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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM
________________________ TO _____________________________
COMMISSION FILE NO. 0-26814
DATAWORKS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 3-0209937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5910 PACIFIC CENTER BOULEVARD 92121
SUITE 300 (Zip Code)
SAN DIEGO, CALIFORNIA
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 546-9600
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K X .
---
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 3, 1997 was $115,619,895.*
The number of shares outstanding of the Registrant's Common Stock was
10,083,112 as of March 3, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission (the "Commission") pursuant to Regulation
14A in connection with the 1997 Annual Meeting of Shareholders to be held on
May 29, 1997 (the "1997 Annual Meeting") is incorporated herein by reference
into Part III of this Report.
Certain Exhibits filed with the Registrant's Registration Statement on
Form SB-2 (Registration No. 33-97022 LA), as amended, and certain Exhibits
filed with the Registrant's Registration Statement on Form S-4 (Registration
No. 333-11741), are incorporated herein by reference with Part IV of this
Report.
_______________
* Excludes the Common Stock held by executive officers,
directors and shareholders whose beneficial ownership exceeds 5% of the Common
Stock outstanding at March 3, 1997. Exclusion of such shares should not be
construed to indicate that any such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the
Registrant or that such person is controlled by or under common control with
the Registrant.
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This Annual Report on Form 10-K contains certain forward-looking
statements that involve risks and uncertainties. The actual future results for
DataWorks Corporation ("DataWorks" or the "Company") may differ materially from
those discussed here. Additional information concerning factors that could
cause or contribute to such differences can be found in this Annual Report on
Form 10-K in Part I, Item 1 under the caption "Certain Risk Factors Related to
the Company's Business," Part II, Item 7 entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere
throughout this Annual Report.
PART I
ITEM 1. BUSINESS
DataWorks develops, markets, implements and supports open systems,
client/server-based Enterprise Resource Planning ("ERP") software for mid-
range discrete manufacturing companies with annual revenues between $3 million
and $1 billion. The Company's products and services facilitate enterprise-wide
management of resources and information and allow mid-range manufacturers to
reduce order fulfillment cycle times, improve operating efficiencies and
measure critical company performance against defined plan objectives.
DataWorks' products enable its customers to manage make-to-stock and
make-to-order production methods, as well as multiple hybrid or "mixed mode"
production methods, within a single manufacturing site or across multiple
sites. The Company's products also help customers adapt to growth, changing
levels of operations, and business process re-engineering, which is becoming
commonplace among manufacturing concerns.
The business needs and resource requirements of mid-range manufacturers tend
to be considerably different than those of larger companies. Companies in this
market typically have small information systems ("IS") departments, budget
constraints and limited experience with the advanced technologies inherent in
ERP systems. DataWorks segments the mid-range manufacturing market into three
distinct sectors: the lower tier segment (companies with annual revenues of $3
million to $25 million), the mid-tier segment ($25 million to $200 million) and
the upper tier segment ($200 million to $1 billion). The Company's family of
ERP solutions is designed to provide a product migration path to address the
changing needs of growing companies in the mid-range manufacturing market. The
Company's principal products have been DataFlo and ManFact II, open systems
client/server-based products that are targeted at mid-tier manufacturers. The
Company has broadened its product line to serve the lower tier segment of the
mid-range market with Vista and Vantage. Vista and Vantage are easy-to-use
Windows-based products, which the Company acquired through its recent
acquisition of DCD Corporation ("DCD"). The Company also has under development
its Enterprise Client Server ("ECS") system, an object oriented, multi-tier
client/server-based product that is designed for the upper tier segment of the
mid-range market. The Company intends to commence customer shipments of ECS in
late 1997.
The Company has designed its product family to be affordable and to
incorporate a broad range of applications, depth of functionality, ease of use
and an ability to be rapidly and economically deployed. The Company's products
are comprised of modules that provide and integrate feature-rich applications
and that can be configured to comprehensively support a customer's business.
