, systems integrators, independent software vendors ("ISVs") and
VARs to market, license and sell its products and services throughout the world.
Given the significant investment and commitment of resources required by an
organization in order to implement Open Text's software, Open Text's sales cycle
tends to take considerable time to complete. Particularly in the current
economic environment of reduced information technology spending, it can take
several months, or even quarters, for sales opportunities to translate into
revenue. It was Open Text's experience throughout most of fiscal 2002 and 2003
that customers were more hesitant to commit to large, enterprise-wide
deployments of Open Text's software and as a result, Open Text has experienced a
lengthening of its sales cycles and increased demands for return on investment
analysis.
Direct Sales. Open Text employs a direct sales force as the primary method to
market, license and sell its products and services. As of June 30, 2003, Open
Text's worldwide sales organization consisted of 271
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employees located in 142 cities. Historically, a significant percentage of Open
Text's revenues have been generated through its direct sales force. For fiscal
2003, approximately 90% of Open Text's license revenues were generated through
its direct sales force.
Distributors. Open Text has distribution agreements in Japan with Canon Sales
Inc. and Infocom Corporation, pursuant to which each of them markets, licenses
and sells Open Text products and services within the country of Japan.
ISVs. Open Text markets and licenses its products to select independent software
vendors, in order to have its products embedded in high-value application
products marketed by manufacturers with specific industry or application domain
expertise. Such partners generally sell an entire product portfolio into the
target market, thereby having better access to that market than Open Text.
Livelink Affinity Partners. Open Text's Livelink Affinity Partner program
includes VARs, solution providers, technology partners, ASPs, and systems
integrators. Open Text's Livelink Affinity Partners license, customize,
configure and install Open Text's software products with complementary hardware,
software and services. In combining these products and services, the Livelink
Affinity Partners are able to deliver complete solutions to address specific
customer needs.
b) Patents, Licenses, Contracts or New Procedures of Production on which
the Business of Open Text depends
Open Text's success and ability to compete are dependent on our ability to
develop and maintain our intellectual property and proprietary technology and to
operate without infringing on the proprietary rights of others. Open Text's
software products are generally licensed to customers on a nonexclusive basis
for internal use in a customer's organization. Open Text also grants rights in
its intellectual property to third parties that allow them to market certain of
Open Text's products on a nonexclusive or limited-scope exclusive basis for a
particular application of the product(s) or to a particular geographic area.
Open Text relies on a combination of copyright, trademark and trade secret laws,
non-disclosure agreements and other contractual provisions to establish and
maintain its proprietary rights. Historically, Open Text has not sought patent
protection for its products, though it may do so in the future. During fiscal
2003 Open Text indirectly acquired a patent relating to collaborative
technology. Open Text is currently exploring opportunities to exploit this
patent and these opportunities may include licensing it. Enforcement of Open
Text's intellectual property rights may be difficult, particularly in some
nations outside of the United States and Canada in which Open Text seeks to
market its products. Certain of Open Text's license arrangements have required
Open Text to make a limited confidential disclosure of portions of the source
code for its products, or to place such source code into an escrow for the
protection of another party. Despite the precautions taken by Open Text, it may
be possible for unauthorized third parties to copy certain portions of Open
Text's products or to reverse engineer or obtain and use information that Open
Text regards as proprietary. Also, Open Text's competitors could independently
develop technologies that are perceived to be substantially equivalent or
superior to Open Text's technologies. Open Text's competitive position may be
affected by its ability to protect its intellectual property. Although Open Text
does not believe it is infringing on the intellectual property rights of others,
claims of infringement are becoming increasingly common as the software industry
develops and related legal protections, including patents, are applied to
software products.
Although most of Open Text's technology is proprietary in nature, Open Text does
include certain third party software in its products. In these cases, this
software is licensed from the entity holding its intellectual property rights.
Although Open Text believes that it has secured proper licenses for all
third-party software that has been integrated into its products, third parties
may assert infringement claims against Open Text in the future, and any such
assertion may result in litigation, which may be costly and require Open Text to
obtain a license for the software. Such licenses may not be available on
reasonable terms or at all.
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c) Legal Proceedings, Litigation
The Harold Tilbury and Yolanda Tilbury Family Trust has brought an action
against Open Text, before a single arbitrator, under the Ontario Arbitrations
Act. The complaint alleges failure to pay amounts owing under a stock purchase
agreement relating to Open Text's acquisition of Bluebird Systems Inc
("Bluebird"). The claim is for US$ 10 million, plus US$ 5 million in punitive
damages. Open Text was not a party to the stock purchase agreement, but has been
held to be the principal behind the transaction by the arbitrator so that if
Open Text's subsidiary Bluebird is liable, Open Text would also be liable. The
Company has counterclaimed and instituted an action under the Ontario
Arbitrators Act against Harold Tilbury and Yolanda Tilbury as Trustees of the
Tilbury Family Trust, and Harold Tilbury personally, claiming that not only is
no further amounts owing but for reimbursement for parts of the purchase price
of Bluebird. The Company is also seeking indemnification for breaches of the
representations and warranties under the stock purchase agreement in the amount
of approximately $6.5 million. This claim also asks for a rescission of a
facility lease assumed on the purchase of Bluebird, or damages of $7 million,
together with punitive damages of $1 million. It is not expected this matter
will be heard before the spring of 2004. Open Text believes the claim made
against it is without merit, and intends to defend the action vigorously. The
arbitration process is inherently uncertain and unpredictable and accordingly
there can be no assurances as to the ultimate outcome of the arbitration.
Beginning in July 2001, Eloquent Inc, ("Eloquent", a company acquired during
fiscal 2003) and certain of its officers and directors were named as defendants
in several class action shareholder complaints filed in the United States
District Court for the Southern District of New York. These actions include (i)
Pond Equities v. Eloquent, Inc., et al., Case No. 01-CV-6775; (ii) Zitto
Investments, Inc. v. Eloquent, Inc., et al., Case No. 01-CV-7591; (iii) Bartula
v. Eloquent, Inc., et al., Case No. 01-CV-7607; and (iv) Holleran v. Eloquent,
Inc., et al., Case No. 01-CV-7698. Similar complaints were filed in the same
Court against hundreds of other public companies that conducted initial public
offerings ("IPOs") of their common stock in the late 1990s (the "IPO Lawsuits").
In each of these complaints, the plaintiffs allege that Eloquent, certain of its
officers and directors and its IPO underwriters violated the federal securities
laws because Eloquent's IPO registration statement and prospectus contained
untrue statements of material fact or omitted material facts regarding the
compensation to be received by, and the stock allocation practices of, the IPO
underwriters. The plaintiffs sought unspecified monetary damages and other
relief.
On August 8, 2001, the IPO Lawsuits were consolidated for pretrial purposes
before United States Judge Shira Scheindlin of the Southern District of New
York. In late 2002 and early 2003 the various plaintiffs and issuer defendants
entered into settlement discussions. In June 2003, Open Text's Board of
Directors agreed in principle to a settlement proposal as described in a
Memorandum of Understanding with the plaintiffs and an Issuer-Insurer Agreement
with Open Text's insurers (the "Settlement Proposal"). Open Text has informed
the plaintiffs and insurers that Open Text intends to execute and deliver the
Memorandum of Understanding and Issuer - Insurer Agreement in the near future
and the plaintiffs and insurers have informed Open Text that they are prepared
to accept such delivery and enter into these agreements with Open Text. Under
the Settlement Proposal, the issuers (including Open Text, as successor to
Eloquent) are to be dismissed as parties from the litigation and will be
released from all claims by the plaintiffs. Implementation of the Settlement
Proposal requires execution and delivery of the Memorandum of Understanding and
Issuer-Insurer Agreement by Open Text and approval by the court, and is expected
to occur in late 2003 or early 2004. Open Text believes that these lawsuits are
without merit and, if the Settlement Proposals are not implemented, intends to
defend against them vigorously.
In the normal course of business the Company is subject to various other legal
matters. While the results of litigation and claims cannot be predicted with
certainty, the Company believes that the final outcome of these other matters
will not have a materially adverse effect on its consolidated results of
operations or financial conditions.
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d) Current investments of Open Text (excluding investments in financial assets)
Centrinity
On November 1, 2002, Open Text completed the acquisition of all of the issued
and outstanding shares of Centrinity, Inc. ("Centrinity") for cash consideration
of $ 20.3 million. The transaction was completed by way of an amalgamation of
Centrinity with 3801853 Canada Inc., a wholly-owned subsidiary of Open Text. The
results of operations of Centrinity have been consolidated with those of Open
Text beginning November 1, 2002.
Corechange
On February 25, 2003, Open Text Inc. ("OTI"), a wholly-owned subsidiary of Open
Text, acquired all of the issued and outstanding shares of Corechange
("Corechange") through the merger of a wholly-owned subsidiary of OTI, with and
into Corechange, with Corechange as the surviving corporation. Consideration for
this acquisition is comprised of (i) cash consideration of $ 3.6 million paid on
closing; (ii) additional cash consideration of $ 650,000 to be held in escrow in
order to satisfy potential breaches of representations and warranties as
provided for in the share purchase agreement; and (iii) additional cash
consideration to be earned over the one-year period following closing,
contingent on Corechange meeting certain revenue targets. The results of
operations of Corechange have been consolidated with those of Open Text
beginning February 25, 2003.
Eloquent
On March 20, 2003, Open Text completed an acquisition of all of the issued and
outstanding shares of Eloquent ("Eloquent") for cash consideration of $ 6.7
million, of which $ 1.0 million will be held in escrow to secure certain
representations, warranties and covenants of Eloquent in the acquisition
agreement. The results of operations of Eloquent have been consolidated with
those of Open Text beginning March 20, 2003.
Gauss
In October 2003, a 100% subsidiary of Open Text completed an acquisition by way
of a sale and purchase agreement as well as a public tender offer and purchases
in the public market of more than 75 % of the issued and outstanding shares of
Gauss Interprise AG, Germany ("Gauss") for cash consideration of approximately
EUR 8.50 million, of which up to a maximum of EUR 2.40 million will be held in
escrow to secure certain representations, warranties and covenants of the former
major shareholders of Gauss in the acquisition agreement and might therefore be
reclaimed by the subsidiary of Open Text. The results of operations of Gauss
will be consolidated with those of Open Text beginning October 16, 2003. To
support the guarantee provided by Open Text's financial institution for
consideration to be paid in the Gauss transaction, US$ 12.0 million of cash of
Open Text was restricted, the majority of which has been released after payment
of the purchase prices to shareholders.
e) Property
The Company leases approximately 53,986 square feet (5,015 m(2)) of office space
in two facilities in Waterloo, ON, Canada including its corporate headquarters'
lease, which will expire on June 30, 2008 and one other lease with an expiry
date on August 31, 2005. The Company also leases approximately 38,115 (3,540
m(2)) square feet of office space until April 30, 2012, in its operational
headquarters in Chicago, IL for product development, marketing, consulting,
support, administration and sales operations. The Company also leases Canadian
field offices in Richmond Hill, ON; Toronto, ON and Ottawa, ON; US field offices
in Albany, NY; Annapolis, MD; Boston, MA; Boulder, CO; Dublin, OH; Houston, TX;
Livonia, MI; New York, NY; Los Angeles, CA; Irvine, CA, San Mateo, CA and
Carlsbad, CA; and international field offices in Amsterdam, The Netherlands;
Paris, France; Frankfurt, Germany; Munich, Germany; Hamburg, Germany;
Unterhaching, Germany; Neu-Isenburg, Germany; Dusseldorf, Germany; Milan, Italy;
Beaconsfield, UK; London, UK, Chiswick, UK, Bedford, UK; Shannon, Ireland; St.
Gallen, Switzerland; Uppsala, Sweden; Stockholm, Sweden; Dubai, United Arab
Emirates; Melbourne, Australia and Sydney, Australia. The current annualized
total rent for the Company, is approximately USD $8.5 million.
37
5. Management and Employees
a) Board of Directors
The Board of Directors of Open Text is responsible for the management or for the
supervision of the management of the business and affairs of the corporation.
The Board discharges this responsibility directly and through delegation of
specific responsibilities to committees of the Board, the Chairman and Lead
Director, and officers of the Company. Each director of the Company has an
obligation under the OBCA in exercising his powers and discharging his duties to
act honestly and in good faith with a view to the best interests of Open Text
and to exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.
aa) Directors
The following table sets forth certain information as to the members of the
Board of Directors of Open Text as of November 10, 2003.
Name Age Position with Open Text Principal Occupation
Executive Directors
P. Thomas Jenkins 43 Director and Chief Chairman and Chief Executive
Open Text Corporation, 185 Executive Officer Officer of Open Text
Columbia Street West,
Waterloo, Ontario, N2L 5Z5,
Canada
John Shackleton 56 President and Director President of Open Text
Open Text Inc.
2201 South Waukegan Road
Bannockburn, IL 60015-1577
USA
Non-Executive Directors
Richard C. Black 35 Director Managing Partner of RBC Capital Partners,
Helix Investments Canada Inc. a private equity firm
38 Old Mill Road
Toronto, Ontario M6S 4J9
Kanada
Randy Fowlie (1)(2)(3) 43 Director Chief Operating Officer and Chief
Inscriber Technology Financial Officer of Inscriber Technology
Corporation Corporation, a private software company
26 Peppler Street
Waterloo, Ontario N2J 3C4
Kanada
Peter Hoult (2) 59 Director Strategic Business Consultant with Peter
Peter Hoult Management Hoult Management Consultants, a private
Consultants consulting firm
420 Stone Currie Drive
Hillsborough, NC 27278-9002,
USA
Brian Jackman (1) 62 Director Retired, Director of various public
Open Text Corporation companies
185 Columbia Street West
Waterloo, Ontario N2L 5Z5,
Kanada
38
David Johnston (1)(3) 62 Director President, Vice-Chancellor and Professor
University of Waterloo of University of Waterloo
200 University Ave. West
Waterloo, Ontario N2L 3G1
Kanada
Ken Olisa (2) 51 Director Chairman and Chief Executive Officer of
Interregnum Plc Interregnum Plc.,a public IT investment
22-23 Burlington Street and advisory corporation
London, W1S 2JJ
United Kingdom
Stephen J. Sadler 52 Director Chairman and Chief Executive Officer of
Enghouse Systems Limited Enghouse Systems Limited, a publicly
80 Tiverton Court, Suite 800 traded Canadian software and services
Markham, Ontario L3R OG4 company
Kanada
Michael Slaunwhite (2)(3) 42 Director Chairman and Chief Executive Officer of
Halogen Software Inc. Halogen Software Inc., a private software
17 Auriga Drive company.
Ottawa, Ontario K2E 7T9
Kanada
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Corporate Governance Committee.
P. Thomas Jenkins has served as a director of Open Text since December 1994 and
as Chief Executive Officer of Open Text from July 1997. From December 1994 to
July 1997, Mr. Jenkins held progressive executive positions within Open Text.
From August 1993 until June 1994, he served as the Senior Vice President, Sales
and Marketing, of DALSA, Inc., an electronic imaging manufacturer and from
December 1989 until August 1993, Mr. Jenkins served as the Vice
President/General Manager thereof.
John Shackleton has served as director of Open Text since January 1999 and as
the President of Open Text since November 1998. From July 1996 to 1998. Mr.
Shackleton served as President of the Platinum Solution division for Platinum
Technology Inc. Prior to that he served as Vice President of Professional
Services for the Central U.S. and South America at Sybase, Inc., as Vice
President of Worldwide Consulting at ViewStar Corp., a document management
imaging company, and he directed several consulting practices for Oracle Systems
Corp.
Richard C. Black has served as a director of Open Text since December 1993. From
1993 to the present, Mr. Black has served as a Vice President of Helix
Investments (Canada) Inc., a venture capital company. Mr. Black also serves as a
director of LogicVision Inc. and numerous private companies. From March 2001 to
the present Mr. Black has been a Managing Partner of RBC Capital Partners, a
private equity firm.
Randy Fowlie has served as a director of Open Text since March 1998. From June
1999 to present, Mr. Fowlie has held the position of Chief Operating Officer and
Chief Financial Officer of Inscriber Technology Corporation, a computer software
company, and from February 1998 to June 1999, Mr. Fowlie was the Chief Financial
Officer thereof. Prior thereto, Mr. Fowlie worked with KPMG Chartered
Accountants since 1984 and was a tax partner since 1995. Mr. Fowlie is currently
a member of the board of Inscriber Technology Corporation and CTT Communitech
Technology Association.
39
Peter Hoult has served as a director of Open Text since December 2002. Mr. Hoult
is a strategic business consultant with Peter Hoult Management Consultants, a
firm he founded in 1993. He acts as a director of various public and private
companies. From 1996 to 2000, Mr. Hoult was a Visiting Professor of Strategic
Marketing at Babcock (Wake Forest University) and Fuqua (Duke University)
Post-Graduate Business Schools. From 1972 to 1990, Mr. Hoult held various senior
executive management positions with RJ Reynolds Industries.
Brian J. Jackman has served as a director of Open Text since December 2002 and
currently serves as a director of several public companies. From 1982 until his
retirement in September 2001, Mr. Jackman held various positions with Tellabs,
Inc., a U.S. based manufacturer of telecommunications equipment, most recently
as Executive Vice-President, President, Global Systems and Technologies and as a
member of the board of directors of the company.
David Johnston has served as a director of Open Text since December 2002. Mr.
Johnston has been the President and Vice-Chancellor and Professor, University of
Waterloo since 1999. Prior thereto, Mr. Johnston was a Professor at the Faculty
of Law at McGill University from 1994 to 1999 and Principal and Vice-Chancellor
and Professor of Law at McGill University from 1979 to 1994. Mr. Johnston acts
as a director to various public and private companies.
Ken Olisa has served as a director of Open Text since January 1998. Mr. Olisa
has been Chairman & CEO of Interregnum Plc., an information technology advisory
and investment company since 1992. From 1981 to 1992, Mr. Olisa held various
positions with Wang Laboratories Inc., lastly that of Senior Vice President and
General Manager, Europe, Africa and Middle East. Mr. Olisa is a director of
several privately held information technology companies and serves as a
Commissioner for the UK Postal Services Commission.
Stephen J. Sadler has served as a director of Open Text since September 1997.
From April 2000 to present, Mr. Sadler has served as the Chairman and CEO of
Enghouse Systems Limited, a software engineering company that develops GIS
(Geographic Information Systems) as well as IVR (Interactive Voice Response
Systems). Mr. Sadler was previously the Executive Vice President and Chief
Financial Officer of GEAC from 1987 to 1990, was President and Chief Executive
Officer of GEAC from 1990 to 1996, was Vice Chairman of GEAC from 1996 to 1998,
and was a Senior Advisor to GEAC on acquisitions until May 1999. Prior to Mr.
Sadler's involvement with GEAC, he held executive positions with Phillips
Electronics Limited and Loblaws Companies Limited. Currently Mr. Sadler is
Chairman of Helix Investments, a position he has held since early 1998.
Michael Slaunwhite has served as a director of Open Text since March 1998. Mr.
Slaunwhite has served as CEO and Chairman of Halogen Software Inc., a leading
vendor of products and services to the groupware marketplace, from 2000 to
present, and as President and Chairman from 1995 to 2000. From 1994 to 1995, Mr.
Slaunwhite was an independent consultant to a number of companies assisting them
with strategic and financing plans. Mr. Slaunwhite was Chief Financial Officer
of Corel Corporation from 1988 to 1993.
bb) Compensation of Directors
Directors who are salaried officers or employees of Open Text receive no
compensation for serving as directors. Executive directors are Thomas Jenkins
and John Shackleton. The aggregate compensation received by those executive
directors as salaried officers or employees of Open Text in the fiscal year
ending on June 30, 2003 (including salary, profit related bonuses, recovery of
expenses, personal insurance payments, commissions and other remuneration)
amounted to
US$ 1,231,545.19.
Non-employee directors of Open Text receive an annual retainer fee of US$ 10,000
and an additional $ 1,250 fee for each meeting attended, including committee
meetings. Each committee chairman receives an annual retainer of $ 5,000.
Non-employee directors of Open Text are also entitled to a yearly grant of
40
6,000 options to acquire Common Shares of Open Text. Open Text reimburses all
directors for all reasonable expenses incurred by them in their capacity as
directors. The aggregate compensation received by the 8 non-executive directors
of Open Text in the fiscal year ending on June 30, 2003 (including salary,
profit related bonuses, recovery of expenses, personal insurance payments,
commissions and other remuneration) amounted to
US$ 543,112.88.
b) Officers
aa) Named Officers
The following table sets forth certain information as to certain officers of
Open Text holding key positions within Open Text (the Named Officers) as of
November 10, 2003.
Name Age Position with Open Text Principal Occupation
Alan Hoverd 55 Chief Financial Officer Chief Financial Officer of Open Text
38 Leek Crescent, Richmond
Hill, Ontario L4B 4N8, Canada
Anik Ganguly 44 Executive Vice President, Products Executive Vice President, Products of
39209 Sixmile Road, Suite 250 Open Text
Livonia, ML 48152, USA
Bill Forquer 45 Executive Vice President, Marketing Executive Vice President, Marketing of
6500 Emerald Parkway, Suite Open Text
200, Dublin, Ohio 43016 USA
Michael Farrell 49 Executive Vice President, Sales & Executive Vice President, Sales &
2201 South Waukegan Rd, Marketing Marketing of Open Text
Bannockburn, IL 60015 - 1509
Alan Hoverd was appointed Chief Financial Officer of Open Text Corporation in
April 2000. He joined Open Text as the Vice President of Finance in July 1999.
Mr. Hoverd has over twenty-seven years of high tech experience, including five
years as Vice President of Finance, Chief Financial Officer and a Director of
Digital Equipment of Canada. He was also Manager of Business Planning for ten
years at Digital Equipment of Canada. Mr. Hoverd has held several financial
positions with IBM Canada, including Manager of Finance for the Storage and
Peripherals division, and five years as Controller of Gulf Minerals of Canada.
Anik Ganguly was appointed Executive Vice President, Products in September 1999.
He has been with Open Text since December of 1997, when Open Text acquired
Campbell Services Inc. where Mr. Ganguly was President and CEO. From 1991 to
1997, he has been involved in Enterprise Software development and, in
particular, the application of Internet standards to facilitate collaboration
and communication across corporate boundaries. Mr. Ganguly has chaired an
Internet Engineering Task Force working group and continues to be a strong
proponent of open standards. Mr. Ganguly has a Bachelor of Engineering degree in
Mechanical Engineering and received his MBA from the University of Wisconsin,
Madison.
Bill Forquer was appointed Executive Vice President, Marketing in 2003. From
2001 to 2003, he served as Senior Vice President, Business Development of Open
Text. Mr. Forquer has been involved with knowledge management systems his entire
career. He has been with Open Text since June 1998, when Open Text acquired
Information Dimensions, Inc. (IDI) where Mr. Forquer was President. Prior to
being
41
named President of IDI in 1996, Mr. Forquer held other executive management
positions at IDI. Mr. Forquer began his career in 1981 at Battelle Laboratories
developing software that subsequently was spun-off into IDI. Mr. Forquer has a
B.S. in Mathematics Education and a M.S. in Computer and Information Science,
both from The Ohio State University.
Michael Farrell has been with Open Text since 1992 and was appointed Executive
Vice President, Sales & Marketing in 2003. From 2000 to 2003, he served as
Executive VP, Worldwide Sales. Previously, he served as Executive Vice
President, Global Business Development, based in the San Francisco, California
office, since October of 1994. After a number of years in software consulting,
marketing and sales, he founded Interleaf's Canadian-based operation in 1985,
using Canadian venture capital funding. As President of Interleaf Canada, Mr.
Farrell expanded the operation to four offices and fifty-five employees. Mr.
Farrell graduated with an honors degree in Computer Science in 1976.
bb) Compensation of Named Officers
The aggregate compensation received by the Named Officers in the fiscal year
ending on June 30, 2003 (including salary, profit related bonuses, recovery of
expenses, personal insurance payments, commissions and other remuneration)
amounted to
US$ 1,774,658.07.
c) Open Text Shares held by the Members of the Board of Directors and the Named
Officers
aa) Directors
Number of Common Percentage of
Name Shares Owned outstanding capital
--------------------- ------------------ --------------------
P. Thomas Jenkins (1) 1,021,100 2.53
John Shackleton (3) 1,514 *
Richard Black (10) 12,000 0.03
Randy Fowlie (6) 0 *
Peter J. Hoult 1,000 *
Brian Jackman 0 *
David Johnston (11) 400 *
Ken Olisa (7) 0 *
Stephen J. Sadler (2) 131,800 0.33
Michael Slaunwhite (5) 6,000 0.01
All Directors 1,161,814 2.9
Notes:
(1) The Company requires the Chief Executive Officer and all other
directors to own Common Shares in accordance with an equity ownership
policy that is in the course of being finalized.
42
bb) Officers
Number of Common Percentage of
Name Shares Owned outstanding capital
--------------------- ----------------- -------------------
Alan Hoverd 0* *
Michael Farrell (4) 414,000 1.39
Anik Ganguly (8) 9,232 *
Bill Forquer (9) 6,544 *
All Officers 429,776 1,39
* Less than 1%
(1) Includes 510,550 Common Shares owned and options for 199,500 Common Shares
which are vested and options for 25,000 Common Shares which will vest
within 60 days of June 30, 2003.
(2) Includes 25,000 Common Shares owned and options for 425,000 Common Shares
which are vested.
(3) Includes options for 375,000 Common Shares which are vested and 3,188
Common Shares owned.
(4) Includes 207,000 Common Shares owned and options for 66,000 Common Shares
which are vested.
(5) Includes 3,000 Common Shares owned and options for 53,000 Common Shares
which are vested.
(6) Includes options for 46,000 Common Shares which are vested.
(7) Includes options for 44,000 Common Shares which are vested.
(8) Includes options for 37,500 Common Shares which are vested and 4,161 Common
Shares owned.
(9) Includes options for 30,000 Common Shares which are vested and 3,272 Common
Shares owned.
(10) Includes options for 12,000 Common Shares which are vested.
(11) Includes 200 Common Shares .
d) Stock Options held by the Members of the Board of Directors and the Named
Officers
The following table sets forth the options granted to members of the Board of
Directors and the Named Executive Officers in the fiscal year ended June 30,
2003. The exercise price per share of each option was equal to the fair market
value of the Common Shares on the grant date as determined by the Board of
Directors of Open Text, and the options become exercisable at the rate of 25 %
of the total option grant at the end of each of 4 annual periods from the date
the options begin to vest. Open Text did not grant any stock appreciation rights
during the fiscal year ending June 30, 2003. The potential realizable value
represents amounts that may be realized upon exercise of the options immediately
prior to the expiration of their term assuming the specified compounded rates of
appreciation on the Common Shares over the term of the options. These numbers
are calculated based on the requirements of the Securities and Exchange
Commission and do not reflect Open Text's estimate of future stock price growth.
Actual gains, if any, on stock option exercises will depend on the future
performance of the Common Shares and the date on which the options are
exercised. There can be no assurance that the rates of appreciation assumed in
the table can be achieved or that the amounts reflected will be received by the
members of the Board of Directors and the Named Executive Officers.
========================================================================================== ==============================
Potential realizable value
Individual Grants at assumed annual rates of
stock price appreciation for
option term
------------------------------------------------------------------------------------------ ------------------------------
Name Number of Percent of Exercise Expiration date 5% 10%
securities total price ($) ($)
underlying options/SARs ($/sh)
options/SARs granted to
granted (#) employees in
fiscal year
----------------------- --------------- ---------------- ------------ -------------------- --------------- --------------
P. Thomas Jenkins 100,000 23.39% $20.78 August 7, 2012 3,306,843 1,311,797
----------------------- --------------- ---------------- ------------ -------------------- --------------- --------------
John Shackleton - - - - - -
----------------------- --------------- ---------------- ------------ -------------------- --------------- --------------
Bill Forquer - - - - - -
----------------------- --------------- ---------------- ------------ -------------------- --------------- --------------
Michael Farrell - - - - - -
----------------------- --------------- ---------------- ------------ -------------------- --------------- --------------
Anik Ganguly - - - - - -
----------------------- --------------- ---------------- ------------ -------------------- --------------- --------------
Other Members of the - - - - - -
Board of Directors
----------------------- --------------- ---------------- ------------ -------------------- --------------- --------------
Other Named Officers - - - - - -
======================= =============== ================ ============ ==================== =============== ==============
43
The following table sets forth options exercised and the values of outstanding
options for Common Shares held by each of the Directors and each of the Named
Executive Officers:
============================================================================================================================
Name Shares Aggregate Number of Common Shares Value of unexercised in-the-money
acquired on underlying outstanding Options at options at June 30, 2003(1)
exercise value received June 30, 2003 ($)
------------------------------------------------------------------------
(#) ($) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------------------------------
P. Thomas Jenkins - - 199,500 212,500 3,198,375 752,625
----------------------------------------------------------------------------------------------------------------------------
John Shackleton - - 375,000 0 5,437,500 0
----------------------------------------------------------------------------------------------------------------------------
Bill Forquer - - 30,000 5,000 427,175 56,875
----------------------------------------------------------------------------------------------------------------------------
Michael Farrell - - 66,000 12,500 905,004 121,875
----------------------------------------------------------------------------------------------------------------------------
Anik Ganguly - - 37,500 7,500 476,138 45,600
----------------------------------------------------------------------------------------------------------------------------
Other Members of the - - - - - -
Board of Directors
----------------------------------------------------------------------------------------------------------------------------
Other Named Officers - - - - - -
============================================================================================================================
Note:
(1) Based on the closing price of Open Text's Common Shares on the NASDAQ
National Market on June 30, 2003.
e) Employees
As of November 11, 2003, Open Text employed a total of 1169 individuals. The
composition of this employee base is approximately as follows: 298 employees in
sales and marketing, 295 employees in product development, 217 employees in
professional services, 148 employees in customer support, and 211 employees in
general and administrative roles. Open Text's employees are not subject to a
labor union or collective bargaining agreement. Open Text is of the opinion that
relations with its employees are strong.
VII. Risk Factors
Certain statements in this Appendix constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, including those set forth in the following cautionary statements
that may cause the actual results, performance or achievements of Open Text, or
developments in Open Text's industry, to differ materially from the anticipated
results, performance, achievements or developments expressed or implied by such
forward-looking statements. The following risk factors, as well as all of the
other information set forth herein, should be considered carefully in evaluating
Open Text and its business. If any of the following risks were to occur, Open
Text's business, financial condition and results of operations would likely
suffer. In that event, the trading price of Open Text's Common Shares would
likely decline.
1. Technological Development, Market Acceptance
If Open Text does not continue to develop new technologically advanced products,
future revenues will be negatively affected
Open Text's success will depend on its ability to design, develop, test, market,
license and support new software products and enhancements of current products
on a timely basis in response to both competi-
44
tive products and evolving demands of the marketplace. In addition, new software
products and enhancements must remain compatible with standard platforms and
file formats. Presently, Open Text is continuing to enhance the capability of
its Livelink software to enable users to form workgroups and collaborate on
intranets and the Internet. Open Text increasingly must integrate software
licensed from third parties with its own software to create or improve intranet
and Internet products. These products are key to the success of Open Text's
strategy, and Open Text may not be successful in developing and marketing these
and other new software products and enhancements. If Open Text is unable to
successfully integrate the technologies licensed from third parties, to develop
new software products and enhancements to existing products, or to complete
products currently under development, or if such integrated or new products or
enhancements do not achieve market acceptance, Open Text's operating results
will materially suffer. In addition, if new industry standards emerge that Open
Text does not anticipate or adapt to, Open Text's software products could be
rendered obsolete and its business would be materially harmed.
If Open Text's products and services do not gain market acceptance, Open Text
may not be able to increase its revenues
Open Text is continually working on the development of, and improvements to, new
versions of Livelink and other products. In June 2003 Open Text released
Livelink LaunchForce an application that offers closed-loop distribution of
critical information to a distributed field-sales organization. This product
based on rich-media technology acquired by Open Text from Eloquent,
significantly speeds up training for sales forces and simultaneously helps large
sales organizations save money. In August 2003 Open Text released Livelink 9.2
that significantly advances the ease of use of the system and added significant
capabilities to support team collaboration. In addition Open Text continues to
improve Meeting Zone based on customer feedback. The primary market for Open
Text's software and services is rapidly evolving. As is typical in the case of a
new and rapidly evolving industry, demand for and market acceptance of products
and services that have been released recently or that are planned for future
release are subject to a high level of uncertainty. If the markets for Open
Text's products and services fail to develop, develop more slowly than expected
or become saturated with competitors, Open Text's business will suffer. Open
Text may be unable to successfully market its current products and services,
develop new software products, services and enhancements to current products and
services, complete customer installations on a timely basis, or complete
products and services currently under development. If Open Text's products and
services or enhancements do not achieve and sustain market acceptance, Open
Text's business and operating results will be materially harmed.
2. Competition
Current and future competitors could have a significant impact on Open Text's
ability to generate future revenue and profits
The markets for Open Text's products are new, intensely competitive, subject to
rapid technological change and are evolving rapidly. Open Text expects
competition to increase and intensify in the future as the markets for Open
Text's products continue to develop and as additional companies enter each of
its markets. Numerous releases of products and services that compete with those
of Open Text can be expected in the near future. Open Text may not be able to
compete effectively with current and future competitors. If competitors were to
engage in aggressive pricing policies with respect to competing products, or
significant price competition were to otherwise develop, Open Text would likely
be forced to lower its prices. This could result in lower revenues, reduced
margins, loss of customers, or loss of market share for Open Text.
Current and future competitors could have a significant impact on Open Text's
ability to generate future revenue and profits
The markets for Open Text's products are new, intensely competitive, subject to
rapid technological change and are evolving rapidly. Open Text expects
competition to increase and intensify in the future as the markets for Open
Text's products continue to develop and as additional companies enter each of
its
45
markets. Numerous releases of products and services that compete with those
of Open Text can be expected in the near future. Open Text may not be able to
compete effectively with current and future competitors. If competitors were to
engage in aggressive pricing policies with respect to competing products, or
significant price competition were to otherwise develop, Open Text would likely
be forced to lower its prices. This could result in lower revenues, reduced
margins, loss of customers, or loss of market share for Open Text.
3. Intellectual Property Rights
Other companies may claim that Open Text's intellectual property violates their
patents, which could result in significant costs to defend and if Open Text is
not successful could have a significant impact on Open Text's ability to
generate future revenue and profits
Although Open Text does not currently believe that it is infringing on the
intellectual property of other companies, as software patents become more
prevalent, it is possible that certain parties will claim that Open Text's
products violate their patents. Such claims could be disruptive to Open Text's
ability to generate revenue and may result in significantly increased costs as
Open Text attempts to license the patents or rework its products to ensure that
they are not in violation of the claimant's patents or dispute the claims.
Failure to protect our intellectual property could harm our ability to compete
effectively
Open Text is highly dependent on its ability to protect its proprietary
technology. Open Text's efforts to protect its intellectual property rights may
not be successful. Open Text relies on a combination of copyright, trademark and
trade secret laws, non-disclosure agreements and other contractual provisions to
establish and maintain its proprietary rights. Open Text has not sought patent
protection for its products. While US and Canadian copyright laws, international
conventions and international treaties may provide meaningful protection against
unauthorized duplication of software, the laws of some foreign jurisdictions may
not protect proprietary rights to the same extent as the laws of Canada or the
United States. Software piracy has been, and can be expected to be, a persistent
problem for the software industry. Enforcement of Open Text's intellectual
property rights may be difficult, particularly in some nations outside of the
United States and Canada in which Open Text seeks to market its products.
Despite the precautions taken by Open Text, it may be possible for unauthorized
third parties, including competitors, to copy certain portions of Open Text's
products or to reverse engineer or obtain and use information that Open Text
regards as proprietary. Although Open Text does not believe that its products
infringe on the rights of third parties, third parties may assert infringement
claims against Open Text in the future, and any such assertions may result in
costly litigation or require Open Text to obtain a license for the intellectual
property rights of third parties, such licenses may not be available on
reasonable terms, or at all.
4. Acquisition of Ixos
Changes in the market value of the Common Shares may adversely affect the value
of the consideration that IXOS shareholders receive for their IXOS shares.
Under the Offer, IXOS shareholders may elect to receive Offered Open Text Shares
and Offered Open Text Warrants as consideration for their IXOS shares. The
market price of the Common Shares has been highly volatile and subject to wide
fluctuations. As a result, the value of the Common Shares and Warrants may
differ materially from that prevailing at the date hereof or at the time the
Offer is completed because of fluctuation in the price of the Common Shares.
There will be no adjustment to the Common Share and Warrant consideration
payable under the Offer due solely to changes in the market price of the Common
Shares.
Open Text and IXOS may not successfully integrate or achieve the anticipated
benefits of the business combination, which could adversely affect the price of
the Common Shares.
46
After completion of the Offer, the combined company must successfully integrate,
among other things, certain product offerings, product development, sales and
marketing, administrative and customer service functions, and management
information systems. The announcement and completion of the Offer, and
integration of the businesses of Open Text and IXOS may cause disruptions,
including potential loss of customers, suppliers, and other business partners,
in the business of Open Text or IXOS, which could have material adverse effects
on each company's or the combined company's business and operations. In
addition, Open Text may not be able to retain the management and key employees
of IXOS.
It is possible that these integration efforts will not be completed as
efficiently as planned or will distract management from the operations of the
combined company. Expected cost savings from the business combination may not be
fully realized or realized within the expected time frame.
5. Dependence on Key Personnel
If Open Text is not able to attract and retain top employees, Open Text's
ability to compete may be harmed
Open Text's performance is substantially dependent on the performance of its
executive officers and key employees. The loss of the services of any of its
executive officers or other key employees could significantly harm Open Text's
business. Open Text does not maintain "key person" life insurance policies on
any of its employees. Open Text's success is also highly dependent on its
continuing ability to identify, hire, train, retain and motivate highly
qualified management, technical, sales and marketing personnel, including
recently hired officers and other employees. Specifically, the recruitment of
top research developers, along with experienced salespeople, remains critical to
Open Text's success. Competition for such personnel is intense, and Open Text
may not be able to attract, integrate or retain highly qualified technical and
managerial personnel in the future.
6. Liability for Defects and Errors
Open Text's products may contain defects that could harm Open Text's reputation,
be costly to correct, delay revenues, and expose Open Text to litigation
Open Text's products are highly complex and sophisticated and, from time to
time, may contain design defects or software errors that are difficult to detect
and correct. Errors may be found in new software products or improvements to
existing products after commencement of commercial shipments, or, if discovered,
Open Text may not be able to successfully correct such errors in a timely
manner, or at all. In addition, despite tests carried out by Open Text on all
its products, Open Text may not be able to fully simulate the environment in
which its products will operate and, as a result, Open Text may be unable to
adequately detect design defects or software errors inherent in its products and
which only become apparent when the products are installed in an end-user's
network. The occurrence of errors and failures in Open Text's products could
result in loss of or delay in market acceptance of Open Text's products, and
alleviating such errors and failures in Open Text's products could require
significant expenditure of capital and other resources by Open Text. Because
Open Text's end-user base consists of a limited number of end-users, the harm to
Open Text's reputation resulting from product errors and failures would be
damaging to Open Text. Open Text regularly provides a warranty with its products
and the financial impact of these warranty obligations may be significant in the
future. Open Text's agreements with its strategic partners and end-users
typically contain provisions designed to limit Open Text's exposure to claims,
such as exclusions of all implied warranties and limitations on damage remedies
and the availability of consequential or incidental damages. However, such
provisions may not effectively protect Open Text against claims and related
liabilities and costs. Although Open Text maintains errors and omissions
insurance coverage and comprehensive liability insurance coverage, such coverage
may not be adequate and all claims may not be covered. Accordingly, any such
claim could negatively affect Open Text's financial condition.
47
7. International Expansion and Operations
Acquisitions, investments, joint ventures and other business initiatives may
negatively affect our operating results
Open Text acquired three companies in fiscal 2003 and continues to seek out
opportunities to acquire or invest in businesses, products and technologies that
expand, complement or are otherwise related to Open Text's current business or
products. Open Text also considers from time to time, opportunities to engage in
joint ventures or other business collaborations with third parties to address
particular market segments. These activities, including the fiscal 2003
acquisitions, create risks such as the need to integrate and manage the
businesses acquired with the business of Open Text, additional demands on Open
Text's management, resources, systems, procedures and controls, disruption of
Open Text's ongoing business, and diversion of management's attention from other
business concerns. Moreover, these transactions could involve substantial
investment of funds and/or technology transfers and the acquisition or
disposition of product lines or businesses. Also, such activities could result
in one-times charges and expenses and have the potential to either dilute
existing shareholders or result in the assumption of debt. Such acquisitions,
investments, joint ventures or other business collaborations may involve
significant commitments of financial and other resources of Open Text. Any such
activity may not be successful in generating revenue, income or other returns to
Open Text, and the financial or other resources committed to such activities
will not be available to Open Text for other purposes. Open Text's inability to
address these risks could negatively affect Open Text's operating results.
