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The following is an excerpt from a DEF 14A SEC Filing, filed by INFERENCE CORP /CA/ on 5/13/1998.
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INFERENCE CORP /CA/ - DEF 14A - 19980513 - CERTAIN_TRANSACTIONS

CERTAIN TRANSACTIONS

SPIN-OFF TRANSACTION

From May 1991 through April 30, 1995, the Company's revenues were derived from two separate product lines: (i) the customer support product line, consisting of the CBR Express family of products and associated services (the "CBR Business"), and (ii) the application development and solutions product line, which includes the Inference legacy products: ART, ART-IM and ART*Enterprise and associated services (the "Tools Business"). In the fourth quarter of fiscal 1995, the Company made a strategic decision to focus on the CBR Business and to divest the Tools Business. As of May 1, 1995 (the "Spin-Off Date"), the Company transferred certain assets and liabilities of the Tools Business to Brightware, Inc., a wholly-owned subsidiary of the Company ("Brightware"), and distributed all of the shares of Brightware to the Company's stockholders (the "Spin-Off'). In connection with the Spin-Off, the Company retained ownership of its two international subsidiaries, Inference Ltd. and Inference GmbH.

Master Contribution and Spin-Off Agreement. Effective as of the Spin-Off Date, the Company and Brightware entered into the Master Contribution and Spin- Off Agreement (the "Master Agreement") that provides for, among other things, the principal corporate transactions that were required to effect the Spin-Off and certain other agreements governing the relationship between the Company and Brightware. Under the terms of the Master Agreement, effective as of the Spin- Off Date, Inference contributed to Brightware all the business, properties, assets, goodwill and rights (other than the Retained Assets described below) of Inference related exclusively to the Tools Business, together with certain additional properties, assets and rights (collectively, the "Acquired Assets"). The Acquired Assets included (i) personal computers, software licensing agreements and related support agreements; (ii) existing contracts exclusively with customers of the Tools Business and certain contracts with customers of both the CBR Business and the Tools Business; (iii) certain vendor licenses and agreements; (iv) accounts receivable of the Tools Business; (v) cash in the amount of $1,683,750; (vi) certain capitalized software associated with the Tools Business; (vii) certain technology and intellectual property; and (viii) the books of account, records and files related to the Tools Business. Inference retained ownership of all the business, properties, assets, goodwill and rights of Inference that are not Acquired Assets (collectively, the "Retained Assets"), including certain contracts with customers of both the CBR Business and the Tools Business.

Under the terms of the Master Agreement, Brightware assumed, and will perform when due and indemnify and hold Inference harmless from and against all liabilities and obligations of Inference related exclusively to the Acquired Assets (other than the Retained Liabilities described below) (collectively, the "Assumed Liabilities"). Inference retained and is solely responsible for, and will indemnify and hold Brightware harmless from and against, all liabilities and obligations of the Company that relate to the Retained Assets, obligations under the terms of Company stock options held by employees of the Tools Business, the accounts payable of the Tools Business as of the Spin-Off Date and certain obligations of the Company relating to certain equipment leases and other agreements of the Company (collectively, the "Retained Liabilities").

Under the terms of the Master Agreement, employment or termination with Brightware is deemed employment or termination with Inference for purposes of the vesting and termination provisions of the Inference stock options held by Brightware employees. All unvested Inference stock options held by Brightware employees continue to vest in accordance with the terms of the related stock option agreements and all vested Inference stock options held by Brightware employees remain exercisable in accordance with the terms thereof; provided, however, that all incentive stock options held by Brightware employees were converted into nonqualified stock options. The exercise price for the Inference stock options remained the same as prior to the Spin-Off Date. The Master Agreement also provides that, in the event of the sale of all or substantially all of the outstanding shares or assets of Brightware, or certain mergers, reorganizations or other business combinations involving Brightware, vesting of Company options held by Brightware employees will accelerate by one year and the remaining unvested options lapse.

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Pursuant to the Master Agreement, Brightware granted options to purchase shares of Brightware Common Stock to each transferred employee and each remaining employee of the Company holding Inference stock options as of the Spin-Off Date based upon the percentage of Inference's fully diluted equity represented by the Inference stock options held by such employees. The exercise price of the Brightware stock options is the fair market value of the Brightware Common Stock as of the date of grant.

Distributorship Agreements. As of the Spin-Off Date, individual Distributorship and Licensing Agreements (collectively, the "Distributorship Agreements") were entered into by and between (i) Inference and Brightware, with Inference as the distributor, (ii) Inference and Brightware, with Brightware as the distributor and (iii) Brightware and Inference Ltd., a wholly-owned subsidiary of Inference registered under the laws of the United Kingdom ("IL"), with IL as distributor. Each Distributorship Agreement sets forth the terms and conditions pursuant to which the distributor may distribute within certain specified territories certain proprietary software and computer programs, and the reference manuals therefor, of the other party to the Distributorship Agreement, and the terms of the limited licenses granted with respect to such products. The term of each Distributorship Agreement expired on April 30, 1998.