DataWorks provides turnkey solutions by integrating its application software
products with third party hardware, operating systems, and database and other
software products. The Company offers a suite of development tools and a full
complement of services to help its customers maximize the benefits of the
Company's software products and efficiently implement the Company's ERP
solutions. These services include initial system
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implementation, consultation, customer support desk and maintenance activities,
technical and programming services, and periodic enhancement releases of
software products.
INDUSTRY BACKGROUND
Manufacturers worldwide are attempting to re-engineer their businesses as
they react to increasing global competitive pressures, demanding
vendor-customer relationships and rapidly changing market requirements. In
implementing these re-engineering efforts, manufacturing companies in the
mid-range sector are increasingly orienting their operations to respond to
customer needs by shortening product development and delivery cycles, enhancing
product quality and providing products configured to meet customer
requirements. To achieve these objectives, manufacturers must increase the
efficiency of their operations, within the limits of budgetary constraints, by
increasing the productivity of personnel and the efficient management of assets
throughout their enterprises. Manufacturing companies also require the
flexibility to modify and expand operations in response to market demand. All
of these factors contribute to the need for information systems that offer
enterprise-wide availability and integrated use of a broad range of accurate
and current information that enables manufacturers to respond more quickly to
their customers and to manage their organizations more efficiently. The IS
needs of manufacturers depend to some degree on the nature of their
manufacturing processes, which may include make-to-stock, in which parts are
assembled into finished products based on a standard bill order; make-to-order,
in which parts are assembled into a finished product based on unique customer
specifications; and configure-to-order, in which the final assembly of parts
can be configured to create many different model and style variations based on
customer orders. Firms using configure-to-order production methods are
referred to as one form of mixed mode manufacturers because they assemble
products using elements of both make-to-stock and make-to-order. Mixed mode
manufacturing can create significant market advantages for companies embracing
this latest production process approach but is extremely difficult to realize
economic gains without responsive information systems.
Since the early 1970s, there has been a steady evolution of manufacturing
software systems available from third party software developers or developed
internally by the manufacturers themselves. Initially, Material Requirements
Planning ("MRP") systems were introduced to allow manufacturers to manage the
flow of materials at various stages of the manufacturing process. These MRP
systems were superseded in the 1980s by a more expansive Manufacturing Resource
Planning ("MRP II") approach that incorporates labor and equipment capacity
planning for the production process as part of a materials planning
methodology. More recently, in response to the evolving needs of manufacturing
companies, there has been a significant shift away from the traditional MRP II
planning-oriented systems in favor of more comprehensive ERP systems that
provide actual enterprise-wide management of resources, integration of more
sophisticated forecasting and reporting models and the capability to measure
quality levels and delivery cycle responsiveness. ERP systems based on open
systems, client/server platforms offer further advantages to manufacturers by
providing access to information throughout the manufacturing enterprise on a
timely basis, providing a wider distribution of applications and databases and
permitting the integration of a diverse array of new software components and
technologies as they become available. Effectively designed ERP systems are
also scalable to permit deployment of localized information systems resources
within departments and individual business units or across an enterprise, as
well as to provide adequate support for organizational growth.
Despite its virtues, open systems, client/server-oriented ERP solutions have
not historically been readily available to manufacturers in the mid-range
sector. There are several key contributing factors that have traditionally
precluded mid-size companies from reaping the full benefits of the new
technologies which have been made available to larger manufacturing firms in
recent years. In complex, diverse manufacturing environments, many ERP systems
require a significant IS staff, either internal to
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the organization or contracted at substantial expense from outside the company,
and a high level of expertise to establish the proper design and configuration
of a client/server system that meets a company's specific needs.
Implementation of these systems has often been lengthy and costly. In
addition, large global ERP suppliers have continued to price their products
beyond the financial capabilities of the typical mid-size firm.