Open Text's international operations expose Open Text to business risks that
could cause Open Text's operating results to suffer
Open Text intends to continue to make efforts to increase its international
operations and anticipates that international sales will continue to account for
a significant portion of its revenue. Revenues derived outside of North America
represented 42%, 40% and 41% of total revenues for fiscal 2003, fiscal 2002 and
fiscal 2001 respectively. These international operations are subject to certain
risks and costs, including the difficulty and expense of administering business
abroad, compliance with foreign laws, compliance with domestic and international
import and export laws and regulations, costs related to localizing products for
foreign markets, and costs related to translating and distributing products in a
timely manner. International operations also tend to expose Open Text to a
longer sales and collection cycle, as well as potential losses arising from
currency fluctuations, and limitations regarding the repatriation of earnings.
Significant international sales may also expose Open Text to greater risk from
political and economic instability, unexpected changes in Canadian, US or other
governmental policies concerning import and export of goods and technology, and
other regulatory requirements and tariffs and other trade barriers. In addition,
international earnings may be subject to taxation by more than one jurisdiction,
which could also materially adversely affect Open Text's results of operations.
Moreover, international expansion may be more difficult, time consuming, and
costly. As a result, if revenues from international operations do not offset the
expenses of establishing and maintaining foreign operations, Open Text's
operating results will suffer.
8. Expansion of Product Line
Open Text may not achieve its anticipated revenues if it does not expand its
product line
Substantially all of Open Text's revenues are currently derived from its
Livelink and related products and services offered by Open Text in the Internet,
intranet and extranet markets. Accordingly, Open Text's future results of
operations will depend, in part, on expanding its product-line and related
services. To achieve its revenue goals, Open Text must also continue to enhance
these products and services to meet the evolving needs of its customers. A
reduction in demand or increase in competition in the market for Internet or
intranet applications, or a decline in licenses of Livelink and related
services, would significantly harm Open Text's business.
48
9. Interest Rate Risks
Changes of the interest rate which must be paid or which is available to Open
Text at the debt capital market will adversely affect Open Text's total
revenues, operating expenses, and net income.
As of November 10, 2003 Open Text has entered into a Credit Agreement (cf. page
122. below), under which certain credit institutions grant to Open Text a loan
in the amount of up EUR 123,000,000 for the financing of the acquisition of
IXOS. Any advances under the Credit Facilities will bear interest on a floating
rate basis. Interest expenses incurred by Open Text on any indebtedness under
the Credit Agreement will represent a new and potentially significant expense to
Open Text. Open Text is exposed to the risk of changes of such market interest
rates and any changes will have an impact on Open Text's total revenues,
operating expenses, and net income.
Open Text is also exposed to interest rate fluctuations relating to its
investment portfolio. Open Text primarily invests its cash in short-term
high-quality securities with reputable financial institutions. The primary
objective of Open Text's investment activities is to preserve principal while at
the same time maximizing the income Open Text receives from its investments
without significantly increasing risk. Open Text does not use derivative
financial instruments in its investment portfolio. The interest income from Open
Text's investments is subject to interest rate fluctuations, which Open Text
believes would not have a material impact on the financial position of Open
Text.
All highly liquid investments with a maturity of less than three months at
the date of purchase are considered to be cash equivalents. All investments with
maturities of three months or greater are classified as available-for-sale and
considered to be short-term investments. Some of the securities that Open Text
has invested in may be subject to market risk. This means that a change in the
prevailing interest rates may cause the principal amount of the investment to
fluctuate. The impact on net interest income of a 100 basis point adverse change
in interest rates for the fiscal year ended June 30, 2003 would have been a
decrease of approximately $1.0 million.
10. Foreign Currency Risk
Open Text has net monetary asset and liability balances in foreign currencies
other than the U.S. Dollar, including the Canadian Dollar ("CDN"), the Pound
Sterling ("GBP"), the Australian dollar ("AUD"), the Swiss Franc ("CHF"), the
Danish Kroner ("DKK"), the Arabian Durham ("AED"), and the Euro ("EUR"). Open
Text's cash and cash equivalents are primarily held in U.S. Dollars.
Open Text's net income is affected by fluctuations in the value of the U.S.
dollar as compared to foreign currencies as a result of transactions in foreign
markets. Approximately 42%, 40%, and 41% of Open Text's total revenues in fiscal
2003, 2002, and 2001, respectively, were derived from operations outside of
North America. Approximately 46%, 45%, and 42% of Open Text's operating expenses
in fiscal 2003, 2002 and 2001, respectively, were incurred from operations
outside of North America. Open Text does not currently use financial instruments
to hedge operating expenses in foreign currencies. Open Text intends to assess
the need to utilize financial instruments to hedge currency exposures on an
ongoing basis.
The following tables provide a sensitivity analysis on Open Text's exposure to
changes in foreign exchange rates. For foreign currencies where Open Text
engages in material transactions, the following table quantifies the impact that
a 10% decrease against the U.S. dollar would have had on Open Text's total
revenues, operating expenses, and net income for the year ended June 30, 2003.
This analysis is presented in both functional and transactional currency.
Functional currency represents the currency of measurement for each of an
entity's domestic and foreign operations. Transactional currency represents the
currency the underlying transactions take place in. The impact of changes in
foreign exchange rates for those foreign currencies not presented in these
tables is not material.
49
10% Change in Functional Currency
----------------------------------------------
Total Operating Net
Revenue Expenses Income
----------------------------------------------
Euro $(3,525) $1,866 $(1,659)
British Pound (2,201) 1,476 (725)
Swiss Franc (849) 667 (182)
10% Change in Transactional Currency
----------------------------------------------
Total Operating Net
Revenue Expenses Income
----------------------------------------------
Euro $(3,314) $1,813 $(1,501)
British Pound (2,056) 1,416 (640)
Canadian Dollar (1,307) 3,291 1,984
Swiss Franc (403) 652 249
Open Text is therefore to a considerable degree exposed to the risk of changes
in foreign exchange rates and such changes will have an impact on Open Text's
total revenues, operating expenses, and net income.
11. Management of Growth
Open Text must continue to manage its growth or its operating results could be
adversely affected
Over the past several years, Open Text has experienced growth in revenues,
operating expenses, and product distribution channels. In addition, Open Text's
markets have continued to evolve at a rapid pace. The total number of employees
of Open Text has grown from 292 as of September 1, 1996 to 1,196, excluding
contractors, as of June 30, 2003. Open Text believes that continued growth in
the breadth of its product lines and services and in the number of personnel
will be required in order to establish and maintain Open Text's competitive
position. Moreover, Open Text has grown significantly through acquisitions in
the past and continues to review acquisition opportunities as a means of
increasing the size and scope of its business. Open Text's growth, coupled with
the rapid evolution of Open Text's markets, has placed, and is likely to
continue to place, significant strains on its administrative and operational
resources and increased demands on its internal systems, procedures and
controls. Open Text's administrative infrastructure, systems, procedures and
controls may not adequately support Open Text's operations and Open Text's
management may not be able to achieve the rapid, effective execution of the
product and business initiatives necessary to successfully penetrate the markets
for Open Text's products and services and to successfully integrate any business
acquisitions in the future. If Open Text is unable to manage growth effectively,
Open Text's operating results will likely suffer.
12. Fluctuation of Quarterly Results
Open Text's quarterly revenues and operating results are likely to fluctuate
which could impact the price of Open Text's Common Shares
Open Text has experienced, and is likely to continue to experience, significant
fluctuations in quarterly revenues and operating results caused by many factors,
including changes in the demand for Open Text's products, the introduction or
enhancement of products by Open Text and its competitors, market acceptance of
enhancements or products, delays in the introduction of products or enhancements
by
50
Open Text or its competitors, customer order deferrals in anticipation of
upgrades and new products, changes in Open Text's pricing policies or those of
its competitors, delays involved in installing products with customers, the mix
of distribution channels through which products are licensed, the mix of
products and services sold, the mix of international and North American
revenues, foreign currency exchange rates and general economic conditions.
Like many other software companies, Open Text has generally recognized a
substantial portion of its revenues in the last weeks of each quarter.
Accordingly, the cancellation or deferrals of even a small number of licenses or
delays in installations of Open Text's products could have a material adverse
effect on Open Text's results of operations in any particular quarter. Open Text
also has noted historically lower sales in July and August than in other months,
which has resulted in proportionately lower revenues recorded in the quarter
ended September 30 than in other quarters. Because of the impact of the timing
of product introductions and the rapid evolution of Open Text's business and the
markets it serves, Open Text cannot predict whether seasonal patterns
experienced in the past will continue. For these reasons, no one should rely on
period-to-period comparisons of Open Text's financial results to forecast future
performance. It is likely that Open Text's quarterly revenue and operating
results will vary significantly in the future and if a shortfall in revenue
occurs or if operating costs increase significantly, the market price of our
Common Shares could decline.
13. Distributors
A reduction in the number or sales efforts by distributors could materially
impact Open Text's revenues
A portion of Open Text's revenue is derived from the license of its products
through third parties. Open Text's success will depend, in part, upon its
ability to maintain access to existing channels of distribution and to gain
access to new channels if and when they develop. Open Text may not be able to
retain a sufficient number of its existing or future distributors. Distributors
may also give higher priority to the sale of other products (which could include
products of competitors) or may not devote sufficient resources to marketing
Open Text's products. The performance of third party distributors is largely
outside the control of Open Text and Open Text is unable to predict the extent
to which these distributors will be successful in marketing and licensing Open
Text's products. A reduction in sales efforts, or a decline in the number of
distributors, or the discontinuance of sales of Open Text's products by its
distributors could lead to reduced revenue.
14. Third Party Software
Open Text currently depends on certain third-party software, the loss of which
could result in increased costs of, or delays in, licenses of Open Text's
products
For a limited number of product modules, Open Text relies on certain software
that it licenses from third parties, including software that is integrated with
internally developed software and which is used in its products to perform key
functions. These third-party software licenses may not continue to be available
to us on commercially reasonable terms, and the related software may not
continue to be appropriately supported, maintained, or enhanced by the
licensors. The loss of license to use, or the inability of licensors to support,
maintain, and enhance any of such software, could result in increased costs,
delays, or reductions in product shipments until equivalent software is
developed or licensed, if at all, and integrated.
15. Infrastructure Software
Open Text's products rely on the stability of various infrastructure software
which, if not stable, could negatively impact the effectiveness of Open Text's
products, resulting in harm to the reputation and business of Open Text
Developments of internet and intranet applications by Open Text depends on the
stability, functionality and scalability of the infrastructure software of the
underlying intranet, such as that of Sun, HP, Oracle, Microsoft and others. If
weaknesses in such infrastructure software exist, Open Text may not be able to
51
correct or compensate for such weaknesses. If Open Text is unable to address
weaknesses resulting from problems in the infrastructure software such that Open
Text's products do not meet customer needs or expectations, Open Text's business
and reputation may be significantly harmed.
16. Sales Cycles
The length of Open Text's sales cycle can fluctuate significantly which could
result in significant fluctuations in license revenue being recognized from
quarter to quarter
Because the decision by a customer to purchase Open Text's products often
involves relatively large-scale implementation across the customer's network or
networks, licenses of these products may entail a significant commitment of
resources by prospective customers, accompanied by the attendant risks and
delays frequently associated with significant expenditures and lengthy sales
cycle and implementation procedures. Given the significant investment and
commitment of resources required by an organization in order to implement Open
Text's software, Open Text's sales cycle tends to take considerable time to
complete. Particularly in the current economic environment of reduced
information technology spending, it can take several months, or even quarters,
for sales opportunities to translate into revenue. If installation of Open
Text's products in one or more customers takes longer than originally
anticipated, the date on which revenue from these licenses could be recognized
would be delayed. Such delays could cause Open Text's revenues to be lower than
expected in a particular period.
17. Volatility of Shares
The volatility of Open Text's stock price could lead to losses by shareholders
The market price of the Common Shares has been highly volatile and subject to
wide fluctuations. Such fluctuations in market price may continue in response to
quarterly variations in operating results, announcements of technological
innovations or new products by Open Text or its competitors, changes in
financial estimates by securities analysts or other events or factors. In
addition, the financial markets have experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies or have resulted from the failure
of the operating results of such companies to meet market expectations in a
particular quarter. Broad market fluctuations or any failure of Open Text's
operating results in a particular quarter to meet market expectations may
adversely affect the market price of the Common Shares, resulting in losses to
shareholders. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Due to the volatility of our stock price,
Open Text could be the target of securities litigation in the future. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on Open
Text's business and operating results.
18. Limitations on trading in Offered Open Text Shares, Offered Open Text
Warrants and Open Text Shares issued on the basis of the Offered Open
Text Warrants
No trade of shares in the USA or resale to persons residing in the USA: Offered
Open Text Warrants, Open Text Shares issued on the basis of the Offered Open
Text Warrants and Offered Open Text Warrants may not be offered or sold to or in
agency for or for the benefit of a US-resident person, unless a statutory
exemption applies, as set out in the US Securities Act 1933 or in other
applicable domestic share legislation. Certificates for Offered Open Text
Shares, Open Text Shares issued on the basis of Offered Open Text Warrants and
Offered Open Text Warrants will contain legends to this effect.
A statutory exemption to the registration requirements of relevant USA federal
securities legislation in respect of the resale of Offered Open Text Shares, of
Open Text Shares issued on the basis of Offered Open Text Warrants and of
Offered Open Text warrant may in general be available if such shares are sold on
the Toronto Stock Exchange (TSX), conditional upon such shares not being
knowingly sold to a US-resident person and on a declaration to this effect being
produced and made available to the transfer agent for the Open Text Shares,
Computershare Trust Company of Canada.
52
Additionally, it should be noted that the resale of Offered Open Text Shares and
Open Text shares issued on the basis of Offered Open Text Warrants may in
general be carried out only in accordance with the prevailing regulations of the
relevant securities market on the Nasdaq (but see USA above) or the TSX or
through over-the-counter trading on the securities markets in Berlin-Bremen,
Frankfurt/Main, Munich and Stuttgart in Germany. The resale of Offered Open Text
Shares, of Open Text Shares issued on the basis of Offered Open Text Warrants
and Offered Open Text Warrants may under certain circumstances be subject to
certain limitations on resale in accordance with the relevant statutory
regulations. Holders of Offered Open Text Shares, of Open Text Shares issued on
the basis of Offered Open Text Warrants and of Offered Open Text Warrants should
consult their own advisors with regard to compliance with the statutory
requirements applicable to such a resale.
Note: Trading in, selling, transferring or holding Offered Open Text Shares and
Offered Open Text Warrants can be more expensive in Canada and the USA than
trading in, selling, transferring or holding Offered Open Text Shares and
Offered Open Text Warrants in Germany. In addition it is to be noted that
persons in Germany who do not trade in or hold listed securities on a European
stock exchange will under certain circumstances have to bear costs greater than
those associated with trading in securities listed on a European Stock Exchange;
consultation with advisors, banks or stockbrokers is this regard is recommended.
53
VIII. Financial Information
1. Financial Data
The following table sets forth selected consolidated financial data of Open Text
for the periods indicated. The financial data should be read in conjunction with
"Management's Report" and the Consolidated Financial Statements and related
notes of Open Text appearing elsewhere in this Appendix 1. The selected
consolidated statement of operations data set forth below for the fiscal years
ended June 30, 2003, 2002 and 2001 and the consolidated balance sheet data as of
June 30, 2003 and 2002 are derived from our consolidated financial statements,
which have been audited by KPMG LLP, an independent public accountant, and which
are included elsewhere in this Appendix. The selected consolidated statement of
operations data set forth below for the fiscal years ended June 30, 2000 and
1999 and the consolidated balance sheet data as of June 30, 2001, 2000 and 1999
are derived from audited consolidated financial statements that are not included
in this Appendix.
54
Fiscal Year Ended June 30,
2003 2002 2001 2000 1999
-------- ---------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
License & networking $75,991 $ 65,984 $73,752 $57,574 $ 53,657
Customer support 63,091 48,707 40,316 26,641 20,411
Service 38,643 39,681 35,709 30,180 18,989
-------- --------- -------- -------- --------
Total revenues 177,725 154,372 149,777 114,395 93,057
Cost of revenues:
License & networking 6,550 5,341 5,878 2,685 1,819
Customer support 10,406 8,364 7,632 5,731 3,151
Service 28,241 27,411 27,043 25,670 15,374
-------- --------- -------- -------- --------
Total cost of revenues 45,197 41,116 40,553 34,086 20,344
Gross profit 132,528 113,256 109,224 80,309 72,713
Operating expenses:
Research and development 29,324 24,071 24,311 17,743 11,373
Sales and marketing 54,532 51,084 51,317 42,928 36,441
General and administrative 13,509 12,498 13,191 19,832 5,921
Depreciation 5,009 5,587 5,178 4,586 4,225
Amortization of acquired intangible assets 3,236 6,506 5,460 2,962 2,194
Acquired in Process Research and Development
and write-down of intangible assets - - - - 3,419
Restructuring costs - - - 1,774 329
-------- --------- -------- -------- --------
Total operating expenses 105,610 99,746 99,457 89,825 63,902
-------- --------- -------- -------- --------
Income (loss) from operations 26,918 13,510 9,767 (9,516) 8,811
Other income (loss) 2,788 1,613 (2,417) 48,965 427
Interest income 1,283 1,853 4,736 6,161 2,342
Interest expense (55) (16) $ (61) (109) (47)
-------- --------- -------- -------- --------
Income before income taxes 30,934 16,960 12,025 45,501 11,533
Provision for (recovery of) income taxes 3,177 289 1,229 20,422 (8,637)
-------- --------- -------- -------- --------
Net income for the year $ 27,757 $ 16,671 $10,796 $25,079 $ 20,170
======== ========= ======== ======== ========
Net income per share, basic $ 1.42 $0.83 $ 0.54 $1.12 $ 0.96
======== ========= ======== ======== ========
Net income per share, diluted $ 1.34 $ 0.78 $ 0.50 $1.03 $ 0.85
======== ========= ======== ======== ========
Weighted average Common Shares
outstanding, basic 19,525 19,979 20,032 22,349 20,914
======== ========= ======== ======== ========
Weighted average Common Shares
outstanding, diluted 20,697 21,239 21,466 24,421 23,729
======== ========= ======== ======== ========
June 30,
2003 2002 2001 2000 1999
--------- ---------- --------- -------- --------
Balance Sheet Data: (in thousands)
Cash and cash equivalents $116,554 $ 109,895 $ 87,526 $113,918 $140,256
Working capital 94,440 103,897 82,030 98,008 197,595
Total assets 238,687 186,847 175,002 183,250 264,774
Long-term liabilities 6,608 - - - -
Open Text's Consolidated Financial Statements are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP") and
are presented in United States dollars unless otherwise indicated. All
references in this Appendix to financial information concerning Open Text refer
to such information in accordance with US GAAP and all dollar amounts in this
Appendix are in United States dollars unless otherwise indicated.
55
In fiscal 2003, Open Text recorded total revenues of $ 177.7 million, a record
for a company fiscal year, due to a number of factors including an increase in
new customers, additional license transactions completed with existing
customers, and the acquisitions of Centrinity, Corechange, and Eloquent, as well
as favorable movement in foreign exchange rates. Open Text achieved overall
profitability in fiscal 2003 for the fifth straight year, while it achieved
profitability from operations for the third straight year. In addition, cash and
cash equivalents increased to $ 116.6 million as of June 30, 2003, while cash
flow from operations totaled $ 40.0 million for fiscal 2003. During fiscal 2003,
Open Text repurchased 756,000 Common Shares in the open market for a total
purchase price of $ 17.3 million. Open Text's days sales outstanding (DSO)
decreased significantly from 72 days at June 30, 2002 to 61 days at June 30,
2003. Geographic segment information regarding Open Text is presented in Note 12
to Open Text's Consolidated Financial Statements.
a) Critical Accounting Policies and Estimates
Open Text's Consolidated Financial Statements are prepared in accordance with US
GAAP. The preparation of the Consolidated Financial Statements in accordance
with US GAAP necessarily requires Open Text to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
Open Text evaluates its estimates, including those related to revenues, bad
debts, investments, intangible assets, income taxes, contingencies and
litigation. Open Text bases its estimates on historical experience and on
various other assumptions that are believed at the time to be reasonable under
the circumstances. Under different assumptions or conditions, the actual results
will differ, potentially materially, from those previously estimated. Many of
the conditions impacting these assumptions and estimates are outside of Open
Text's control.
Open Text believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its Consolidated
Financial Statements.
Revenue
Open Text currently derives all of its revenues from licenses of software
products and related services. Revenue is recognized in accordance with
Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by
SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to
Certain Transactions, and to the extent applicable, Securities and Exchange
Commission Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements".
Product license revenue is recognized under SOP 97-2 when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is
fixed or determinable, and (iv) collectibility is probable and supported and the
arrangement does not require services that are essential to the functionality of
the software.
(1) Persuasive Evidence of an Arrangement Exists - Open Text determines that
persuasive evidence of an arrangement exists with respect to a customer under
(a) an executed license agreement, which is signed by both the customer and Open
Text, or (b) a purchase order, quote or binding letter-of-intent received from
and signed by the customer, in which case the customer has either previously
executed a license agreement with Open Text or will receive a shrink-wrap
license agreement with the software. Open Text does not offer product return
rights to end users or resellers.
(2) Delivery has Occurred - Open Text's software may be either physically or
electronically delivered to the customer. Open Text determines that delivery has
occurred upon shipment of the software pursuant to the billing terms of the
arrangement or when the software is made available to the customer through
electronic delivery. Customer acceptance generally occurs at shipment.
56
(3) The Fee is Fixed or Determinable - If at the outset of the customer
arrangement, Open Text determines that the arrangement fee is not fixed or
determinable, revenue is typically recognized when the arrangement fee becomes
due and payable.
(4) Collectibility is Probable and Supported - Open Text determines whether
collectibility is probable and supported on a case-by-case basis. Open Text may
generate a high percentage of its license revenue from its current customer
base, for whom there is a history of successful collection. Open Text assesses
the probability of collection from new customers based upon the number of years
the customer has been in business and a credit review process, which evaluates
the customer's financial position and ultimately their ability to pay. If Open
Text is unable to determine from the outset of an arrangement that
collectibility is probable based upon its review process, revenue is recognized
as payments are received.
With regard to software arrangements involving multiple elements, Open Text
allocates revenue to each element based on the relative fair value of each
element. Open Text's determination of fair value of each element in
multiple-element arrangements is based on vendor-specific objective evidence
("VSOE"). Open Text limits its assessment of VSOE for each element to the price
charged when the same element is sold separately. Open Text has analyzed all of
the elements included in its multiple-element arrangements and has determined
that it has sufficient VSOE to allocate revenue to consulting services and
post-contract customer support ("PCS") components of its license arrangements.
Open Text sells its consulting services separately, and has established VSOE for
these services on this basis. VSOE for PCS is determined based upon the
customer's annual renewal rates for these elements. Accordingly, assuming all
other revenue recognition criteria are met, revenue from perpetual licenses is
recognized upon delivery using the residual method in accordance with SOP 98-9,
and revenue from PCS is recognized ratably over the respective term of the
maintenance contract, typically one year.
Services revenue consists of fees from consulting services and PCS. Consulting
services include needs assessment, software integration, security analysis,
application development and training. Open Text generally bills consulting
services fees on a time and materials basis. Open Text's consulting services are
not essential to the functionality of its software. Open Text's software
products are fully functional upon delivery and implementation and generally do
not require any significant modification or alteration for customer use.
Customers purchase consulting services to facilitate the adoption of Open Text's
technology and may dedicate personnel to participate in the services being
performed, but they may also decide to use their own resources or appoint other
professional service organizations to provide these services. Software products
are billed separately from professional services. Open Text recognizes revenue
from consulting services as services are performed. Open Text's customers
typically purchase PCS annually, and Open Text prices PCS based on a percentage
of the product license fee. Customers purchasing PCS receive product upgrades,
Web-based technical support and telephone hot-line support.
Network revenues consist of revenues earned from customers under an application
service provider ("ASP") model. Under this model, customers pay a monthly fee
that entitles them to use of Open Text's software on a secure, hosted,
third-party server. These revenues are recognized as the services are provided
on a monthly basis over the term of the customer's contract. With respect to
these revenues, Open Text's customers pay exclusively for the right to use the
software, but do not receive the right to take possession of Open Text's
software. Further, it is not possible for customers to either run the software
on their own hardware or for them to contract with another party unrelated to
Open Text to host the software.
Customer advances and billed amounts due from customers in excess of revenue
recognized are recorded as deferred revenue.
Allowance for Doubtful Accounts
Open Text maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. Open
Text performs ongoing credit evaluations of its customer's financial condition
and if the financial condition of Open Text's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances would likely be required. Actual collections could differ materially
from our estimates.
57
Investments
From time to time Open Text may hold minority interests in companies having
operations or technology in areas within its strategic focus, some of which are
publicly traded and have highly volatile share prices. Future adverse changes in
market conditions or poor operating results of companies in whom Open Text has
invested could result in losses or an inability to recover the carrying value of
the investments that may not be reflected in an investment's current carrying
value, thereby possibly requiring an impairment charge in the future. Open Text
records an investment impairment charge when it believes an investment has
experienced a decline in value that is other than temporary.
Income Taxes
Open Text records a valuation allowance against deferred income tax assets when
management believes it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. Management considers factors
such as the reversal of deferred income tax liabilities, projected taxable
income, the character of the income tax asset and tax planning strategies. A
change to these factors could impact the estimated valuation allowance and
income tax expense.
Long-Lived Assets
Open Text's long-lived assets consist of property, plant and equipment and other
acquired intangibles, excluding goodwill. We periodically review our long-lived
assets for impairment in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets. For assets to be held and used, Open Text initiates its
review whenever events or changes in circumstances indicate that the carrying
amount of a long-lived asset may not be recoverable. Recoverability of an asset
group is measured by comparison of its carrying amount to the expected future
undiscounted cash flows (without interest charges) that the asset group is
expected to generate. If it is determined that an asset group is not
recoverable, an impairment loss is recorded in the amount by which the carrying
amount of the asset group exceeds its fair value. Assets to be disposed of and
for which we have a plan to dispose of the assets, whether through sale or
abandonment, are reported at the lower of their carrying amount or fair value
less cost to sell.
Litigation
Open Text is a party, from time to time, in legal proceedings. In these cases,
management assesses the likelihood that a loss will result, as well as the
amount of such loss and the financial statements provide for Open Text's best
estimate of such losses. To the extent that any of these legal proceedings are
resolved and result in Open Text being required to pay an amount in excess of
what has been provided for in the financial statements, Open Text would be
required to record, against earnings, such excess at that time. If the
resolution resulted in a gain to Open Text, or a loss less than that provided
for, such gain is recognized when received or receivable.
Valuation of Intangible Assets
Open Text has a history of acquiring other businesses, and expects that this
trend will likely continue in the future. As part of the completion of any
business combination, Open Text is required to value any intangible assets
acquired at the date of acquisition. This valuation is inherently subjective,
and necessarily involves judgments and estimates regarding future cash flows and
other operational variables of the entity acquired. However, there can be no
assurance that the judgments and estimates made will reflect future performance
of the acquired entity. To assist management with the valuation process, Open
Text has adopted the practice of using independent valuation experts in the
valuation process for intangible assets acquired through material acquisitions.
However, if either management or the independent experts make judgments or
estimates that differ from actual circumstances, Open Text may be required to
write-off certain of its intangible assets.
b) Results of Operations
The following table presents, for the periods indicated, certain components of
the selected financial data of Open Text as a percentage of total revenues. The
historical results are not necessarily indicative of results to be expected for
any future period.
58
Year Ended June 30,
------------------------------
2003 2002 2001
------ ------- ------
Revenues:
License & networking 42.8% 43.3% 50.0%
Customer support 35.5 31.9 27.3
Service 21.7 24.8 22.7
----- ----- -----
Total revenues 100.0 100.0 100.0
Cost of revenues:
License & networking 3.7 3.5 4.0
Customer support 5.9 5.5 5.2
Service 15.9 16.7 16.8
----- ----- -----
Total cost of revenues 25.5 25.7 26.0
----- ----- -----
Gross profit 74.5 74.3 74.0
Operating expenses:
Research and development 16.5 15.8 16.5
Sales and marketing 30.7 33.5 34.8
General and administrative 7.6 8.2 8.9
Depreciation 2.8 3.7 3.5
Amortization of acquired intangible assets 1.8 4.3 3.7
----- ----- -----
Total operating expenses 59.4 65.5 67.4
----- ----- -----
Income from operations 15.1 8.8 6.6
Other income (loss) 1.6 1.1 (1.6)
Interest income 0.7 1.2 3.2
Interest expense - - -
----- ----- -----
Income before income taxes 17.4 11.1 8.2
Provision for income taxes 1.8 0.2 0.8
----- ----- -----
Net income for the year 15.6% 10.9% 7.4%
====== ===== =====
59
2. Consolidated Financial Statements as of June 30, 2003, including
Management's Report, Report of Independent Auditors, Balance Sheets and
Notes to Consolidated Balance Sheets
a) Management's Report Financial Statement June 30, 2003
Management is responsible for all the information and representations contained
in the consolidated financial statements and other sections of this Appendix 1.
Management believes that the consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America and appropriate in the circumstances to reflect in all
material respects the substance of events and transactions that should be
included, and that the other information in this Appendix 1 is consistent with
those statements. In preparing the consolidated financial statements, management
makes informed judgments and estimates of the expected effects of events and
transactions that are currently being accounted for.
In meeting its responsibility for the reliability of the consolidated financial
statements, management depends on Open Text's system of internal controls. This
system is designed to provide reasonable assurance that assets are safeguarded
and transactions are executed in accordance with management's authorization, and
are recorded properly to permit the preparation of consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America. In designing control procedures, management recognizes
that errors or irregularities may nevertheless occur. Also, estimates and
judgments are required to assess and balance the relative cost and expected
benefits of the controls. Management believes that Open Text's accounting
controls provide reasonable assurance that errors or irregularities that could
be material to the consolidated financial statements are prevented or would be
detected within a timely period by employees in the normal course of performing
their assigned functions.
The Board of Directors pursues its oversight role for these consolidated
financial statements through the Audit Committee, which is comprised solely of
Directors who are not officers or employees of Open Text. The Audit Committee
meets with management periodically to review their work and to monitor the
discharge of each of their responsibilities. The Audit Committee also meets
periodically with KPMG LLP, the independent auditors, who have free access to
the Audit Committee of the Board of Directors, without management present, to
discuss internal controls, auditing, and financial reporting matters.
KPMG LLP is engaged to express an opinion on our consolidated financial
statements. Their opinion is based on procedures believed by them to be
sufficient to provide reasonable assurance that the consolidated financial
statements are in conformity with accounting principles generally accepted in
the United States of America.
/s/P. Thomas Jenkins /s/Alan Hoverd
P. Thomas Jenkins Alan Hoverd
Chief Executive Officer Chief Financial Officer
August 8, 2003 except as to Note 16
which is as of September 19, 2003
60
b) Report of Independent Auditors Financial Statements June 30, 2003
KPMG LLP
Chartered Accountants Telephone (416) 228-7000
Yonge Corporate Centre Telefax (416) 228-7123
4100 Yonge Street Suite 200 www.kpmg.ca
Toronto ON M2P 2H3
Canada
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Open Text Corporation
We have audited the accompanying consolidated balance sheets of Open
Text Corporation as of June 30, 2003 and 2002 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended June 30, 2003. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the company as at
June 30, 2003 and 2002 and the results of its operations and its cash flows for
each of the years in the three-year period ended June 30, 2003, in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, effective July
1, 2001, Open Text adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and certain provisions of
SFAS No. 142, "Goodwill and Other Intangible Assets," as required for goodwill
and intangible assets resulting from business combinations consummated after
June 30, 2001.
On August 8, 2003, except as to Note 16 which is as of September 19, 2003, we
reported separately to the shareholders of the company on the consolidated
financial statements for the same period, prepared in accordance with Canadian
generally accepted accounting principles.
[GRAPHIC OMITTED]
Chartered Accountants
Toronto, Canada
August 8, 2003 except as to Note 16
which is as of September 19, 2003
61
c) Consolidated Balance Sheets
OPEN TEXT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of US Dollars, except share data)
June 30,
-----------------------------
2003 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 116,554 $ 109,895
Accounts receivable trade, net of allowance for doubtful accounts of $1,933
as at June 30, 2003 and $1,458 as at June 30, 2002 35,855 33,094
Income taxes recoverable 484 1,194
Prepaid expenses and other current assets 3,541 2,530
Deferred tax asset (note 11) 7,688 -
------------- -------------
Total current assets 164,122 146,713
Capital assets (note 3) 10,011 8,401
Goodwill, net of accumulated amortization of $12,807 at June 30, 2003 and 2002 32,301 24,587
Deferred tax asset (note 11) 8,674 -
Other assets (note 4) 23,579 7,146
------------- -------------
Total assets $ 238,687 $ 186,847
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and accrued liabilities (note 6) $ 31,596 $ 18,889
Deferred revenues 38,086 23,927
------------- -------------
Total current liabilities 69,682 42,816
Long-term liabilities:
Deferred revenues 1,696 -
Accrued liabilities 4,912 -
------------- -------------
Total long-term liabilities 6,608 -
Shareholders' equity:
Share capital (note 7)
19,568,259 and 19,875,872 Common Shares issued and outstanding
at June 30, 2003 and June 30, 2002 respectively 204,343 204,815
Accumulated other comprehensive income:
Cumulative translation adjustment (119) (780)
Accumulated deficit (41,827) (60,004)
------------- -------------
Total shareholders' equity 162,397 144,031
------------- -------------
Commitments and contingencies (note 9) $ 238,687 $ 186,847
============= =============
See accompanying notes to consolidated financial statements
62
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US Dollars, except share and per share data)
2003 2002 2001
-----------------------------------------
Revenues:
License & networking $75,991 $65,984 $73,752
Customer support 63,091 48,707 40,316
Service 38,643 39,681 35,709
-----------------------------------------
Total revenues 177,725 154,372 149,777
-----------------------------------------
Cost of revenues:
License & networking 6,550 5,341 5,878
Customer support 10,406 8,364 7,632
Service 28,241 27,411 27,043
-----------------------------------------
Total cost of revenues 45,197 41,116 40,553
-----------------------------------------
132,528 113,256 109,224
-----------------------------------------
Operating expenses:
Research and development 29,324 24,071 24,311
Sales and marketing 54,532 51,084 51,317
General and administrative 13,509 12,498 13,191
Depreciation 5,009 5,587 5,178
Amortization of acquired intangible
assets 3,236 6,506 5,460
------------------------------------------
Total operating expenses 105,610 99,746 99,457
------------------------------------------
Income from operations 26,918 13,510 9,767
------------------------------------------
Other income (loss) (note 10) 2,788 1,613 (2,417)
Interest income 1,283 1,853 4,736
Interest expense (55) (16) (61)
------------------------------------------
Income before income taxes 30,934 16,960 12,025
Provision for income taxes (note 11) 3,177 289 1,229
-------------------- -------------- ------
Net income for the year $27,757 $16,671 $10,796
===========================================
Net income per share - basic (note 15) $1.42 $0.83 $0.54
===========================================
Net income per share - diluted (note 15) $1.34 $0.78 $0.50
===========================================
Weighted average number of
Common Shares outstanding - basic 19,525,278 19,978,719 20,032,092
===========================================
Weighted average number of
Common Shares outstanding - diluted 20,696,554 21,238,965 21,465,645
===========================================
See accompanying notes to consolidated financial statements
63
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'EQUITY
(In thousands)
Common Shares Accumulated
------------------- Accumulated Comprehensive
Shares Amount Deficit Income (loss) Total
-------------------------------------------------------------
Balance as of June 30, 2000 20,230 $206,667 $ (67,796) $ (888) $ 137,983
Issuance of Common Shares
Under employee stock option plans 462 3,785 - - 3,785
Under employee stock purchase plans 132 2,237 - - 2,237
Repurchase and cancellation of shares (886) (9,053) (12,213) - (21,266)
Comprehensive income:
Realized gain on available for sale
securities - - - (130) (130)
Foreign currency translation
adjustment - - - (378) (378)
Net income for the year - - 10,796 - 10,796
----------
Total comprehensive income (loss) - - - - 10,288
-------------------------------------------------------------
Balance as of June 30, 2001 19,938 $203,636 $ (69,213) $ (1,396) $ 133,027
Issuance of Common Shares
Under employee stock option plans 419 2,600 - - 2,600
Under employee stock purchase plans 139 4,917 - - 4,917
Repurchase and cancellation of shares (620) (6,338) (7,462) - (13,800)
Comprehensive income:
Foreign currency translation
adjustment - - - 616 616
Net income for the year - - 16,671 - 16,671
----------
Total comprehensive income (loss) - - - - 17,287
-------------------------------------------------------------
Balance as of June 30, 2002 19,876 $204,815 $ (60,004) $ (780) $ 144,031
Issuance of Common Shares
Under employee stock option plans 291 4,445 - - 4,445
Under employee stock purchase plans 157 2,562 - - 2,562
Repurchase and cancellation of shares (756) (7,722) (9,580) - (17,302)
Income tax effect related to stock options - 243 243
Comprehensive income:
Foreign currency translation
adjustment - - 661 661
Net income for the year - - 27,757 - 27,757
------------
Total comprehensive income (loss) - - - - 28,418
-------------------------------------------------------------
Balance as of June 30, 2003 19,568 $204,343 $ (41,827) $ (119) $ 162,397
=============================================================
See accompanying notes to consolidated financial statements
64
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US Dollars)
Year ended June 30,
2003 2002 2001
------------------------------------------
Cash flows from operating activities:
Net income for the year $ 27,757 $ 16,671 $ 10,796
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 8,245 12,093 10,638
Deferred taxes - - 2,146
(Gain) loss on sale of other investments (152) (1,012) 2,237
Unrealized foreign exchange (gain) loss (3,883) 389 (2,172)
Other - - 772
Changes in operating assets and liabilities:
Accounts receivable 2,286 4,462 13
Prepaid expenses and other current assets 543 (439) 459
Income taxes payable (177) (1,934) (8,481)
Income taxes recoverable 428 (949) -
Accounts payable and deferred revenues 4,855 (783) (3,499)
Other 117 - (1,147)
------------------------------------------
Net cash provided by operating activities 40,019 28,498 11,762
Cash flows from investing activities:
Acquisitions of capital assets (3,615) (2,248) (5,781)
Purchase of Centrinity Inc., net of cash acquired (11,369) - -
Purchase of Corechange Inc., net of cash acquired (2,695) - -
Purchase of Eloquent Inc., net of cash acquired (2,674) - -
Purchase of patent (1,246) - -
Purchase of other investments - (709) (938)
Proceeds from sale of other investments - 2,702 -
Acquisitions of companies - - (15,621)
Payments against acquisition accruals (1,455) (212) -
Proceeds from available for sale securities 287 - -
Other (1,171) - -
------------------------------------------
Net cash used in investment activities (23,938) (467) (22,340)
Cash flow from financing activities:
Payment of obligations under capital leases - (12) (55)
Proceeds from issuance of Common Shares 7,007 7,517 6,022
Repurchase of Common Shares (17,302) (13,800) (21,266)
Other 243 - -
------------------------------------------
Net cash used in financing activities (10,052) (6,295) (15,299)
Foreign exchange gain (loss) on cash held in foreign currency 630 633 (515)
Increase (decrease) in cash and cash equivalents during the year 6,659 22,369 (26,392)
Cash and cash equivalents at beginning of the year 109,895 87,526 113,918
------------------------------------------
Cash and cash equivalents at end of the year $ 116,554 $ 109,895 $ 87,526
==========================================
Supplementary cash flow information (note 13)
See accompanying notes to consolidated financial statements
65
NOTE 1--NATURE OF OPERATIONS
Open Text develops, markets, licenses and supports collaboration and knowledge
management software for use on intranets, extranets and the Internet. Open
Text's principal product line is Livelink(R), a leading collaboration and
knowledge management software product for global enterprises. The software
enables users to capture as well as find electronically stored information, work
together in creative and collaborative processes, perform group calendaring and
scheduling, and distribute or make available to users across networks or the
Internet the resulting work product and other information. This collaborative
environment enables ad hoc teams to form quickly across functional and
organizational boundaries, which enables information to be accessed by employees
using any standard Web browser. Fully Web-based with open architecture, Livelink
provides rapid out-of-the-box deployment, accelerated adoption, and low cost of
ownership. Open Text provides integrated solutions that enable people to use
information and technology more effectively at departmental levels and across
enterprises. Open Text offers its solutions both as end-user stand-alone
products and as fully integrated modules, which together provide a complete
solution that is easily incorporated into existing enterprise business systems.
Although most of Open Text's technology is proprietary in nature, Open Text does
include certain third party software in its products. Open Text's shares trade
publicly on the NASDAQ Stock Market - National market ("NASDAQ"), under the
symbol OTEX and on the Toronto Stock Exchange, under the symbol OTC.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements are expressed in US dollars and are
prepared in accordance with accounting principles generally accepted the United
States ("US GAAP"). Certain prior year amounts have been reclassified to conform
to current year presentation.
Basis of consolidation
The consolidated financial statements include the accounts of Open Text
Corporation and its subsidiaries, all of which are wholly-owned. All material
intercompany balances and transactions have been eliminated.