Technology Transfer and License Agreement. Pursuant to a Technology Transfer and License Agreement (the "License Agreement"), Brightware was assigned the proprietary rights to certain technologies and other assets used in the Tools Business, including certain (i) source codes and binary codes, (ii) documentation and other marketing and support materials, (iii) trademarks and copyrights, (iv) trade secrets, including customer data, and (v) other technology and proprietary information. A portion of the CBR technology (the "ART CBR Kernel"), however, is required for certain applications in the Tools Business. Inference, therefore, granted Brightware an irrevocable, perpetual, worldwide, royalty-free, non-exclusive license to (y) use, reproduce, prepare derivative works based upon, make, have made, enhance and distribute copies under and otherwise sublicense the source code and binary code of the ART CBR Kernel pursuant to the terms of the License Agreement and (z) distribute copies of, offer for sale, sell, transfer ownership of, rent, lease, lend, perform publicly and publicly display products embodying such source code and binary code; provided, however, Brightware does not publicly disclose the source code. Inference and Brightware also agreed to grant nonassignable, nontransferable and nonexclusive permanent cross licenses with respect to certain Brightware products and Inference products for the other's internal business purposes. Beginning May 1, 1998, Brightware can compete with the Company by releasing application software products that (i) use the source code or binary code of the ART CBR Kernel, or (ii) are competitive with Inference in the call center market.

The License Agreement also provides that Brightware has a limited right to use the trademark and trade name "Inference" to identify its lineage from Inference. For example, Brightware may use the phrase "formerly a Division of Inference Corporation" in connection with the Tools Business. In addition, to the extent Inference has trademark rights to "CBR" and "Case-Based Reasoning," Inference granted Brightware a perpetual, irrevocable royalty-free, non-exclusive license to use such trademarks.

LIMBEX TRANSACTION

Pursuant to a license agreement dated as of May 9, 1995, the Company granted a worldwide, perpetual irrevocable license (with the right of sublicense) to Limbex Corporation ("Limbex") with respect to certain of the Company's technology (the "Licensed Technology") unrelated to the Company's current CBR business. Limbex paid the Company $100,000 on the execution of the agreement and was obligated (i) to make five semi-annual installments of $100,000 over 2- 1/2 years from the date of the agreement, the last four of which are guaranteed by Quarterdeck Corporation, a stockholder of Limbex ("Quarterdeck"), and (ii) to pay certain royalties to the Company. In connection with the license agreement, the Company was issued convertible Series B Preferred Stock of Limbex ("Limbex Preferred Stock"), representing a 22% interest in the equity of Limbex. On July 31, 1996, in exchange for a royalty-free license, Limbex also issued 77,897 shares of its Common Stock ("Limbex Common Stock") to the Company.

Pursuant to a reorganization of Limbex in August 1996 under which Quarterdeck acquired all of the outstanding securities of Limbex not held by Quarterdeck, the Company transferred all of its interest in Limbex to Quarterdeck. In exchange for the Limbex Common Stock, the Company in August 1996 received shares of Quarterdeck Common Stock value at $610,000 and the Company sold those shares in the market for a $572,000. In exchange for the Limbex Preferred Stock, Quarterdeck agreed to pay the approximately $3,400,000 ("Additional Price"). On or around July 31, 1997, Quarterdeck paid the Additional Price to the Company in shares of common stock of Quarterdeck, at Quarterdecks option. The Company then sold such shares in the market for approximately $3,800,000.

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CONSULTING AGREEMENT

Effective as of April 1, 1998, the Company and Peter R. Tierney, a director and former President and Chief Executive Officer of the Company, entered into a Consulting Agreement, which was amended by the First Amendment to Consulting Agreement dated as of April 24, 1998 (collectively, the "Tierney Agreement"), for a period of one year. Mr. Tierney may terminate the Tierney Agreement upon sixty days' notice to the Company, and the Company may terminate the Tierney Agreement for cause (as defined therein). Under the Tierney Agreement, Mr. Tierney shall consult with the Company's President and the Chief Executive Officer and the Company's Board of Directors. In consideration for such consulting services, Mr. Tierney will receive a consulting fee of $11,000 per month. Mr. Tierney's stock options, which he previously received as an executive officer of the Company, will continue to vest until the termination of the Tierney Agreement; provided, however, all unvested options shall not be accelerated nor become exercisable upon a change-of-control transaction unless the consideration per share to be received in such transaction substantially exceeds the average trading value of the Company's Class A Common Stock prior to such transaction.

The Company believes that the terms of all transactions described above between the Company and the principal stockholders, the officers and directors of the Company, or any of their affiliates, are not less favorable to the Company than terms that could have been obtained from unaffiliated third parties.

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