In order to achieve their business process re-engineering ("BPR") objectives,
mid-range manufacturers need the benefits of open systems, client/server ERP
solutions that are affordable and can be quickly implemented with minimal
disruption to business and maintained with a limited IS staff. These ERP
systems must also provide sufficient depth of functionality and flexibility to
enable manufacturers to respond to varying customer needs and offer scalability
for growth in operations. The demand for a new generation of turnkey ERP
solutions that address the needs of the mid-range manufacturing market is
significant and growing.
Multi-billion dollar manufacturing enterprises increasingly are seeking the
efficiencies and competitive advantages of electronically tying together in a
supply chain sources of raw materials, component products, and certain
outsourced manufacturing processes. Many of the "feeder" suppliers of these
products and services to the multi-billion dollar manufacturing enterprise are
companies in the mid-range manufacturing market. These companies require
systems to address their market diversity, scalability, and localized
information systems requirements, along with the committed ERP vendor
development resources to electronically link these systems into a wide area
network for electronic supply chain management.
THE DATAWORKS SOLUTION
DataWorks offers open, client/server-based ERP software systems that enable
discrete manufacturing companies to re-engineer their businesses to compete
more effectively, while responding to the specific needs and limitations of the
mid-range market. The Company's current and planned products are designed to
meet the ERP needs of all tiers of mid-range manufacturing companies. As
companies in the lower and mid-tier grow, their enterprise-wide management
requirements change, and DataWorks provides an efficient migration path to more
complex ERP solutions. The Company believes that mid-sized manufacturers in
its targeted industry segments represent a significantly higher growth sector
than the general manufacturing community at large. The principal elements of
the Company's ERP solutions are as follows:
- OPEN SYSTEMS AND ADVANCED RDBMS ARCHITECTURE
The Company's family of products addresses the dynamic environment faced by
mid-sized manufacturers through a commitment to open systems architecture.
DataWorks' software products operate on most major client/server hardware
platforms and operating systems, including Microsoft NT and UNIX, wide area
networks ("WANs"), local area networks ("LANs") and prominent user interfaces,
including Microsoft Windows, Apple Macintosh and ASCII. The Company uses
advanced relational database management systems ("RDBMS") that are best suited
for the particular application required by mid-range manufacturers, including
Microsoft Foxpro, Progress Software Corporation ("Progress"), UniData, Inc.
("UniData") and VMark Software, Inc. ("VMark") uniVerse.
- BREADTH AND DEPTH OF PRODUCTS AND APPLICATIONS
The Company's products are intended to address the application needs of
customers throughout the mid-range market. By utilizing certain core
technologies throughout its product line, the Company
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enables a customer to migrate from product to product to address the changing
needs of the customer's enterprise. The Company's products are comprised of
modules that provide and integrate feature-rich applications in the areas of
(i) Business Planning and Engineering, (ii) Sales, Distribution and Customer
Service, (iii) Production and Material Operations and (iv) Finance and
Administration. New application modules are introduced periodically and are
compatible with the current in-field software release. In addition, the
Company's development and implementation support tools provide an interface to
an increasing number of third party application products that can be seamlessly
integrated into the Company's ERP products through application programming
interface ("API") technology.
- RAPID DEPLOYMENT
By offering rapid product deployment and migration among its product lines,
the Company seeks to minimize the business interruption to companies that
typically results from the introduction of a new or expanded ERP system,
thereby enabling such companies to more quickly realize the benefits of a new
or expanded ERP system. DataWorks utilizes a highly responsive implementation
planning process and focused consulting and training services to design ERP
solutions that are "right sized" to satisfy the functionality and rapid
deployment needs of diverse customers while remaining within the varied but
generally limited budgets of such customers. For example, by utilizing these
deployment tools and procedures, the Company is able to complete the
enterprise-wide deployment of DataFlo and ManFact II in three to nine months.
Vista, the Company's least expensive ERP system, is virtually self-installable
through self-contained tutorials and training tools familiar to most personal
computer users, and Vantage can be deployed within three to six months. The
Company anticipates deployment of the ECS system will take significantly longer
than that of DataFlo and ManFact II, but will be tailored so that it can be
effectively accomplished without significantly disrupting the customer's
operations.