Use of estimates
Open Text's Consolidated Financial Statements are prepared in accordance with US
GAAP. The preparation of the Consolidated Financial Statements in accordance
with US GAAP necessarily requires Open Text to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
Open Text evaluates its estimates, including those related to revenues, bad
debts, investments, goodwill and other intangible assets, income taxes,
contingencies and litigation. Open Text bases its estimates on historical
experience and on various other assumptions that are believed at the time to be
reasonable under the circumstances. Under different assumptions or conditions,
the actual results will differ, potentially materially, from those previously
estimated. Many of the conditions impacting these assumptions and estimates are
outside of Open Text's control.
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or less
at the date of acquisition are classified as cash equivalents.
Capital assets
Capital assets are stated at cost and are depreciated on a straight-line basis
over the estimated useful lives of the related assets, generally three to five
years. Gains and losses upon asset disposals are taken into income in the year
of disposition.
Impairment of long-lived capital and intangible assets
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets". This Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of", and the accounting and reporting requirements of
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
for a Disposal of a Segment of a Business". Open Text adopted SFAS 144 beginning
July 1, 2002. Open Text considers factors such as significant changes in the
business climate and projected discounted cash flows from the respective asset.
Impairment losses are measured as the amount by which the carrying amount of the
asset exceeds its fair market value. Adopting the provisions of SFAS 144 did not
have a material impact on Open Text's financial condition or results of
operations.
66
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS 142 requires
goodwill to be tested for impairment at least annually, and written off when
impaired, rather than being amortized as previous standards required. Open Text
adopted SFAS 142 beginning July 1, 2002. Open Text has assessed the impact of
SFAS 142 on its operating results and financial condition, and has determined
that there currently exists no impairment in its goodwill.
Adjusted net income and per share amounts presented as if the principles in SFAS
142 had been applied in all periods would be as follows:
Year ended June 30,
-----------------------------------------
2003 2002 2001
-----------------------------------------
Net income for the period $ 27,757 $ 16,671 $ 10,796
Add back: goodwill amortization - 4,711 3,686
-----------------------------------------
Adjusted net income for the period $ 27,757 $ 21,382 $ 14,482
=========================================
Adjusted net income per share
Basic $ 1.42 $ 1.07 $ 0.72
Diluted $ 1.34 $ 1.01 $ 0.67
Revenue recognition
(1) License revenues
Open Text recognizes revenue in accordance with Statement of Position ("SOP")
97-2, "Software Revenue Recognition", issued by the American Institute of
Certified Public Accountants ("AICPA") in October 1997 as amended by SOP 98-9
issued in December 1998.
Open Text records product revenue from software licenses and products when
persuasive evidence of an arrangement exists, the software product has been
shipped, there are no significant uncertainties surrounding product acceptance,
the fees are fixed and determinable and collection is considered probable. Open
Text uses the residual method to recognize revenue on delivered elements when a
license agreement includes one or more elements to be delivered at a future date
if evidence of the fair value of all undelivered elements exists. If an
undelivered element for the arrangement exists under the license arrangement,
revenue related to the undelivered element is deferred based on vendor-specific
objective evidence ("VSOE") of the fair value of the undelivered element.
Open Text's multiple-element sales arrangements include arrangements where
software licenses and the associated post contract customer support ("PCS") are
sold together. Open Text has established VSOE of the fair value of the
undelivered PCS element based on the contracted price for renewal PCS included
in the original multiple element sales arrangement, as substantiated by
contractual terms and Open Text's significant PCS renewal experience, from its
large installed base of over 5 million users worldwide. Open Text's multiple
element sales arrangements generally include rights for the customer to renew
PCS after the bundled term ends. These rights are irrevocable to the customer's
benefit, are for specified prices and the customer is not subject to any
economic or other penalty for failure to renew. Further, the renewal PCS options
are for services comparable to the bundled PCS and cover similar terms.
67
It is Open Text's experience that customers generally exercise their renewal PCS
option. In the renewal transaction, PCS is sold on a stand-alone basis to the
licensees one year or more after the original multiple element sales
arrangement. The renewal PCS price is consistent with the renewal price in the
original multiple element sales arrangement although an adjustment to reflect
consumer price changes is not uncommon.
If VSOE of fair value does not exist for all undelivered elements, all revenue
is deferred until sufficient evidence exists or all elements have been
delivered.
Open Text assesses whether payment terms are customary or extended in accordance
with normal practice relative to the market in which the sale is occurring. Open
Text's sales arrangements generally include standard payment terms. These terms
effectively relate to all customers, products, and arrangements regardless of
customer type, product mix or arrangement size. The only time exceptions are
made to these standard terms is on certain sales in parts of the world where
local practice differs. In these jurisdictions, Open Text's customary payment
terms are in line with local practice.
(2) Service revenues
Service revenues consist of revenues from consulting contracts, customer support
agreements, and training and integration services contracts. Contract revenues
are derived from contracts to develop applications and to provide consulting
services. Contract revenues are recognized under the percentage of completion
method, using a methodology that accounts for costs incurred under the contract
in relation to the total estimated costs under the contract, after providing for
any anticipated losses under the contract. Revenues from training and
integration services are recognized in the period in which the services are
performed.
(3) Customer support revenues
Customer support revenues consist of revenue derived from contracts to provide
post contract support to license holders. These revenues are recognized ratably
over the term of the contract.
(4) Network revenues
Network revenues consist of revenues earned from customers under an application
service provider ("ASP") model. Under this model, customers pay a monthly fee
that entitles them to use Open Text's software on a secure, hosted, third-party
server. These revenues are recognized as the services are provided on a monthly
basis over the term of the customer's contract. With respect to these revenues,
Open Text's customers pay exclusively for the right to use the software. Open
Text's customers do not receive the right to take possession of Open Text's
software. Further, it is not possible for customers to either run the software
on their own hardware or for them to contract with another party unrelated to
Open Text to host the software.
Deferred revenue
Deferred revenue primarily relates to support agreements which have been paid
for by customers prior to the performance of those services. Generally, the
services will be provided in the next twelve months.
Research and development costs
Costs related to research, design and development of products are charged to
research and development expense as incurred. Software development costs are
capitalized beginning at the time when a product's technological feasibility has
been established, and ending when a product is available for general release to
customers. To date, completing a working model of Open Text's products, and
general release of such products have substantially coincided. As a result, to
date Open Text has not capitalized any software development costs since such
costs have not been significant.
Income taxes
Open Text accounts for income taxes under the asset and liability method that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and tax basis of assets and liabilities. Effects of changes in tax rates are
recognized in the period that includes the enactment date. Open Text provides a
valuation allowance on net deferred tax assets when it is not more likely than
not that such assets will be realized.
68
Concentrations of credit risk
Open Text maintains the majority of its cash and cash equivalents in US dollar
denominated Canadian federal government securities or short-term,
interest-bearing, investment-grade securities and demand accounts of a major
Canadian chartered bank or commercial paper.
Open Text performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. Open Text maintains
allowances for potential losses, and to date, such actual losses have been
within management's expectations. No single customer accounted for more than 10%
of the accounts receivable balance at June 30, 2003 and June 30, 2002.
Fair value of financial instruments
Carrying amounts of certain of Open Text's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable-trade and accrued
liabilities and income taxes payable approximate fair value due to their short
maturities. Available-for-sale securities are valued at fair market value of the
securities on the balance sheet date.
Foreign currency translation
Assets and liabilities of certain foreign subsidiaries, whose functional
currency is the local currency, are translated from their respective functional
currencies to US dollars at year-end exchange rates. Income and expense items
are translated at the average rates of exchange prevailing during the year.
Realized foreign exchange gains and losses are included in income or loss in the
year in which they occur. Unrealized foreign currency translation gains and
losses are included in other comprehensive income or loss in the year in which
they occur. The adjustment resulting from translating the financial statements
of such foreign subsidiaries is reflected as a separate component of
shareholders' equity.
Employee stock option plans
Open Text has elected to continue to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and to present
the pro forma information (see note 8) that is required by SFAS No. 123 -
"Accounting for Stock-Based Compensation" ("SFAS 123"). APB 25 requires
compensation cost for stock-based employee compensation plans to be recognized
over the vesting period based on the difference, if any, on the grant date
between the quoted market price of Open Text's stock and the amount an employee
must pay to acquire the stock.
Open Text applies the intrinsic value method prescribed in APB No 25, Accounting
for Stock Issued to Employees in accounting for its stock-based compensation
plans. Had compensation cost for Open Text's stock-based compensation plans and
the employee stock purchase plan have been determined using the fair value
approach set forth in SFAS No. 123, Accounting for Stock-Based Compensation,
Open Text's net income for the year and net income per share would have been in
accordance with the pro forma amounts indicated below:
Year ended June 30,
2003 2002 2001
-------------- ------------- -------------
(in thousands, except per share amounts)
Net income for the year
As reported $27,757 $16,671 $10,796
Pro forma $19,397 $ 7,663 $ 5,801
Net income per share - basic
As reported $ 1.42 $ 0.83 $ 0.54
Pro forma $ 0.99 $ 0.38 $ 0.29
Net income per share - diluted
As reported $ 1.34 $ 0.78 $ 0.50
Pro forma $ 0.94 $ 0.36 $ 0.27
69
The fair value of each stock option grant on the date of grant was estimated
using the Black-Scholes option-pricing model with the following weighted average
assumptions for the stock-based compensation plans:
2003 2002 2001
---------- -------- ---------
Volatility 80% 80% 71%
Risk-free interest rate 6% 6% 6%
Dividend yield - - -
Expected lives (in years) 5.5 5.5 5.5
Weighted average fair value
(in dollars) $17.78 $12.63 $12.97
Earnings per share
Basic earnings per share are computed using the weighted average number of
Common Shares outstanding including contingently issuable shares where the
contingency has been resolved. Diluted earnings per share are computed using the
weighted average number of Common Shares and stock options (using the treasury
stock method) outstanding during the year.
Recently Issued Accounting Pronouncements
Accounting for Asset Retirement Obligations
In August 2001, the FASB issued SFAS No. 143 ("SFAS 143"), "Accounting for Asset
Retirement Obligations". SFAS 143 requires entities to record the fair value of
a liability for an asset retirement obligation in the period in which it is
incurred. Open Text adopted SFAS No. 143 on July 1, 2002. Adopting the
provisions of SFAS 143 did not have a material impact on Open Text's financial
condition or results of operations.
Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical
Corrections
In May 2002, the FASB issued SFAS No. 145 ("SFAS 145"), "Rescission of SFAS Nos.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections". Among other
things, SFAS 145 rescinds various pronouncements regarding early extinguishment
of debt and allows extraordinary accounting treatment for early extinguishment
only when the provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transaction", are met. Open Text adopted the provisions of SFAS 145
regarding early extinguishment of debt during the second fiscal quarter of 2003,
the provisions of which did not have a material impact on its financial
condition or results of operations.
Accounting for Costs Associated with Exit or Disposal Activities
In July 2002, the FASB issued SFAS No. 146 ("SFAS 146"), "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supersedes EITF Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS 146 requires that costs associated
with exit or disposal activities be recognized when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS 146 also
establishes that the liability should initially be measured and recorded at fair
value. Adopting the provisions of SFAS 146 during the year ended June 30, 2003
did not have a material impact on Open Text's financial condition as of June 30,
2003 or its results of operations for the fiscal year ended June 30, 2003.
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
70
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), which requires certain disclosures of
obligations under guarantees. The disclosure requirements of FIN 45 were
effective for Open Text's interim period ended December 31, 2002. Effective for
2003, FIN 45 also requires the recognition of a liability by a guarantor at the
inception of certain guarantees entered into or modified after December 31,
2002, based on the fair value of the guarantee. Open Text has adopted the
disclosure requirements, and has determined that arrangements that have been
entered subsequent to December 31, 2002 have been accounted for in accordance
with the measurement requirements of FIN 45.
Consolidation of Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). The consolidation provisions of FIN 46
are effective for all newly created entities created after January 31, 2003, and
are applicable to existing entities as of the quarter beginning July 1, 2003.
Open Text has determined that the impact of the requirements of FIN 46 will not
have a material impact on its financial condition or results of operations.
Stock-Based Compensation
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,
an amendment of FASB Statement No. 123 ("SFAS 148"). SFAS 148 amends SFAS 123 to
provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements. Certain of the
disclosure modifications are required for fiscal years ending after December 15,
2002 and are included in the notes to these consolidated financial statements.
NOTE 3 - CAPITAL ASSETS
June 30, 2003
---------------------------------------
Accumulated
Cost Depreciation Net
---------------------------------------
Furniture and fixtures $5,821 $4,638 $1,183
Office equipment 1,650 1,000 650
Computer hardware 31,143 25,579 5,564
Computer software 6,556 5,071 1,485
Leasehold improvements 2,970 1,841 1,129
----------------------------------------
$48,140 $38,129 $10,011
========================================
June 30, 2002
----------------------------------------
Accumulated
Cost Depreciation Net
----------------------------------------
Furniture and fixtures $ 5,478 $ 4,223 $1,255
Office equipment 1,077 815 262
Computer hardware 27,784 22,885 4,899
Computer software 5,579 4,489 1,090
Leasehold improvements 2,418 1,523 895
----------------------------------------
$42,336 $33,935 $8,401
========================================
71
NOTE 4 - OTHER ASSETS
June 30,
---------------------
2003 2002
---------------------
Available for sale securities $ - $ 34
Purchased software (net of accumulated amortization
of $4,909; 2002 - $3,925) 2,114 3,098
Acquired technology (net of accumulated amortization
of $3,111; 2002 - $1,726) 12,343 2,282
Acquired customer assets (net of accumulated amortization
of $468; 2002 - nil) 4,925 -
Patent (net of accumulated amortization of $111; 2002 nil) 1,135 -
Other 3,062 1,632
---------------------
$23,579 $7,146
=====================
NOTE 5 - BANK INDEBTEDNESS
Open Text has a CDN$ 10.0 million (USD$ 7.4 million)
line of credit with a Canadian chartered bank, under which no borrowings were
outstanding at June 30, 2003 and 2002. The line of credit bears interest at the
lender's prime rate plus 0.5 %. Open Text has provided all of its assets
including an assignment of accounts receivable as collateral for this line of
credit. During 2003, 2002, and 2001 borrowings and interest cost on bank
indebtedness were insignificant.
NOTE 6 - ACCOUNTS PAYABLE - TRADE AND ACCRUED LIABILITIES
June 30,
------------------------
2003 2002
------------------------
Accounts payable - trade $ 4,035 $ 2,288
Accrued trade liabilities 12,693 8,300
Accrued liabilities related to
acquisitions 3,443 871
Accrued salaries and commissions 10,403 7,376
Other liabilities 1,022 54
------------------------
$31,596 $18,889
========================
NOTE 7 - SHARE CAPITAL
The authorized share capital of Open Text includes an unlimited number of Common
Shares and an unlimited number of first preference shares. No preference shares
are issued.
During fiscal 2003, Open Text repurchased for cancellation 755,700 Common Shares
at a cost of $ 17.3 million, of which $ 7.7 million has been charged to share
capital and $ 9.6 million has been charged to accumulated deficit.
72
During fiscal 2002, Open Text repurchased for cancellation 620,200 Common Shares
at a cost of $ 13.8 million, of which $ 6.3 million has been charged to share
capital and $ 7.5 million has been charged to accumulated deficit.
During fiscal 2001, Open Text repurchased for cancellation 886,000 Common Shares
at a cost of $ 21.3 million, of which $ 9.1 million has been charged to share
capital and $ 12.2 million has been charged to accumulated deficit.
NOTE 8 - OPTION PLANS
A summary of Open Text's various Stock Option Plans is set forth below:
-----------------------------------------------------------------------------------------------------------------------------------
1995 "Restated" 1995 Replacement 1995 1995 Directors 1998 Stock Centrinity
Flexible Stock Stock Option Plan Supplementary Stock Option
Incentive Plan Stock Option Plan Stock Option Plan Option Plan Plan
-----------------------------------------------------------------------------------------------------------------------------------
Date of Inception June-95 October-95 October-95 October-95 June-98 January-03
-----------------------------------------------------------------------------------------------------------------------------------
Eligibility Employees, Employees, Former employees Eligible Eligible Eligible
officers, officers, and directors of non-employee employees and employees,
directors, and directors, and Odesta directors (1) directors, as consultants
consultants consultants of determined by and directors,
Odesta the Board of as determined
Directors by the Board
of Directors
-----------------------------------------------------------------------------------------------------------------------------------
Shares granted to date 6,389,375 548,249 357,500 524,000 3,472,745 207,484
-----------------------------------------------------------------------------------------------------------------------------------
Shares cancelled to date (1,917,699) (1,209) (88,875) (143,000) (1,009,805) (1,000)
-----------------------------------------------------------------------------------------------------------------------------------
Shares exercised to date (3,606,303) (547,040) (214,825) (242,000) (500,699) -
-----------------------------------------------------------------------------------------------------------------------------------
Options outstanding 865,373 - 53,800 139,000 1,962,241 206,484
-----------------------------------------------------------------------------------------------------------------------------------
Termination grace periods Immediately "for Immediately "for 1 year due to Immediately "for Immediately Immediately
cause"; 90 days cause"; 90 days death; 90 days cause"; 3 months "for cause"; 90 "for cause";
for any other for any other for any other for any other days for any 90 days for
reason reason reason reason other reason any other
reason; 180
days due to
death
-----------------------------------------------------------------------------------------------------------------------------------
Vesting schedule Over a 4 or 5 Exercisable up to Vest over a 2 Determined by Plan Determined by Over a 4 year
year period; 10 years from year period; Administrator (2) Plan period, unless
options grant date options Administrator otherwise
exercisable up exercisable up to (2) specified
to 7 years from 10 years from
grant date grant date
-----------------------------------------------------------------------------------------------------------------------------------
Exercise price range $0.15-$20.25 N/A $4.25 $11.18-$14.81 $12.19-$40.00 $24.17 - 27.00
(average) ($8.06) ($13.92) ($20.82) ($24.81)
-----------------------------------------------------------------------------------------------------------------------------------
Expiration dates 6/30/2005 to N/A 9/17/2006 9/17/2007 to 7/13/2008 to 11/1/2012 to
3/6/2008 3/5/2008 4/28/2013 1/28/2013
-----------------------------------------------------------------------------------------------------------------------------------
(1) The Plan Administrator determined the non-employee directors of Open
Text to whom options are granted, the number of Common Shares subject
to each option, the exercise price and vesting schedule of each option.
(2) Representing the board of directors of Open Text or, if established and
duly authorized to act, the Executive Committee of the board of
directors of Open Text.
73
Option Exchange Program
On September 10, 1996, the Board of Directors authorized an option exchange
program (the "Program") whereby employees who have been granted options to
acquire Common Shares of Open Text under the 1995 Flexible Stock Incentive Plan
(the "Flexible Plan") and the 1995 Supplementary Stock Option Plan (the
"Supplementary Plan") were permitted to exchange those options on a one-for-one
basis, for an option to acquire Common Shares of Open Text with an exercise
price of $ 4.25 (the "Exchange Options"). This was subsequently approved by the
shareholders. The Exchange Options vest and become exercisable, as to 10 % of
the Common Shares subject to option, the later of six months after the date of
grant or the date the original option was scheduled to first vest (the "initial
vesting date"), as to the next 10 % of the Common Shares subject to option, six
months after the initial vesting date, and as to the remainder of the Common
Shares subject to option, 5% at the end of each quarter following one year after
the initial vesting date.
A total of 510,452 options to acquire Common Shares of Open Text from the
Flexible and Supplementary plans were eligible for exchange under the Program
with an average exercise price of $ 12.89. A total of 140,830 options under the
Flexible Plan with a weighted average exercise price of $ 10.90 were exchanged
for 140,830 Exchange Options and 335,000 options under the Supplementary Plan
with an exercise price of $ 14.00 were exchanged for 335,000 Exchange Options.
Summary of Outstanding Stock Options
As of June 30, 2003, options to purchase an aggregate of 3,226,898 Common Shares
were outstanding under all of Open Text's stock option plans out of an allowable
pool of options totaling 10,307,424. There were exercisable options outstanding
to purchase 2,301,228 shares at an average price of $ 14.51. At June 30, 2002,
there were exercisable options outstanding to purchase 2,082,164 shares at an
average price of $ 13.08. At June 30, 2001, exercisable options to purchase
1,806,840 shares had an average price of $ 11.19.
A summary of option activity since June 30, 2000 is set forth below:
Options Outstanding
-----------------------------
Weighted Average
Number Exercise Price
-----------------------------
Options outstanding at June 30, 1996 1,794,756 1.10
Granted during fiscal 1997 3,902,514 7.29
Exchanged under the Program 475,830 4.25
Canceled and expired (260,931) 4.82
Exercised (700,833) 0.31
Exchanged (475,830) 12.89
Options outstanding at June 30, 1998 5,066,090 7.62
Granted during fiscal 1999 1,458,045 18.80
Cancelled (745,349) 9.38
Exercised (1,363,740) 6.66
Options outstanding at June 30, 1999 4,415,046 $ 11.35
Granted during fiscal 2000 561,386 19.83
Cancelled (839,230) 14.55
Exercised (768,402) 7.36
Options outstanding at June 30, 2000 3,368,800 $ 12.86
Granted during fiscal 2001 184,750 19.71
Cancelled (210,122) 19.91
Exercised (462,314) 8.19
--------------
Options outstanding at June 30, 2001 2,881,114 $ 13.54
Granted during fiscal 2002 1,019,750 23.23
Cancelled (308,411) 21.38
Exercised (419,048) 11.73
--------------
Options outstanding at June 30, 2002 3,173,405 $ 16.15
Granted during fiscal 2003 428,345 23.73
Cancelled (83,675) 22.49
Exercised (291,177) 15.25
--------------
Options outstanding at June 30, 2003 3,226,898 $ 17.08
==============
74
The following table summarizes information regarding stock options outstanding
at June 30, 2003:
Options Outstanding Options Exercisable
------------------------------------------------ ---------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Outstanding Exercise
Prices at June 30, 2003 Life (years) Price at June 30, 2003 Price
------------------------- --------------------------------------------- ------------------------------
$ 0.15 - $ 8.00 471,973 3.42 $ 6.04 471,973 $ 6.04
9.25 - 12.90 528,262 4.29 10.10 516,138 10.06
13.25 - 18.19 674,224 5.42 14.16 639,599 13.99
18.31 - 21.50 595,875 7.53 20.61 272,125 20.24
21.51 - 27.94 594,359 8.28 23.99 174,938 22.87
28.20 - 40.00 362,205 7.34 29.89 226,455 30.40
-----------------------------------------------------------------------------
$ 0.15 - $ 40.00 3,226,898 6.07 $ 17.08 2,301,228 $ 14.51
============================================= ==============================
Employee Stock Purchase Plan
On March 5, 1998, the shareholders of Open Text approved an Employee Stock
Purchase Plan ("ESPP") whereby employees of Open Text can subscribe to purchase
Common Shares through payroll withholdings from the treasury of Open Text at 85%
of the lessor of: (1) the average of the last five days of the last ESPP period
or (2) the average price of the last five days of the current ESPP period. An
aggregate 1,000,000 Common Shares have been reserved for purchase under the
ESPP, subject to adjustments in the event of stock dividends, stock splits,
combinations of shares, or other similar changes in capitalization of Open Text.
During fiscal 2003, a total of 157,000 Common Shares were issued under the ESPP.
During fiscal 2002, a total of 139,056 Common Shares were issued under the ESPP,
and during fiscal 2001, a total of 131,732 Common Shares were issued under the
ESPP.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Open Text has entered into operating leases for premises and vehicles with
minimum annual payments as follows:
75
2004 $ 6,819
2005 5,684
2006 4,539
2007 4,356
Thereafter 20,497
--------
$41,895
========
Rent expense amounted to $ 7.2 million in 2003, $ 5.9 million in 2002, and $ 5.1
million in 2001.
Open Text is subject to legal proceedings and claims, either asserted or
unasserted, that arise in the ordinary course of business. While the outcome of
these proceedings and claims cannot be predicted with certainty, management does
not believe that the outcome of any of these legal matters will have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.
NOTE 10--OTHER INCOME (LOSS)
Year ended June 30,
------------------------------
2003 2002 2001
------------------------------
Gain (loss) on sale of investments, net of disposal costs $152 $1,012 $(2,971)
Recovery of acquisition accrual - - 734
-----------------------------
Gain (loss) on sale of investments 152 1,012 (2,237)
------------------------------
Balance of other income (expense) 2,636 601 (180)
------------------------------
Other income (loss) $2,788 $1,613 $(2,417)
===============================
During fiscal 2001, Open Text sold 8,900 shares of its investment in Primedia,
completing its disposition of its entire interest in this investment.
During fiscal 2002, Open Text realized a gain of $ 1.0 million related to Open
Text's attempted acquisition of Accelio Corporation ("Accelio"), a software
company located in Ottawa, Ontario. The gain that Open Text realized on this
attempted acquisition arose from the sale of shares of Accelio common stock
owned by Open Text, and gains realized in connection with certain lock-up
agreements in connection with the attempted acquisition, partially offset by the
costs incurred.
During fiscal 2003, Open Text realized a gain of $ 152,000 relating to a small
equity investment it disposed of during the year. The majority of the balance of
other income during fiscal 2003 relates to realized foreign exchange gains
recorded during the year. The strong appreciation of the Euro as compared to the
U.S. dollar accounted for the majority of this amount.
NOTE 11 - INCOME TAXES
Open Text operates in several tax jurisdictions. Its income is subject to
varying rates of tax and losses incurred in one jurisdiction cannot be used to
offset income taxes payable in another.
The income (loss) before income taxes consisted of the following:
76
Year Ended June 30,
--------------------------------------
2003 2002 2001
--------------------------------------
Domestic income (loss) $7,549 $3,931 $(1,297)
Foreign income 23,385 13,029 13,322
--------------------------------------
Income before income taxes $30,934 $16,960 $12,025
======================================
A reconciliation of the combined Canadian federal and provincial income tax rate
with Open Text's effective income tax rate is as follows:
Year Ended June 30,
-------------------------------------
2003 2002 2001
-------------------------------------
Expected statutory rate 37.6% 40.0% 43.0%
Expected provision for income taxes $ 11,631 $ 6,784 $ 5,171
Effect of permanent differences 1,316 2,694 1,435
Effect of foreign tax rate differences (234) (453) (1,035)
Non-taxable portion of capital gain - (202) -
Tax incentive for research and development (1,854) (368) -
Benefit of losses* (3,633) - (6,300)
Future benefit of losses acquired on acquisitions - - (3,400)
Change in valuation allowance (3,548) (7,850) 4,800
Other items (501) (316) 558
-------------------------------------
$ 3,177 $ 289 $ 1,229
=====================================
* The operating tax loss carryforwards (net of valuation allowance) acquired on
the purchases of Centrinity, Eloquent, and Corechange do not affect the income
statement as amounts are allocated to these operating tax loss carryforwards in
the purchase price allocation.
The provision (recovery) for income taxes consisted of the following:
Year Ended June 30,
------------------------------------
2003 2002 2001
------------------------------------
Domestic:
Current income taxes $460 $ - $(600)
Deferred income taxes (272) - 450
------------------------------------
$188 $ - $(150)
------------------------------------
Foreign:
Current income taxes $3,493 $289 $(371)
Deferred income taxes (504) - 1,750
------------------------------------
$2,989 $289 $1,379
------------------------------------
Provision for income taxes $3,177 $289 $1,229
====================================
Open Text has approximately $ 35.6 million of domestic non-capital loss
carryforwards which expire between 2004 and 2008. In addition, Open Text has $
25.5 million of foreign non-capital loss carry forwards of which $ 16.3 million
have no expiry date. $ 9.2 million of these foreign losses are restricted and
can
77
only be used against the profits of a previously acquired company in
accordance with a statutory formula. The remainder of the foreign losses expire
between 2008 and 2022. Open Text also has $1.8 million of foreign capital loss
carryforwards that have no expiry date.
The primary temporary differences, which gave rise to net deferred tax assets at
June 30, 2003 and 2002 are:
Year Ended June 30,
-----------------------------
2003 2002
---------------- -----------
Deferred tax assets
Non-capital loss carryforwards $ 19,668 $ 5,447
Capital loss carryforwards 710 770
Employee stock options - 113
Scientific research and development tax credits 684 600
Depreciation and amortization 1,062 2,410
Share issue costs 167 50
------------ ----------
Total deferred tax asset 22,291 9,390
Less, valuation allowance (5,669) (9,250)
------------ ----------
16,622 140
Deferred tax liabilities
Scientific research and development tax credits 260 140
------------ ----------
Net deferred tax asset $ 16,362 $ -
============ ==========
Comprised of:
Current asset $7,688 $ -
Long-term asset 8,674 -
------------ ----------
$ 16,362 $ -
============ ==========
Open Text believes that sufficient uncertainty exists regarding the realization
of certain deferred tax assets that a valuation allowance is required. Open Text
continues to evaluate its taxable position quarterly and considers factors by
taxing jurisdiction such as estimated taxable income, the history of losses for
tax purposes and the growth of Open Text, among others.
NOTE 12 - SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". establishes standards for the reporting by public business
enterprises of information about operating segments, products and services,
geographic areas, and major customers. The method of determining what
information to report is based on the way that management organizes the
operating segments within Open Text for making operational decisions and
assessments of financial performance.
Open Text has two reportable segments: North America and Europe. Open Text
evaluates operating segment performance based on total revenues and operating
costs of the segment. The accounting policies of the operating segments are the
same as those described in the summary of accounting policies. No segments have
been aggregated.
Information about reported segments is as follows:
78
North
America Europe Other Total
----------- --------- --------- ---------
2003
Total revenues $102,221 $70,805 $4,699 $177,725
Operating costs 77,595 60,403 4,564 142,562
---------------------------------------------------
Contribution margin $24,626 $10,402 $135 $35,163
===================================================
Segment assets $98,769 $38,618 $2,106 $139,493
===================================================
2002
Total revenues $92,410 $56,467 $5,495 $154,372
Operating costs 70,454 52,880 5,435 128,769
---------------------------------------------------
Contribution margin $1,956 $3,587 $ 60 $25,603
===================================================
Segment assets $52,577 $31,428 $2,235 $86,240
===================================================
2001
Total revenues $86,471 $54,778 $6,450 $147,699
Operating costs 73,483 50,127 3,684 127,294
--------------------------------------------------
Contribution margin $12,988 $ 4,651 $2,766 $20,405
==================================================
Segment assets $63,276 $30,244 $1,787 $95,307
==================================================
Included in the above operating results are allocations of certain operating
costs which are incurred in one reporting segment but which relate to all
reporting segments. The allocations of these common operating costs are
consistent with the manner in which they are allocated for presentation to, and
analysis by, the chief operating decision maker of Open Text. For the year ended
June 30, 2003, 2002 and 2001, the "Other" category consists of geographic
regions other than North America and Europe.
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the years
ended June 30, 2003, 2002, and 2001 is as follows:
Year Ended June 30,
-----------------------------------
2003 2002 2001
-----------------------------------
Total contribution margin from operating
segments above $ 35,163 $ 25,603 $ 20,405
Amortization and depreciation (8,245) (12,093) (10,638)
-----------------------------------
Total operating income (loss) 26,918 13,510 9,767
Interest, other income (loss) and income taxes 839 3,161 1,029
-----------------------------------
Net income for the year $ 27,757 $ 16,671 $ 10,796
===================================
79
As of June 30,
2003 2002
----------------------------
Segment assets $ 139,493 $ 86,240
Investments - 134
Cash and cash equivalents (corporate) 99,194 100,473
----------------------------
Total corporate assets $ 238,687 $ 186,847
============================
Contribution margin from operating segments does not include amortization of
intangible assets, acquired in-process research and development and
restructuring costs. Goodwill and intangibles have been assigned in segment
assets based on the location of the acquired business operations to which they
relate. These allocations have been made on a consistent basis.
The distribution of net revenues determined by location of customer, and
identifiable assets greater than 10 %, by geographic areas for the years ended
June 30, 2003, 2002 and 2001 are as follows:
Year Ended June 30,
2003 2002 2001
---------------------------------
Total revenues:
Canada $13,500 $12,190 $11,650
United States 88,721 80,220 80,106
United Kingdom 22,042 20,320 20,328
Other 53,462 41,642 37,393
----------------------------------
Total revenues $177,725 $154,372 $149,477
==================================
As of June 30,
2003 2002
------------------------
Segment assets:
Canada $ 43,725 $16,472
United States 55,044 36,105
United Kingdom 13,733 9,556
Other 26,991 24,107
------------------------
Total segment assets $139,493 $86,240
=========================
NOTE 13 - SUPPLEMENTAL CASH FLOW DISCLOSURES
Year Ended June 30,
2003 2002 2001
-----------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $55 $19 $56
Cash paid during the period for taxes 590 495 7,626
80
NOTE 14 ACQUISITIONS
Fiscal 2003
Corechange Inc.
On February 25, 2003, Open Text Inc. ("OTI") a wholly-owned subsidiary of Open
Text, acquired all of the issued and outstanding shares of Corechange Inc.
("Corechange"). Consideration for this acquisition was comprised of (i) cash
consideration of $ 3.6 million paid on closing; (ii) additional cash
consideration of $650,000 to be held in escrow in order to satisfy potential
breaches of representations and warranties as provided for in the share purchase
agreement; and (iii) additional cash consideration to be payable over the
one-year period following closing, calculated as a fixed percentage of certain
revenues of Corechange. The results of operations of Corechange have been
consolidated with those of Open Text beginning February 25, 2003. Boston-based
Corechange delivers infrastructure software to develop, deploy and manage
enterprise portals on a global scale.
The following table summarizes the purchase price allocation:
Current assets $ 2,968
Capital assets 753
Deferred tax assets 596
Technology assets 4,600
Customer assets 2,000
Goodwill 1,989
----------
Total assets acquired 12,906
Current liabilities (8,656)
----------
Net assets acquired $ 4,250
==========
The total purchase price allocated to goodwill of $ 2.0 million was assigned
entirely to Open Text's North American geographic segment. In accordance with
SFAS 142, the goodwill will not be amortized but will be reviewed for impairment
on an annual basis.
The customer assets of $ 2.0 million were assigned a useful life of 7 years. The
technology assets of $ 4.6 million have also been assigned a useful life of 7
years.
As part of the purchase price allocation, Open Text recognized liabilities in
connection with the acquisition of Corechange totaling $ 4.1 million. The
liabilities recognized include severance and related charges in connection with
a worldwide reduction in the Corechange workforce, in addition to transaction
costs, costs relating to provisioning for excessive facilities, and certain
pre-acquisition contingencies. Of the total liabilities recognized in connection
with the acquisition, $ 2.1 million remains accrued at June 30, 2003. Open Text
expects that the majority of these remaining costs will be paid in fiscal 2004;
however, certain amounts such as the provision for excessive facilities and
pre-acquisition contingencies may take longer.
Eloquent, Inc.
On March 20, 2003, Open Text completed an acquisition of all of the issued and
outstanding shares of Eloquent Inc. ("Eloquent") for cash consideration of $ 6.7
million, of which $ 1.0 million is being held in escrow to secure certain
representations, warranties and covenants of Eloquent in the acquisition
agreement. The results of operations of Eloquent have been consolidated with
those of Open Text beginning March 20, 2003. San Mateo-based Eloquent's
closed-loop "sales readiness" solution, LaunchForce(TM), is built on a scaleable
technology platform designed to deploy corporate knowledge to front-line
employees and partners.
81
The following table summarizes the current purchase price allocation:
Current assets $ 4,229
Other assets 132
Deferred tax assets 1,020
Technology assets 2,300
Customer assets 800
Goodwill 582
--------
Total assets acquired 9,063
Current liabilities (2,350)
--------
Net assets acquired $ 6,713
========
The total purchase price allocated to goodwill of $ 0.6 million was assigned
entirely to Open Text's North American geographic segment. In accordance with
SFAS 142, the goodwill will not be amortized but will be reviewed for impairment
on an annual basis.
The customer assets of $ 0.8 million were assigned a useful life of 7 years. The
technology assets of $ 2.3 million have also been assigned a useful life of 7
years.
As part of the purchase price allocation, Open Text recognized liabilities in
connection with the acquisition of Eloquent totaling $1.2 million. The
liabilities recognized include severance and related charges in connection with
a reduction in the Eloquent workforce, in addition to transaction costs and
pre-acquisition contingencies. Of the total liabilities recognized in connection
with the acquisition, $ 0.7 million remains accrued at June 30, 2003. The
majority of this remaining accrual relates to pre-acquisition contingencies,
which Open Text anticipates will be resolved during fiscal 2004.
Centrinity, Inc.
On November 1, 2002, Open Text completed the acquisition of all of the issued
and outstanding shares of Centrinity Inc. ("Centrinity") for cash consideration
of $ 20.3 million. The results of operations of Centrinity have been
consolidated with those of Open Text beginning November 1, 2002. Toronto-based
Centrinity, which has developed a communications and messaging platform, has
over 8 million users worldwide. Open Text intends on further developing this
technology, and plans for it to be integrated into its flagship product,
Livelink.
The following table summarizes the purchase price allocation:
Net working capital items $ 552
Capital assets 1,655
Deferred tax assets 12,413
Customer assets 2,400
Technology assets 4,000
Goodwill 5,311
Liabilities recognized in connection with the business combination (6,031)
----------
Net assets acquired $20,300
==========
The total purchase price allocated to goodwill of $ 5.3 million was assigned to
Open Text's reportable geographic segments as follows:
82
North America $2,921
Europe 2,390
------
$5,311
======
In accordance with SFAS 142, the goodwill will not be amortized but will be
reviewed for impairment on an annual basis.
The customer contracts of $ 1.0 million were assigned a useful life of 3 years,
while the customer relationships of $ 1.4 million were assigned a useful life of
7 years. The purchased technology of $ 4.0 million has been separated into
subcomponents, whose useful lives have been assigned as either 5 or 7 years.
As part of the purchase price allocation, Open Text recognized liabilities in
connection with the acquisition of Centrinity totaling $ 6.0 million. The
liabilities recognized include severance and related charges in connection with
a worldwide reduction in the Centrinity workforce, in addition to transaction
costs, costs relating to provisioning for excessive facilities, and
pre-acquisition contingencies. Of the total liabilities recognized in connection
with the acquisition, $ 3.6 million remains accrued at June 30, 2003. The
majority of the remaining accrual relates to provisioning for excessive
facilities and pre-acquisition contingencies. Open Text anticipates that with
the exception of those components, the majority of these acquisition accruals
will be paid during fiscal 2004.
The following pro forma results of operations reflect the combined results of
Open Text, Centrinity and Corechange for the years ended June 30, 2003 and 2002,
as if the business combination occurred as of the beginning of Open Text's
fiscal year. The information used for this pro forma disclosure was obtained
from unaudited financial statements filed with either the Ontario Securities
Commission or the Securities and Exchange Commission, as well as internal
unaudited financial statements prepared by the respective companies.
Year ended
--------------------------
June 30, June 30,
2003 2002
--------------------------
Revenue $191,560 $184,590
Net loss $ (3,115) $(27,759)
Basic net loss per share $ (0.16) $ (1.39)
Shares used in computing basic net loss per share (in
thousands) 19,525 19,979
Diluted net loss per share $ (0.16) $ (1.39)
Shares used in computing diluted net loss per share (in
thousands) 19,525 19,979
Fiscal 2001
Bluebird Systems
In October 2000, Open Text acquired all of the issued and outstanding share
capital of Bluebird Systems ("Bluebird"), of Carlsbad, California. Consideration
for this acquisition was comprised of (i) cash of $ 8 million paid on closing;
and (ii) additional cash consideration to be earned over the eight subsequent
three-month periods following the closing, contingent upon Bluebird meeting
certain revenue and net income targets.
Open Text allocated the total purchase price to the assets and liabilities
acquired as follows:
83
Tangible net liabilities $ (114)
Current software products 2,346
Core technology 1,156
Goodwill 4,612
--------
$8,000
========
Included in tangible net liabilities is an amount of $ 646 representing direct
acquisition costs, involuntary terminations, and office closure costs. The
liabilities included $ 504 of direct acquisition costs, $ 75 for involuntary
terminations, and $ 67 for office closures. An acquisition accrual of $ 11
remains on the balance sheet at June 30, 2003. It is Open Text's expectation
that this accrual will be substantially utilized in the coming fiscal year.
The acquired software technology was valued using a stage of completion model.
Projected revenue net of operating expenses and income taxes were discounted to
a present value using a risk-adjusted rate of return. Software technology was
divided into two categories:
o current software products
o core technology
Current software products include products currently in the marketplace as of
the acquisition date. The fair market value of the purchased current software
products was determined to be $ 2.3 million. This amount was recorded as an
asset and is being amortized on a straight-line basis over four years. The fair
market value of core technology was determined to be $ 1.2 million. This amount
was recorded as an asset and is being amortized on a straight-line basis over
seven years.
The excess of the purchase price over the fair market value of the acquired
identifiable assets and liabilities assumed has been recorded as goodwill in the
amount of $ 4.6 million. Any additional consideration earned by the former
shareholders of Bluebird will be accounted for as part of the purchase price,
and consequently will be recorded as additional goodwill. As of June 30, 2003,
no additional consideration has been earned under the stock purchase agreement.
LeadingSide
In November 2000, Open Text acquired the product business of LeadingSide Inc.
("LeadingSide") of Cambridge, Massachusetts, for cash consideration of $ 3
million. LeadingSide is an e-business solution provider that designs, develops
and deploys knowledge driven solutions to Global 2000 companies.
Open Text allocated the total purchase price to the assets acquired
as follows:
Tangible net liabilities $(1,869)
Current software products 2,654
Goodwill 2,215
--------
$ 3,000
========
Included in tangible net liabilities is an amount of
$ 1.8 million representing direct acquisition costs, office closure costs, and
certain contingencies. The liabilities included $ 543 of direct acquisition
costs, $ 80 for office closures, and $ 1.2 million for potential legal disputes.
As of June 30, 2003, there are amounts remained accrued in respect of direct
acquisition costs.
The acquired software products were valued using a stage of completion model.
Projected revenue net of operating expenses and income taxes were discounted to
a present value using a risk-adjusted rate of return.
84
Current software products include products currently in the marketplace as of
the acquisition date. The fair market value of the purchased current software
products was determined to be $ 2.7 million. This amount was recorded as an
asset and is being amortized on a straight-line basis over four years. The
excess of the purchase price over the fair market value of the acquired
identifiable assets and liabilities assumed has been recorded as goodwill in the
amount of $ 2.2 million.
Open Image
In November 2000, Open Text acquired all of the outstanding shares of Open Image
Systems Inc. ("Open Image") of Toronto, Ontario for cash consideration of $ 2.1
million.
Open Text allocated the total purchase price to the net assets acquired as
follows:
Tangible net liabilities $ (239)
Current products 302
Goodwill 1,992
-------
$2,055
=======
Included in tangible net liabilities is an amount of $ 204 representing direct
acquisition costs, office closure costs, and certain contingencies. The
liabilities included $ 68 of direct acquisition costs, $ 38 for office closures,
and $ 98 for potential legal disputes. An acquisition accrual of $ 96 remains on
the balance sheet at June 30, 2003. It is Open Text's expectation that this
accrual will be utilized in the coming fiscal year.
The acquired software products were valued using a stage of completion model.
Projected revenue net of operating expenses and income taxes were discounted to
a present value using a risk-adjusted rate of return.
Current software products include products currently in the marketplace as of
the acquisition date. The fair market value of the purchased current software
products was determined to be $ 302. This amount was recorded as an asset and is
being amortized on a straight-line basis over four years. The excess of the
purchase price over the fair market value of the acquired identifiable assets
and liabilities assumed has been recorded as goodwill in the amount of $ 2
million.
Base 4
In January 2001, Open Text acquired all of the outstanding shares of Base
4 Inc. ("Base 4") of Toronto, Ontario for cash consideration of $529. Base 4's
PharMatrix product is designed to facilitate the capture, storage and
dissemination of knowledge generated during the complete project lifecycle of
the pharmaceutical discovery process.
Open Text allocated the total purchase price to the net assets acquired as
follows:
Tangible net liabilities $ (701)
Goodwill 1,240
------
$ 539
======
Included in tangible net liabilities is an amount of $ 335 representing direct
acquisition costs, office closure costs, involuntary termination costs and
acquired commitments. The liabilities included $ 70 of direct acquisition costs,
$ 75 for office closures, $ 100 for involuntary terminations and $ 90 for
certain contingencies.
85
The excess of the purchase price over the fair market value of the acquired
identifiable assets and liabilities assumed has been recorded as goodwill in the
amount of $ 1.2 million.
NOTE 15 - NET INCOME PER SHARE
Year Ended June 30,
---------------------------------
2003 2002 2001
---------------------------------
(in thousands, except per share data)
Basic income per share
Net income $ 27,757 $16,671 $10,796
=================================
Weighted average number of shares outstanding 19,525 19,979 20,032
---------------------------------
Basic income per share 1.42 0.83 $0.54
=================================
Diluted income per share
Net income $ 27,757 $16,671 $10,796
=================================
Weighted average number of shares outstanding 19,525 19,979 20,032
Dilutive effect of stock options * 1,172 1,260 1,434
---------------------------------
Adjusted weighted average number of shares outstanding 20,697 21,239 21,466
=================================
Diluted income per share $1.34 $0.78 $0.50
=================================
* anti-dilutive options of 453,904 have been excluded for fiscal 2003 (fiscal
2002 - 423,283; fiscal 2001 - 322,529)
NOTE 16 - SUBSEQUENT EVENT
On August 27, 2003, Open Text announced that it intended to acquire the Common
Shares of Gauss Interprise (Deutsch Bourse: GSOGa.de) for cash by way of
agreement with certain of the shareholders, who will hold 73 percent of the
shares at closing after conversion of indebtedness. In addition, on September
19, 2003 a tender offer was made for the balance of the shares. Total cash
consideration for the shares is expected to be approximately US $ 11 million.
Open Text expects that the transaction will close, subject to certain
conditions, in the second quarter of Fiscal Year 2004 (the quarter ending
December 31, 2003).
86
3. Quarterly Report FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
[] TRANSITION QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number: 0-27544
OPEN TEXT CORPORATION
(Exact name of registrant as specified in its charter)
ONTARIO
98-0154400
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
185 Columbia Street West, Waterloo, Ontario, Canada N2L 5Z5
-----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (519) 888-7111
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes _X_ No ____
As of October 31, 2003, there were 40,321,917 outstanding Common Shares of the
registrant.
87
OPEN TEXT CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2003 (Unaudited) and June 30, 2003....................... 3
Condensed Consolidated Statements of Income (Unaudited) -
Three Months Ended September 30, 2003 and 2002......................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended September 30, 2003 and 2002......................... 5
Notes to Condensed Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......26
Item 4. Controls and Procedures..........................................27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..........................................................27
Item 6. Exhibits and Reports on Form 8-K...........................................28
Signatures..............................................................................29
Index to Exhibits.......................................................................30
88
Part I: Financial Information
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(In US Dollars)
(in thousands, except share data)
September 30, June 30,
2003 2003
--------------------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 108,747 $ 116,554
Accounts receivable - net of allowance for doubtful accounts of
$1,620 as of September 30, 2003 and $1,933 as of June 30, 2003 27,857 35,855
Income taxes recoverable 5,726 484
Prepaid expenses and other assets 4,316 3,541
Deferred tax asset (note 4) 10,665 7,688
--------------------------------
Total current assets 157,311 164,122
Long term assets
Restricted cash (note 10) 12,000 -
Capital assets 9,643 10,011
Goodwill, net of accumulated amortization of
$12,807 at September 30, 2003 and June 30, 2003 31,465 32,301
Deferred tax asset 8,439 8,674
Other assets 23,540 23,579
--------------------------------
$ 242,398 $ 238,687
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 3) $ 26,023 $ 31,596
Deferred revenues 33,968 38,086
--------------------------------
Total current liabilities 59,991 69,682
Long term liabilities:
Deferred revenues 1,415 1,696
Deferred tax credit (note 4) 3,326 -
Accrued liabilities 4,585 4,912
--------------------------------
9,326 6,608
Shareholders' equity:
Share capital
40,132,214 and 39,136,518 Common Shares issued and
outstanding at September 30, 2003 and June 30, 2003, respectively 211,129 204,343
Accumulated other comprehensive income:
Cumulative translation adjustment 425 (119)
Accumulated deficit (38,473) (41,827)
--------------------------------
Total shareholders' equity 173,081 162,397
--------------------------------
$ 242,398 $ 238,687
================================
Commitments and Contingencies (note 9)
Subsequent Events (note 10)
See accompanying notes to condensed consolidated financial statements
89
OPEN TEXT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In US Dollars)
(in thousands, except per share data)
Three months ended
September 30,
2003 2002
------------ -------------
(unaudited)
Revenues:
License $ 16,867 $ 15,476
Customer support 19,421 13,662
Service 7,897 8,517
------------ ------------
Total revenues 44,185 37,655
Cost of revenues:
License 1,291 1,649
Customer support 3,181 2,317
Service 7,203 6,235
------------ ------------
Total cost of revenues 11,675 10,201
------------ ------------
Gross profit 32,510 27,454
Operating expenses:
Research and development 8,031 6,162
Sales and marketing 13,807 11,986
General and administrative 3,354 3,242
Depreciation 1,187 1,216
Amortization of acquired intangible assets 1,188 487
------------ ------------
Total operating expenses 27,567 23,093
------------ ------------
Income from operations 4,943 4,361
Other income (expense) (380) 617
Interest income 225 384
------------ ------------
Income before income taxes 4,788 5,362
Provision for income taxes 1,434 -
------------ ------------
Net income for the period $ 3,354 $ 5,362
============ ============
Basic net income per share* (note 7) $ 0.08 $ 0.14
============ ============
Diluted net income per share* (note 7) $ 0.08 $ 0.13
============ ============
Weighted average number of Common
Shares outstanding - basic* (note 7) 39,522 39,279
============ ============
Weighted average number of Common
Shares outstanding - diluted* (note 7) 42,213 41,076
============ ============
*Adjusted for stock split declared on October 8, 2003 (note 10)
See accompanying notes to condensed consolidated financial statements
90
OPEN TEXT COPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US Dollars)
Three months ended
September 30,
2003 2002
---------------------
(unaudited)
Cash flows from operating activities:
Net income for the period $3,354 $5,362
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of acquired
intangible assets 2,375 1,703
Deferred income taxes 235 -
Other 8 -
Changes in operating assets and liabilities net of assets acquired:
Accounts receivable 7,998 3,515
Prepaid expenses and other assets (775) 264
Accounts payable and accrued liabilities (4,437) (1,608)
Income taxes payable (4,365) (26)
Deferred revenues (4,398) 760
Unrealized foreign exchange loss (gain) 13 (367)
----------------------
Net cash provided by operating activities 8 9,603
----------------------
Cash flows used in investing activities:
Acquisitions of capital assets (828) (530)
Cash restricted for Gauss acquisition (note 10) (12,000) -
Business acquisition costs (1,041) -
Purchase of patent - (1,246)
Other (693) (132)
----------------------
Net cash used in investing activities (14,562) (1,908)
----------------------
Cash flow from financing activities:
Payments of obligations under capital leases (92) -
Proceeds from issuance of Common Shares 6,786 1,711
Repurchase of Common Shares - (16,236)
----------------------
Net cash provided by (used in) financing activities 6,694 (14,525)
----------------------
Foreign exchange gain (loss) on cash held in foreign currency 53 (52)
Decrease in cash and cash equivalents during the period (7,807) (6,882)
Cash and cash equivalents at beginning of period 116,554 109,895
----------------------
Cash and cash equivalents at end of period $108,747 $ 103,013
======================
Supplementary cash flow information
Cash paid during the period for interest $8 $4
Cash paid during the period for taxes $4,200 $0
See accompanying notes to condensed consolidated financial statements
91
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements ("Interim
Financial Statements") include the accounts of Open Text Corporation and its
wholly owned subsidiaries, collectively referred to as "Open Text" or the
"Company". All inter-company balances and transactions have been eliminated.
These Interim Financial Statements are expressed in US dollars and are based
upon accounting policies and methods of their application consistent with those
used and described in the Company's annual consolidated financial statements.
The Interim Financial Statements do not include all of the financial statement
disclosures included in the annual financial statements prepared in accordance
with United States generally accepted accounting principles ("US GAAP") and
therefore should be read in conjunction with the consolidated financial
statements and notes included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 2003.
The information furnished reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods presented. The operating results for the three months ended
September 30, 2003 are not necessarily indicative of the results expected for
any succeeding quarter or the entire fiscal year ending June 30, 2004.
On October 8, 2003, the Company declared a two-for-one split of the Company's
Common Shares effected by means of a dividend. The stock split doubled the
number of the Company's outstanding Common Shares. Share certificates
representing the stock dividend were mailed on or after October 28, 2003 to
shareholders of record as of the close of business on October 22, 2003. All of
the information presented in these Interim Financial Statements has been
retroactively restated to reflect the stock dividend.
The preparation of financial statements in conformity with accounting principles
generally accepted in the US requires management to make estimates, judgments
and assumptions, which are evaluated on an ongoing basis, that affect the
amounts reported in the financial statements. Management bases its estimates on
historical experience and on various other assumptions that it believes are
reasonable at that time under the circumstances, the results of which form the
basis for making judgments about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
those estimates. In particular, significant estimates, judgments and assumptions
include those related to revenue recognition, allowance for doubtful accounts,
investments, long-lived assets, litigation, and the valuation allowance relating
to the Company's Deferred tax asset.
Comprehensive net income
Comprehensive net income is comprised of net income and other comprehensive net
income (loss), including the effect of foreign currency translation resulting
from the consolidation of subsidiaries where the functional currency is a
foreign currency, and the inclusion of unrealized capital gains and losses on
available for sale marketable securities. The Company's total comprehensive net
income was as follows:
92
Three months ended
September 30,
2003 2002
-------------------
Other comprehensive net income (loss):
Foreign currency translation adjustment $ 544 $ (694)
Unrealized loss on available for sale securites (net of tax)
- (45)
------- -------
Other comprehensive income (loss): 544 (739)
Net income for the period 3,354 5,362
-------- -------
Comprehensive net income for the period $3,898 $4,623
======== =======
NOTE 2 - ACCOUNTING POLICIES
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
The consolidation provisions of FIN 46 are required to be adopted by the Company
in the period ending December 31, 2003. The Company believes adoption of FIN 46
will not have a material impact on its financial condition or results of
operations.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are as follows:
As of
September 30, June 30,
2003 2003
--------------------------
(unaudited)
Accounts payable - trade 3,104 4,035
Accrued trade liabilities 11,273 12,693
Amounts payable for acquisitions 2,826 3,443
Accrued salaries and commissions 7,871 10,403
Other liabilities 949 1,022
--------------------------
$26,023 $31,596
==========================
NOTE 4 - INCOME TAXES
As of September 30, 2003, the Company had total net deferred tax assets of
approximately $19.1 million, the principal component of which is temporary
differences associated with net operating loss carry forwards. The Company
operates in several tax jurisdictions. The Company's income is subject to
varying rates of tax, and losses incurred in one jurisdiction cannot be used to
offset income taxes payable in another.
As of September 30, 2003, the Company had approximately $69.5 million of losses
and deductions available to reduce taxable income in future years, the benefit
of which is reflected in the deferred tax assets. Deductions of $17.0 million
have no expiration date, and the balance of losses expire between 2004 and 2018.
The Company's ability to use these income tax losses and future income tax
deductions is dependent upon the operations of the Company in the tax
jurisdictions in which such losses or deductions arose.
93
Management records a valuation allowance against deferred income tax assets when
management believes it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. Based on the reversal of
deferred income tax liabilities, projected future taxable income, the character
of the income tax asset and tax planning strategies, management has determined
that a valuation allowance of $5.8 million is required in respect of its
deferred income tax assets as at September 30, 2003. The Company continues to
evaluate its taxable position and its valuation allowances quarterly and
considers factors by taxing jurisdiction such as estimated taxable income, the
history of losses for tax purposes and the growth of the Company, among others.
A valuation allowance of $5.7 million was required for the deferred income tax
assets as at June 30, 2003.
To fully utilize the net deferred income tax assets of $19.1 million the Company
will need to generate future taxable income in applicable jurisdictions of
approximately $55.0 million. Based on the Company's current projection of
taxable income for the periods in which the deferred income tax assets are
deductible, it is more likely than not that the Company will realize the benefit
of the net deferred income tax assets as at September 30, 2003.
During the quarter ended September 30, 2003, the Company acquired the shares of
a company with tax loss carry forwards of $10.0 million. The Company expects to
fully utilize these losses within the current year. As the tax losses exceed the
purchase price, the Company recorded a current deferred tax asset of $3.3
million and an offsetting deferred tax credit of $3.3 million. As the losses are
utilized, both the current deferred tax asset and the deferred credit will
decrease concurrently and the Company will recognize the benefit of the loss
carry forwards in its income tax expense for the period.
NOTE 5 - SEGMENT INFORMATION
The Company has two reportable segments: North America and Europe. The Company
evaluates operating segment performance based on revenues and direct operating
expenses of the segment based on the location of the respective customers. The
accounting policies of the operating segments are the same as those set forth in
the Company's Annual Report on Form 10-K for the year ended June 30, 2003.
Included in the following operating results are allocations of certain operating
costs that are incurred in one reporting segment but which relate to all
reporting segments. The allocations of these common operating costs are
consistent with the manner in which they are allocated for presentation to, and
analysis by, the chief operating decision maker of the Company. The "Other"
category consists of geographic regions other than North America and Europe.
Contribution margin from operating segments does not include amortization of
intangible assets or acquired in-process research and development. Goodwill and
intangible assets have been included in segment assets.
94
Information about reported segments is as follows:
North
America Europe Other Total
---------- ---------- ------------ ---------
Three months ended
September 30, 2003
Revenues from external customers $26,316 $16,671 $1,198 $ 44,185
Operating costs 19,361 16,061 1,445 36,867
--------- -------- --------- -----------
Contribution margin $6,955 $ 610 $ (247) $ 7,318
========= ======== ========= ===========
Segment assets as of September 30, 2003 $94,932 $41,144 $2,117 $138,193
========= ======== ========= ===========
Three months ended
September 30, 2002
Revenues from external customers $22,148 $14,473 $1,034 $ 37,655
Operating costs 17,561 12,774 1,256 31,591
--------- -------- --------- -----------
Contribution margin $ 4,587 $ 1,699 $ (222) $ 6,064
========= ======== ========= ===========
Segment assets as of June 30, 2003 $98,769 $38,618 $2,106 $139,493
========= ======== ========= ===========
A reconciliation of the totals reported for the operating segments to the
applicable line items in the condensed consolidated financial statements for the
three months ended September 30, 2003 and 2002 is as follows:
--------------------------------------
Three months ended September 30,
2003 2002
--------------------------------------
Total contribution margin from operating
segments $ 7,318 $ 6,064
Amortization and depreciation (2,375) (1,703)
--------------------------------------
Income from operations 4,943 $4,361
Interest, other income and income taxes (1,589) 1,001
--------------------------------------
Net income $ 3,354 $ 5,362
======================================
-------------------------------------
As of September 30, As of June 30,
2003 2003
-------------------------------------
Segment assets $138,193 $139,493
Term deposits 104,205 99,194
--------------- ---------------
Total corporate assets $242,398 $238,687
=============== ===============
95
The following table sets forth the distribution of net revenues, determined by
location of customer and identifiable assets, by geographic area where the net
revenue for such location is greater than 10% of total revenue for the three
months ended September 30, 2003 and 2002:
--------------------------------
Three months ended September 30,
2003 2002
--------------------------------
Net revenues
Canada $ 3,636 $ 2,362
United States 22,680 19,786
United Kingdom 6,020 4,346
Rest of Europe 10,651 10,127
Other 1,198 1,034
-----------------------------
Total revenues $44,185 $37,655
=============================
-----------------------------------
As of September 30, As of June 30,
2003 2003
----------------------------------
Segment assets:
Canada $ 44,293 $ 43,725
United States 50,638 55,044
United Kingdom 14,914 13,733
Rest of Europe 26,231 24,885
Other 2,117 2,106
----------------------------------
Total segment assets $138,193 $139,493
==================================
96
NOTE 6 - ACCUMULATED DEFICIT
During the three-month period ended September 30, 2003, no Common Shares were
repurchased by the Company. During the three month period ended September 30,
2002, the Company, through its stock repurchase program, purchased 712,200 of
its Common Shares at an aggregate cost of $16.2 million. $7.3 million of the
repurchase was charged to Share capital based on the average carrying value of
the Common Shares, with the remaining $8.9 million charged to accumulated
deficit.
NOTE 7 - NET INCOME PER SHARE
--------------------------------------
Three Months Ended September 30,
2003 2002
--------------------------------------
(in thousands, except per share data)
Basic net income per share
Net income $ 3,354 $5,362
===================================
Weighted average number of shares outstanding** 39,522 39,279
===================================
Basic net income per share $0.08 $0.14
===================================
Diluted net income per share
Net income $ 3,354 $5,362
===================================
Weighted average number of shares outstanding** 39,522 39,279
Dilutive effect of stock options 2,691 $1,797
-----------------------------------
Adjusted weighted average number of shares outstanding** 42,213 41,076
===================================
Diluted net income per share $0.08 $0.13
===================================
* Anti-dilutive options of 228,783 have been excluded (first quarter fiscal
2003 2,394,326)
** Reflects stock dividend declared on October 8, 2003 for shareholder's of
record on Octoer 22, 2003
NOTE 8 - OPTION PLANS
Employee stock option plans
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and to present the pro
forma information that is required by SFAS No. 123 - "Accounting for Stock-Based
Compensation" ("SFAS 123"). APB 25 requires compensation cost for stock-based
employee compensation plans to be recognized over the vesting period of the
options based on the difference, if any, on the grant date between the quoted
market price of the Company's stock and the option exercise price. No
compensation cost was included in net income as reported for the three month
periods ended September 30, 2003 and 2002.
97
Had compensation cost for the Company's stock-based compensation plans and the
employee stock purchase plan been determined using the fair value approach set
forth in SFAS 123, the Company's net income for the three month period and net
income per share would have been in accordance with the pro forma amounts
indicated below:
----------------------------------
Three Months Ended September 30,
2003 2002
----------------------------------
(in thousands, except
per share amounts)
Net income
As reported $3,354 $5,362
Fair value compensation cost (1,637) $(1,977)
Pro forma $4,991 $7,339
Net income per share - basic
As reported $0.08 40.14
Pro forma $0.13 $0.19
Net income per share - diluted
As reported $0.08 $0.13
Pro forma $0.12 $0.18
Summary of Outstanding Stock Options
As of September 30, 2003, options to purchase an aggregate of 5,912,128 Common
Shares were outstanding under all of the Company's stock option plans out of an
allowable pool of options totaling 20,614,848. As of September 30, 2003 there
were exercisable options outstanding to purchase 4,047,161 shares at an average
price of $7.66. At September 30, 2002, there were exercisable options
outstanding to purchase 4,347,164 shares at an average price of $6.78. As a
result of the stock split declared on October 8, 2003 the number of stock
options doubled and accordingly the exercise price was halved.
98
The following table summarizes information regarding stock options outstanding
at September 30, 2003 adjusted for the stock dividend declared October 8, 2003:
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Outstanding at Exercise
Prices September 30, 2003 Life (years) Price September 30, 2003 Price
-------------------- ---------------------------------------------- -------------------------------
$ 0.08 - 4.63 1,098,940 3.31 $ 3.45 1,098,940 $ 3.45
4.69 - 6.88 1,357,630 4.86 6.48 1,333,381 6.49
7.22 - 9.16 290,750 5.4 7.81 242,000 7.68
9.25 - 10.75 1,007,700 7.36 10.31 539,200 10.22
10.76 - 13.97 1,106,668 8.02 12.00 384,200 11.33
14.10 - 20.00 1,050,440 8.02 15.63 449,440 15.22
------------------------------------------------ --------------------------------
$ 0.08 - 20.00 5,912,128 6.18 $ 9.29 4,047,161 $ 7.66
================================================ ================================
During the three month periods ending September 30, 2003 and 2002, 344,000 and
254,000 stock options were issued, respectively. The fair value of each stock
option grant on the date of grant was estimates using the Black-Scholes
option-pricing model with the following weighted average assumptions for the
stock-based compensation plans:
Three months
ended September 30,
--------------------------------------------------------------
2003 2002
--------------------------------------------------------------
Volatility 60% 74%
---------------------------------------------------------------
Risk-free interest rate 3,5% 6%
---------------------------------------------------------------
Dividend yield -- --
---------------------------------------------------------------
Expected lives (in years) 3,5 5,5
---------------------------------------------------------------
Weighted average fair value (in dollars) $ 7,83 $13,15
---------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES
As of September 30, 2003, the Company had future commitments and contractual
obligations as summarized in the following table. These commitments are
principally comprised of operating leases for the Company's leased premises.
99
Fiscal Year
------------
2004 $ 6,627
2005 8,986
2006 7,018
2007 6,071
Thereafter 29,830
----------
$58,532
==========
The Company does not enter into off-balance sheet financing as a matter of
practice except for the use of operating leases for office space, computer
equipment, and vehicles. In accordance with GAAP, neither the lease liability
nor the underlying asset is carried on the balance sheet, as the terms of the
leases do not meet the criteria for capitalization.
The Company typically agrees in its sales contracts to indemnify its customers
for any expenses or liability resulting from claimed infringements of patents,
trademarks or copyrights of third parties. The terms of these indemnification
agreements are generally perpetual after execution of the agreement. The maximum
amount of potential future indemnification is unlimited. To date the Company has
not paid any amounts to settle claims, defend lawsuits or otherwise under these
indemnification agreements.
NOTE 10 - SUBSEQUENT EVENTS
Gauss Acquisition
On October 16, 2003, Open Text announced that 2016090 Ontario Inc., a
wholly-owned subsidiary of Open Text, had waived all of the conditions of the
Sale and Purchase Agreements with certain shareholders of Gauss Interprise AG.
This transaction was previously announced August 27, 2003. After the transfer of
shares under these and other agreements, shares tendered in the public Tender
Offer and purchases of shares in the public market, 2016090 Ontario Inc. will
hold more than 75% of the total outstanding share capital of Gauss Interprise
AG. To support the guarantee provided by the Company's financial institution,
for consideration to be paid in the Gauss transaction, $12.0 million of cash was
restricted and shown as a long-term asset as of September 30, 2003. At September
30, 2003 the Company had incurred approximately $1.0 million in acquisition
related costs, which have been deferred and included in other assets in the
consolidated balance sheet.
IXOS Software AG
On October 21, 2003, Open Text announced that it had entered into a business
combination agreement with IXOS Software AG ("IXOS"), in which a wholly-owned
subsidiary of Open Text will acquire all of the issued and outstanding shares of
IXOS. The transaction will proceed via a tender offer to purchase all of the
issued and outstanding shares of common stock of IXOS (collectively, the "IXOS
Shares") for consideration, at the election of the holder of IXOS Shares, of
either (i) 9 Euro or (ii) 0.5220 of Open Text Common Share and 0.1484 of a
warrant, each whole warrant exercisable to purchase one Open Text Common Share
for up to one year after closing the transaction at a strike price of US $20.75
per share (a "Warrant"), for each IXOS Share tendered under the tender offer.
The foregoing exchange ratios and the warrant strike price give effect to the
Open Text stock dividend declared by the Board of Directors of Open Text
Corporation on October 8, 2003, of one common share for each common share held
as of the close of business on October 22, 2003.
SER
On October 23, 2003 Open Text acquired all the common shares of SER Solutions
Software GmbH and SER eGovernment Deutschland GmbH (SER) for total consideration
of up to $10.5 million (9 million euro) depending on future performance. A
portion of the purchase price is held to secure certain warranties,
representations and covenants in the acquisition agreement. The Companies
develop and markets the DOMEA(R) software solution.
100
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements that express or involve discussions
with respect to predictions, expectations, beliefs, plans, projections,
objectives, assumptions or future events or performance or the outcome of
litigation (often, but not always, using words or phrases such as "believes",
"expects" or "does not expect", "is expected", "anticipates" or "does not
anticipate" or "intends" or stating that certain actions, events or results
"may", "could", "would", "might" or "will" be taken or achieved) are not
statements of historical fact and may be "forward-looking statements". Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or developments in the Company's business or its industry, to
differ materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements. Such risks
and uncertainties include, the factors set forth in "Cautionary Statements" in
this Quarterly Report on Form 10-Q. Readers should not place undue reliance on
any such forward-looking statements, which speak only as at the date they are
made. Forward-looking statements are based on management's current plans,
estimates, opinions and projections, and the Company assumes no obligation to
update forward-looking statements if assumptions regarding these plans,
estimates, opinions or projections should change. This discussion should be read
in conjunction with the condensed consolidated financial statements and related
notes for the periods specified. Further reference should be made to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2003.
Overview
Open Text develops, markets, licenses and supports collaboration and knowledge
management software for use on intranets, extranets and the Internet. The
Company's principal product line is Livelink(R), a leading collaboration and
knowledge management software product for global enterprises. The software
enables users to find electronically stored information, work together in
creative and collaborative processes, perform group calendaring and scheduling,
and distribute or make available to users across networks or the Internet the
resulting work product and other information. This collaborative environment
enables ad hoc teams to form quickly across functional and organizational
boundaries, which enables information to be accessed by employees using any
standard Web browser. Fully Web-based with open architecture, Livelink provides
rapid out-of-the-box deployment, accelerated adoption, and low cost of
ownership. Open Text provides integrated solutions that enable people to use
information and technology more effectively at departmental levels and across
enterprises. The Company offers its solutions both as end-user stand-alone
products and as fully integrated modules, which together provide a complete
solution that is easily incorporated into existing enterprise business systems.
Although most of the Company's technology is proprietary in nature, the Company
does include certain third party software in its products.
During the three months ended September 30, 2003, the Company recorded total
revenue of $44.2 million, of which license revenue was $16.9 million and net
income of $3.4 million. In addition, the Company's cash and cash equivalents
excluding $12.0 million of cash restricted in connection with the Company's
acquisition of shares of Gauss Interprise AG ("Gauss"), were $108.7 million,
with cash flow from operations totaling $8,000. The Company's days' sales
outstanding ("DSO") of 57 days at September 30, 2003, were significantly
improved over 71 days at September 30, 2002. Segment information relating to the
financial statements is presented in Note 5 to the Company's condensed
consolidated financial statements.
101
On October 16, 2003, the company announced that 2016090 Ontario Inc., a
wholly-owned subsidiary of the Company, had waived all of the conditions of the
Sale and Purchase Agreements with certain shareholders of Gauss. This
transaction was previously announced August 27, 2003. After the transfer of
shares under these and other agreements, shares tendered in the public Tender
Offer and purchases of shares in the public market, 2016090 Ontario Inc. will
hold more than 75% of the total outstanding share capital of Gauss Interprise
AG. Gauss is one of Europe's leading developers of Web Content Management (WCM)
software, serving more than 1,100 customers worldwide through headquarters in
Hamburg, Germany, and Irvine, CA. Gauss provides Integrated Document and Output
Management (IDOM) software for ERP systems. These products automate processes
such as invoicing, ordering and insurance claims, allowing customers to convert
large volumes of paper into electronic documents via imaging technology and
processing them through highly structured workflows.
On October 21, 2003, the Company announced that it had entered into a business
combination agreement with IXOS Software AG ("IXOS"), in which a wholly-owned
subsidiary of the company will acquire all of the issued and outstanding shares
of IXOS. IXOS is a leader in content management and archiving and is currently
considered to be Europe's number one provider of Enterprise Content Management
(ECM). Munich-based IXOS has approximately 900 employees and revenues of US$145
million in the fiscal year ended June 30, 2003. With the completion of the
tender offer, the combined company will become the world's largest ECM solutions
provider. ECM is the technology used to create, capture, customize, deliver,
manage and archive content across the enterprise.
The Company continues to seek opportunities to acquire or invest in businesses,
products and technologies that expand, compliment or are otherwise related to
the Company's current business or products. The Company also considers, from
time to time, opportunities to engage in joint ventures or other business
collaborations with third parties to address particular market segments.
Critical Accounting Policies and Estimates
The Company's condensed consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States
("US GAAP"). These accounting principles were applied on a basis consistent with
those of the consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended June 30, 2003 filed with the Securities
and Exchange Commission.
The preparation of consolidated financial statements in accordance with U.S.
generally accepted accounting principles necessarily requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to revenues, bad debts, investments, intangible assets,
income taxes, contingencies and litigation. The Company bases its estimates on
historical experience and on various other assumptions that are believed at the
time to be reasonable under the circumstances.
The critical accounting policies affecting significant judgments and estimates
used in the preparation of its condensed consolidated financial statements have
been applied as outlined in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission. Under different assumptions or
conditions, the actual results will differ, potentially materially, from those
previously estimated. Many of the conditions impacting these assumptions and
estimates are outside of the Company's control.
102
Results of Operations
Three Months Ended September 30, 2003 compared with Three Months Ended September
30, 2002
Revenues
The Company's total revenues increased 17% from $37.7 million in the three
months ended September 30, 2002 to $44.2 million for the three months ended
September 30, 2003.
License revenues increased 9% from $15.5 million in the three months ended
September 30, 2002 to $16.9 million in the three months ended September 30,
2003. The increase in license revenues is largely a result of the Company's
growth from acquisitions. During the quarter ended September 30, 2003 the
Company completed two license transactions that generated over $1.0 million in
revenue each, the majority of which represented license revenue.
Customer support revenues increased 42% from $13.7 million in the three months
ended September 30, 2002 to $19.4 million for the three months ended September
30, 2003. The increase in customer support revenues was attributable to both
strong retention rates with existing customers as well as growth from
acquisitions.
Service revenues decreased 7% from $8.5 million in the three months ended
September 30, 2002 to $7.9 million in the three months ended September 30, 2003.
The decrease in service revenues relates primarily to focusing our services to
support rapid deployment of solutions and implementations. Utilization in the
quarter ended September 30, 2003 and September 30, 2002 was 49% and 60%,
respectively. Lower utilization rates are expected during the summer quarter due
to seasonality.
No single customer comprised greater than 10% of the Company's revenue in the
three months ended September 30, 2003 or 2002. For the three months ended
September 30, 2003 and 2002, 59% of total revenues were from customers located
in North America, 38% of total revenues were from customers in Europe and 3% of
revenues were from customers in countries outside North America and Europe
("Other").
Cost of revenues
Cost of license revenues decreased 22% from $1.6 million in the three months
ended September 30, 2002 to $1.3 million in the three months ended September 30,
2003. As a percentage of license revenues, cost of license revenues represented
11% in the three months ended September 30, 2002 compared with 8% in the three
months ended September 30, 2003. The decrease in the cost and percentage of
license revenues resulted from a decrease in licensing of third-party software,
and therefore the associated royalties, during the three months ended September
30, 2003 as compared with the same three-month period a year ago.
Cost of customer support revenues increased 37% from $2.3 million in the three
months ended September 30, 2002 to $3.2 million in the three months ended
September 30, 2003. As a percentage of customer support revenues, cost of
customer support revenues remained relatively consistent at 17% and 16% in the
three months ended September 30, 2002 and 2003, respectively, primarily due to a
higher revenue base. The increase in cost of customer support revenues is
primarily due to an increase in personnel-related expenses, primarily as a
result of acquisitions and increases in personnel to support organic growth.
Cost of service revenues increased 16% from $6.2 million in the three months
ended September 30, 2002 to $7.2 million in the three months ended September 30,
2003. As a percentage of service revenues, cost of service revenues increased
from 73% in the three months ended September 30, 2002 to 91% in the three months
ended September 30, 2003. The increase in cost of service revenues resulted
primarily from increases in the number of employees resulting from the Company's
acquisitions compared to a year ago.
103
Research and development
Research and development expenses increased 30% from $6.2 million in the three
months ended September 30, 2002 to $8.0 million in the three months ended
September 30, 2003. Research and development expenses consist primarily of
personnel expenses, and their related facilities and equipment expenses. As a
percentage of total revenues, research and development expenses increased from
16% in the three months ended September 30, 2002 to 18% in the three months
ended September 30, 2003. The increase in research and development expenses
primarily resulted from an increase in personnel-related expenses associated
with the new employees from acquisitions and the Company's continued commitment
to developing new products and integrating acquired technologies.
Sales and marketing
Sales and marketing expenses increased 15% from $12.0 million in the three
months ended September 30, 2002 to $13.8 million in the three months ended
September 30, 2003. Sales and marketing expenses include the costs associated
with the Company's sales force including compensation costs, travel, and
training, as well as the costs of marketing programs and initiatives. As a
percentage of total revenues, sales and marketing expenses decreased slightly
from 32% in the three months ended September 30, 2002 to 31% in the three months
ended September 30, 2003. The increase in sales and marketing expenses in
absolute dollars is primarily due to increases in amounts spent on tradeshows as
well as employee incentive programs and added headcount from acquired companies.
The decrease in sales and marketing expenses as a percentage of total revenues
for the three months ended September 30, 2003 resulted from a higher total
revenue base.
General and administrative
General and administrative expenses increased 3% from $3.2 million in the three
months ended September 30, 2002 to $3.4 million in the three months ended
September 30, 2003. General and administrative expenses consist primarily of the
salaries of administrative personnel and related overhead and facilities
expenses. As a percentage of total revenues, general and administration expenses
decreased from 9% for the three months ended September 30, 2002 to 8% for the
three months ended September 30, 2003. The decrease in general and
administrative expenses as a percentage of total revenues resulted primarily
from a higher total revenue base.
Depreciation
Depreciation expense remained constant at $1.2 million for the three months
ended September 30, 2002 and 2003. As a percentage of revenues, depreciation
expense remained approximately 3% for both the three months ended September 30,
2002 and 2003.
Amortization of acquired intangible assets
Amortization of acquired intangible assets increased 144% from $0.5 million in
the three months ended September 30, 2002, to $1.2 million in the three months
ended September 30, 2003, primarily as a result of acquisitions completed by the
Company. As a percentage of total revenues, amortization of acquired intangible
assets increased from 1% in the three months ended September 30, 2002 to 3% in
the three months ended September 30, 2003. Amortization of acquired intangible
assets increased primarily because the three months ended September 30, 2003
included the amortization of core technology and purchased software acquired
pursuant to the acquisitions completed in the prior year.
104
Other income (expense)
Other income (expense) decreased 162% from $617,000 for the three months ended
September 30, 2002 to $(380,000) for the three months ended September 30, 2003.
Other income (expense) consists primarily of foreign exchange gains or losses,
which reflect relative movements in the various foreign currencies in which the
Company conducts business.
Interest income
Interest income decreased 41% from $384,000 for the three months ended September
30, 2002 to $225,000 for the three months ended September 30, 2003. The
reduction in interest income is a result of lower interest rates realized in the
three months ended September 30, 2003, compared to the three months ended
September 30, 2002.
Income taxes
As of September 30, 2003, the Company had total net deferred tax assets of $19.1
million, the principal component of which is temporary differences associated
with net operating loss carry forwards. The Company operates in several tax
jurisdictions. The Company's income is subject to varying rates of tax, and
losses incurred in one jurisdiction cannot be used to offset income taxes
payable in another. The Company has provided against the deferred tax asset with
a valuation allowance of $5.8 million because it believes that sufficient
uncertainty exists regarding the realization of certain deferred tax assets. The
Company continues to evaluate its taxable position quarterly and therefore its
valuation allowance and considers factors by taxing jurisdiction such as
estimated taxable income, the history of losses for tax purposes and the growth
of the Company, among others.
As of September 30, 2003, the Company had approximately $69.5 million of losses
and deductions available to reduce taxable income in future years, the benefit
of which is reflected in the deferred tax assets. Deductions of $17.0 million
have no expiration date, and the balance of losses expire between 2004 and 2018.
During the quarter ended September 30, 2003, the Company acquired the shares of
a Company with tax loss carry forwards of $10.0 million. The Company expects to
fully utilize these losses within the current year. As the tax losses exceed the
purchase price the Company recorded a current deferred tax asset of $3.3 million
and an offsetting deferred tax credit of $3.3 million. As the losses are
utilized, both the current deferred tax asset and the deferred credit will
decrease concurrently and the Company will recognize the benefit of the loss
carry forwards in its income tax expense for the period.
During the quarter ended September 30, 2003, the Company recorded a tax
provision of $1.4 million compared to no tax provision during the quarter ended
September 30, 2002. The reason for the increase in the Company's tax provision
is the Company became taxable in certain taxing jurisdictions where it was
previously able to use loss carryforwards.
Liquidity and Capital Resources
Other than cash generated through its operations, the Company has traditionally
financed its cash needs primarily through the issuance of the Company's Common
Shares. At September 30, 2003, the Company had current assets of $157.3 million,
current liabilities of $60.0 million and working capital of $97.3 million. These
amounts compare to current assets of $164.1 million, current liabilities of
$69.7 million, and working capital of $94.4 million at June 30, 2003. At
September 30, 2003, the Company had cash and cash equivalents totaling $108.7
million, compared to cash and cash equivalents of $116.6 million at June 30,
2003. The change in the Company's cash and cash equivalents, current assets and
working capital balances since the beginning of the fiscal year are largely a
result of cash restricted in connection with the Gauss acquisition, a large tax
payment made during the period and timing of payment of payables. These were
partially offset by net income for the three months ended September 30, 2003,
cash collections during the quarter and cash provided by exercises under the
Company's stock option program as well as decreases in current liabilities.
105
Net cash provided by operating activities was approximately $8,000 for the
period ended September 30, 2003 compared with $9.6 million for the period ended
September 30, 2002. The decrease in cash flow from operations was primarily a
result of a large tax payment, decreases in accounts payable and deferred
revenue, and lower net income in the three months ended September 30, 2003,
compared to the three months ended September 30, 2002.
Net cash used in investing activities was $1.9 million during the three months
ended September 30, 2002 compared to $14.6 million during the three months ended
September 30, 2003. The cash used during the three months ended September 30,
2003 primarily related to amounts restricted for the Gauss acquisition and costs
associated with the Company's acquisitions. Also included in investing
activities is the purchase of capital assets, which totaled $828,000 during the
three months ended September 30, 2003 as compared with $530,000 during the three
months ended September 30, 2002.
Net cash provided by financing activities totaled $6.7 million in the three
months ended September 30, 2003, primarily resulting from cash provided by
exercises under the Company's stock option program. Net cash used in financing
activities was $14.5 million in the three months ended September 30, 2002,
primarily resulting from the repurchase for cancellation of 712,200 Common
Shares at a cost of $16.2 million, of which $7.3 million was charged to share
capital and $8.9 million was charged to accumulated deficit, partially offset by
proceeds of $1.7 million from the sale of Common Shares related to the exercise
of Company stock options.