- FLEXIBILITY/ADAPTABILITY/SCALABILITY
A critical element to achieving initial user acceptance of a new system and
facilitating rapid implementation is the ability to adapt the Company's
standard software to conform more closely to the particular needs of users.
The Company's products permit ready adaptation of the DataWorks systems to meet
initial needs during the implementation phase and respond to a customer's
unique system refinements and ongoing changes in production and operational
processes once the system is fully in service. The Company's customers can
start with a small number of local concurrent users and expand to many hundreds
of concurrent users across LANs and WANs over several years utilizing the same
ERP solution from the Company. In addition to accommodating new modules and
potential significant growth of users without sacrificing performance, the
scalability of the Company's ERP solutions and the ability to migrate within
the Company's product family allow mid-range manufacturers to change levels of
operations and expand application functionality to accommodate growth.
- SUPERIOR PRICE/PERFORMANCE
The Company seeks to achieve superior price and performance by providing its
mid-range manufacturing customers with the "right sized" system and associated
functionality to meet their ERP needs while satisfying their budgetary
constraints. The Company's ERP systems emphasize standard application modules
that require minimum customization, advanced yet cost-effective RDBMS and other
technologies and highly user- oriented fourth generation language ("4GL")
development environments. Furthermore, the Company has standardized the
implementation process and supported it with the Company's proprietary software
tools, resulting in cost effective and rapid initial deployment of its ERP
products.
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THE DATAWORKS STRATEGY
The Company's objective is to be the leading provider of business information
solutions and related products and services to mid-range manufacturers within
selected markets. The Company's strategy to achieve this objective
incorporates the following elements:
- PROVIDE COMPLETE SOLUTIONS AND PRODUCT MIGRATION PATH
The Company offers products in each tier of the mid-range manufacturing
market to address a broad range of customer needs and provide a product
migration path to address the changing needs of growing companies. The Company
offers products for both make-to-order and repetitive manufacturers, and seeks
to support new manufacturing processes such as demand-flow production and agile
manufacturing. The Company complements its product offerings with a full suite
of implementation and consulting services, education, training and software
tools to assist customers in deriving the maximum benefit from the Company's
products. By providing comprehensive solutions, the Company is able to work
more closely with customers, sell additional modules or products, and provide
additional services in an ongoing course of business.
- FOCUSED MARKET STRATEGY
The Company targets mid-range manufacturing companies with annual revenues
between $3 million and $1 billion and historically has focused its efforts on
discrete, rather than process, manufacturers. In the mid-tier of the mid-range
market, sales of the Company's DataFlo and ManFact II product solutions have
targeted six primary "highly engineered product" manufacturing sectors:
industrial equipment; computer/office equipment; consumer electronics;
instrumentation and controls; medical/dental products; and
transportation/aerospace products. This approach has enabled DataWorks to
better understand the needs of its customers and to use that knowledge to
tailor products and services to those needs. The Company plans to continue to
rely on its experience and reputation in these select markets to enhance its
competitive position. The Company intends to leverage its expertise in these
six sectors to market and sell its ECS system currently under development to
customers in the upper tier of the mid-range market. The Company further plans
to leverage its expertise to enhance sales of its Vista and Vantage products,
which are currently focused on a wide range of manufacturers in the lower tier,
to emerging growth oriented discrete manufacturers in those six primary
manufacturing sectors.
- MAINTAIN TECHNOLOGY LEADERSHIP
DataWorks believes it is a technology leader in the mid-range manufacturing
market, as it was one of the first companies to offer ERP client/server
solutions for mid-range manufacturers and to introduce full ERP solutions on
Microsoft NT. The Company's products are designed to utilize the most
effective open systems technologies such as client/server architectures, RDBMS,
graphical user interface's ("GUI") and operating systems for the mid-range
market. The Company incorporates common technology across its product line in
order to leverage its development resources and ensure compatibility among
products. The Company seeks to develop new modules and incorporate new
functionality into its products such as Internet integration, business objects,
decision support, manufacturing execution systems ("MES") support, and Object
EDI, a cross-product universal transaction processing protocol.
- ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION
DataWorks is committed to consistently achieving high levels of customer
satisfaction with the Company's ERP systems. The Company focuses on delivering
high-quality products that address
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specific application needs, are easy to implement and enable increased
productivity. The Company also designs its applications and development tools
to permit end-users to easily customize systems to fit their specific needs,
which enhances end-user productivity and overall satisfaction with the
DataWorks products and services.
- COMPREHENSIVE SALES AND MARKETING PROCESS
The Company has developed a sophisticated sales and marketing system to
enhance its new customer success rate. The Company utilizes a multi- phased
sales approach consisting of telemarketing sales for initial qualification,
account representatives, systems engineers and the active involvement of senior
management. The Company's prospecting system enables account representatives
to appropriately qualify prospective customers and track active prospects in
significant detail through three stages of sales cycle management, and provides
valuable management information to measure performance of its sales force and
monitor ongoing sales efforts. The Company intends to leverage its
sophisticated sales and marketing system to increase DataWorks' presence in the
lower tier and international markets in an effort to enhance sales and increase
new customer success rates. The Company believes its sales processes and
prospect management system provide it with a significant competitive advantage.
PRODUCTS
The business needs and resource requirements of mid-sized manufacturers tend
to be considerably different than those of larger companies. Customers in this
market generally have small IS departments, budget constraints and limited
experience with the advanced technologies inherent in ERP systems. DataWorks
has designed its product family to be affordable and to incorporate a broad
range of applications, depth of functionality, ease of use and an ability to be
deployed rapidly. The Company has products or is developing products with
features intended to address the particular needs of each of the lower tier,
mid-tier and upper tier of the mid-range market.
The following chart describes the Company's principal existing and planned
ERP solutions and typical customer profiles relating to each of them:
<TABLE>
<Caption
--------------------------------------------------------------------------------------------------------------------
LOWER TIER SEGMENT MID-TIER SEGMENT UPPER TIER SEGMENT
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Products Vista DataFlo ECS (1)
Vantage ManFact II
--------------------------------------------------------------------------------------------------------------------
Customer Revenues $3 - $25 million $25 - $200 million $200 million - $1 billion
--------------------------------------------------------------------------------------------------------------------
Type of Manufacturing - Entry level - Repetitive/ - Multi-plant/Global supply
Operations Basic job shop/ just-in-time chain/ Distributed systems
Make-to-order
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IS Infrastructure Minimal Limited Significant
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Price Range $10,000 - $150,000 $125,000 - $750,000 $500,000 - $3 million (1)
--------------------------------------------------------------------------------------------------------------------
Deployment Period 1-4 months 3-9 months (1)
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</TABLE>
(1) ECS is currently under development and, although the Company intends
to commence customer shipments of the product in late 1997, there can
be no assurance that the Company will commence such shipments on a
timely basis, or at all, or if timely shipped, that the ECS system
will achieve market acceptance. As ECS is currently under
development, data on average deployment period and sales cycle is
unavailable and the indicated price range is estimated. See "Upper
Tier: Enterprise Client Server."
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LOWER TIER: VISTA AND VANTAGE
DataWorks offers Vista and Vantage for its customers with annual revenues
typically between $3 million and $25 million. These products are better suited
for the lower tier segment of mid-range manufacturers who, as compared to
customers who use DataFlo or ManFact II, have less developed IS infrastructures
and lower IS budgets, require shorter deployment periods, and often seek
established, user-friendly products.
Vista is an easy-to-use, Windows-based ERP software package that provides a
cost-effective solution for job shops with up to $5 million in revenues. Vista
fully integrates 15 core business modules and features single level bills of
material capabilities. The DesignWare feature permits users to, among other
things, define their own screens, add fields, change colors, hide fields,
change grid sizes and drag choices from menus to the desktop.