The Company has a Cdn$10.0 million (USD$6.3 million) line of credit with a
Canadian chartered bank, under which no borrowings were outstanding at September
30, 2003, the entire amount of which was available for use. The line of credit
bears interest at the lender's prime rate plus 0.5% and is secured by all of the
Company's assets, including an assignment of accounts receivable.
On October 16, 2003, the Company announced that 2016090 Ontario Inc., a
wholly-owned subsidiary of the Company, had waived all of the conditions of the
Sale and Purchase Agreements with certain shareholders of Gauss. This
transaction was previously announced August 27, 2003.
On October 21, 2003, the Company announced that it had entered into a business
combination agreement with IXOS Software AG ("IXOS"), in which a wholly-owned
subsidiary of the Company will acquire all of the issued and outstanding shares
of IXOS. Based on recent exchange rates the total purchase consideration would
be approximately $240 million US in cash assuming all IXOS shareholders elected
to receive cash.
On a cumulative basis, to date, license and service revenues have been
insufficient to satisfy the Company's total cash requirements, particularly as
the Company has sought to repurchase its Common Shares, acquire businesses and
grow its infrastructure. The Company will likely need to raise additional funds,
however, in order to fund more rapid expansion of our business, develop new and
enhance existing products and services, or acquire complimentary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or convertible securities, the percentage ownership of the Company's
stockholders may be reduced, the Company's stockholders may experience
additional dilution, and such securities may have rights, preferences, or
privileges senior to those of the Company's stockholders. Additional financing
may not be available on terms favorable to the Company, or at all. If adequate
funds are not available or are not available on acceptable terms, the Company's
ability to fund its expansion, take advantage of acquisition opportunities or
develop or enhance its services or products would be significantly limited.
106
Cautionary Statements
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, including those set forth in the
following cautionary statements and elsewhere in this Quarterly Report on Form
10-Q, that may cause the actual results, performance or achievements of the
Company, or developments in the Company's industry, to differ materially from
the anticipated results, performance, achievements or developments expressed or
implied by such forward-looking statements. The following factors, as well as
all of the other information set forth herein, should be considered carefully in
evaluating Open Text and its business. If any of the following risks were to
occur, the Company's business, financial condition and results of operations
would likely suffer. In that event, the trading price of the Company's Common
Shares would likely decline.
If the Company does not continue to develop new technologically advanced
products, future revenues will be negatively affected
Open Text's success will depend on its ability to design, develop,
test, market, license and support new software products and enhancements of
current products on a timely basis in response to both competitive products and
evolving demands of the marketplace. In addition, new software products and
enhancements must remain compatible with standard platforms and file formats.
Presently, Open Text is continuing to enhance the capability of its Livelink
software to enable users to form workgroups and collaborate on intranets and the
Internet. The Company increasingly must integrate software licensed from third
parties with its own software to create or improve intranet and Internet
products. These products are key to the success of the Company's strategy, and
the Company may not be successful in developing and marketing these and other
new software products and enhancements. If the Company is unable to successfully
integrate the technologies licensed from third parties, to develop new software
products and enhancements to existing products, or to complete products
currently under development, or if such integrated or new products or
enhancements do not achieve market acceptance, the Company's operating results
will materially suffer. In addition, if new industry standards emerge that the
Company does not anticipate or adapt to, the Company's software products could
be rendered obsolete and its business would be materially harmed.
If the Company's products and services do not gain market acceptance, the
Company may not be able to increase its revenues
Open Text is continually working on the development of, and improvements to, new
versions of Livelink and other products. In June 2003 the company released
Livelink LaunchForce an application that offers closed-loop distribution of
critical information to a distributed field-sales organization. This product
based on rich-media technology acquired by Open Text from Eloquent,
significantly speeds up training for sales forces and simultaneously helps large
sales organizations save money. In August 2003 the company released Livelink 9.2
that significantly advances the ease of use of the system and added significant
capabilities to support team collaboration. In addition the company continues to
improve Meeting Zone based on customer feedback. The primary market for Open
Text's software and services is rapidly evolving. As is typical in the case of a
new and rapidly evolving industry, demand for and market acceptance of products
and services that have been released recently or that are planned for future
release are subject to a high level of uncertainty. If the markets for the
Company's products and services fail to develop, develop more slowly than
expected or become saturated with competitors, the Company's business will
suffer. The Company may be unable to successfully market its current products
and services, develop new software products, services and enhancements to
current products and services, complete customer installations on a timely
basis, or complete products and services currently under development. If the
Company's products and services or enhancements do not achieve and sustain
market acceptance, the Company's business and operating results will be
materially harmed.
107
Current and future competitors could have a significant impact on the Company's
ability to generate future revenue and profits
The markets for the Company's products are new, intensely competitive,
subject to rapid technological change and are evolving rapidly. The Company
expects competition to increase and intensify in the future as the markets for
the Company's products continue to develop and as additional companies enter
each of its markets. Numerous releases of products and services that compete
with those of the Company can be expected in the near future. The Company may
not be able to compete effectively with current and future competitors. If
competitors were to engage in aggressive pricing policies with respect to
competing products, or significant price competition were to otherwise develop,
the Company would likely be forced to lower its prices. This could result in
lower revenues, reduced margins, loss of customers, or loss of market share for
the Company.
Acquisitions, investments, joint ventures and other business initiatives may
negatively affect our operating results
Open Text acquired three companies in fiscal 2003 and continues to seek
out opportunities to acquire or invest in businesses, products and technologies
that expand, complement or are otherwise related to the Company's current
business or products. The Company also considers from time to time,
opportunities to engage in joint ventures or other business collaborations with
third parties to address particular market segments. These activities, including
the fiscal 2003 acquisitions, create risks such as the need to integrate and
manage the businesses acquired with the business of the Company, additional
demands on the Company's management, resources, systems, procedures and
controls, disruption of the Company's ongoing business, and diversion of
management's attention from other business concerns. Moreover, these
transactions could involve substantial investment of funds and/or technology
transfers and the acquisition or disposition of product lines or businesses.
Also, such activities could result in one-times charges and expenses and have
the potential to either dilute existing shareholders or result in the assumption
of debt. Such acquisitions, investments, joint ventures or other business
collaborations may involve significant commitments of financial and other
resources of the Company. Any such activity may not be successful in generating
revenue, income or other returns to the Company, and the financial or other
resources committed to such activities will not be available to the Company for
other purposes. The Company's inability to address these risks could negatively
affect the Company's operating results.
A reduction in the number or sales efforts by distributors could materially
impact the Company's revenues
A portion of the Company's revenue is derived from the license of its products
through third parties. The Company's success will depend, in part, upon its
ability to maintain access to existing channels of distribution and to gain
access to new channels if and when they develop. The Company may not be able to
retain a sufficient number of its existing or future distributors. Distributors
may also give higher priority to the sale of other products (which could include
products of competitors) or may not devote sufficient resources to marketing the
Company's products. The performance of third party distributors is largely
outside the control of the Company and the Company is unable to predict the
extent to which these distributors will be successful in marketing and licensing
the Company's products. A reduction in sales efforts, or a decline in the number
of distributors, or the discontinuance of sales of the Company's products by its
distributors could lead to reduced revenue.
The Company's international operations expose the Company to business risks that
could cause the Company's operating results to suffer
Open Text intends to continue to make efforts to increase its international
operations and anticipates that international sales will continue to account for
a significant portion of its revenue. Revenues derived outside of North America
represented 42%, 40% and 41% of total revenues for fiscal 2003, fiscal 2002 and
fiscal 2001 respectively. These international operations are subject to certain
risks and costs, including the difficulty and expense of administering business
abroad, compliance with foreign laws, compliance with domestic and international
import and export laws and regulations, costs related to localizing products for
foreign markets, and costs related to translating and distributing products in a
timely manner. International operations also tend to expose the Company to a
longer sales and collection cycle, as well as potential losses arising from
currency fluctuations, and limitations regarding the repatriation of earnings.
Significant international sales may also expose the Company to greater risk from
political and economic instability, unexpected changes in Canadian, US or other
governmental policies concerning import and export of goods and technology, and
other regulatory requirements and tariffs and other trade barriers. In addition,
international earnings may be subject to taxation by more than one jurisdiction,
which could also materially adversely affect the Company's results of
operations. Moreover, international expansion may be more difficult, time
consuming, and costly. As a result, if revenues from international operations do
not offset the expenses of establishing and maintaining foreign operations, the
Company's operating results will suffer.
108
The Company's products may contain defects that could harm the Company's
reputation, be costly to correct, delay revenues, and expose the Company to
litigation.
The Company's products are highly complex and sophisticated and, from time to
time, may contain design defects or software errors that are difficult to detect
and correct. Errors may be found in new software products or improvements to
existing products after commencement of commercial shipments, or, if discovered,
the Company may not be able to successfully correct such errors in a timely
manner, or at all. In addition, despite tests carried out by the Company on all
its products, the Company may not be able to fully simulate the environment in
which its products will operate and, as a result, the Company may be unable to
adequately detect design defects or software errors inherent in its products and
which only become apparent when the products are installed in an end-user's
network. The occurrence of errors and failures in the Company's products could
result in loss of or delay in market acceptance of the Company's products, and
alleviating such errors and failures in the Company's products could require
significant expenditure of capital and other resources by the Company. Because
the Company's end-user base consists of a limited number of end-users, the harm
to the Company's reputation resulting from product errors and failures would be
damaging to the Company. The Company regularly provides a warranty with its
products and the financial impact of these warranty obligations may be
significant in the future. The Company's agreements with its strategic partners
and end-users typically contain provisions designed to limit the Company's
exposure to claims, such as exclusions of all implied warranties and limitations
on damage remedies and the availability of consequential or incidental damages.
However, such provisions may not effectively protect the Company against claims
and related liabilities and costs. Although the Company maintains errors and
omissions insurance coverage and comprehensive liability insurance coverage,
such coverage may not be adequate and all claims may not be covered.
Accordingly, any such claim could negatively affect the Company's financial
condition.
Other companies may claim that the Company's intellectual property violates
their patents, which could result in significant costs to defend and if the
Company is not successful could have a significant impact on the Company's
ability to generate future revenue and profits
Although the Company does not currently believe that it is infringing on the
intellectual property of other companies, as software patents become more
prevalent, it is possible that certain parties will claim that the Company's
products violate their patents. Such claims could be disruptive to the Company's
ability to generate revenue and may result in significantly increased costs as
the Company attempts to license the patents or rework its products to ensure
that they are not in violation of the claimant's patents or dispute the claims.
The Company currently depends on certain third-party software, the loss of
which could result in increased costs of, or delays in, licenses of the
Company's products. For a limited number of product modules, the Company relies
on certain software that it licenses from third parties, including software
that is integrated with internally developed software and which is used in its
products to perform key functions. These third-party software licenses may not
continue to be available to us on commercially reasonable terms, and the
related software may not continue to be appropriately supported, maintained, or
enhanced by the licensors. The loss of license to use, or the inability of
licensors to support, maintain, and enhance any of such software, could result
in increased costs, delays, or reductions in product shipments until equivalent
software is developed or licensed, if at all, and integrated.
109
Current and future competitors could have a significant impact on the Company's
ability to generate future revenue and profits
The markets for the Company's products are new, intensely competitive,
subject to rapid technological change and are evolving rapidly. The Company
expects competition to increase and intensify in the future as the markets for
the Company's products continue to develop and as additional companies enter
each of its markets. Numerous releases of products and services that compete
with those of the Company can be expected in the near future. The Company may
not be able to compete effectively with current and future competitors. If
competitors were to engage in aggressive pricing policies with respect to
competing products, or significant price competition were to otherwise develop,
the Company would likely be forced to lower its prices. This could result in
lower revenues, reduced margins, loss of customers, or loss of market share for
the Company.
The length of the Company's sales cycle can fluctuate significantly which could
result in significant fluctuations in license revenue being recognized from
quarter to quarter
Because the decision by a customer to purchase the Company's products often
involves relatively large-scale implementation across the customer's network or
networks, licenses of these products may entail a significant commitment of
resources by prospective customers, accompanied by the attendant risks and
delays frequently associated with significant expenditures and lengthy sales
cycle and implementation procedures. Given the significant investment and
commitment of resources required by an organization in order to implement the
Company's software, the Company's sales cycle tends to take considerable time to
complete. Particularly in the current economic environment of reduced
information technology spending, it can take several months, or even quarters,
for sales opportunities to translate into revenue. If installation of the
Company's products in one or more customers takes longer than originally
anticipated, the date on which revenue from these licenses could be recognized
would be delayed. Such delays could cause the Company's revenues to be lower
than expected in a particular period.
The Company may not achieve its anticipated revenues if it does not expand its
product line
Substantially all of Open Text's revenues are currently derived from its
Livelink and related products and services offered by the Company in the
Internet, intranet and extranet markets. Accordingly, the Company's future
results of operations will depend, in part, on expanding its product-line and
related services. To achieve its revenue goals, the Company must also continue
to enhance these products and services to meet the evolving needs of its
customers. A reduction in demand or increase in competition in the market for
Internet or intranet applications, or a decline in licenses of Livelink and
related services, would significantly harm the Company's business.
The Company must continue to manage its growth or its operating results could be
adversely affected
Over the past several years, Open Text has experienced growth in revenues,
operating expenses, and product distribution channels. In addition, Open Text's
markets have continued to evolve at a rapid pace. The total number of employees
of the Company has grown from 292 as of September 1, 1996 to 1,168, as of
September 30, 2003, including contractors. The Company believes that continued
growth in the breadth of its product lines and services and in the number of
personnel will be required in order to establish and maintain the Company's
competitive position. Moreover, the Company has grown significantly through
acquisitions in the past and continues to review acquisition opportunities as a
means of increasing the size and scope of its business. Open Text's growth,
coupled with the rapid evolution of the Company's markets, has placed, and is
likely to continue to place, significant strains on its administrative and
operational resources and increased demands on its internal systems, procedures
and controls. The Company's administrative infrastructure, systems, procedures
and controls may not adequately support the Company's operations and the
Company's management may not be able to achieve the rapid, effective execution
of the product and business initiatives necessary to successfully penetrate the
markets for the Company's products and services and to successfully integrate
any business acquisitions in the future. If the Company is unable to manage
growth effectively, the Company's operating results will likely suffer.
110
The Company's products rely on the stability of various infrastructure software
which, if not stable, could negatively impact the effectiveness of the Company's
products, resulting in harm to the reputation and business of the Company
Developments of internet and intranet applications by Open Text depends on the
stability, functionality and scalability of the infrastructure software of the
underlying intranet, such as that of Sun, HP, Oracle, Microsoft and others. If
weaknesses in such infrastructure software exist, the Company may not be able to
correct or compensate for such weaknesses. If the Company is unable to address
weaknesses resulting from problems in the infrastructure software such that the
Company's products do not meet customer needs or expectations, the Company's
business and reputation may be significantly harmed.
The Company's quarterly revenues and operating results are likely to fluctuate
which could impact the price of the Company's Common Shares
The Company has experienced, and is likely to continue to experience,
significant fluctuations in quarterly revenues and operating results caused by
many factors, including changes in the demand for the Company's products, the
introduction or enhancement of products by the Company and its competitors,
market acceptance of enhancements or products, delays in the introduction of
products or enhancements by the Company or its competitors, customer order
deferrals in anticipation of upgrades and new products, changes in the Company's
pricing policies or those of its competitors, delays involved in installing
products with customers, the mix of distribution channels through which products
are licensed, the mix of products and services sold, the mix of international
and North American revenues, foreign currency exchange rates and general
economic conditions.
Like many other software companies, the Company has generally recognized a
substantial portion of its revenues in the last weeks of each quarter.
Accordingly, the cancellation or deferrals of even a small number of licenses or
delays in installations of the Company's products could have a material adverse
effect on the Company's results of operations in any particular quarter. The
Company also has noted historically lower sales in July and August than in other
months, which has resulted in proportionately lower revenues recorded in the
quarter ended September 30 than in other quarters. Because of the impact of the
timing of product introductions and the rapid evolution of the Company's
business and the markets it serves, the Company cannot predict whether seasonal
patterns experienced in the past will continue. For these reasons, no one should
rely on period-to-period comparisons of the Company's financial results to
forecast future performance. It is likely that the Company's quarterly revenue
and operating results will vary significantly in the future and if a shortfall
in revenue occurs or if operating costs increase significantly, the market price
of our Common Shares could decline.
Failure to protect our intellectual property could harm our ability to compete
effectively
The Company is highly dependent on its ability to protect its
proprietary technology. The Company's efforts to protect its intellectual
property rights may not be successful. The Company relies on a combination of
copyright, trademark and trade secret laws, non-disclosure agreements and other
contractual provisions to establish and maintain its proprietary rights. The
Company has not sought patent protection for its products. While US and Canadian
copyright laws, international conventions and international treaties may provide
meaningful protection against unauthorized duplication of software, the laws of
some foreign jurisdictions may not protect proprietary rights to the same extent
as the laws of Canada or the United States. Software piracy has been, and can be
expected to be, a persistent problem for the software industry. Enforcement of
the Company's intellectual property rights may be difficult, particularly in
some nations outside of the United States and Canada in which the Company seeks
to market its products. Despite the precautions taken by the Company, it may be
possible for unauthorized third parties, including competitors, to copy certain
portions of the Company's products or to reverse engineer or obtain and use
information that the Company regards as proprietary. Although the Company does
not believe that its products infringe on the rights of third parties, third
parties may assert infringement claims against the Company in the future, and
any such assertions may result in costly litigation or require the Company to
obtain a license for the intellectual property rights of third parties, such
licenses may not be available on reasonable terms, or at all.
111
If the Company is not able to attract and retain top employees, the Company's
ability to compete may be harmed
The Company's performance is substantially dependent on the performance of its
executive officers and key employees. The loss of the services of any of its
executive officers or other key employees could significantly harm the Comany's
business. The Company does not maintain "key person" life insurance policies on
any of its employees. The Company's success is also highly dependent on its
continuing ability to identify, hire, train, retain and motivate highly
qualified management, technical, sales and marketing personnel, including
recently hired officers and other employees. Specifically, the recruitment of
top research developers, along with experienced salespeople, remains critical to
the Company's success. Competition for such personnel is intense, and the
Company may not be able to attract, integrate or retain highly qualified
technical and managerial personnel in the future.
The volatility of the Company's stock price could lead to losses by shareholders
The market price of the Common Shares has been highly volatile and subject to
wide fluctuations. Such fluctuations in market price may continue in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts or other events or factors. In
addition, the financial markets have experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies or have resulted from the failure
of the operating results of such companies to meet market expectations in a
particular quarter. Broad market fluctuations or any failure of the Company's
operating results in a particular quarter to meet market expectations may
adversely affect the market price of the Common Shares, resulting in losses to
shareholders. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Due to the volatility of our stock price, the
Company could be the target of securities litigation in the future. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business and operating results.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is primarily exposed to market risks associated with fluctuations in
interest rates and foreign currency exchange rates.
Interest rate risk
The Company's exposure to interest rate fluctuations relates primarily to its
investment portfolio, since the Company had no borrowings outstanding under its
line of credit at September 30, 2003. The Company primarily invests its cash in
short-term high-quality securities with reputable financial institutions. The
primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing the income the Company receives from
its investments without significantly increasing risk. The Company does not use
derivative financial instruments in its investment portfolio. The interest
income from the Company's investments is subject to interest rate fluctuations,
which the Company believes would not have a material impact on the financial
position of the Company.
All highly liquid investments with a maturity of less than three months at the
date of purchase are considered to be cash equivalents. All investments with
maturities of three months or greater are classified as available-for-sale and
considered to be short-term investments. Some of the securities that the Company
has invested in may be subject to market risk. This means that a change in the
prevailing interest rates may cause the principal amount of the investment to
fluctuate. The impact on net interest income of a 100 basis point adverse change
in interest rates for the quarter ended September 30, 2003 would have been a
decrease of approximately $0.3 million.
112
Foreign currency risk
The Company has net monetary asset and liability balances in foreign currencies
other than the US Dollar, including the Canadian Dollar ("CDN"), the Pound
Sterling ("GBP"), the Australian dollar ("AUD"), the Swiss Franc ("CHF"), the
German Mark ("DEM"), the French Franc ("FRF"), the Dutch Guilder ("NLG"), the
Danish Kroner ("DKK"), the Arabian Durham ("AED"), and the Euro ("EUR"). The
Company's cash and cash equivalents are primarily held in US Dollars The Company
does not currently use financial instruments to hedge operating expenses in
foreign currencies. The Company intends to assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.
The following tables provide a sensitivity analysis on the Company's exposure to
changes in foreign exchange rates. For foreign currencies where the Company
engages in material transactions, the following table quantifies the impact that
a 10% change against the U.S. dollar would have had on the Company's total
revenues, operating expenses, and net income for the quarter ended September 30,
2003. This analysis is presented in both functional and transactional currency.
Functional currency represents the currency of measurement for each of an
entity's domestic and foreign operations. Transactional currency represents the
currency the underlying transactions take place in. The impact of changes in
foreign exchange rates for those foreign currencies not presented in these
tables is not material.
10% Change in Functional Currency
(in thousands)
----------------------------------
Total Operating Net
Revenue Expenses Income
----------------------------------
Euro $747 $447 $300
British Pound 602 404 198
Swiss Franc 200 151 49
Swedish Krona 126 61 65
10% Change in Transactional Currency
(in thousands)
------------------------------------
Total Operating Net
Revenue Expenses Income
------------------------------------
Euro $697 $455 $242
British Pound 576 391 185
Canadian Dollar 341 915 (574)
Swedish Krona 100 59 41
Item 4. Controls and Procedures
As of September 30, 2003, our Chief Executive Officer and Chief Financial
Officer performed an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures pursuant to Rule 13-a15(b) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that as of September 30, 2003, our disclosure controls and
procedures are effective in ensuring that material information required to be
disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, including ensuring that
such material information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. There were
no changes in our internal control over financial reporting over our last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
113
PART II Other Information
Item 1. Legal Proceedings
-----------------
The Harold Tilbury and Yolanda Tilbury Family Trust has brought an action
against the Company under the Ontario Arbitrators Act. The complaint alleges
failure to pay amounts owing under a stock purchase agreement for purchase of
Bluebird Systems ("Bluebird"), a company previously acquired. The claim is for
$10 million plus $5 million in punitive damages. The Company was not a party to
the stock purchase agreement but has been held by the arbitrator to be principal
behind the transaction. The Company has counterclaimed and instituted an action
under the Ontario Arbitrators Act against Harold Tilbury and Yolanda Tilbury as
Trustees of the Tilbury Family Trust, and Harold Tilbury personally, claiming
that not only is no further amounts owing but for reimbursement for parts of the
purchase price of Bluebird. The Company is also seeking indemnification for
breaches of the representations and warranties under the stock purchase
agreement in the amount of approximately $6.5 million. This claim also asks for
a rescission of a facility lease assumed on the purchase of Bluebird, or damages
of $7 million, together with punitive damages of $1 million.
In the normal course of business the Company is subject to various other legal
matters. While the results of litigation and claims cannot be predicted with
certainty, the Company believes that the final outcome of these other matters
will not have a materially adverse effect on its consolidated results of
operations or financial conditions.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
-----------------------------------------------------------------------
Exhibit No Description
-----------------------------------------------------------------------
10.1 Support Letter Agreement issued by GAP LP, GAPCO II, KG
and GapStar and accepted and agreed to by Open Text
Corporation, dated October 20, 2003.*
-----------------------------------------------------------------------
10.2 Business Combination Agreement between 2016091 Ontario,
Inc., Open Text Corporation and IXOS Software AG, dated
October 20, 2003.*
-----------------------------------------------------------------------
31.1 Certification Pursuant to Rule 13a-14(a) of the
Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
-----------------------------------------------------------------------
31.2 Certification Pursuant to Rule 13a-14(a) of the
Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
-----------------------------------------------------------------------
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (furnished herewith).
-----------------------------------------------------------------------
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (furnished herewith).
-----------------------------------------------------------------------
114
* Filed as an Exhibit to Schedule 13D, as filed by the Company with the
SEC on October 30, 2003 and incorporated herein by reference.
(b) Reports on Form 8-K
--------------------------------------------------------------------------------------------------------
Description
--------------------------------------------------------------------------------------------------------
i) Financial results On August 14, 2003, the Company furnished a Report
on Form 8-K, pursuant to Item 12 thereof, to furnish
a press release announcing the Company's financial results
for the fiscal quarter ended June 30, 2003.
--------------------------------------------------------------------------------------------------------
ii) Tender offer for Gauss Interpris On August 29, 2003, the Company filed a Report on
Form 8-K, pursuant to Items 5 and 7 thereof, to file a
press release announcing the Company's tender offer for
common shares of Gauss Interprise of Hamburg, Germany.
--------------------------------------------------------------------------------------------------------
115
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
OPEN TEXT CORPORATION
(Registrant)
Date: November 10, 2003
By: /s/P. Thomas Jenkins
---------------------------------------------
P. Thomas Jenkins
Chief Executive Officer
/s/Alan Hoverd
.. ---------------------------------------------
Alan Hoverd
Chief Financial Officer
(Principal Financial and Accounting Officer)
116
d) Index to Exhibits
No. Description
10.1 Support Letter Agreement issued by GAP LP, GAPCO II, KG and GapStar
and accepted and agreed to by Open Text Corporation, dated October 20, 2003*.
10.2 Business Combination Agreement between 2016091 Ontario, Inc., Open Text Corporation and IXOS Software
AG, dated October 20, 2003*.
31.1 Certification Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith)
*Filed as an Exhibit to Schedule 13D, as filed by the Company with the SEC on
October 30, 2003 and incorporated herein by reference.
117
Exhibit 31.1
CERTIFICATIONS
I, P. Thomas Jenkins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Open Text
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) [Paragraph omitted in accordance with SEC transition
instructions contained in SEC Release 34-47986.]
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
118
Date: November 10, 2003
By: /s/ P. Thomas Jenkins
------------------------
P. Thomas Jenkins
Chief Executive Officer
119
Exhibit 31.2
I, Alan Hoverd, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Open Text
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) [Paragraph omitted in accordance with SEC transition
instructions contained in SEC Release 34-47986.]
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 10, 2003
By: /s/ Alan Hoverd
--------------------------
Alan Hoverd,
Chief Financial Officer
120
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Open Text Corporation
(the "Company") for the quarter ended September 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, P.
Thomas Jenkins, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
/s/P. Thomas Jenkins
-----------------------
P. Thomas Jenkins
Chief Executive Officer
Dated: November 10, 2003
121
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Open Text Corporation
(the "Company") for the quarter ended September 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Alan
Hoverd, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
(S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
/s/Alan Hoverd
-------------------------
Alan Hoverd
Chief Financial Officer
Dated: November 10, 2003
122
4. Material changes Consolidated Balance Sheet as of June 30, 2003 and/or
Interim Financial Report as of September 30, 2003
After the last financial reports dated November 10, 2003, the following material
changes have occurred within Open Text Group:
Credit Agreement with Royal Bank of Canada and other banks on a credit facility
of up to EUR 123,000,000 (RBC Credit Agreement). This RBC Credit Agreement is
drawn up in order to finance the acquisition of the IXOS Shares by way of the
Tender Offer. For details on the RBC Credit Agreement please see Section 10.3 of
the Offer Document.
5. Statutory Auditors
KPMG LLP
Chartered Accountants
Yonge Corporate Centre
4100 Yonge Street Suite 200
Toronto ON M2P 2H3
Canada
Telephone (416) 228-7000
Telefax (416) 228-7123
www.kpmg.ca
IX. Taxation
1. Taxation of Shareholder in Canada and United States of America
a) Canadian Federal Income Tax Considerations
The following summary is based upon the current provisions of the Income Tax Act
(Canada) (the "ITA") and the regulations thereunder, all proposed amendments to
the ITA and the regulations thereunder publicly announced by the Department of
Finance, Canada prior to the date hereof, the current administrative policies
and assessing practices of the Canada Customs and Revenue Agency ("CCRA").
Except for the foregoing, this summary does not take into account or anticipate
changes in the law or the administrative policies or assessing practices of the
CCRA whether by legislative, governmental or judicial action and does not take
into account or anticipate provincial, territorial or foreign tax
considerations.
This summary relates to the principal Canadian federal income tax considerations
under the ITA and the regulations thereunder generally applicable to purchasers
of Offered Open Text-Shares and Offered Open Text-Warrants hereunder who for
purposes of the ITA, are not, have not been and will not be or be deemed to be
resident in Canada at any time while they held or hold Offered Open Text-Shares
and Offered Open Text-Warrants , deal at arm's length with Open Text, will hold
their Offered Open Text-Shares and Offered Open Text-Warrants as capital
property, and do not use or hold, and will not and will not be deemed to use or
hold their Offered Open Text-Shares and Offered Open Text-Warrants in, or in the
course of carrying on a business in Canada.
Amounts in respect of Offered Open Text-Shares paid or credited or deemed to be
paid or credited as, on account or in lieu of payment of, or in satisfaction of,
dividends to a non-resident holder will generally be subject to Canadian
non-resident withholding tax. Such withholding tax is levied at a basic rate of
25%, which may be reduced pursuant to the terms of an applicable tax treaty
between Canada and the country of residence of the non-resident holder.
Currently, under the Canada and United States Income Tax Convention (1980), as
amended (the Convention), the rate of Canadian non-resident withholding tax on
the gross amount of dividends beneficially owned by a person who is a resident
of the United States for the purpose of the Convention is 15% except where such
beneficial owner is a company which owns at least 10% of the voting stock of
Open Text (in which case the rate of such withholding is 5%).
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A purchase of Offered Open Text-Shares by Open Text (other than a purchase of
Offered Open Text-Shares by Open Text on the open market in the manner in which
shares would be purchased by any member of the public in the open market) will
give rise to a deemed dividend under the ITA equal to the difference between the
amount paid by Open Text on the purchase and the paid-up capital of such shares
determined in accordance with the ITA. The paid-up capital of such shares may be
less than the non-resident holder's cost of such shares. Any such dividend
deemed to have been received by a non-resident holder would be subject to a
non-resident withholding tax as described above. The amount of any such deemed
dividend will reduce the proceeds of disposition of the Offered Open Text-Shares
to the non-resident holder for purposes of computing the amount of the
non-resident holder's capital gain or loss under the ITA.
A holder who is not resident in Canada for purposes of the ITA will generally
not be subject to tax under the ITA in respect of any capital gain or entitled
to deduct any capital loss realized on a disposition of Offered Open Text-Shares
or Offered Open Text-Warrants unless at the time of such disposition such
Offered Open Text-Shares constitute "taxable Canadian property" of the holder
for purposes of the ITA and the holder is not entitled to relief pursuant to the
terms of an applicable tax treaty between Canada and the country of residence of
the non-resident holder. If the Offered Open Text-Shares are listed on a
prescribed stock exchange (which includes the TSX and the NASDAQ) at the time
they are disposed of, they will generally not constitute "taxable Canadian
property" of the non-resident holder at the time of a disposition of such shares
unless, at any time during the five year period immediately preceding the
disposition of the Offered Open Text-Shares, 25% or more of the issued shares of
any class or series of Open Text were owned by the non-resident holder, by
persons with whom the non-resident holder did not deal at arm's length or by the
non-resident holder and persons with whom the non-resident holder did not deal
at arm's length. The Offered Open Text-Warrants will not constitute "taxable
Candian property" at the time of the disposition of such Offered Open
Text-Warrants if the holder and persons not dealing at arm's length with the
holder do not hold Offered Open Text-Shares that constitute "taxable Canadian
Property" at that time. In any event, under the Convention, gains derived by a
resident of the US from the disposition of Offered Open Text-Shares or Offered
Open Text-Warrants will generally not be taxable in Canada unless , in the case
of Offered Open Text-Shares the value of the Offered Open Text-Shares is derived
principally from real property situated in Canada.
When a non-resident holder dies holding Offered Open Text-Shares or Offered Open
Text-Warrants, such holder will be deemed to have disposed of such Offered Open
Text-Shares or Offered Open Text-Warrants for proceeds equal to the fair market
value thereof immediately before such holder's death and will be subject to the
tax treatment with respect to dispositions described above. Any person who
acquires such Offered Open Text-Shares or Offered Open Text-Warrants as a
consequence of the death of such holder will be deemed to have acquired such
Offered Open Text-Shares or Offered Open Text-Warrants at a cost equal to their
fair market value at that time.
b) United States Federal Income Taxation
The following discussion summarizes certain US federal income tax considerations
relevant to an investment in the Offered Open Text-Shares by individuals and
corporations who, for income tax purposes, are resident in the US and not in
Canada, hold Offered Open Text-Shares as capital assets, do not use or hold the
Offered Open Text-Shares in carrying on a business through a permanent
establishment or in connection with a fixed base in Canada and, in the case of
individual investors, are also US citizens (collectively, "Unconnected US
Shareholders"). The tax consequences of an investment in the Offered Open
Text-Shares by investors who are not Unconnected US Shareholders may be expected
to differ substantially from the tax consequences discussed herein. Further,
this summary is not a comprehensive description of all of the tax considerations
that may be relevant to an Unconnected US Shareholder based on such
Shareholder's particular circumstances. In particular, this discussion does not
address the potential application of the alternative minimum tax. In addition,
this discussion does not address the US federal income tax consequences to
Unconnected US Shareholders that are subject to special treatment under US
federal income tax laws, including, but not limited to:
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o broker-dealers;
o banks or insurance companies;
o taxpayers who have elected mark-to-market accounting;
o tax-exempt organizations;
o financial institutions;
o taxpayers who hold ordinary shares as part of a "straddle",
"hedge", or "conversion transaction" with other investments;
o individual retirement or other tax-deferred accounts;
o holders owning directly, indirectly or by attribution at least 10% of
our voting power; and o taxpayers whose functional currency is not the
US dollar.
This discussion does not address any aspect of US federal gift or estate tax, or
of state, local or non-U.S. tax laws.
The discussion is based upon the provisions of the US Internal Revenue Code of
1986, as amended (the "Code"), the existing and proposed Treasury regulations
promulgated thereunder, the Convention, the administrative practices published
by the US Internal Revenue Service ("IRS") and US judicial decisions, all of
which are subject to change. This discussion does not consider the potential
effects, both adverse and beneficial, of any recently proposed legislation
which, if enacted, could be applied, possibly on a retroactive basis, at any
time.
Unconnected US Shareholders generally will treat the gross amount of dividends
paid by Open Text equal to the US dollar value of such dividends on the date the
dividends are received or treated as received (based on the exchange rate on
such date), without reduction for the Canadian withholding tax, as dividend
income for US federal income tax purposes to the extent of Open Text's current
and accumulated earnings and profits. However, the amount of Canadian tax
withheld generally will give rise to a foreign tax credit or deduction for US
federal income tax purposes. Investors should be aware that dividends paid by
Open Text generally will constitute "passive income" for purposes of the foreign
tax credit, which could reduce the amount of the foreign tax credit available to
a US shareholder. The Code applies various limitations on the amount of foreign
tax credit that may be available to a US taxpayer. Investors should consult
their own tax advisors with respect to the potential consequences of those
limitations. Dividends paid on the Offered Open Text-Shares will not generally
be eligible for the "dividends received" deduction. An investor that is a
corporation may, under certain circumstances, be entitled to a 70% deduction of
the US-source portion of dividends received from Open Text if such investor owns
shares representing at least 10% of the voting power and value of Open Text. To
the extent that distributions exceed current and accumulated earnings and
profits of Open Text, they will be treated first as a return of capital, up to
the investor's adjusted basis in Offered Open Text-Shares and thereafter as gain
from the sale or exchange of the Offered Open Text-Shares.
In the case of foreign currency received as a dividend that is not converted by
the recipient into US dollars on the date of receipt, an Unconnected US
Shareholder will have a tax basis in the foreign currency equal to its US dollar
value on the date the dividends are received or treated as received. Any gain or
loss recognized upon a subsequent sale or other disposition of the foreign
currency, including an exchange for US dollars, will be ordinary income or loss.
The sale of Offered Open Text-Shares generally will result in the recognition of
gain or loss to the holder in an amount equal to the difference between the
amount realized and the holder's adjusted basis in the Offered Open Text-Shares.
The tax basis will initially equal its cost to the Unconnected US Shareholder,
as reduced by any distributions on the shares treated as return of capital. The
Unconnected US Shareholder that is an individual will be taxed on the net amount
of his or her capital gain at a maximum rate of 15% provided the Offered Open
Text-Shares were held for more than 12 months. Special rules (and generally
lower maximum rates) apply to individuals in lower tax brackets.
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Corporate taxpayers may deduct capital losses to the extent of capital gains.
Non-corporate taxpayers may deduct excess capital losses, whether short-term or
long-term, up to an additional US$ 3,000 a year (US$ 1,500 in the case of a
married individual filing separately). Non-corporate taxpayers may carry forward
unused capital losses indefinitely. Unused capital losses of a corporation
(other than an S corporation) may be carried back three years and carried
forward five years.
In general, dividends paid on Offered Open Text-Shares and payments of the
proceeds of a sale of Offered Open Text-Shares, paid within the US or through
certain US-related financial intermediaries, are subject to information
reporting and may be subject to backup withholding at a 30% rate (or lower rate
then in effect as established by the Economic Growth and Tax Relief
Reconciliation Act of 2001) unless (i) the payor is entitled to, and does in
fact, presume that the Unconnected US Shareholder of Offered Open Text-Shares is
a corporation or other exempt recipient or (ii) the Unconnected US Shareholder
provides a taxpayer identification number on a properly completed Form W-9 and
certifies that no loss of exemption from backup withholding has occurred. The
amount of any backup withholding will be allowed as a credit against an
Unconnected US Shareholder's US federal income tax liability and may entitle
such holder to a refund, provided that the required information is furnished to
the IRS.
Passive Foreign Investment Company
A non-US corporation will be classified as a passive foreign investment company
(a "PFIC") for US federal income tax purposes if it satisfies either of the
following two tests: (i) 75% or more of its gross income for the taxable year is
"passive income" (generally, interest, dividends, royalties, rent and similar
income, and gains on disposition of assets that generate such income) or (ii)
50% or more of its assets produce or are held for the production of passive
income on average for the taxable year (by value or, if Open Text so elects, by
adjusted basis). If the corporation owns, directly or indirectly, at least 25%
by value of the stock of another corporation, it will be treated as if it holds
directly its proportionate share of assets, and receives directly its
proportionate share of income of such other corporation. Accordingly, the
classification of Open Text as a PFIC in any taxable year will depend on the
character of the income and the assets of Open Text and its subsidiaries.
Open Text does not believe that it is currently a PFIC. If Open Text were to be
a PFIC for any taxable year, US investors would be required to (i) at
disposition or when such investor receives an "excess distribution", pay a
penalty tax equivalent to US federal income tax at ordinary income rates,
calculated as if any gain on that sale were realized (or the excess distribution
were made) ratably over that holding period, plus an interest charge on taxes
that are deemed due during the period that the investor owned that stock, (ii)
if a Qualified Electing Fund election is made, include currently in their
taxable income certain undistributed amounts of Open Text's income, or (iii) if
a mark-to-market election is made, include currently an amount of ordinary
income or loss (which loss is subject to limitations) each year in an amount
equal to the difference between the fair market value of such investor's shares
in Open Text and such investor's adjusted tax basis therein.
Controlled Foreign Corporation
If more than 50 % of the voting power of all classes of stock or the total value
of the stock of Open Text is owned, directly or indirectly, by US persons
including citizens or residents of the US, US domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom owns 10 % or more of the total combined voting power of all classes of
stock of Open Text (a "10% US Shareholders"), Open Text would be treated as a
"controlled foreign corporation" under Subpart F of the Code. This
classification would have many complex results, including the required inclusion
by such 10% US Shareholders in income of their pro rata shares of "Subpart F
income" (as specifically defined by the Code) of Open Text. Open Text does not
believe that it is currently a controlled foreign corporation.
2. Taxation of Shareholders in Germany
This section provides a brief summary of German taxation principles which may be
(or become) relevant with respect to Offered Open Text Shares, as well as
Offered Open Text Warrants. By its very nature, this summary does not purport to
be exhaustive regarding all tax aspects that could be relevant for shareholders
or holders of warrants. It does not contain any information regarding the tax
consequences of exchanging Offered Open Text Warrants into Open Text shares. The
summary is based on presently applicable German tax laws and regulations in
force at the time of preparing this sales prospectus. These provisions may be
subject to change at short notice and, as the case may be, in retrospect.
126
a. Taxation of Dividends
In accordance with the double taxation agreement entered into between Germany
and Canada, Germany is generally entitled to tax any dividends distributed by
Open Text to shareholders subject to unlimited tax liability in Germany. Any
Canadian withholding tax levied on dividends distributed on Offered Open Text
Shares can generally be set off against German income tax or corporation tax
levied on dividends distributed on Open Text shares.
According to German tax law, for individuals subject to unlimited tax liability
in Germany holding Open Text shares as private assets, 50% of dividends
distributed on Open Text shares are subject to income tax (under the so called
"half income taxation" regime - Halbeinkunfteverfahren). Dividends are taxed at
a progressive rate of income tax, with a current maximum tax rate of 48.5 % in
for the 2003 tax year (which, according to current legislation, is going to fall
to 47% for 2004 and 42% for 2005), plus a 5.5% solidarity surcharge
(Solidaritatszuschlag) on the income tax burden. Given the maximum income tax
rate of 48.5%, the overall tax burden amounts to approx. 51.17%. Only 50% of
income-related expenses are tax-deductible, irrespective of the tax year during
which the dividends accrued.
An annual tax-free savings allowance (Sparer-Freibetrag) of EUR 1,550.00, plus
EUR 51.00 in blanket deductible expenses (or any higher expense amount
substantiated by evidence) are granted to individuals subject to unlimited tax
liability in Germany holding Open Text shares as private assets. (The respective
amounts are doubled to EUR 3,100.00 and EUR 102.00 for married couples jointly
assessed.) Income tax is thus only levied on the amount by which the aggregate
of the taxable portion of dividends and other income on capital, less
tax-deductible expenses (or the blanket amount of deductibles) exceeds the
savings allowance.
Where Open Text shares are held as business assets, taxation depends on the
shareholder's legal form (limited company, individual or partnership). We would
therefore recommend that shareholders seek professional advice regarding the tax
consequences.
b) Taxation of Capital Gains
In accordance with the double taxation agreement entered into between Germany
and Canada, Germany is generally entitled to tax any capital gains incurred upon
disposal of Open Text shares by shareholders subject to unlimited tax liability
in Germany. The same applies to Offered Open Text Warrants.
According to German tax law, for individuals subject to unlimited tax liability
in Germany holding Open Text shares or Offered Open Text Warrants as private
assets, 50% of capital gains incurred upon the disposal of such shares or
Warrants are generally taxed at the shareholder's individual tax rate (which is
determined using a progressive tariff) plus 5.5% solidarity surcharge on the
income tax burden, provided that such disposal takes place within one year of
acquisition of Open Text shares or Offered Open Text Warrants. In this scenario,
capital gains on the sale of subscription rights which are the result of owning
Open Text shares would also be subject to income tax (plus solidarity
surcharge), provided that disposal takes place within one year of acquisition of
Open Text shares vesting such subscription right. In fact, the full amount of
gains may be subject to income tax and solidarity surcharge. Capital gains from
the disposal of private assets during a given calendar year (including 50% of
gains realized upon the disposal of shares) are tax-exempt if the total amount
is less than EUR 512.00.
In cases where a shareholder (or, in the event of acquisition without
consideration, the transferor) held a stake of 1% or more in the company's
capital at any time during the preceding five-year period, 50% of capital gains
incurred upon the disposal of Open Text shares or Offered Open Text Warrants
held as private assets are subject to income tax at the shareholder's individual
tax rate (which is determined using a progressive tariff) plus 5.5% solidarity
surcharge on the income tax burden, even if disposal takes place outside the
holding period referred to above. In this scenario, capital gains on the sale of
subscription rights which are the result of owning Open Text shares would also
be subject to income tax (plus the solidarity surcharge). In fact, the full
amount of gains may be subject to income tax and solidarity surcharge.
127
Where Open Text shares or Offered Open Text Warrants are held as business
assets, the taxation of capital gains upon disposal of such shares or Warrants
depends on the shareholder's legal form (limited company, individual or
partnership). We would therefore recommend that shareholders seek professional
advice regarding the tax consequences
According to the assessment of the German tax authorities, the full amount of
gains arising from subscription rights which are a result of the ownership of
Open Text shares (held as business assets) is subject to income tax or, if
applicable, corporation tax, plus solidarity surcharge as well as trade tax.
c) Shareholders who are not tax-resident in Germany
For shareholders who are not resident in Germany for taxation purposes, income
or gains from Open Text shares or Offered Open Text Warrants are nevertheless
subject to German tax if such shares or Warrants are held as business assets of
a German operation. In this case, the tax consequences are generally identical
to those of a tax-resident shareholder holding Open Text shares or Offered Open
Text Warrants as business assets.
d) Inheritance or Gift Taxes
The transfer of Open Text shares or Offered Open Text Warrants by reason of
death or as a gift is subject to German inheritance or gift tax if, in the case
of inheritance tax, the shareholder or his/her heir, or, in the case of gift
tax, the shareholder or the donee (or other beneficiary) is/are subject to
taxation pursuant to the specific provisions of the German Inheritance and Gift
Tax Act (Erbschaft- und Schenkungsteuergesetz). This applies in particular where
the shareholder, heir, donee or other beneficiary (i) at the time of the
inheritance or gift, was resident or ordinarily resident in Germany; (ii) if of
German nationality, has not been continuously residing outside Germany for a
period exceeding five years prior to the death or the gift; (iii) is a limited
company whose registered office or place of management is in Germany; or (iv) if
the Open Text shares or Offered Open Text Warrants are held as business assets
attributable to a German operation, or a permanent representative in Germany.
e) Other Taxes
No stock exchange turnover tax, value-added tax or stamp duty is due upon
purchase or sale of Open Text shares or Offered Open Text Warrants in Germany.
In certain circumstances, businesses may elect to pay value-added tax on
turnover that would normally be tax-exempt. At present, no wealth tax is charged
in Germany. Should Open Text own land within Germany (whether directly or
indirectly), German property transfer tax may fall due upon the disposal of
shares, provided that certain threshold values are exceeded.
3. Taxation in general and taxation of Shareholders in other Countries
IXOS Shareholders are advised to obtain tax advice relating to their individual
tax position before acceptance of this Offer; this is in particular true for
IXOS Shareholders residing in countries which have not been addressed above.
4. Taxation of Open Text
As a resident of Canada, Open Text Corporation is subject to Canadian federal
tax on its income. Generally speaking, income subject to tax does not include
dividends from Canadian subsidiaries or, to the extent derived from active
business income earned in a country with which Canada has a tax treaty and
earned after the foreign subsidiary became a "foreign affiliate" for Canadian
tax purposes, dividends from foreign subsidiaries.
128
Open Text Corporation is also subject to federal capital tax. The issue of
Offered Open Text-Shares and Offered Open Text-Warrants will not increase
liability for capital tax to the extent the carrying value of its investment in
the Bidder is increased by an amount equal to its additional capital. Similarly,
liability of the Bidder for federal capital tax will not increase if the
carrying value of the IXOS Shares acquired is at least equal to its additional
capital. There are no stamp taxes in Canada.
Open Text Corporation is also subject to Canadian provincial income and capital
taxes and the Open Text Group operates in several non-Canadian tax
jurisdictions. For additional information, see "Note 11 - Income Taxes" to the
Open Text consolidated financial statements for the fiscal year ended June 30,
2003.
X. Business Developments and Prospects of Open Text
1. Latest Business Developments of Open Text
On October 23, 2003, Open Text acquired all of the common shares
(Geschaftsanteile) of SER Solutions Software GmbH and SER eGovernment
Deutschland GmbH (SER) for total consideration of up to $10.5 million (9 million
euro) depending on future performance . A portion of the purchase price is held
to secure certain warranties, representations and covenants in the acquisition
agreement. The acquired companies develop and market the DOMEA software
solution.
Recent acquisitions by Open Text are part of an overall process of consolidation
in the ECM industry as customers seek to have a complete suite of products
integrated into a single product to manage their enterprise content. The
Company's acquisition strategy reflects its strong focus on ECM positioning. To
extend Open Text's enterprise suite of offerings, the Company completed three
strategic acquisitions in 2003. Leveraging Centrinity's technology and expertise
will enable Livelink customers to integrate e-mail, voicemail and other
unstructured content. Eloquent adds a team of technical experts who have
developed a robust technology platform for combining synchronized audio and
video with Livelink and Livelink MeetingZone(TM). Corechange's portal software
provides a comprehensive window into a company's enterprise content and includes
a unique set of built-in features that make it easy to collaborate effectively
with colleagues, customers and partners.
Financial results in fiscal 2003 were specifically driven by a demand for
solutions to address the compliance needs of several industries. This continued
strong investment in new product innovation continues to win positive response
from the Company's existing and potential customers. In June 2003, Open Text
announced a corporate governance platform for Livelink, giving companies a
single system to manage critical information and collaboration in the face of
detailed Sarbanes-Oxley regulations. Open Text also announced a Livelink
solution to assist financial institutions in managing critical information in
the face of new industry regulations, as well as managing employee training,
licensing and certification. During the year the Company introduced Livelink for
Clinical Trials(TM) and Livelink for Regulated Documents(TM), providing
pharmaceutical companies complete solutions to ensure information is managed in
a way that is compliant with rules from regulatory authorities, including the
U.S. Food and Drug Administration.
Despite continued constraint in IT spending during fiscal 2003, Open Text
continued to see initial pilots turn into large-scale deployments as long-term
customers continued to find innovative ways to increase their investment in Open
Text's products. Open Text continued to increase its investment in sales and
marketing to position the organization effectively for an economic recovery.
During fiscal 2003 there was a notable increase in transactions over $1 million,
a year in which Open Text signed the largest transaction in its history. On the
partner front, the Company announced partnerships entered into with Adobe,
Siemens and Ricoh in fiscal 2003.
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2. Business Prospects of Open Text
The ECM sector is maturing and driving vendors to consolidate, in order to
broaden their product lines so that they can take advantage of enterprise growth
opportunities, strengthen and extend customer relationships, and achieve
increased efficiencies. These opportunities are being driven by significant
increases in content growth resulting from email traffic volume growth, greater
usage of collaboration solutions, higher volumes of unstructured content,
requirements for content to satisfy regulatory compliance statutes, and the need
to store and retrieve content faster and more effectively.
Key customer requirements in the software market are dominant size and financial
stability. Most customers require one-stop shopping and ease of implementation
and rapid deployment of solutions to save them money. Through its internal
development and acquisition strategy, Open Text has created a broad product line
to offer to customers with broad geographic distribution channels. These
integrated capabilities have become essential for large companies facing the
increasing demands of corporate governance laws and other industry regulations
worldwide. By providing the most comprehensive ECM solutions, Open Text will be
positioned to leverage their large, installed customer bases, realize
significant cross-selling opportunities and accelerate growth worldwide at a
time when customers are looking for more integrated solutions from fewer
software vendors.
In fiscal 2003, Open Text continued to expand its product offerings for major
vertical applications, including: Pharmaceutical, Government, and Financial
Services. In each of these industries, leading global 2000 companies are looking
for proven ECM solutions to manage their regulatory compliance issues. There is
continued demand for Open Text's software across many industries, and similar
solutions will be created for industries such as Oil and Gas, Hi-tech
Manufacturing and Construction.
With a focus on customer satisfaction and investment in new product innovations
as well as its sales and marketing initiatives, Open Text's objective is to
outperform its peers in the ECM space.
In its press release dated October 23, 2003, Open Text published its guidance
for its second fiscal quarter ending December 31, 2003 of $53 million in
revenues and adjusted net income of $6.7 million, or $0.16 adjusted EPS
(Earnings per Share), in each case excluding any impact of the proposed
acquisition of IXOS. For its fiscal year ending June 30, 2004, Open Text
provided annual revenue guidance of approximately $227 million and earnings
guidance of $28.1 million adjusted net income or $0.67 adjusted EPS, in each
case excluding any impact of the proposed acquisition of IXOS.
The Company uses the financial measures "adjusted EPS" to supplement its
consolidated financial statements, which are presented in accordance with US
generally accepted accounting principles ("GAAP"). The presentation of adjusted
EPS is not meant to be a substitute for net income or net income per share
presented in accordance with GAAP, but rather should be evaluated in conjunction
with such GAAP measures. Adjusted EPS is calculated as net income on a per share
basis excluding (a) the amortization of acquired intangible assets, (b) other
income, gain (loss) on investments and (c) income tax on equity gain. The term
adjusted EPS does not have a standardized meaning prescribed by GAAP, and
therefore Open Text's definitions are unlikely to be comparable to similar
measures presented by other companies. Open Text's management believes that the
presentation of adjusted EPS provide useful information to investors because
they exclude non-operational charges and are a better indication of Open Text's
profitability from recurring operations. The items excluded from the computation
of adjusted EPS, which are otherwise included in the determination of earnings
per share prepared in accordance with GAAP, are items that Open Text does not
consider to be meaningful in evaluating its past financial performance or the
future prospects and may hinder a comparison of its period-to-period
profitability.
Forward-looking statements in this Section are not promises or guarantees and
are subject to risks and uncertainties that could cause our actual results to
differ materially from those anticipated. Open Text cautions the reader not to
place undue reliance upon any such forward-looking statements, which speak only
as of the date made. Forward-looking statements relate to, among other things,
the future performance of Open Text, the strength of Open Text's pipeline, Open
Text's growth and profitability prospects,
130
Open Text's position in the market, and future opportunities therein, the
benefits of Open Text's products to be realized by customers, the demand for
Open Text's products, the benefits of any acquisition and the deployment of
Livelink and Livelink MeetingZone by customers. Forward-looking statements may
also include, without limitation, any statement relating to future events,
conditions or circumstances. The risks and uncertainties that may affect
forward-looking statements include, among others, risks involved in the
completion and integration of acquisitions, the possibility of technical,
logistical or planning issues in connection with deployments, the continuous
commitment of Open Text's customers, demand for Open Text's products and other
risks detailed from time to time in Open Text's filings with the Securities and
Exchange Commission (SEC) and this Appendix 1 to the Tender Offer.
Forward-looking statements are based on management's beliefs and opinions at the
time the statements are made, and Open Text does not undertake any obligations
to update forward-looking statements should circumstances or management's
beliefs or opinions change.
Appendix 2
OPEN TEXT CORPORATION
and
COMPUTERSHARE TRUST COMPANY OF CANADA
WARRANT INDENTURE
Providing for the Issue of
Common Share Purchase Warrants
Dated as of o, 2003
THIS WARRANT INDENTURE made as of o, 2003
B E T W E E N:
OPEN TEXT CORPORATION, a corporation existing under the laws
of the Province of Ontario and having its registered office
in the City of Waterloo, in the Province of Ontario
(hereinafter called the "Corporation"),
- and -
COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company
existing under the laws of Canada and having an office in the
City of Toronto, in the Province of Ontario
(hereinafter called the "Warrant Trustee")
WHEREAS the Corporation proposes to issue up to o common
share purchase warrants ("Warrants"), each Warrant entitling the registered
holder thereof to purchase one common share in the capital of the Corporation
(subject to adjustment as herein provided) at the price and upon the terms and
conditions herein set forth;
AND WHEREAS for such purpose the Corporation deems it
necessary to create and issue Warrants constituted and issued in the manner
hereinafter appearing;
AND WHEREAS the Warrants will be represented solely by Warrant
Certificates issued hereunder;
AND WHEREAS the Warrant Trustee is the registrar and transfer
agent in respect of the common shares of the Corporation;
AND WHEREAS all things necessary have been done and performed
to make the Warrants and the Warrant Certificates (when certified by the Warrant
Trustee and issued as provided for in this Indenture) legal, valid and binding
upon the Corporation with the benefits of and subject to the terms of this
Indenture;
AND WHEREAS the representations and statements of fact
contained in the first three of the above recitals are those of the Corporation
and not of the Warrant Trustee;
-2-
NOW THEREFORE THIS INDENTURE WITNESSES that for good and
valuable consideration mutually given and received, the receipt and sufficiency
of which is hereby acknowledged, it is hereby agreed and declared as follows:
ARTICLE 1
INTERPRETATION
Section 1.1 Definitions
In this Indenture, unless there is something in the subject
matter or context inconsistent therewith, the terms defined in this Section or
elsewhere herein shall have the respective meanings specified in this Section or
elsewhere herein:
(a) "Affiliate" has the meaning ascribed thereto in the Securities Act
(Ontario), as amended or replaced from time to time;
(b) "Business Day" means a day which is not Saturday or Sunday or a
statutory holiday in the City of Toronto or a day on which the office
of the Warrant Trustee is closed;
(c) "Capital Reorganization" has the meaning attributed thereto in
subsection 5.2(4);
(d) "Change of Control" means, with respect to the Corporation, the
occurrence of any of the following events: (i) a tender offer shall be
made and consummated for the ownership of 30% or more of the
outstanding voting securities of the Corporation; (ii) the Corporation
shall be merged or consolidated with another corporation and as a
result of such merger or consolidation less than 50% of the
outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former shareholders
of the Corporation, other than Affiliates of any party to such merger
or consolidation as the same shall have existing immediately prior to
such merger or consolidation; (iii) the Corporation shall sell
substantially all of its assets to another corporation which is not a
wholly owned subsidiary; (iv) any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) or "group" (within the meaning
of Rules 13d-3 and 13d-5 under the Exchange Act) is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that such person or group shall be deemed to have
"beneficial ownership" of all shares that any such person or group has
the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than
45% of either the total economic value of the Corporation's
outstanding Capital Stock or the total voting power of the
Corporation; (v) within any period of two consecutive years commencing
on or after the Closing Date, individuals who at the beginning of such
period constitute the Board of Directors of the Corporation cease for
any reason to constitute a majority thereof, unless the election of
each director who was not a director at the beginning of such period
has been approved in advance by directors representing at least a
majority of the directors then in office who were directors at the
beginning of the period (for purposes hereof, ownership of voting
securities shall take into account and shall include ownership as
determined by applying the provisions of Rule 13(d)-3(d)(1)(i)
pursuant to the Exchange Act); or (vi) a merger, consolidation or
similar transaction (regardless of whether the Corporation is a
constituent corporation in such transaction and other than those
transactions of the type referred to in clause (ii) above) with
respect to which persons who were beneficial owners of voting
securities immediately prior to such transaction own less than 50% of
the voting securities (including securities of any successor
corporation of the Corporation having the ordinary power to vote in
the election of directors of such successor corporation) upon the
consummation of such transaction.
-3-
(e) "Closing Date" means o;
(f) "Common Shares" means the common shares in the capital of the
Corporation as such shares exist at the close of business on the date
hereof and, in the event that there shall occur a change in respect of
or affecting the Common Shares referred to in Article 5 (whether or
not such change shall result in an adjustment in the Exercise Price),
the term "Common Shares" shall mean the shares, other securities or
other property which a Warrantholder is entitled to purchase resulting
from such change;
(g) "Common Share Reorganization" has the meaning attributed thereto in
subsection 5.2(1);
(h) "Corporate Transaction" means a transaction resulting in a Change of
Control;
(i) "Corporation" means Open Text Corporation, a corporation existing
under the laws of the Province of Ontario, and its lawful successors
from time to time;
(j) "Corporation's Auditors" means KPMG LLP, the firm of chartered
accountants duly appointed as auditors of the Corporation or such
other firm as may be duly appointed as auditors of the firm;
(k) "Counsel" means a barrister or solicitor or a firm of barristers or
solicitors (who may be counsel for the Corporation) acceptable to the
Warrant Trustee;
(l) "Court" has the meaning attributed thereto in subsection 11.7(1);
(m) "Current Market Price" of a Common Share at any date means the price
per share equal to the weighted average price at which the Common
Shares have traded (i) on the NASDAQ Stock Market, Inc. ("NASDAQ"), or
(ii) if the Common Shares are not traded on NASDAQ, on a recognized
exchange or market, or (iii) if the Common Shares are not traded on
such recognized exchange or market, on the over-the-counter market,
during the 20 consecutive trading days (on each of which at least 500
Common Shares are traded in board lots) ending on the fifth trading
day immediately prior to such date as reported by such market or
exchange in which the Common Shares are then trading or quoted. The
weighted average price per Common Share shall be determined by
dividing the aggregate sale price of all such shares sold on the
aforementioned over-the-counter market, recognized exchange or market,
as the case may be, during the aforementioned 20 consecutive trading
days by the total number of such shares so sold. If the Common Shares
are not then traded in the over-the-counter market or on a recognized
exchange or market, the Current Market Price of the Common Shares
shall be the fair market value of the Common Shares as determined in
good faith by the board of Directors of the Corporation after
consultation with a nationally or internationally recognized
investment dealer or investment banker;
-4-
(n) "Date of Issue" means the date of issue of Warrants hereunder in
accordance with Section 2.1;
(o) "Director" means a director of the Corporation for the time being,
and, unless otherwise specified herein, reference to "action by the
Directors" means action by the Directors of the Corporation as a
board, or whenever duly empowered, action by any committee of such
board;
(p) "Dividends Paid in the Ordinary Course" means dividends paid on the
Common Shares in any fiscal year of the Corporation in cash, provided
that the amount of such dividends does not in such fiscal year exceed
50% of the consolidated net income of the Corporation before
extraordinary items for the period of twelve consecutive months ended
immediately prior to the first day of such fiscal year less the amount
of all cash dividends payable on all shares ranking prior to or on a
parity with the Common Shares in respect of the payment of dividends
(such consolidated net income, extraordinary items and dividends to be
shown in the audited consolidated financial statements of the
Corporation for such period of twelve consecutive months or if there
are no audited consolidated financial statements for such period,
computed in accordance with generally accepted accounting principles,
consistent with those applied in the preparation of the most recent
audited consolidated financial statements of the Corporation);
(q) "Exercise Date" with respect to any Warrant means the date on which
the Warrant Certificate representing such Warrant is surrendered for
exercise in accordance with the provisions of Article 4;
(r) "Exercise Period" means the period commencing on the time of issue on
the Date of Issue and ending at the Time of Expiry;
-5-
(s) "Exercise Price" means a price per Common Share of U.S.$20.75 unless
such price shall have been adjusted in accordance with the provisions
of Article 5, in which case it shall mean the adjusted price in effect
at such time;
(t) "Extraordinary Resolution" has the meaning attributed thereto in
Section 9.11;
(u) "Person" means an individual, corporation, partnership, trust or any
unincorporated organization;
(v) "Principal Office" means the office of the Corporation in Waterloo,
Ontario, at the address set forth in Section 13.1 or such other
address in respect of which notice has been given to the Warrant
Trustee pursuant to Section 13.1;
(w) "Rights Offering" has the meaning attributed thereto in subsection
5.2(2);
(x) "Rights Period" has the meaning attributed thereto in subsection
5.2(2);
(y) "Shareholder" means a holder of record of one or more Common Shares;
(z) "Special Distribution" has the meaning attributed thereto in
subsection 5.2(3);
(aa) "Subsidiary of the Corporation" means a corporation of which voting
securities carrying a majority of the votes attached to all voting
securities are held, directly or indirectly other than by way of
security only, by or for the benefit of the Corporation, the
Corporation and one or more subsidiaries thereof, or one or more
subsidiaries of the Corporation; and, as used in this definition,
voting securities means securities of a class or series or classes or
series carrying a voting right to elect directors under all
circumstances provided that, for the purposes hereof, securities which
only carry the right to vote conditionally on the happening of an
event shall not be considered voting securities whether or not such
event shall have happened nor shall any securities be deemed to cease
to be voting securities solely by reason of a right to vote accruing
to securities of another class or series or classes or series by
reason of the happening of such event;
(bb) "this Warrant Indenture", "this indenture", "herein", "hereby", and
similar expressions mean and refer to this Indenture and any
indenture, deed or instrument supplemental or ancillary hereto; and
the expressions "Article", "Section", and "subsection" followed by a
number mean and refer to the specified Article, Section or subsection
of this Indenture;
(cc) "Time of Expiry" means 5:00 p.m. (Toronto time) on the date which is
the first anniversary of the Closing Date;
(dd) "TSX" means the Toronto Stock Exchange;
-6-
(ee) "Warrant Certificate" means the certificate evidencing the Warrants in
the form of the certificate set forth in Article 12 of this Indenture;
(ff) "Warrant Trustee" means Computershare Trust Company of Canada, or its
successors hereunder;
(gg) "Warrantholders" or "holders" without reference to Common Shares means
the Persons who are holders of Warrant Certificates;
(hh) "Warrantholders' Request" means an instrument signed in one or more
counterparts by Warrantholders entitled to purchase in the aggregate
not less than 10% of the aggregate number of Common Shares which could
be purchased pursuant to all Warrants then unexercised and
outstanding, requesting the Warrant Trustee to take some action or
proceeding specified therein; and
(ii) "written order of the Corporation", "written request of the
Corporation", "written consent of the Corporation" and "certificate of
the Corporation" and any other document required to be signed by the
Corporation mean, respectively, a written order, request, consent and
certificate or other document signed in the name of the Corporation by
any one of the Chief Executive Officer, President, the Chief Financial
Officer, a Vice-President, the Secretary or the Treasurer of the
Corporation, and may consist of one or more instruments so executed.
Section 1.2 Number and Gender
Unless elsewhere context otherwise requires, words importing
the singular include the plural and vice versa and words importing gender
include all genders.
Section 1.3 Interpretation Not Affected by Headings, Etc.
The division of this Indenture into Articles, Sections and
subsections, the provision of a table of contents and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this Indenture or the Warrant Certificates.
Section 1.4 Day Not a Business Day
In the event that any day on or before which any action is
required to be taken hereunder is not a Business Day, then such action shall be
required to be taken on or before the requisite time on the next succeeding day
that is a Business Day.
-7-
Section 1.5 Governing Law
This Indenture and the Warrant Certificates shall be governed
by and construed in accordance with the laws of the Province of Ontario and the
laws of Canada applicable therein and shall be treated in all respects as
Ontario contracts.
Section 1.6 Currency
Except as otherwise specified herein, all dollar amounts
herein are expressed in lawful money of Canada.
Section 1.7 Meaning of "Outstanding"
Every Warrant represented by a Warrant Certificate
countersigned and delivered by the Warrant Trustee hereunder shall be deemed to
be outstanding until it shall be cancelled or exercised pursuant to Article 4,
provided that where a new Warrant Certificate has been issued pursuant to
Section 2.3 hereof to replace one which has been mutilated, lost, destroyed or
stolen, the Warrants represented by only one of such Warrant Certificates shall
be counted for the purpose of determining the aggregate number of Warrants
outstanding.
Section 1.8 Severability
In the event that any provision hereof shall be determined to
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remainder of such provision and any other provision hereof
shall not be affected or impaired thereby.
ARTICLE 2
ISSUE OF WARRANTS
Section 2.1 Issue of Warrants
Up to o Warrants are hereby created and authorized to be
issued and certificates evidencing such Warrants as have been issued shall be
executed by the Corporation, certified by or on behalf of the Warrant Trustee
upon the written order of the Corporation and delivered in accordance with this
Article.
Section 2.2 Form and Terms of Warrants
(1) Subject to subsection 2.2(2), each Warrant authorized to be issued hereunder
shall entitle the holder thereof to purchase at his option one Common Share at
any time during the Exercise Period at a price equal to the Exercise Price in
effect on the Exercise Date.
(2) The number of Common Shares which may be purchased pursuant to the Warrants
and the Exercise Price shall be adjusted in the events and in the manner
specified in Article 5.
-8-
(3) Warrant Certificates shall be substantially in the form set out in Article
12, shall be dated as of the date hereof (regardless of their Date of Issue) and
shall bear such legends and such distinguishing letters and numbers as the
Corporation shall with the approval of the Warrant Trustee prescribe. Subject to
subsection 2.2(4), Warrant Certificates shall be issuable in any denomination.
(4) No Warrant Certificate evidencing any fraction of a Warrant shall be issued
or otherwise provided for, and no Person who purchases or holds a fraction of a
Warrant shall be entitled to any cash or other consideration in lieu of any
interest in or claim to any fraction of a Warrant.
Section 2.3 Issue in Substitution for Lost Warrant Certificates
(1) In case any Warrant Certificate shall be mutilated, lost, destroyed or
stolen, the Corporation, subject to applicable law, shall issue and thereupon
the Warrant Trustee shall certify and deliver, a new certificate of like tenor
as the one mutilated, lost, destroyed or stolen in exchange for and in place of
and upon cancellation of such mutilated certificate, or in lieu of and in
substitution for such lost, destroyed or stolen certificate, and the substituted
certificate shall be in a form approved by the Warrant Trustee and shall be
entitled to the benefits hereof and shall rank equally in accordance with its
terms with all other Warrant Certificates issued or to be issued hereunder.
(2) The applicant for the issue of a new certificate pursuant to this Section
shall bear the cost of the issue thereof and in case of loss, destruction or
theft shall, as a condition precedent to the issue thereof, furnish to the
Corporation and to the Warrant Trustee such evidence of ownership and of the
loss, destruction or theft of the certificate so lost, destroyed or stolen as
shall be satisfactory to the Corporation and to the Warrant Trustee in their
sole discretion, and such applicant shall also be required to furnish an
indemnity in amount and form satisfactory to the Corporation and the Warrant
Trustee to save each of them harmless, and shall pay the expenses, charges and
any taxes applicable thereto to the Corporation and the Warrant Trustee in
connection therewith.
Section 2.4 Warrantholder not a Shareholder
Nothing in this Indenture or in the holding of a Warrant
evidenced by a Warrant Certificate or otherwise, shall be construed as
conferring upon a Warrantholder any right or interest whatsoever as a
Shareholder of the Corporation, including, but not limited to, the right to vote
at, to receive notice of, or to attend, meetings of shareholders or any other
proceedings of the Corporation, or the right to receive dividends or other
distributions.
Section 2.5 Warrants to Rank Pari Passu
All Warrants shall rank pari passu, whatever may be the actual
date of issue of the same.
-9-
Section 2.6 Signing of Warrant Certificates
The Warrant Certificates shall be signed by any one of the
Chief Executive Officer, President, Chief Financial Officer, a Vice-President,
the Secretary or a Director of the Corporation. The signatures of such officer
or Director may be mechanically reproduced in facsimile and Warrant Certificates
bearing such facsimile signatures shall be binding upon the Corporation as if
they had been manually signed by such officer or Director. Notwithstanding that
any of the Persons whose manual or facsimile signature appears on any Warrant
Certificate as one of such officers or as a Director may no longer hold office
at the date of certification or delivery thereof, any Warrant Certificate signed
as aforesaid shall, subject to Section 2.7, be valid and binding upon the
Corporation.
Section 2.7 Certification by the Warrant Trustee
(1) No Warrant Certificate shall be issued or, if issued, shall be valid or
entitle the holder to the benefit hereof or thereof until it has been certified
by manual signature by or on behalf of the Warrant Trustee substantially in the
form of the certificate set out in Article 12, and such certification by the
Warrant Trustee upon any Warrant Certificate shall be conclusive evidence as
against the Corporation that the Warrant Certificate so certified has been duly
issued hereunder and that the holder is entitled to the benefit hereof.
(2) The certification of the Warrant Trustee on Warrant Certificates issued
hereunder shall not be construed as a representation or warranty by the Warrant
Trustee as to the validity of this Indenture or the Warrant Certificates (except
the due certification thereof) and the Warrant Trustee shall in no respect be
liable or answerable for the use made of the Warrant Certificates or any of them
or of the consideration therefor nor for any breach by the Corporation of its
covenants herein, except as otherwise specified therein.
ARTICLE 3
EXCHANGE AND OWNERSHIP OF WARRANTS; NOTICES
Section 3.1 Exchange of Warrant Certificates
(1) Warrant Certificates entitling Warrantholders to purchase any specified
number of Common Shares may, upon compliance with the reasonable requirements of
the Warrant Trustee, be exchanged for another Warrant Certificate or Warrant
Certificates of like tenor entitling the holder thereof to purchase an equal
aggregate number of Common Shares.
(2) Warrant Certificates may be exchanged only at the principal transfer office
of the Warrant Trustee in the City of Toronto, Ontario or at any other place
that is designated by the Corporation with the approval of the Warrant Trustee.
Any Warrant Certificates tendered for exchange shall be surrendered to the
Warrant Trustee or its agents and cancelled. The Corporation shall sign all
Warrant Certificates necessary to carry out exchanges as aforesaid and such
Warrant Certificates shall be certified by or on behalf of the Warrant Trustee.
-10-
(3) Except as otherwise herein provided, any Warrant Trustee shall charge the
holder requesting an exchange a reasonable sum for each new Warrant Certificate
issued in exchange for Warrant Certificate(s); and payment of such charges and
reimbursement of the Warrant Trustee or the Corporation for any and all stamp
taxes or governmental or other charges required to be paid shall be made by such
holder as a condition precedent to such exchange.
Section 3.2 Transfer of Warrants
Subject to Section 6.1 and any restriction under applicable
law or policy of any applicable regulatory body, the Warrants and Warrant
Certificates and the rights thereunder are transferable by the registered holder
thereof, upon due completion and execution of the transfer form set out in
Article 12 and compliance with the conditions prescribed hereunder. The Warrant
Trustee shall have no duty to ensure compliance by the Corporation or any
Warrantholder with applicable securities laws on the transfer or exercise of any
Warrant. The Warrant Trustee shall have no obligation to ensure or verify
compliance with any applicable laws or regulatory requirements on the issue,
exercise or transfer of any Warrants or any Common Shares issuable upon the
exercise thereof provided such issue, exercise or transfer is effected in
accordance with the terms of this Warrant Indenture.
Section 3.3 Registration of Warrants
(1) The Corporation shall, at all times while any Warrants are outstanding,
cause the Warrant Trustee and its agents to maintain a register in which will be
entered the names, latest known addresses of the Warrantholders and if
available, facsimile numbers of the Warrantholders and particulars of the
Warrants held by them, and a register of transfers in which shall be entered the
particulars of all transfers of Warrants, such registers to be kept by and at
the principal transfer office of the Warrant Trustee in the City of Toronto.
(2) No transfer of a Warrant shall be valid unless made by the Warrantholder or
its executors or administrators or other legal representatives or his or their
attorney duly appointed by an instrument in writing in form and execution
satisfactory to the Warrant Trustee, upon compliance with such reasonable
requirements as the Warrant Trustee may prescribe, including, without
limitation, the provision of a legal opinion to the Warrant Trustee to the
effect that the securities laws of the applicable jurisdiction(s) have been
complied with in relation to the transfer of such Warrants, and unless such
transfer shall have been duly entered on the register of transfers and/or noted
on the Warrant Certificate evidencing such Warrant. The signature of the
registered Warrantholder must be guaranteed by a Canadian chartered bank or
trust company or by a medallion signature guarantee from a member of a
recognized signature medallion guarantee program. The Warrant Trustee shall not
be charged with notice of or be bound to see to the execution of any trust,
whether expressed, implied or constructive, in respect of any Warrant and shall,
on the written direction of the registered holder thereof, whether named as
trustee or otherwise, as though that person were the beneficial owner thereof,
enter such transfer on the register of transfers and/or note such transfer on
the Warrant Certificate within two Business Days of receipt of such direction.
-11-
(3) The holder of a Warrant may at any time and from time to time have such
Warrant transferred at any place at which a register of transfers is kept
pursuant to the provisions of this Article 3 in accordance with such reasonable
requirements as the Warrant Trustee may prescribe. The costs of any such
transfer registration shall be borne by the Corporation for the ten day period
following the date hereof, thereafter the costs of transfer of any Warrants
shall be borne by the transferee.
(4) The registers referred to in this Section 3.3 shall at all reasonable times
be open for inspection by the Corporation and by any Warrantholder. The Warrant
Trustee, when requested so to do by the Corporation, shall furnish the
Corporation with a list of names and addresses of the Warrantholders showing the
certificate numbers of such Warrant Certificates held by each Warrantholder.
Section 3.4 Recognition of Registered Holder
(1) The Corporation and the Warrant Trustee may deem and treat the registered
holder of any Warrant Certificate as the absolute holder and owner of the
Warrants evidenced thereby for all purposes, and the Corporation and the Warrant
Trustee shall not be affected by any notice or knowledge to the contrary and,
without limiting the foregoing, shall not be bound by notice of any trust or be
required to see to the execution thereof. Subject to the provisions of this
Indenture and applicable law, the registered holder of any Warrant Certificate
shall be entitled to the rights evidenced by such Warrant Certificate free from
all equities or rights of set-off or counterclaim between the Corporation and
the original or any intermediate holder thereof and all persons may act
accordingly and the receipt by any such holder of the Common Shares obtainable
pursuant thereto shall be a good discharge to the Corporation and the Warrant
Trustee for the same and neither the Corporation nor the Warrant Trustee shall
be bound to inquire into the title of any such holder, except where the issuer
of such Warrants or the Warrant Trustee is required to take notice by statute or
by order of a court of competent jurisdiction.
(2) The person in whose name any Warrant shall be registered shall for all
purposes of this Indenture be and be deemed to be the owner thereof and shall be
entitled to the rights, privileges and obligations contained in the Warrant
Certificate and this Indenture.
Section 3.5 Evidence of Ownership
(1) Upon receipt of a certificate of any bank, trust company or other depositary
satisfactory to the Warrant Trustee stating that the Warrants specified therein
have been deposited by a named person with such bank, trust company or other
depositary and will remain so deposited until the expiry of the period specified
therein, the Corporation and the Warrant Trustee may treat the person so named
as the owner, and such certificate as sufficient evidence of the ownership by
such person of such Warrants during such period, for the purpose of any
requisition, direction, consent, instrument or other document to be made, signed
or given by the holder of the Warrants so deposited.
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(2) The Corporation and the Warrant Trustee may accept as sufficient evidence of
the fact and date of the signing of any requisition, direction, consent,
instrument or other document by any person the signature, as witness, of any
officer of any trust company, bank or depositary satisfactory to the Warrant
Trustee, the certificate of any notary public or other officer authorized to
take acknowledgements of deeds to be recorded at the place where such
certificate is made that the person signing acknowledged to him the execution
thereof, or a statutory declaration of a witness of such execution.
Section 3.6 Notices
Unless herein otherwise expressly provided, any notice to be
given hereunder to the holders of Warrants shall be deemed to be validly given
if such notice is given by personal delivery or registered mail to the attention
of the holder at the registered address of the holder recorded in the registers
maintained by the Warrant Trustee; provided that in the case of notice convening
a meeting of the holders of Warrants, the Warrant Trustee may require such
publication of such notice, in such city or cities, as it may deem necessary for
the reasonable protection of the holders of Warrants or to comply with any
applicable requirement of law or any stock exchange. Any notice so given shall
be deemed to have been given on the day of delivery. In determining under any
provision hereof the date when notice of any meeting or other event must be
given, the date of giving notice shall be included and the date of the meeting
or other event shall be excluded. For greater certainty, all costs in connection
with the giving of notices contemplated by this Section 3.6 shall be borne by
the Corporation.
ARTICLE 4
EXERCISE OF WARRANTS
Section 4.1 Method of Exercise of Warrants
(1) The holder of any Warrant Certificate may exercise the right thereby
conferred on him to purchase Common Shares by surrendering to the Warrant
Trustee during the Exercise Period at its principal transfer office in the City
of Toronto, Ontario or at any other place or places that may be designated by
the Corporation with the approval of the Warrant Trustee:
(a) the Warrant Certificate, with a duly completed and executed
subscription in the appropriate form set out in Article 12; and
(b) a certified cheque, money order or bank draft in lawful money of the
United States of America payable to or to the order of the Corporation
at par in the City of Toronto, in an amount equal to the Exercise
Price applicable at the time of such surrender in respect of each
Common Share subscribed for.
A Warrant Certificate with the duly completed and executed
subscription form together with the payment aforesaid shall be deemed to be
surrendered only upon personal delivery thereof to the Warrant Trustee at the
office set forth above, or, if sent by mail or overnight courier, upon actual
receipt thereof by the Warrant Trustee at its principal transfer office in the
City of Toronto, Ontario.
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(2) Any subscription referred to in subsection 4.1(1) shall be signed by the
Warrantholder and shall specify:
(i) the number of Common Shares which the holder desires to purchase
(being not more than those which he is entitled to purchase pursuant
to the Warrant Certificate(s) surrendered);
(ii) the person or person in whose name or names the Common Shares are to
be issued;
(iii) the address or addresses of such person or persons; and
(iv) the number of Common Shares to be issued to each person if more than
one person is specified.
Section 4.2 Effect of Exercise of Warrants
(1) Upon surrender and payment by the holder of any Warrant Certificate in
accordance with Section 4.1, the Common Shares so subscribed for shall be deemed
to have been issued and the Person or Persons to whom such Common Shares are to
be issued shall be deemed to have become the holder or holders of record of such
Common Shares on the Exercise Date unless the registers maintained by the
Warrant Trustee shall be closed on such date, in which case the Common Shares so
subscribed for shall be deemed to have been issued, and such Person or Persons
shall be deemed to have become the holder or holders of record of such Common
Shares on the date on which such registers were reopened and such Common Shares
shall be issued at the Exercise Price in effect on the Exercise Date. To the
extent the opening of the registers maintained by the Warrant Trustee remains
within their control, the Corporation and the Warrant Trustee shall cause such
registers to be open on Business Days.
(2) Within five Business Days during which the transfer registers of the
Corporation shall have been open after the due exercise of a Warrant Certificate
for Common Shares as aforesaid, the Corporation shall cause to be mailed to the
Person or Persons in whose name or names the Common Shares so subscribed for
have been issued, as specified in the subscription endorsed on the Warrant
Certificate, at his or their respective addresses specified in such subscription
or, if so specified in such subscription, cause to be delivered to such Person
or Persons at the office of the Warrant Trustee where such Warrant Certificate
was surrendered, a certificate or certificates for the appropriate number of
Common Shares subscribed for.