Vantage is an easy-to-use, Windows-based ERP software package with flexible
order-handling capabilities to support a mix of custom and standard part orders
and multilevel assemblies and comprises 18 fully integrated business modules.
Vantage is optimized for the rapid deployment, minimal support and
price/performance requirements of custom and mixed-mode manufacturers in the $5
million to $25 million revenue range.
Vista and Vantage, like DataFlo and ManFact II, are comprised of groups of
modules that can be differently configured and comprehensively support a
customer's business processes. The following chart describes the Vista and
Vantage modules, and the discussion below points out certain key
characteristics of the Vista and Vantage modules:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
VISTA AND VANTAGE APPLICATION MODULE GROUPS
--------------------------------------------------------------------------------------------------------------------
BUSINESS PLANNING SALES, DISTRIBUTION AND PRODUCTION AND MATERIAL FINANCE AND
AND ENGINEERING CUSTOMER SERVICE OPERATIONS ADMINISTRATION
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Bills of Materials - Estimating - Inventory Management - Accounts Payable
- Scheduling - Order Entry - Job Control - Accounts Receivable
- Shop Vision - Quoting - Purchasing/Receiving - General Ledger
- Global finite - EDI - Shop Floor Data - Payroll
rescheduling - Shipping/receiving Collection - Report Writer
- Purchasing RFQ
- Document management
</TABLE>
Business Planning and Engineering Group. In Vista and Vantage, Business
Planning and Engineering allows the production manager to control the sales and
shop priorities through a visual scheduling manager. Indented bills of
material support provide the ability to retain product information for repeat
orders, and "what if" scheduling provides the ability to simulate the impact of
new orders and schedule changes.
Sales, Distribution and Customer Service Group. Estimating, quoting and
sales order processing are tightly integrated in the products, supporting the
requirement for rapid cost estimating and order commitment. Order-to-job
linking provides rapid access to production status and delivery information.
EDI applications allow for electronic distribution of sales orders, change
orders and invoices.
Production and Material Operations Group. Priorities established in
scheduling are realized in manufacturing job processing. These controls
present real-time status reporting based on data collection inputs and provide
just-in-time material purchasing and availability. Visual job "wizards" and
document
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management allow paperless management and instant graphical review of job
history, job status and inventory.
Finance and Administration Group. Vista's and Vantage's Finance and
Administration Group enables associated product costs and revenues to be
recorded to the General Ledger module as subsidiary ledgers of the Accounts
Payable, Accounts Receivable, Payroll and Shop Floor Data Collection modules.
Prices of Vista and Vantage applications are based on the specific product
line, the modules purchased and the number of concurrent users. The average
sales prices of Vista and Vantage are $12,000 and $65,000, respectively. As of
December 31, 1996, these two products, cumulatively, were licensed to
approximately 1,000 customers.
MID-TIER: DATAFLO AND MANFACT II
DataWorks historically has focused its marketing, product development and
services resources on "highly engineered product" companies with annual
revenues typically between $25 million and $200 million in six principal
industries: industrial equipment; computer/office equipment; consumer
electronics; instrumentation and controls; medical/dental products; and
transportation/aerospace products. DataWorks has two principal application
software products that address the needs of its customers in this mid-tier.
DataFlo is directed toward manufacturers generally making high-volume products,
often utilizing repetitive/just-in-time ("JIT") techniques, that are either
make-to-stock or configure- to-order, and which may have some smaller
make-to-order requirements. DataFlo also supports customers who have
mixed-mode manufacturing techniques. ManFact II is oriented toward
make-to-order or engineer-to-order manufacturers that typically have diverse
project management and project costing requirements, as well as a smaller
element of make-to-stock requirements. DataFlo was developed by DataWorks, and
ManFact II was acquired in connection with the purchase of Madic-Compufact
Corporation ("MCC") in June 1994.