(3) The Corporation shall be notified by the Warrant Trustee of the exercise of
any Warrant. If at the time of exercise of the Warrants there remain trading
restrictions on the Common Shares acquired upon such exercise pursuant to
applicable securities legislation or policy of any applicable regulatory body,
the Corporation may, upon the advice of Counsel, endorse any Common Share and
certificates to such effect. Furthermore, the Corporation shall, or its Counsel
shall, notify the Warrant Trustee of any trading restrictions on the Common
Shares acquired upon such exercise pursuant to applicable securities legislation
or policy of any applicable regulatory body. Unless and until advised in writing
by the Corporation or its Counsel that a specific legend and trading
restrictions apply to the Common Shares, the Warrant Trustee shall be entitled
to assume that no specific legend is required and that there are no trading
restrictions on the Common Shares.
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Section 4.3 Subscription for Less than Entitlement
The holder of any Warrant Certificate may subscribe for and
purchase a number of Common Shares less than the number which the holder is
entitled to purchase pursuant to the surrendered Warrant Certificate. In the
event of a purchase of a number of Common Shares less than the number which may
be purchased pursuant to a Warrant Certificate, the holder thereof shall be
entitled to receive, without charge except as aforesaid, a new Warrant
Certificate in respect of the balance of the Common Shares which such holder was
entitled to purchase pursuant to the surrendered Warrant Certificate and which
was not then purchased.
Section 4.4 No Fractional Common Shares
The Corporation shall not be required to issue fractional
Common Shares in satisfaction of its obligations hereunder. If any fractional
interest in a Common Share would, except for the provisions of this Section 4.4,
be deliverable upon the exercise of a Warrant, the Corporation shall in lieu of
delivering the fractional Common Shares therefor satisfy the right to receive
such fractional interest by payment to the holder of such Warrant of an amount
in cash equal (computed in the case of a fraction of a cent to the next lower
cent) to the value of the right to acquire such fractional interest on the basis
of the Current Market Price at the date of exercise of such Warrant.
Section 4.5 Expiration of Warrant Certificates
After the expiry of the Exercise Period all rights under any
Warrant Certificate in respect of which the right of subscription and purchase
of Common Shares herein and therein provided for shall not theretofore have been
exercised shall wholly cease and terminate and such Warrant Certificate shall be
void and of no effect.
Section 4.6 Cancellation of Surrendered Warrants
All Warrant Certificates surrendered to the Warrant Trustee
pursuant to Sections 2.3, 3.1, 4.1 or 6.1 shall be cancelled by the Warrant
Trustee and, if required by the Corporation, the Warrant Trustee shall furnish
or cause to be furnished to the Corporation a certificate identifying the
Warrant Certificates so cancelled and the number of Common Shares which could
have been purchased pursuant to each cancelled Warrant Certificate.
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Section 4.7 Accounting and Recording
(1) The Warrant Trustee shall promptly account to the Corporation with respect
to Warrants exercised and forward to the Corporation (or into an account or
accounts of the Corporation with the bank or trust company designated by the
Corporation for that purpose) all monies received on the purchase of Common
Shares through the exercise of Warrant Certificates. All such monies, and any
securities or other instruments from time to time received by the Warrant
Trustee, shall be received in trust for, and shall be segregated and kept apart
by the Warrant Trustee in trust for, the Corporation.
(2) The Warrant Trustee shall record the particulars of the Warrant Certificates
exercised which shall include the name or names and addresses of the Persons who
become holders of Common Shares on exercise, the Exercise Date and the Exercise
Price thereof.
ARTICLE 5
ADJUSTMENT OF SUBSCRIPTION RIGHTS
AND EXERCISE PRICE
Section 5.1 Definitions
In this Article 5, the terms "record date" and "effective
date" mean the particular time on the relevant date.
Section 5.2 Adjustment of Exercise Price and Number of Common Shares
Purchasable Upon Exercise
The Exercise Price (and the number of Common Shares
purchasable upon exercise in the case of subsections (4) and (5) below of this
Section 5.2) shall be subject to adjustment from time to time in the events and
in the manner provided as follows:
(1) Common Share Reorganization. If during the Exercise Period the Corporation
shall:
(a) issue Common Shares or securities exchangeable for or convertible into
Common Shares to all or substantially all of the holders of the Common
Shares by way of stock dividend or other distribution (other than as
Dividends Paid in the Ordinary Course), or
(b) subdivide, redivide or change its outstanding Common Shares into a
greater number of Common Shares, or
(c) consolidate, reduce or combine its outstanding Common Shares into a
lesser number of Common Shares,
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(any of such events in these clauses (a), (b) and (c) being called a "Common
Share Reorganization"), then the Exercise Price shall be adjusted as of the
effective date or record date, as the case may be, at which the holders of
Common Shares are determined for the purpose of the Common Share Reorganization
by multiplying the Exercise Price in effect immediately prior to such effective
date or record date by a fraction, the numerator of which shall be the number of
Common Shares outstanding on such effective date or record date before giving
effect to such Common Share Reorganization and the denominator of which shall be
the number of Common Shares outstanding as of the effective date or record date
after giving effect to such Common Share Reorganization (including, in the case
where securities exchangeable for or convertible into Common Shares are
distributed, the number of Common Shares that would have been outstanding had
such securities been exchanged for or converted into Common Shares on such
record date or effective date). If during the Exercise Period a Common Share
Reorganization shall occur which results in an adjustment in the Exercise Price
pursuant to the provisions of this Section 5.2, the number of Common Shares
purchasable pursuant to each Warrant shall be adjusted contemporaneously with
the adjustment of the Exercise Price by multiplying the number of Common Shares
theretofore purchasable on the exercise thereof by a fraction the numerator of
which shall be the Exercise Price in effect immediately prior to such adjustment
and the denominator of which shall be the Exercise Price resulting from such
adjustment.
(2) Rights Offering. If during the Exercise Period the Corporation shall fix a
record date for the issue of rights, options or warrants to all or substantially
all of the holders of Common Shares under which such holders are entitled,
during a period expiring not more than 45 days after the record date for such
issue ("Rights Period"), to subscribe for or purchase Common Shares or
securities exchangeable for or convertible into Common Shares at a price per
share to the holder of less than 95% of the Current Market Price for the Common
Shares on such record date (any of such events being called a "Rights
Offering"), then the Exercise Price shall be adjusted effective immediately
after the end of the Rights Period to a price determined by multiplying the
Exercise Price in effect immediately prior to the end of the Rights Period by a
fraction:
(a) the numerator of which shall be the aggregate of:
(i) number of Common Shares outstanding as of the record date for the
Rights Offering, and
(ii) a number determined by dividing (i) either (a) the product of the
number of Common Shares issued or subscribed during the Rights
Period upon the exercise of the rights, warrants or options under
the Rights Offering and the price at which such Common Shares are
offered, or, as the case may be, or (b) the product of the
exchange or conversion price per share of such securities offered
and the number of Common Shares for or into which the securities
so offered pursuant to the Rights Offering have been exchanged or
converted during the Rights Period, by (ii) the Current Market
Price of the Common Shares as of the record date for the Rights
Offering; and
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(b) the denominator of which shall be the number of Common Shares
outstanding after giving effect to the Rights Offering and including
the number of Common Shares actually issued or subscribed for during
the Rights Period upon exercise of the rights, warrants or options
under the Rights Offering or upon the exercise of the exchange or
conversion rights contained in such exchangeable or convertible
securities under the Rights Offering.
If during the Exercise Period a Rights Offering shall occur which results in an
adjustment in the Exercise Price pursuant to the provisions of this Section 5.2,
the number of Common Shares purchasable pursuant to each Warrant shall be
adjusted contemporaneously with the adjustment of the Exercise Price by
multiplying the number of Common Shares theretofore purchasable on the exercise
thereof by a fraction the numerator of which shall be the Exercise Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Exercise Price resulting from such adjustment.
(3) Special Distribution. If during the Exercise Period the Corporation shall
issue or distribute to all or to substantially all the holders of the Common
Shares:
(a) securities of the Corporation including rights, options or warrants to
acquire shares of any class or securities exchangeable for or
convertible into or exchangeable into any such shares or property or
assets and including evidences of its indebtedness, or
(b) any property or other assets,
and if such issuance or distribution does not constitute Dividends Paid in the
Ordinary Course, a Common Share Reorganization or a Rights Offering (any of such
non-excluded events being herein called a "Special Distribution"), the Exercise
Price shall, subject to the prior written approval of any stock exchange or
over-the-counter market on which the Common Shares are then listed or quoted for
trading, be adjusted effective immediately after the record date at which the
holders of affected Common Shares are determined for purposes of the Special
Distribution to a price determined by multiplying the Exercise Price in effect
on such record date by a fraction:
(c) the numerator of which shall be:
(i) the product of the number of Common Shares outstanding on such
record date and the Current Market Price of the Common Shares on
such record date; less
(ii) the excess, if any, of (A) the fair market value on such record
date, as determined by action by the Directors, whose
determination shall be conclusive, which action shall be subject
to the prior written approval of any stock exchange or
over-the-counter market on which the Common Shares are then
listed or quoted for trading, to the holders of the Common Shares
of such securities or property or other assets so issued or
distributed in the Special Distribution over (B) the fair market
value of any consideration received therefor by the Corporation
from the holders of the Common Shares, as determined by action by
the Directors, which determination shall be conclusive; and
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(d) the denominator of which shall be the product of the number of Common
Shares outstanding on such record date and the Current Market Price of
the Common Shares on such record date.
(4) Capital Reorganization. If during the Exercise Period there shall be a
reclassification of Common Shares at any time outstanding or a change of the
Common Shares into other shares or into other securities (other than a Common
Share Reorganization), or a consolidation, amalgamation, arrangement or merger
of the Corporation with or into any other corporation or other entity (other
than a consolidation, amalgamation, arrangement or merger which does not result
in any reclassification of the outstanding Common Shares or a change of the
Common Shares into other shares), or a transfer of the undertaking or assets of
the Corporation as an entirety or substantially as an entirety to another
corporation or other entity, (any of such events being herein called a "Capital
Reorganization"), any Warrantholder who exercises his right to purchase Common
Shares pursuant to Warrant(s) then held after the effective date of such Capital
Reorganization shall be entitled to receive, and shall accept for the same
aggregate consideration in lieu of the number of Common Shares to which such
holder was theretofore entitled upon such exercise the aggregate number of
shares, other securities or other property which such holder would have been
entitled to receive as a result of such Capital Reorganization if, on the
effective date thereof, the Warrantholder had been the registered holder of the
number of Common Shares to which such holder was theretofore entitled upon
exercise of the Warrant subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained in
Sections 5.2 and 5.3 hereof, provided however, that no such Capital
Reorganization shall be carried into effect unless all necessary steps shall
have been taken to so entitle the Warrantholders. If determined appropriate by
the Corporation, acting reasonably, and subject to the prior written approval of
any stock exchange or over-the-counter market on which the Common Shares are
then listed or quoted for trading, appropriate adjustments shall be made as a
result of any such Capital Reorganization in the application of the provisions
set forth in this Article 5 with respect to the rights and interests thereafter
of Warrantholders to the end that the provisions set forth in this Article 5
shall thereafter correspondingly be made applicable as nearly as may reasonably
be in relation to any shares, other securities or other property thereafter
deliverable upon the exercise of any Warrant. Any such adjustments shall be made
by and set forth in terms and conditions supplemental hereto approved by action
by the Directors and by the Corporation, acting reasonably, and shall for all
purposes be conclusively deemed to be appropriate adjustments.
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(5) Corporate Transaction. Notwithstanding any other provision of this
Indenture, in the event of a Corporate Transaction, each Warrant will terminate
immediately prior to the specified effective date of the Corporate Transaction,
unless the Warrant is assumed by the successor corporation or its parent
corporation in connection with the Corporate Transaction. Upon approval of a
Corporate Transaction by the board of Directors, the Corporation will give
notice to each Warrantholder which will set forth terms that permit a
Warrantholder to exercise its Warrants on a basis that provides the
Warrantholder with the ability to participate in the Corporate Transaction or,
failing completion of the Corporate Transaction, to retain all rights under the
Warrants in accordance with the terms of this Indenture. A copy of such notice
shall be sent to the Warrant Trustee.
Section 5.3 Rules Regarding Calculation of Adjustment of Exercise Price
and Number of Common Shares Purchasable Upon Exercise
For the purposes of Section 5.2:
(1) The adjustments provided for in Section 5.2 are cumulative, and shall, in
the case of adjustments to the Exercise Price be computed to the nearest
one-tenth of one cent and shall be made successively whenever an event referred
to therein shall occur, subject to the following subsections of this Section
5.3.
(2) No adjustment in the Exercise Price shall be required unless such adjustment
would result in a change of at least 1% in the prevailing Exercise Price and no
adjustment shall be made in the number of Common Shares purchasable upon
exercise of a Warrant unless it would result in a change of at least one
one-hundredth of a Common Share; provided, however, that any adjustments which,
except for the provisions of this subsection 5.3(2) would otherwise have been
required to be made, shall be carried forward and taken into account in any
subsequent adjustment.
(3) No adjustment in the Exercise Price or in the number of Common Shares
purchasable upon exercise of Warrants shall be made in respect of any event
described in Section 5.2, other than the events referred to in clauses (b) and
(c) of subsection (1) thereof, if Warrantholders are entitled to participate in
such event on the same terms, mutatis mutandis, as if Warrantholders had
exercised their Warrants prior to or on the effective date or record date of
such event. The terms of the participation of the Warrantholders in such event
shall be subject to the prior written approval of any stock exchange or
over-the-counter market on which the Common Shares are then listed or quoted for
trading.
(4) No adjustment in the Exercise Price shall be made pursuant to Section 5.2 in
respect of the issue from time to time:
(i) of Common Shares purchasable on exercise of the Warrants;
(ii) in respect of the issue from time to time as Dividends Paid in the
Ordinary Course of Common Shares to holders of Common Shares who
exercise an option or election to receive substantially equivalent
dividends in Common Shares in lieu of receiving a cash dividend
pursuant to a dividend reinvestment plan or similar plan adopted by
the Corporation in accordance with the requirements of the TSX and
applicable securities laws; or
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(iii) of Common Shares pursuant to any stock options or stock option plans
or stock purchase plans or other benefit plans in force at the date
hereof for directors, officers, employees, advisers or consultants of
the Corporation, as such option or plan is amended or superseded from
time to time in accordance with the requirements of the TSX and
applicable securities laws, and such other benefit plans as may be
adopted by the Corporation in accordance with the requirements of the
TSX and applicable securities laws,
and any such issue shall be deemed not to be a Common Share Reorganization or
Capital Reorganization.
(5) If a dispute shall at any time arise with respect to adjustments provided
for in Section 5.2, such dispute shall be conclusively determined by the
Corporation's Auditors, or if they are unable or unwilling to act, by such other
firm of independent chartered accountants as may be selected by action by the
Directors and any such determination shall be binding upon the Corporation, the
Warrant Trustee and the Warrantholders. Notwithstanding the foregoing, such
determination shall be subject to the prior written approval of any stock
exchange or over-the-counter market on which the Common Shares are then listed
or quoted for trading. Such auditors or accountants shall be provided access to
all necessary records of the Corporation. In the event that any such
determination is made, the Corporation shall deliver a certificate to the
Warrant Trustee and a notice to the Warrantholders in the manner contemplated in
Section 3.6 describing such determination.
(6) In case the Corporation after the date of issue of the Warrants shall take
any action affecting the Common Shares, other than action described in Section
5.2, which in the opinion of the Directors of the Corporation would materially
affect the rights of Warrantholders, the Exercise Price and the number of Common
Shares purchasable upon exercise shall be adjusted in such manner, if any, and
at such time, by action by the Directors, in their sole discretion as they may
determine to be equitable in the circumstances, but subject in all cases to any
necessary regulatory approval. Failure of the taking of action by the Directors
so as to provide for an adjustment on or prior to the effective date of any
action by the Corporation affecting the Common Shares shall be conclusive
evidence that the board of Directors of the Corporation has determined that it
is equitable to make no adjustment in the circumstances.
(7) If the Corporation shall set a record date to determine the holders of the
Common Shares for the purpose of entitling them to receive any dividend or
distribution or any subscription or purchase rights and shall, thereafter and
before the distribution to such shareholders of any such dividend, distribution
or subscription or purchase rights, legally abandon its plan to pay or deliver
such dividend, distribution or subscription or purchase rights, then no
adjustment in the Exercise Price or the number of Common Shares purchasable upon
exercise of any Warrant shall be required by reason of the setting of such
record date.
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(8) In the absence of a resolution of the Directors fixing a record date for a
Special Distribution or Rights Offering, the Corporation shall be deemed to have
fixed as the record date therefor the date on which the Special Distribution or
Rights Offering is effected.
(9) As a condition precedent to the taking of any action which would require any
adjustment in any of the subscription rights pursuant to any of the Warrants,
including the Exercise Price and the number or class of shares or other
securities which are to be received upon the exercise thereof, the Corporation
shall take any corporate action which may, in the opinion of counsel to the
Corporation, be necessary in order that the Corporation have unissued and
reserved in its authorized capital and may validly and legally issue as fully
paid and non-assessable all the shares or other securities which all the holders
of such Warrants are entitled to receive on the full exercise thereof in
accordance with the provisions thereof and hereof.
Section 5.4 Postponement of Subscription
In any case in which this Article 5 shall require that an
adjustment shall be effective immediately after a record date for an event
referred to herein, the Corporation may defer, until the occurrence of such an
event:
(a) issuing to the holder of any Warrant exercised after such record date
and before the occurrence of such event, the additional Common Shares
issuable upon such exercise by reason of the adjustment required by
such event, and
(b) delivering to such holder any distributions declared with respect to
such additional Common Shares after such Exercise Date and before such
event;
provided, however, that the Corporation shall deliver or cause to be delivered
to such holder, an appropriate instrument evidencing such holder's right, upon
the occurrence of the event requiring the adjustment, to an adjustment in the
Exercise Price or the number of Common Shares purchasable on the exercise of any
Warrant and to such distributions declared with respect to any additional Common
Shares issuable on the exercise of any Warrant.
Section 5.5 Notice of Adjustment of Exercise Price and Number of Common
Shares Purchasable Upon Exercise
(1) At least 10 Business Days prior to the effective date or record date, as the
case may be, of any event which requires or might require adjustment in any of
the subscription rights pursuant to any of the Warrants, including the Exercise
Price and the number of Common Shares which are purchasable upon the exercise
thereof, or such longer period of notice as the Corporation shall be required to
provide holders of Common Shares in respect of any such event, the Corporation
shall give notice, in the form of a certificate of adjustment, to the Warrant
Trustee and the Warrantholders of the particulars of such event and, if
determinable, the required adjustment and the computation of such adjustment.
Notice to the Warrantholders shall be given in the manner specified in Section
3.6.
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The Warrant Trustee may for all purposes act and rely upon the certificate of
the Corporation submitted to it pursuant to this subsection 5.5(1) and on the
accuracy of such certificate, calculations and formulas contained therein.
Except as provided in Section 11.1, the Warrant Trustee shall not at any time be
under any duty or responsibility to any Warrantholder to determine whether any
facts exist which may require adjustment contemplated by this Article 5, or with
respect to the nature or extent of any such adjustment when made, or with
respect to the method employed in making the same.
(2) In case any adjustment for which a notice in subsection (1) of this Section
5.5 has been given is not then determinable, the Corporation shall promptly
after such adjustment is determinable give notice to the Warrant Trustee and the
Warrantholders of the adjustment and the computation of such adjustment.
ARTICLE 6
PURCHASES BY THE CORPORATION
Section 6.1 Optional Purchases by the Corporation
Subject to applicable law, the Corporation may from time to
time purchase on any stock exchange, in the open market, by private agreement or
otherwise any of the Warrants. Any such purchase shall be made at the lowest
price or prices at which, in the opinion of the board of Directors, such
Warrants are then obtainable, plus reasonable costs of purchase, and may be made
in such manner, from such Persons, and on such other terms as the Corporation in
its sole discretion may determine. The Warrant Certificates representing the
Warrants purchased pursuant to this Section 6.1 shall forthwith be delivered to
and cancelled by the Warrant Trustee.
ARTICLE 7
COVENANTS OF THE CORPORATION
Section 7.1 Covenants of the Corporation
The Corporation covenants with the Warrant Trustee that so
long as any Warrants remain outstanding and may be exercised:
(a) if and as long as the articles of the Corporation shall limit the
number of authorized Common Shares, it will reserve and keep available
a sufficient number of Common Shares for the purpose of enabling it to
satisfy its obligations to issue Common Shares upon the exercise of
the Warrants;
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(b) it will cause the Common Shares and the certificates representing the
Common Shares subscribed and paid for pursuant to the exercise of the
Warrants to be duly issued and delivered in accordance with the
Warrant Certificates and the terms hereof;
(c) all Common Shares which shall be issued upon exercise of the right to
purchase provided for herein and in the Warrant Certificates, upon
payment of the prevailing Exercise Price herein provided for and in
the Warrant Certificates and compliance with the other applicable
terms and conditions hereof and thereof, shall be fully paid and
non-assessable;
(d) it will maintain its corporate existence;
(e) it will not take any other action which might deprive the
Warrantholders of the opportunity of exercising their right of
purchase pursuant to the Warrants held by such Persons during the
period of notice required by subsection 5.5(1);
(f) it shall give written notice of the issue of Common Shares pursuant to
the exercise of Warrants, if required and in such detail as may be
required, to each securities regulatory authority in each relevant
jurisdiction pursuant to applicable law; and
(g) it will perform all of its covenants and carry out all of the acts or
things to be done by it as provided in this Indenture.
Section 7.2 Warrant Trustee's Remuneration and Expenses
The Corporation covenants that it will pay to the Warrant
Trustee from time to time reasonable remuneration for its services hereunder and
will pay or reimburse the Warrant Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Warrant Trustee in
the administration or execution of the trusts hereby created (including the
reasonable compensation and the disbursements of its Counsel and all other
advisers and assistants not regularly in its employ) both before any default
hereunder and thereafter until all duties of the Warrant Trustee hereunder shall
be finally and fully performed, except any such expense, disbursement or advance
as may arise out of or result from the negligence, wilful misconduct or bad
faith of the Warrant Trustee or of Persons for whom the Warrant Trustee is
responsible.
Section 7.3 Performance of Covenants by Warrant Trustee
If the Corporation shall fail to perform any of its covenants
contained in this Warrant Indenture, the Warrant Trustee may notify the
Warrantholders in the manner provided in Section 3.6 of such failure on the part
of the Corporation or, subject to Section 11.1, may itself perform any of the
covenants capable of being performed by it, but shall be under no obligation to
perform such covenants or to notify the Warrantholders of such performance by
it. All sums expended or advanced by the Warrant Trustee in so doing shall be
repayable as provided in Section 7.2. No such performance, expenditure or
advance by the Warrant Trustee shall relieve the Corporation of any default
hereunder or of its continuing obligations under the covenants herein contained.
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ARTICLE 8
ENFORCEMENT
Section 8.1 Suits by Warrantholders
All or any of the rights conferred upon any Warrantholder by
any of the terms of the Warrant Certificates or of this Indenture, or of both,
subject to Section 9.10, may be enforced by the Warrantholder by appropriate
proceedings but without prejudice to the right which is hereby conferred upon
the Warrant Trustee to proceed in its own name to enforce each and all of the
provisions herein contained for the benefit of the Warrantholders.
Section 8.2 Immunity of Shareholders, etc.
The Warrant Trustee and, by their acceptance of the Warrant
Certificates and as part of the consideration for the issue of the Warrants, the
Warrantholders hereby waive and release any right, cause of action or remedy now
or hereafter existing in any jurisdiction against any incorporator or any past,
present or future shareholder, Director, officer, employee or agent of the
Corporation or of any successor corporation for the issue of the Common Shares
pursuant to any Warrant or on any covenant, agreement, representation or
warranty by the Corporation herein or in the Warrant Certificates contained.
Section 8.3 Limitation of Liability
The obligations hereunder are not personally binding upon nor
shall resort hereunder be had to, the private property of any of the past,
present or future Directors or shareholders of the Corporation or of any
successor corporation or of any of the past, present or future officers,
employees or agents of the Corporation or of any successor corporation, but only
the property of the Corporation or of any successor corporation shall be bound
in respect hereof.
ARTICLE 9
MEETINGS OF WARRANTHOLDERS
Section 9.1 Right to Convene Meetings
The Warrant Trustee may at any time and from time to time, and
shall on receipt of a written request of the Corporation or of a Warrantholders'
Request and upon receiving sufficient funds and being indemnified to its
reasonable satisfaction by the Corporation or by the Warrantholders signing such
Warrantholders' Request against the cost which may be incurred in connection
with the calling and holding of such meeting, convene a meeting of the
Warrantholders. In the event of the Warrant Trustee failing to so convene a
meeting within 15 days after receipt of such written request of the Corporation
or Warrantholders' Request, funds and indemnity given as aforesaid, the
Corporation or such Warrantholders, as the case may be, may convene such
meeting. Every such meeting shall be held in the City of Toronto or at such
other place as may be approved or determined by the Warrant Trustee unless the
meeting was convened by the Corporation or by Warrantholders as a result of the
Warrant Trustee's failure or refusal to convene the meeting, in which case the
meeting shall be held at such place as may be determined by the Corporation or
by the Warrantholders convening the meeting, as the case may be.
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Section 9.2 Notice
At least 21 days' prior notice of any meeting of
Warrantholders shall be given to the Warrantholders in the manner provided for
in Section 3.6 and a copy of such notice shall be sent by mail to the Warrant
Trustee (unless the meeting has been called by the Warrant Trustee) and to the
Corporation (unless the meeting has been called by the Corporation). Such notice
shall state the time when and the place where the meeting is to be held, shall
state briefly the general nature of the business to be transacted thereat and
shall contain such information as is reasonably necessary to enable the
Warrantholders to make a reasoned decision on the matter, but it shall not be
necessary for any such notice to set out the terms of any resolution to be
proposed nor any of the provisions of this Article 9. The notice convening any
such meeting may be signed by an appropriate officer of the Warrant Trustee or
by the Corporation or by the Warrantholder or Warrantholders convening the
meeting.
Section 9.3 Chairman
An individual (who need not be a Warrantholder) nominated in
writing by the Warrant Trustee shall be chairman of the meeting and if no
individual is so nominated, or if the individual so nominated is not present
within fifteen minutes from the time fixed for the holding of the meeting, or if
such Person is unable or unwilling to act as chairman, the Warrantholders
present in Person or by proxy shall choose some individual present to be
chairman.
Section 9.4 Quorum
Subject to the provisions of Section 9.11, at any meeting of
the Warrantholders a quorum shall consist of Warrantholders present in Person or
by proxy and entitled to purchase at least 10% of the aggregate number of Common
Shares which could be purchased pursuant to all the then outstanding Warrants,
provided that at least two Persons entitled to vote thereat are personally
present. If a quorum of the Warrantholders shall not be present within thirty
minutes from the time fixed for holding any meeting, the meeting, if summoned by
the Warrantholders or on a Warrantholders' Request, shall be dissolved; but in
any other case the meeting shall be adjourned to the same day in the next week
(unless such day is not a Business Day in which case it shall be adjourned to
the next following Business Day) at the same time and place and subject to
Section 9.11 no notice of the adjournment need be given. Any business may be
brought before or dealt with at an adjourned meeting which might have been dealt
with at the original meeting in accordance with the notice calling the same. No
business shall be transacted at any meeting unless a quorum be present at the
commencement of business. At the adjourned meeting the Warrantholders present in
Person or by proxy shall form a quorum and may transact the business for which
the meeting was originally convened, notwithstanding that they may not be
entitled to purchase at least 10% of the aggregate number of Common Shares which
may be purchased pursuant to all then outstanding Warrants.
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Section 9.5 Power to Adjourn
The chairman of any meeting at which a quorum of the
Warrantholders is present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except such notice, if
any, as the meeting may prescribe.
Section 9.6 Show of Hands
Every question submitted to a meeting shall be decided in the
first place by a majority of the votes given on a show of hands except that
votes on an Extraordinary Resolution shall be given in the manner hereinafter
provided. At any such meeting, unless a poll is duly demanded as herein
provided, a declaration by the chairman that a resolution has been carried or
carried unanimously or by a particular majority or lost or not carried by a
particular majority shall be conclusive evidence of the fact.
Section 9.7 Poll and Voting
(1) On every Extraordinary Resolution, and on any other question submitted to a
meeting and after a vote by show of hands when demanded by the chairman or by
one or more of the Warrantholders acting in Person or by proxy, a poll shall be
taken in such manner as the chairman shall direct. Questions other than those
required to be determined by Extraordinary Resolution shall be decided by a
majority of votes cast on the poll.
(2) On a show of hands, every Person who is present and entitled to vote,
whether as a Warrantholder or as proxy for one or more absent Warrantholders, or
both, shall have one vote. On a poll, each Warrantholder present in Person or
represented by a proxy duly appointed by instrument in writing shall be entitled
to one vote in respect of each Common Share which he is entitled to purchase
pursuant to the Warrant or Warrants then held or represented by him. A proxy
need not be a Warrantholder. The chairman of any meeting shall be entitled, both
on a show of hands and on a poll, to vote in respect of the Warrants, if any,
held or represented by him.
Section 9.8 Regulations
(1) Subject to the provisions of this Indenture, the Warrant Trustee or the
Corporation with the approval of the Warrant Trustee may from time to time make
and from time to time vary such regulations as it shall think fit:
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(a) for the issue of voting certificates by any bank, trust company or
other depositary approved by the Warrant Trustee certifying that
specified Warrants have been deposited with it by a named holder and
will remain on deposit until after the meeting, which voting
certificates shall entitle the holders named therein to be present and
vote at any such meeting and at any adjournment thereof or to appoint
a proxy or proxies to represent them and vote for them at any such
meeting and at any adjournment thereof in the same manner and with the
same effect as though the holders so named in such voting certificates
were the actual holders of the Warrant specified therein;
(b) for Warrantholders to appoint a proxy or proxies to represent them and
vote for them at any such meeting and at any adjournment thereof and
the manner in which same shall be executed, and for the production of
the authority of any persons signing on behalf of the giver of such
proxy;
(c) for the deposit of voting certificates and instruments appointing
proxies at such place and time as the Warrant Trustee, the Corporation
or the Warrantholders convening the meeting, as the case may be, may
in the notice convening the meeting direct;
(d) for the deposit of voting certificates and instruments appointing
proxies at some approved place or places other than the place at which
the meeting is to be held and enabling particulars of such instruments
appointing proxies to be mailed, delivered or sent by facsimile
transmission before the meeting to the Corporation or to the Warrant
Trustee at the place where the same is to be held and for the voting
of proxies so deposited as though the instruments themselves were
produced at the meeting;
(e) for the form of the voting certificates and instrument of proxy; and
(f) generally for the calling of meetings of Warrantholders and the
conduct of business thereat.
(2) Any regulations so made shall be binding and effective and the votes given
in accordance therewith shall be valid and shall be counted. Save as such
regulations may provide, or as may be expressly provided for herein the only
Persons who shall be recognized at any meeting as a Warrantholder, or be
entitled to vote or be present at the meeting in respect thereof (subject to
Section 9.9) shall be Warrantholders or Persons holding voting certificates or
proxies of Warrantholders.
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Section 9.9 Corporation, Warrant Trustee and Warrantholders May
be Represented
The Corporation and the Warrant Trustee, by their respective
directors, officers and employees, and the counsel for the Corporation, for the
Warrant Trustee and for any Warrantholder may attend any meeting of the
Warrantholders, but shall have no vote as such.
Section 9.10 Powers Exercisable by Extraordinary Resolution
In addition to all other powers conferred upon them by any
other provisions of this Indenture or by law, the Warrantholders at a meeting
shall have the power, exercisable from time to time by Extraordinary Resolution,
subject to regulatory approval:
(a) to agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Warrantholders or (with the consent of
the Warrant Trustee, such consent not to be unreasonably withheld) the
Warrant Trustee in its capacity as Warrant Trustee hereunder or on
behalf of the Warrantholders against the Corporation whether such
rights arise under this Indenture, the Warrant Certificate or
otherwise:
(b) to amend, alter or repeal any Extraordinary Resolution previously
passed or sanctioned by the Warrantholders;
(c) to direct or to authorize the Warrant Trustee, subject to its prior
indemnification pursuant to subsection 11.1(2), to enforce any of the
covenants on the part of the Corporation contained in this Indenture
or the Warrant Certificates or to enforce any of the rights of the
Warrantholders in any manner specified in such Extraordinary
Resolution or to refrain from enforcing any such covenant or right;
(d) to waive, and to direct the Warrant Trustee to waive, any default on
the part of the Corporation in complying with any provisions of this
Indenture or the Warrant Certificates either unconditionally or upon
any conditions specified in such Extraordinary Resolution;
(e) to restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Corporation for the enforcement of
any of the covenants on the part of the Corporation contained in this
Indenture or the Warrant Certificates or to enforce any of the rights
of the Warrantholders;
(f) to direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or to discontinue or otherwise to deal with the
same upon payment of the costs, charges and expenses reasonably and
properly incurred by such Warrantholder in connection therewith; and
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(g) to remove the Warrant Trustee and to appoint a successor warrant
trustee in the manner specified in Section 11.7 hereof.
Section 9.11 Meaning of Extraordinary Resolution
(1) The expression "Extraordinary Resolution" when used in this Indenture means,
subject as hereinafter provided in this Section 9.11 and in Section 9.14, a
resolution proposed at a meeting of Warrantholders duly convened for that
purpose and held in accordance with the provisions of this Article 9 at which
there are present in Person or by proxy Warrantholders entitled to purchase at
least 25% of the aggregate number of Common Shares which may be purchased
pursuant to all the then outstanding Warrants and passed by the affirmative
votes of Warrantholders entitled to purchase not less than 66 2/3% of the
aggregate number of Common Shares which may be purchased pursuant to all the
then outstanding Warrants represented at the meeting and voted on the poll upon
such resolution.
(2) If, at any meeting called for the purpose of passing an Extraordinary
Resolution, Warrantholders entitled to purchase at least 25% of the aggregate
number of Common Shares which may be purchased pursuant to all the then
outstanding Warrants are not present in Person or by proxy within 30 minutes
after the time appointed for the meeting then the meeting, if convened by
Warrantholders or on a Warrantholders' Request, shall be dissolved; but in any
other case it shall stand adjourned to such day, being not less than 15 or more
than 60 days later, and to such place and time as may be appointed by the
chairman. Not less than ten days' prior notice shall be given of the time and
place of such adjourned meeting in the manner provided for in Section 3.6. Such
notice shall state that at the adjourned meeting the Warrantholders present in
Person or by proxy shall form a quorum but it shall not be necessary to set
forth the purposes for which the meeting was originally called or any other
particulars. At the adjourned meeting the Warrantholders present in Person or by
proxy shall form a quorum and may transact the business for which the meeting
was originally convened and a resolution proposed at such adjourned meeting and
passed by the requisite vote as provided in subsection 9.11(1) shall be an
Extraordinary Resolution within the meaning of this Indenture notwithstanding
that Warrantholders entitled to purchase at least 25% of the aggregate number of
Common Shares which may be purchased pursuant to all the then outstanding
Warrants are not present in Person or by proxy at such adjourned meeting.
(3) Votes on an Extraordinary Resolution shall always be given on a poll and no
demand for a poll on an Extraordinary Resolution shall be necessary.
Section 9.12 Powers Cumulative
Any one or more of the powers or any combination of the powers
in this Indenture stated to be exercisable by the Warrantholders by
Extraordinary Resolution or otherwise may be exercised from time to time and the
exercise of any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the Warrantholders to
exercise such power or powers or combination of powers then or thereafter from
time to time.
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Section 9.13 Minutes
Minutes of all resolutions and proceedings at every meeting of
Warrantholders shall be made and duly entered in books to be provided from time
to time for that purpose by the Warrant Trustee at the expense of the
Corporation, and any such minutes as aforesaid, if signed by the chairman of the
meeting at which such resolutions were passed or proceedings had, shall be prima
facie evidence of the matters therein stated and, until the contrary is proved,
every such meeting in respect of the proceedings of which minutes shall have
been made shall be deemed to have been duly convened and held, and all
resolutions passed or proceedings taken thereat shall be deemed to have been
duly passed and taken.
Section 9.14 Instruments in Writing
All actions which may be taken and all powers that may be
exercised by the Warrantholders at a meeting held as provided in this Article 9
may also be taken and exercised by Warrantholders entitled to purchase at least
66 2/3% of the aggregate number of Common Shares which may be purchased pursuant
to all the then outstanding Warrants by an instrument in writing signed in one
or more counterparts by such Warrantholders in Person or by attorney duly
appointed in writing, and the expression "Extraordinary Resolution" when used in
this Indenture shall include an instrument so signed.
Section 9.15 Binding Effect of Resolutions
Every resolution and every Extraordinary Resolution passed in
accordance with the provisions of this Article 9 at a meeting of Warrantholders
shall be binding upon all the Warrantholders, whether present at or absent from
such meeting, and every instrument in writing signed by Warrantholders in
accordance with Section 9.14 shall be binding upon all the Warrantholders,
whether signatories thereto or not, and each and every Warrantholder and the
Warrant Trustee (subject to receiving prior indemnification pursuant to
subsection 11.1(2)) shall be bound to give effect accordingly to every such
resolution and instrument in writing. In the case of an instrument in writing
the Warrant Trustee shall give notice in the manner contemplated in Section 3.6
and Section 13.1 of the effect of the instrument in writing to all
Warrantholders and the Corporation as soon as is reasonably practicable.
Section 9.16 Holdings by Corporation Disregarded
In determining whether Warrantholders holding Warrants
evidencing the required number of Common Shares are present at a meeting of
Warrantholders for the purpose of determining a quorum or have concurred in any
consent, waiver, Extraordinary Resolution, Warrantholders' Request or other
action under this Indenture, Warrants owned legally or beneficially by the
Corporation or any Subsidiary of the Corporation or any other Affiliate of the
Corporation, as determined in accordance with the provisions of Section 13.6,
shall be disregarded.
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ARTICLE 10
SUPPLEMENTAL INDENTURES
Section 10.1 Provision for Supplemental Indentures for Certain Purposes
From time to time the Corporation (when authorized by action
by the Directors) and the Warrant Trustee may, subject to the provisions hereof,
and they shall, when so directed in accordance with the provisions hereof and
regulatory approval, execute and deliver by their proper officers, indentures,
or instruments supplemental hereto, which thereafter shall form part hereof, for
any one or more or all of the following purposes:
(a) setting forth any adjustments resulting from the application of the
provisions of Article 5 or any modification affecting the rights of
Warrantholders hereunder on exercise of the Warrants, provided that
any such adjustments or modifications shall be subject to the prior
written approval of any stock exchange or over-the-counter market on
which the Common Shares are then listed or quoted for trading;
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of Counsel, are necessary or
advisable, provided that the same are not in the opinion of the
Warrant Trustee, relying on the advice of Counsel, prejudicial to the
rights or interests of any of the Warrantholders;
(c) giving effect to any Extraordinary Resolution passed as provided in
Article 9;
(d) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder, provided that such provisions are not, in the opinion of
the Warrant Trustee, relying on the advice of Counsel, prejudicial to
the rights or interests of any of the Warrantholders;
(e) adding to or altering the provisions hereof in respect of the transfer
of Warrants, making provision for the exchange of Warrant
Certificates, and making any modification in the form of the Warrant
Certificates which does not affect the substance thereof;
(f) modifying any of the provisions of this Indenture, including by
providing for the creation and the authority to issue additional
Warrants, or relieving the Corporation from any of the obligations,
conditions or restrictions herein contained, provided that such
modification or relief shall be or become operative or effective only
if, in the opinion of the Warrant Trustee, relying on the advice of
Counsel, such modification or relief in no way prejudices any of the
rights or interests of any of the Warrantholders or of the Warrant
Trustee, and provided further that the Warrant Trustee may in its sole
discretion decline to enter into any such supplemental indenture which
in its opinion may not afford adequate protection to the Warrant
Trustee when the same shall become operative; and
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(g) for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes or
omissions herein, provided that in the opinion of the Warrant Trustee,
relying on the advice of Counsel, the rights or interests of the
Warrant Trustee and any of the Warrantholders are in no way prejudiced
thereby.
Section 10.2 Successor Corporations
In the case of the consolidation, amalgamation, merger or
transfer of the undertaking or assets of the Corporation as an entirety or
substantially as an entirety to another corporation ("successor corporation"),
the successor corporation resulting from such consolidation, amalgamation,
merger or transfer (if not the Corporation) shall expressly assume, by
supplemental indenture satisfactory in form to the Warrant Trustee and executed
and delivered to the Warrant Trustee, the due and punctual performance and
observance of each and every covenant and condition of this Indenture to be
performed and observed by the Corporation.
ARTICLE 11
CONCERNING THE WARRANT TRUSTEE
Section 11.1 Rights and Duties of Warrant Trustee
(1) In the exercise of the rights and duties prescribed or conferred by the
terms of this Indenture, the Warrant Trustee shall act honestly and in good
faith with a view to the best interests of the Warrantholders and shall exercise
that degree of care, diligence and skill that a reasonably prudent warrant
trustee would exercise in comparable circumstances. No provision of this
Indenture shall be construed to relieve the Warrant Trustee from, or require any
Person to indemnify the Warrant Trustee against, liability for its own
negligence, wilful misconduct or bad faith. The duties and obligations of the
Warrant Trustee shall be determined solely by the provisions hereof and,
accordingly, the Warrant Trustee shall only be responsible for the performance
of such duties and obligations as it has undertaken herein. The Warrant Trustee
shall retain the right not to act and shall not be held liable for refusing to
act in circumstances that require the delivery to or receipt by the Warrant
Trustee of documentation unless it has received clear and reasonable
documentation which complies with the terms of this Indenture. Such
documentation must not require the exercise of any discretion or independent
judgement other than as contemplated by this Indenture. The Warrant Trustee
shall incur no liability with respect to the delivery or non-delivery of any
certificate or certificates whether delivered by hand, mail or any other means,
provided that it has complied with the terms of this Indenture in respect of the
discharging of its obligations in respect of the delivery of such certificates.
(2) The obligation of the Warrant Trustee to commence or continue any act,
action or proceeding for the purpose of enforcing any rights of the Warrant
Trustee or the Warrantholders hereunder shall be conditional upon the
Warrantholders furnishing, when required by notice in writing by the Warrant
Trustee, sufficient funds to commence or to continue such act, action or
proceeding and an indemnity reasonably satisfactory to the Warrant Trustee to
protect and to hold harmless the Warrant Trustee against the costs, charges and
expenses and liabilities to be incurred thereby and any loss and damage it may
suffer by reason thereof. None of the provisions contained in this Indenture
shall require the Warrant Trustee to expend or to risk its own funds or
otherwise to incur financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers unless indemnified as
aforesaid.
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(3) The Warrant Trustee may, before commencing or at any time during the
continuance of any such act, action or proceedings, require the Warrantholders,
at whose instance it is acting, to deposit with the Warrant Trustee the Warrant
Certificates held by them, for which the Warrant Trustee shall issue receipts.
(4) Every provision of this Indenture that by its terms relieves the Warrant
Trustee of liability or entitles it to rely upon any evidence submitted to it is
subject to the provisions of this Section 11.1 and of Section 11.2.
Section 11.2 Evidence, Experts and Advisers
(1) In addition to the reports, certificates, opinions and evidence required by
this Indenture, the Corporation shall furnish to the Warrant Trustee such
additional evidence of compliance with any provision hereof, and in such form as
the Warrant Trustee may reasonably require by written notice to the Corporation.
(2) The Warrant Trustee shall be protected in acting upon any written notice,
request, waiver, consent, certificate, receipt, statutory declaration or other
paper or document furnished to it, not only as to its due execution and the
validity and effectiveness of its provisions, but also as to the truth of and
acceptability of any information therein contained which it in good faith
believes to be genuine and what it purports to be.
(3) Proof of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by the certificate of
a notary public, or other officer with similar powers, that the Person signing
such instrument acknowledged to him the execution thereof, or by an affidavit of
a witness to such execution or in any other manner which the Warrant Trustee may
consider adequate.
(4) The Warrant Trustee may employ or retain such Counsel, accountants,
appraisers or other experts or advisers as it may reasonably require for the
purpose of discharging its duties hereunder and shall not be responsible for any
misconduct or negligence on the part of such experts or advisors who have been
appointed and supervised with due care by the Warrant Trustee. The fees of such
Counsel and other experts shall be part of the Warrant Trustee's fees hereunder.
The Warrant Trustee shall be fully protected in acting or not acting, in good
faith, in accordance with any opinion or instruction of such Counsel. Any
remuneration so paid by the Warrant Trustee shall be repaid to the Warrant
Trustee in accordance with Section 7.2.
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Section 11.3 Documents, Monies, Etc., Held by Warrant Trustee
Any securities, documents of title or other instruments that
may at any time be held by the Warrant Trustee subject to the trusts hereof may
be placed in the deposit vaults of the Warrant Trustee or of any Canadian
chartered bank or deposited for safekeeping with any such bank. Unless herein
otherwise expressly provided, any monies so held pending the application or
withdrawal thereof under any provisions of this Indenture may be deposited in
the name of the Warrant Trustee in any Canadian chartered bank at the rate of
interest (if any) then current on similar deposits, or upon the written
direction of the Corporation, may be deposited in the deposit department of the
Warrant Trustee or any other loan or trust company authorized to accept deposits
under the laws of Canada or a province thereof. Unless the Corporation shall be
in default hereunder, all interest or other income received by the Warrant
Trustee in respect of such deposits and investments shall belong to the
Corporation.
Section 11.4 Action by Warrant Trustee to Protect Interest
The Warrant Trustee shall have power to institute and to
maintain such actions and proceedings as it may consider necessary or expedient
to preserve, protect or enforce its interests and the interests of the
Warrantholders.
Section 11.5 Warrant Trustee not Required to Give Security
The Warrant Trustee shall not be required to give any bond or
security in respect of the execution of the trusts and powers of this Indenture
or otherwise in respect of the premises.
Section 11.6 Protection of Warrant Trustee
By way of supplement to the provisions of any law for the time
being relating to trustees or warrant trustees it is expressly declared and
agreed as follows:
(1) The Warrant Trustee shall not be liable for or by reason of any statement of
fact or recitals in this indenture or in the Warrant Certificates (except the
representations contained in Section 11.8 or in the certificate of the Warrant
Trustee on the Warrant Certificates) or be required to verify the same, but all
such statements or recitals are and shall be deemed to be made by the
Corporation;
(2) Nothing herein contained shall impose any obligation on the Warrant Trustee
to see to or to require evidence of the registration or filing (or renewal
thereof) of this Indenture or any instrument ancillary or supplemental hereto;
(3) The Warrant Trustee shall not be bound to give notice to any Person or
Persons of the execution hereof; and
(4) The Warrant Trustee shall not incur any liability or responsibility whatever
or be in any way responsible for the consequence of any breach on the part of
the Corporation of any of the covenants herein contained or of any acts of any
Directors, officers, employees, agents or servants of the Corporation.
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Section 11.7 Replacement of Warrant Trustee; Successor by Merger
(1) The Warrant Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder, subject to this subsection 11.7(l), by giving
to the Corporation not less than 30 days prior notice in writing or such shorter
prior notice as the Corporation may accept as sufficient. The Warrantholders by
Extraordinary Resolution shall have power at any time to remove the existing
Warrant Trustee and to appoint a new warrant trustee. In the event of the
Warrant Trustee resigning or being removed as aforesaid or being dissolved,
becoming bankrupt, going into liquidation or otherwise becoming incapable of
acting hereunder, the Corporation shall forthwith appoint a new warrant trustee
unless a new warrant trustee has already been appointed by the Warrantholders;
failing such appointment by the Corporation, the retiring Warrant Trustee or any
Warrantholder may apply to a justice of the Ontario Superior Court of Justice
(the "Court"), at the Corporation's expense, on such notice as such justice may
direct, for the appointment of a new warrant trustee; but any new warrant
trustee so appointed by the Corporation or by the Court shall be subject to
removal as aforesaid by the Warrantholders. Any new warrant trustee appointed
under any provision of this Section 11.7 shall be a corporation authorized to
carry on the business of a trust company in the province of Ontario. On any such
appointment the new warrant trustee shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein as
Warrant Trustee without any further assurance, conveyance, act or deed; but
there shall be immediately executed, at the expense of the Corporation, all such
conveyances or other instruments as may, in the opinion of Counsel, be necessary
or advisable for the purpose of assuring the same to the new warrant trustee,
provided that, any resignation or removal of the Warrant Trustee and appointment
of a successor warrant trustee shall not become effective until the successor
warrant trustee shall have executed an appropriate instrument accepting such
appointment and, at the request of the Corporation, the predecessor Warrant
Trustee shall execute and deliver to the successor warrant trustee an
appropriate instrument transferring to such successor warrant trustee all rights
and powers of the Warrant Trustee hereunder.
(2) Upon the appointment of a successor warrant trustee, the Corporation shall
promptly notify the Warrantholders thereof in the manner provided for in Section
3.6 hereof.
(3) Any corporation into or with which the Warrant Trustee may be merged or
consolidated or amalgamated, or any corporation resulting thereof, or any
corporation succeeding to the trust business of the Warrant Trustee shall be the
successor to the Warrant Trustee hereunder without any further act on its part
or any of the parties hereto, provided that such corporation would be eligible
for appointment as a successor warrant trustee under subsection 11.7(1).
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Section 11.8 Conflict of Interest
(1) The Warrant Trustee represents to the Corporation that at the time of
execution and delivery hereof no material conflict of interest exists between
its role as a warrant trustee hereunder and its role in any other capacity and
agrees that in the event of a material conflict of interest arising hereafter it
will, within 90 days after ascertaining that it has such material conflict of
interest, either eliminate the same or resign its trusts hereunder to a
successor Special Warrant Trustee approved by the Corporation and meeting the
requirements set forth in subsection 11.7(1). Notwithstanding the foregoing
provisions of this subsection 11.8(1), if any such material conflict of interest
exists or hereinafter shall exist, the validity and enforceability of this
Indenture and the Warrant Certificates shall not be affected in any manner
whatsoever by reason thereof.
(2) Subject to subsection 11.8(1), the Warrant Trustee, in its personal or any
other capacity, may buy, lend upon and deal in securities of the Corporation and
generally may contract and enter into financial transactions with the
Corporation or any Subsidiary of the Corporation without being liable to account
for any profit made thereby.
Section 11.9 Warrant Trustee Not to be Appointed Receiver
The Warrant Trustee and any Person related to the Warrant
Trustee shall not be appointed a receiver, a receiver and manager or liquidator
of all or any part of the assets or undertaking of the Corporation.
Section 11.10 Payments by Warrant Trustee
The forwarding of a cheque by the Warrant Trustee will satisfy
and discharge the liability for any amounts due to the extent of the sum or sums
represented thereby (plus the amount of any tax deducted or withheld as required
by law) unless such cheque is not honoured on presentation; provided that in the
event of the non-receipt of such cheque by the payee, or the loss or destruction
thereof, the Warrant Trustee, upon being furnished with reasonable evidence of
such non-receipt, loss or destruction and indemnity reasonably satisfactory to
it, will issue to such payee a replacement cheque for the amount of such cheque.
Section 11.11 Unclaimed Interest or Distribution - Retention of Benefits
by Warrant Trustee
In the event that the Warrant Trustee shall hold any amount of
interest or other distributable amount which is unclaimed or which cannot be
paid for any reason, the Warrant Trustee shall be under no obligation to invest
or reinvest the same but shall only be obligated to hold the same on behalf of
the person or persons entitled thereto in a current or other non-interest
bearing account pending payment to the person or persons entitled thereto. The
Warrant Trustee shall, as and when required by law, and may at any time prior to
such required time, pay all or part of such interest or other distributable
amount so held to the Public Trustee (or other appropriate governmental official
or agency) whose receipt shall be good discharge and release of the Warrant
Trustee.
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Section 11.12 Deposit of Securities
The Warrant Trustee shall not be responsible or liable in any
manner whatsoever for the sufficiency, correctness, genuineness or validity of
any security deposited with it.
Section 11.13 Act, Error, Omission etc.
The Warrant Trustee shall not be liable for any error in
judgement or for any act done or step taken or omitted by it in good faith for
any mistake, in fact or law, or for anything which it may do or refrain from
doing in connection herewith except arising out of its own negligence or wilful
misconduct.
Section 11.14 Indemnification
The Corporation hereby agrees to indemnify and hold harmless
the Warrant Trustee and its respective officers, directors, employees, agents,
representatives, successors and assigns from and against any and all reasonable
costs, expenses and disbursements, damages, liabilities, claims and actions
(including reasonable legal fees and disbursements) which it might incur or to
which it might have become subject and any action, suit, or other similar legal
proceeding which might be instituted against the Warrant Trustee arising from or
out of any act, omission or error of the Warrant Trustee provided that such act,
omission or error was made in good faith and the conduct of the Warrant
Trustee's duties hereunder was in accordance with the standards set forth in
Section 11.1 and did not constitute negligence or wilful misconduct on the part
of the Warrant Trustee. This provision shall survive the resignation or removal
of the Warrant Trustee or the termination of this Indenture.
Section 11.15 Notice
The Warrant Trustee shall not be required to take notice or be
deemed to have constructive or actual knowledge of any matter hereunder,
including failure by the Corporation to perform any of its covenants in this
Indenture or any other breach of the Corporation hereunder, unless the Warrant
Trustee shall have received from the Corporation or a Warrantholder, a written
notice stating the matter in respect of which the Warrant Trustee should have
actual knowledge and identifying in such notice that it is given in respect of
this Indenture.
-38-
ARTICLE 12
FORM OF WARRANT CERTIFICATE
Section 12.1 Form of Warrant Certificate
The following is the form of Warrant Certificate referred to
in subsection 2.2(3):
(FORM OF WARRANT CERTIFICATE)
THIS CERTIFICATE, AND THE COMMON SHARE PURCHASE WARRANTS EVIDENCED HEREBY, WILL
BE VOID AND OF NO VALUE UNLESS EXERCISED ON OR BEFORE 5:00 P.M. (TORONTO TIME)
ON o, 2004. [Note to draft: Legends required or advisable under any securities
legislation to be added.]
OPEN TEXT CORPORATION
NO. WARRANTS
------------- ---------------------
COMMON SHARE PURCHASE WARRANTS
The securities represented hereby and the securities issuable upon
exercise of the securities represented hereby, are subject to resale
restrictions under applicable Canadian securities laws. Holders of the
securities represented hereby should consult with their legal advisors prior to
exercising the securities represented hereby.
THIS IS TO CERTIFY THAT for value received _______________________, the
registered holder hereof is entitled for each whole Warrant represented hereby
to purchase one fully paid and non-assessable common share ("Common Share") in
the capital of Open Text Corporation (the "Corporation") at a price per share of
U.S.$20.75, subject to adjustment as hereinafter referred to.
Such right to purchase may be exercised by the registered holder hereof
at any time on the date of issue hereof up to and including 5:00 p.m. (Toronto
time) on o, 2004 (the "Time of Expiry") by surrender of this Warrant Certificate
to Computershare Trust Company of Canada (the "Warrant Trustee") at the
principal transfer office of the Warrant Trustee in Toronto, Ontario, together
with the subscription form attached hereto duly executed and completed for the
number of Common Shares which the holder hereof is entitled to purchase and the
purchase price of such Common Shares as herein provided.
-39-
This Warrant and such payment shall be deemed not to have been
surrendered and made except upon personal delivery thereof or, if sent by post
or other means of transmission, upon actual receipt thereof by the Warrant
Trustee at one of the offices specified above.
The purchase price of Common Shares subscribed for hereunder shall be
paid by certified cheque, money order or bank draft in lawful money of the
United States of America payable to the order of the Corporation or the Warrant
Trustee at par in the city where this Warrant Certificate is delivered.
Certificates for the Common Shares subscribed for will be mailed to the
persons specified in the subscription form at their respective addresses
specified therein or, if so specified in such subscription form, delivered to
such persons at the office where the applicable Warrant was surrendered, when
the transfer registers of the Corporation have been open for five Business Days
after the due surrender of such Warrant and payment as aforesaid. In the event
of a purchase of a number of Common Shares fewer than the number which can be
purchased pursuant to this Warrant, the holder shall be entitled to receive
without charge a new Warrant in respect of the balance of such shares.
This Warrant Certificate and other Warrant Certificates are issued
under and pursuant to a certain warrant indenture (herein referred to as the
"Indenture") dated as of o, 2003 between the Corporation and the Warrant
Trustee, to which Indenture and any instruments supplemental thereto reference
is hereby made for a description of the terms and conditions upon which such
Warrant Certificates are issued and are to be held all to the same effect as if
the provisions of the Indenture and all instruments supplemental thereto were
herein set forth, to all of which provisions the holder of this Warrant
Certificate by acceptance hereof assents. The Corporation will furnish to the
holder of this Warrant Certificate, upon request and without charge, a copy of
the Indenture.
Subject to the Corporation's right to purchase the Warrants under the
Indenture and to any restriction under applicable law or policy of any
applicable regulatory body, the Warrants and Warrants Certificates and the
rights thereunder shall only be transferable by the registered holder hereof in
compliance with the conditions prescribed in the Indenture and the due
completion, execution and delivery of a Transfer Form (as attached hereto) in
accordance with the terms of the Indenture.
The holding of this Warrant shall not constitute the holder hereof a
holder of Common Shares nor entitle him to any right of interest in respect
thereof.
The Indenture provides for adjustment in the number of shares to be
delivered upon the exercise of the right of purchase hereby granted and to the
exercise price in certain events therein set forth.
The Indenture contains provisions making binding upon all holders of
Warrant Certificates outstanding thereunder resolutions passed at meetings of
such holders held in accordance with such provisions by the Warrantholders
entitled to purchase a specified majority of the Common Shares which may be
purchased pursuant to all then outstanding Warrants.
-40-
The holder of this Warrant Certificate may at any time up to and
including the Time of Expiry upon the surrender hereof to the Warrant Trustee at
its principal transfer office in Toronto, Ontario, and payment of any charges
provided for in the Indenture, exchange this Warrant Certificate for other
Warrant Certificates entitling the holder to subscribe in the aggregate for the
same number of Common Shares as is expressed in this Warrant Certificate.
This Warrant Certificate shall not be valid for any purpose whatever
unless and until it has been countersigned by the Warrant Trustee for the time
being under the Indenture.
Nothing contained herein or in the Indenture shall confer any right
upon the holder hereof or any other person to subscribe for or purchase any
shares of the Corporation at any time subsequent to the Time of Expiry. After
the Time of Expiry this Warrant Certificate and all rights thereunder shall be
void and of no value.
Time is of the essence hereof.
IN WITNESS WHEREOF this Warrant Certificate has been executed on behalf
of Open Text Corporation as of the ________ day of ________________ , 20____.
OPEN TEXT CORPORATION
By:
------------------------------------
Countersigned:
COMPUTERSHARE TRUST COMPANY OF CANADA
Dated: By:
------------------------- ------------------------------------
-41-
Section 12.2 Subscription Form
The following is the form of subscription:
SUBSCRIPTION FORM
-----------------
TO: Open Text Corporation
c/o Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Attention: Securities Flow Department
-------------------------------------
The undersigned registered holder of the within Warrant
Certificate, subject to that certain warrant indenture (the "Indenture") dated
as of o, 2003 between Open Text Corporation and Computershare Trust Company of
Canada, as Warrant Trustee, hereby:
(a) subscribes for __________ common shares ("Common Shares") (or such
number of Common Shares or other securities or property to which such
subscription entitles the undersigned in lieu thereof or in addition
thereto under the Indenture) of Open Text Corporation at the price per
share of U.S.$20.75 (or such adjusted price which may be in effect
under the provisions of the Indenture) and in payment of the exercise
price encloses a certified cheque, money order or bank draft, in any
case in lawful money of the United States of America payable at par in
the City of Toronto to the order of Open Text Corporation; and
(b) delivers herewith the above-mentioned Warrant Certificate entitling
the undersigned to subscribe for the above-mentioned number of Common
Shares.
-42-
The undersigned hereby directs that the said Common Shares be
registered as follows:
Address(es) Number(s) of
Name(s) in full (including Postal Code) Common Shares
-------------------- ---------------------------- -----------------
-------------------- ---------------------------- -----------------
-------------------- ---------------------------- -----------------
DATED this day of , 200 .
------- --------------------- ---
Signature of Warrantholder guaranteed by:
------------------------------ ------------------------------------
(Signature of Subscriber)
------------------------------
------------------------------------
(Print Name of Subscriber)*
------------------------------------
------------------------------------
------------------------------------
(Address of Subscriber in full)
(*The name of the signatory must correspond with the name upon the face of the
certificate in every particular and the Corporation reserves the right to
require reasonable assurance that such signature is genuine and effective.)
The certificates will be mailed by registered mail to the address appearing in
this Subscription Form.
If common shares are issued to a person other than the registered Warrantholder,
the signature of the holder must be guaranteed by a Canadian Chartered Bank or
trust company or by a medallion signature guarantee from a member of a
recognized signature medallion guarantee program.
-43-
Section 12.3 Form of Transfer
The following is the form of transfer:
TRANSFER FORM
-------------
FOR VALUE RECEIVED, the undersigned hereby sells, transfers and assigns to
_______________ Warrants represented by the within Warrant Certificate and
appoints the Warrant Trustee attorney to transfer the said Warrants on the books
of the within-named corporation with full power of substitution in the premises.
DATED , .
----------------------------- ----------
In the presence of:
Signature of Warrantholder guaranteed by:
------------------------------------- -------------------------------------
(Signature of Registered Holder)
-------------------------------------
(Name of Registered Holder)
NOTICE: The signature of this assignment must correspond with the name
as written upon the face of this Certificate (or, in the case
of a corporate holder, by a duly authorized representative) in
every particular without alteration or enlargement or any
change whatsoever. The transferor must pay to the Warrant
Trustee all exigible taxes.
All endorsements or assignments of these Warrants must be
signature guaranteed by a Canadian chartered bank or trust
company or by a medallion signature guarantee from a member of
a recognized signature medallion guarantee program.
ARTICLE 13
GENERAL
Section 13.1 Notice to the Corporation and the Warrant Trustee
(1) Unless herein otherwise expressly provided, any notice to be given hereunder
to the Corporation and to the Warrant Trustee shall be in writing and may be
given by mail, or by telecopy (with original copy to follow by mail) or by
personal delivery and shall be addressed as follows:
-44-
Open Text Corporation
185 Columbia Street West
Waterloo, ON N2L 5Z5
Attention: Secretary
Facsimile: 519-888-0254
Computershare Trust Company of Canada
100 University Avenue
Toronto, ON M5J 2Y1
Attention: Manager, Corporate Trust
Facsimile: 416-981-9777
and shall be deemed to have been given, if delivered or sent by courier, on the
date of delivery or, if mailed, on the fifth Business Day following the date of
the postmark on such notice or, if telecopied, on the Business Day following
telecopier transmission. Any delivery made or sent by facsimile on a day other
than a Business Day, or after 3:00 p.m. (Toronto time) on a Business Day, shall
be deemed to be received on the next following Business Day.
(2) The Corporation or the Warrant Trustee, as the case may be, may from time to
time give notice in the manner provided in subsection 13.1(1) of a change of
address which, from the effective date of such notice and until changed by like
notice, shall be the address of the Corporation or the Warrant Trustee, as the
case may be, for all purposes of this Indenture. A copy of any notice of change
of address of the Corporation given pursuant to this subsection 13.1(2) shall be
sent to the principal transfer office of the Warrant Trustee in the City of
Toronto, Ontario and shall be available for inspection by Warrantholders during
normal business hours.
(3) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the Warrant
Trustee or to the Corporation hereunder could reasonably be considered unlikely
to reach its destination, such notice shall be valid and effective only if it is
delivered to an officer of the party to which it is addressed or if it is
delivered to such party at the appropriate address provided in subsection
13.1(1) by telecopy or other means of prepaid, transmitted, recorded
communication and any such notice delivered in accordance with the foregoing
shall be deemed to have been received on the date of delivery to such officer or
if delivered by telecopy or other means of prepaid, transmitted, recorded
communication, on the first Business Day following the date of the sending of
such notice by the Person giving such notice.
Section 13.2 Time of the Essence
Time shall be of the essence in this Indenture.
-45-
Section 13.3 Counterparts and Formal Date
This Indenture may be executed in several counterparts, each
of which when so executed shall be deemed to be an original and such
counterparts together shall constitute one and the same instrument and
notwithstanding their date of execution shall be deemed to be dated as of o,
2003.
Section 13.4 Satisfaction and Discharge of Indenture
Upon the earlier of (a) the date by which there shall have
been delivered to the Warrant Trustee for exercise or destruction all Warrant
Certificates theretofore certified hereunder or (b) the expiration of the
Exercise Period, this Indenture, except to the extent that Common Shares and
certificates therefor have not been issued and delivered hereunder or the
Warrant Trustee or the Corporation have not performed any of their obligations
hereunder, shall cease to be of further effect and the Warrant Trustee, on
demand of and at the cost and expense of the Corporation and upon delivery to
the Warrant Trustee of a certificate of the Corporation stating that all
conditions precedent to the satisfaction and discharge of this Indenture have
been complied with and upon payment to the Warrant Trustee of the fees and other
remuneration payable to the Warrant Trustee, shall execute proper instruments
acknowledging satisfaction of and discharging of this Indenture.
Section 13.5 Provisions of Indenture and Warrant Certificates for the
Sole Benefit of Parties and Warrantholders
Nothing in this Indenture or the Warrant Certificates,
expressed or implied, shall give or be construed to give to any Person other
than the parties hereto and the holders of the Warrant Certificates any legal or
equitable right, remedy or claim under this Indenture, or under any covenant or
provision herein contained, all such covenants and provisions being for the sole
benefit of the parties hereto and the Warrantholders.
Section 13.6 Common Shares or Warrants Owned by the Corporation or its
Subsidiaries - Certificates to be Provided
For the purpose of disregarding any Warrants owned legally or
beneficially by the Corporation or any Subsidiary of the Corporation or any
other Affiliate of the Corporation in Section 9.16, the Corporation shall
provide to the Warrant Trustee, from time to time, a certificate of the
Corporation setting forth as at the date of such certificate:
(a) the names (other than the name of the Corporation) of the registered
holders of Common Shares which, to the knowledge of the Corporation,
are owned by or held for the account of the Corporation or any
Subsidiary of the Corporation or any other Affiliate of the
Corporation; and
(b) the number of Warrants owned legally and beneficially by the
Corporation or any Subsidiary of the Corporation or any other
Affiliate of the Corporation;
-46-
and the Warrant Trustee in making the determination in Section 9.16 shall be
entitled to rely on such certificate.
IN WITNESS WHEREOF the parties hereto have executed this
Indenture as of the date first written above.
OPEN TEXT CORPORATION
By:
------------------------------------
COMPUTERSHARE TRUST COMPANY OF CANADA
By:
------------------------------------
By:
------------------------------------
TABLE OF CONTENTS
Page
ARTICLE 1 INTERPRETATION................................................2
Section 1.1 Definitions...................................................2
Section 1.2 Number and Gender.............................................6
Section 1.3 Interpretation Not Affected by Headings, Etc..................6
Section 1.4 Day Not a Business Day........................................6
Section 1.5 Governing Law.................................................7
Section 1.6 Currency......................................................7
Section 1.7 Meaning of "Outstanding"......................................7
Section 1.8 Severability..................................................7
ARTICLE 2 ISSUE OF WARRANTS.............................................7
Section 2.1 Issue of Warrants.............................................7
Section 2.2 Form and Terms of Warrants....................................7
Section 2.3 Issue in Substitution for Lost Warrant Certificates...........8
Section 2.4 Warrantholder not a Shareholder...............................8
Section 2.5 Warrants to Rank Pari Passu...................................8
Section 2.6 Signing of Warrant Certificates...............................9
Section 2.7 Certification by the Warrant Trustee..........................9
ARTICLE 3 EXCHANGE AND OWNERSHIP OF WARRANTS; NOTICES...................9
Section 3.1 Exchange of Warrant Certificates..............................9
Section 3.2 Transfer of Warrants.........................................10
Section 3.3 Registration of Warrants.....................................10
Section 3.4 Recognition of Registered Holder.............................11
Section 3.5 Evidence of Ownership........................................11
Section 3.6 Notices......................................................12
ARTICLE 4 EXERCISE OF WARRANTS.........................................12
Section 4.1 Method of Exercise of Warrants...............................12
Section 4.2 Effect of Exercise of Warrants...............................13
Section 4.3 Subscription for Less than Entitlement.......................14
Section 4.4 No Fractional Common Shares..................................14
Section 4.5 Expiration of Warrant Certificates...........................14
i
TABLE OF CONTENTS
(continued)
Page
Section 4.6 Cancellation of Surrendered Warrants...........................14
Section 4.7 Accounting and Recording.......................................15
ARTICLE 5 ADJUSTMENT OF SUBSCRIPTION RIGHTS AND EXERCISE PRICE...........15
Section 5.1 Definitions....................................................15
Section 5.2 Adjustment of Exercise Price and Number of Common Shares
Purchasable Upon Exercise......................................15
Section 5.3 Rules Regarding Calculation of Adjustment of Exercise Price
and Number of Common Shares Purchasable Upon Exercise..........19
Section 5.4 Postponement of Subscription...................................21
Section 5.5 Notice of Adjustment of Exercise Price and Number of Common
Shares Purchasable Upon Exercise...............................21
ARTICLE 6 PURCHASES BY THE CORPORATION...................................22
Section 6.1 Optional Purchases by the Corporation..........................22
ARTICLE 7 COVENANTS OF THE CORPORATION...................................22
Section 7.1 Covenants of the Corporation...................................22
Section 7.2 Warrant Trustee's Remuneration and Expenses....................23
Section 7.3 Performance of Covenants by Warrant Trustee....................23
ARTICLE 8 ENFORCEMENT....................................................24
Section 8.1 Suits by Warrantholders........................................24
Section 8.2 Immunity of Shareholders, etc..................................24
Section 8.3 Limitation of Liability........................................24
ARTICLE 9 MEETINGS OF WARRANTHOLDERS.....................................24
Section 9.1 Right to Convene Meetings......................................24
Section 9.2 Notice.........................................................25
Section 9.3 Chairman.......................................................25
Section 9.4 Quorum.........................................................25
Section 9.5 Power to Adjourn...............................................26
Section 9.6 Show of Hands..................................................26
Section 9.7 Poll and Voting................................................26
Section 9.8 Regulations....................................................26
Section 9.9 Corporation, Warrant Trustee and Warrantholders May be
Represented....................................................27
ii
TABLE OF CONTENTS
(continued)
Page
Section 9.10 Powers Exercisable by Extraordinary Resolution.................28
Section 9.11 Meaning of Extraordinary Resolution............................28
Section 9.12 Powers Cumulative..............................................29
Section 9.13 Minutes........................................................29
Section 9.14 Instruments in Writing.........................................30
Section 9.15 Binding Effect of Resolutions..................................30
Section 9.16 Holdings by Corporation Disregarded............................30
ARTICLE 10 SUPPLEMENTAL INDENTURES........................................30
Section 10.1 Provision for Supplemental Indentures for Certain Purposes.....30
Section 10.2 Successor Corporations.........................................32
ARTICLE 11 CONCERNING THE WARRANT TRUSTEE.................................32
Section 11.1 Rights and Duties of Warrant Trustee...........................32
Section 11.2 Evidence, Experts and Advisers.................................33
Section 11.3 Documents, Monies, Etc., Held by Warrant Trustee...............33
Section 11.4 Action by Warrant Trustee to Protect Interest..................34
Section 11.5 Warrant Trustee not Required to Give Security..................34
Section 11.6 Protection of Warrant Trustee..................................34
Section 11.7 Replacement of Warrant Trustee; Successor by Merger............34
Section 11.8 Conflict of Interest...........................................35
Section 11.9 Warrant Trustee Not to be Appointed Receiver...................36
Section 11.10 Payments by Warrant Trustee....................................36
Section 11.11 Unclaimed Interest or Distribution - Retention of Benefits
by Warrant Trustee.............................................36
Section 11.12 Deposit of Securities..........................................36
Section 11.13 Act, Error, Omission etc.......................................37
Section 11.14 Indemnification................................................37
Section 11.15 Notice.........................................................37
ARTICLE 12 FORM OF WARRANT CERTIFICATE....................................38
Section 12.1 Form of Warrant Certificate....................................38
iii
TABLE OF CONTENTS
(continued)
Page
Section 12.2 Subscription Form..............................................41
Section 12.3 Form of Transfer...............................................43
ARTICLE 13 GENERAL........................................................43
Section 13.1 Notice to the Corporation and the Warrant Trustee..............43
Section 13.2 Time of the Essence............................................45
Section 13.3 Counterparts and Formal Date...................................45
Section 13.4 Satisfaction and Discharge of Indenture........................45
Section 13.5 Provisions of Indenture and Warrant Certificates for
the Sole Benefit of Parties and Warrantholders.................45
Section 13.6 Common Shares or Warrants Owned by the Corporation or its
Subsidiaries - Certificates to be Provided.....................45
iv
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
Appendix 3
Open Text Corporation - Weighted Average Stock Price
----------------------------------------------------
Data from www.nasdaqtrader.com
------------------------------
Date Nasdaq Closing US Federal Closing Price Volume of
(DD/MM/YYYY) Price in US-$ Reserve Exchange in Euro Shares per day
Rate noon for 1(euro)
----------- ------------- --------------------- ------------ --------------
20/10/2003 43.00 1.1671 36.84346 248,791
17/10/2003 43.15 1.163 37.10232 179,532
16/10/2003 43.63 1.1665 37.40249 140,827
15/10/2003 43.39 1.1652 37.23824 450,840
14/10/2003 43.84 1.1724 37.39338 1,650,313
13/10/2003 43.56 1.1724 37.15455 476,677
10/10/2003 40.49 1.1812 34.2787 147,154
09/10/2003 39.67 1.1695 33.92048 412,886
08/10/2003 40.00 1.1805 33.88395 374,215
07/10/2003 38.72 1.1784 32.85811 210,560
06/10/2003 38.44 1.1706 32.83786 254,120
03/10/2003 37.87 1.1596 32.65781 412,089
02/10/2003 36.58 1.1717 31.2196 239,343
01/10/2003 35.33 1.1708 30.17595 219,716
30/09/2003 34.11 1.165 29.27897 176,691
29/09/2003 34.96 1.1578 30.1952 142,606
26/09/2003 34.15 1.1482 29.74221 324,047
25/09/2003 35.40 1.1484 30.8255 256,697
24/09/2003 35.83 1.1472 31.23257 460,505
23/09/2003 34.95 1.1487 30.4257 269,607
22/09/2003 34.88 1.1468 30.41507 167,775
19/09/2003 35.279 1.1346 31.09378 115,462
18/09/2003 35.55 1.124 31.62811 141,391
17/09/2003 35.35 1.1239 31.45298 207,016
16/09/2003 35.85 1.1166 32.10639 355,519
15/09/2003 35.34 1.1304 31.26327 329,753
12/09/2003 36.30 1.1307 32.10401 459,036
11/09/2003 36.931 1.1186 33.01538 125,145
10/09/2003 37.50 1.1195 33.4971 314,056
09/09/2003 38.20 1.119 34.13762 323,240
08/09/2003 38.00 1.1124 34.16037 302,991
05/09/2003 37.80 1.1073 34.13709 304,576
04/09/2003 37.75 1.0899 34.63621 426,141
03/09/2003 36.94 1.0845 34.06178 641,824
02/09/2003 36.63 1.0872 33.69205 745,276
29/08/2003 37.12 1.0986 33.78846 398,255
28/08/2003 37.39 1.0896 34.31535 773,231
27/08/2003 35.90 1.0906 32.91766 586,099
26/08/2003 35.099 1.0893 32.22161 281,430
25/08/2003 34.60 1.0892 31.76643 192,597
22/08/2003 34.74 1.0871 31.95658 258,729
21/08/2003 34.50 1.0976 31.43222 528,172
20/08/2003 33.35 1.1104 30.03422 269,069
19/08/2003 34.03 1.1117 30.61078 591,224
Appendix 3
18/08/2003 34.07 1.1138 30.58897 1,405,166
15/08/2003 31.50 1.1255 27.98756 1,053,282
14/08/2003 27.59 1.1249 24.52662 221,078
13/08/2003 28.05 1.1317 24.78572 388,036
12/08/2003 27.52 1.1304 24.34536 732,422
11/08/2003 25.74 1.1349 22.68041 289,280
08/08/2003 25.07 1.1321 22.14469 213,720
07/08/2003 25.24 1.139 22.15979 327,063
06/08/2003 24.96 1.1357 21.97763 436,721
05/08/2003 25.90 1.1349 22.82139 376,142
04/08/2003 26.09 1.1337 23.01314 145,452
01/08/2003 26.05 1.1252 23.15144 242,948
31/07/2003 25.67 1.1231 22.85638 552,829
30/07/2003 25.98 1.1367 22.85563 286,609
29/07/2003 26.26 1.1466 22.90249 247,900
28/07/2003 27.00 1.1497 23.48439 418,592
25/07/2003 26.92 1.1513 23.38226 306,842
24/07/2003 27.24 1.1441 23.80911 332,325
23/07/2003 26.86 1.1484 23.38906 316,696
22/07/2003 26.04 1.1325 22.99338 564,443
21/07/2003 26.60 1.1346 23.44439 231,546
Note: The reader of the above table should consider the following:
On 8 October 2003, the Open Text Board of Directors declared a stock dividend,
payable on the basis of one common share, with the same rights as all existing
Open Text shares, for each Open Text share held on 22 October 2003 at 17.00 h
(local time in Toronto). This share dividend doubled the number of existing
shares and effectively achieved a two-for-one split of the outstanding Open Text
shares (stock dividend). All references to Open Text shares or information about
Open Text shares in this document, excluding the references in the audited
consolidated balance sheets as at 30 June 2001 to 2003 and the Open Text
financial data for the financial years ended 30 June 1999 - 2003. have been
adjusted to take account of the stock dividend.
The Closing Price for the Common Shares of Open Text on November 26. 2003 was
US$ 18.45 which calculates to Euro 15.48 calculated on the noon Exchange Rate of
US-Federal Reserve on that date.
Open Text Corporation
Organization Chart
[Organizational Chart of Open Text Corporation (Canada)]
Appendix 5
Convenience translation of Cash Confirmation letter
RBC Royal Bank of Canada Europe Limited
Capital
Markets
-------------------------------------------------------------------------------
November 12, 2003
2016091 Ontario Inc.
185 Columbia Street West
Waterloo
Ontario N2L 5Z5
Canada
Confirmation in accordance with ss. 13 para. 1 Securities Acquisition and
Takeover Act (WpUG)
Dear Madame and Sir,
We understand that 2016091 Ontario Inc. intends to publish a public takeover bid
(hereinafter the "Takeover Bid") to the shareholders of IXOS Software
Aktiengesellschaft with its registered office in Grasbrunn ("IXOS") offering to
take over all of the shares of IXOS for a price of (euro) 9.00 for each
IXOS-Share or in exchange for shares and warrants of Open Text Corporation in
accordance with the offer document filed with the Federal Agency for Financial
Services Supervision (Bundesanstalt fur Finanzdienstleistungsaufsicht) today.
The Royal Bank of Canada Europe Limited with its registered office in London,
United Kingdom, is a securities services enterprise
(Wertpapierdiensleistungsunternehmen) independent from the 2016091 Ontario Inc.
in accordance with ss. 13 para. 1 sentence 2 WpUG.
We confirm in accordance with ss. 13 para. 1 sentence 2 WpUG that 2016091
Ontario Inc. with its registered office in Ontario, Canada, has taken all
necessary steps to ensure that at the time at which the claim for consideration
falls due it has at its disposal the means necessary to fully perform the offer.
We agree to the attachment of this letter to the offer document in accordance
ss.11 para. 1 sentence 3 No. 4 WpUG.
With kind regards,
Colin O.H. Lambert
Managing Director
Anlage
LOGO
Royal Bank of Canada Europe Limited
71 Queen Victoria Street
London EC4V 4DE
Switchboard: 020 7489 1188
Facsimile: 020 7329 6144
Telex: 929111
November 12, 2003
2016091 Ontario Inc.
185 Columbia Street West
Waterloo
Ontario N2L 5Z5
Canada
Bestatigung gema(beta)ss.13 Abs. 1 Wertpapiererwerbs- und Ubernahmegesetz
("WpUG")
Sehr geehrte Damen und Herren,
wir haben davon Kenntnis genommen, dass die 2016091 Ontario Inc. beabsichtigt,
ein Ubernahmeangebot (nachfolgend "das Ubernahmeangebot") an die Aktionare der
iXOS Software Aktiengesellschaft mit Sitz in Grasbrunn ("iXOS") zu
veroffentlichen, mit dem angeboten wird, samtliche Aktien der iXOS zu einem
Barpreis von euro 9,00 fur jede iXOS-Aktie oder im Umtausch gegen Aktien und
Optionsscheine auf Aktien der Open Text Corporation nach naherer Ma(beta)gabe
der am heutigen Tag bei der Bundesanstalt fur Finanzdienstleistungsaufsicht
eingereichten Angebotsunterlage zu ubernehmen.
Die Royal Bank of Canada Europe Limited mit Sitz in London, England, ist ein von
der 2016091 Ontario Inc. unabbangiges Wertpapierdienstleistungsunternehmen
gema(beta) ss. 13 Absatz 1 Satz 2 WpUG.
Wir bestatigen hiermit gema(beta) ss. 13 Absatz 1 Satz 2 WpUG, dass die 2016091
Ontario Inc. mit Sitz in Ontario, Canada, die notwendigen Ma(beta)nahmen
getroffen hat um sicherzustellen, dass ihr die zur vollstandigen Erfullung des
Ubernahmeangebotes notwendigen Mittel zum Zeitpunkt der Falligkeit des Anspruchs
auf die Geldleistung zur Verfugung stehen.
Mit der Wiedergabe dieses Schreibens in der Angebotsunterlage fur das
Ubernahmeangebot gema(beta) ss. 11 Absatz 2 Satz 3 Nr. 4 WpUG sind wir
einverstanden.
Mit freundlichen Gru(beta)en
[SIGNATURE]
Colin O.H. Lambert
Managing Director
Registered in England No.955935 Regulated by the FSA
Registered Address:
71 Queen Victoria Street,
London EC4V 4DE Member of the London Stock Exchange