The DataFlo and ManFact II systems are comprised of groups of modules that
comprehensively support a manufacturing company's business process. These
modules provide and integrate feature-rich applications, are built upon a
common set of design and development standards and tools, and share a common
database architecture. Both DataFlo and ManFact II are highly modular in
nature and can be scaled from small to large configurations on a variety of
platforms supporting the Microsoft NT and UNIX operating systems. These
enterprise-wide systems can be implemented in a variety of multi-currency,
multi-company and multi-plant environments networked through client and
host-based configurations.
The following chart describes the DataFlo and ManFact II modules, and the
discussion below points out certain key characteristics of the DataFlo and
ManFact II modules:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DATAFLO AND MANFACT II APPLICATION MODULE GROUPS
- -----------------------------------------------------------------------------------------------------------------------------------
BUSINESS PLANNING AND SALES, DISTRIBUTION AND PRODUCTION AND MATERIAL FINANCE AND
ENGINEERING CUSTOMER SERVICE OPERATIONS ADMINISTRATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Capacity Requirements - Customer Service - Inventory Management - Accounts Payable
Planning - Electronic Data - Lot/Serial Control - Accounts Receivable
- Engineering Change Control Interchange - MES - Budgeting
- Forecasting - Estimating - Multi-Plant Control - Cost Accounting
- Master Production - Field Service - Production Activity Management - Currency and VAT
Scheduling - Quoting - Project Management - Executive Information System
- Material Requirements - Sales Order - Purchasing/Receiving - Fixed Assets
Planning - Shipping/Returned - Quality Control - General Ledger
- Product Configurator Material - Repetitive Manufacturing - Payroll
- Product Definition - Shop Floor Data Collection - Personnel
- Work Order Control
</TABLE>
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Business Planning and Engineering Group. The Business Planning and
Engineering Group enables manufacturing companies to create high-level business
plans from current and historical sales, production and purchasing data. These
plans are used to generate specific product and product family forecasts, as
well as capacity models that flow into final and sub-assembly manufacturing,
scheduling and purchase plans. Engineering and configuration management define
material and routing structures to planning and production and provide
visibility to anticipate and coordinate product changes.
Sales, Distribution and Customer Service Group. The Sales, Distribution and
Customer Service Group allows a manufacturer to estimate, quote and take orders
for standard, configured and custom, "one-of-a-kind" products. The sales made
are integrated with the Business Planning and Engineering modules providing
actual versus plan reporting. Shipments, order status and invoicing can be
transmitted directly to the customer via electronic data interchange ("EDI").
Return material, field service and Help Desk applications are available on line
to customer service providing detail service analysis and call tracking.
Production and Material Operations Group. The Production and Material
Operations Group provides a means to record, track and measure production,
material, labor, quality and cost flows throughout the manufacturing and
purchasing processes. Inventory tracking is provided by company, plant,
warehouse and location with full traceability. Traditional work order, as well
as rate and cell-based JIT production is supported and fully integrated with
detailed shop floor and quality control reporting. Blanket and contract
orders, EDI and detailed supplier analysis reporting is provided in the
purchasing application.
Finance and Administration Group. The Finance and Administration Group flows
from the operational modules included in the groups described above. All
associated costs and revenues are captured to the General Ledger module as
subsidiary ledgers of the Accounts Payable, Accounts Receivable, Payroll,
Inventory Management, Shop Floor Data Collection, Shipping/Returned Material
and Cost Accounting modules. The costing systems support both actual and
standard cost methodologies with additional capabilities for unlimited cost
simulation, modeling and reporting. The Financial modules support both
distributed and consolidated processing in a multi-company environment and
provide complete foreign currency and tax capabilities.
The average price of DataWorks' DataFlo and ManFact II ERP systems (exclusive
of hardware) sold to new customer sites in DataWorks' target market increased
to approximately $251,000 in 1996 from approximately $184,000 in 1995. As of
December 31, 1996, these two products, cumulatively, were licensed to over 475
customers at more than 675 customer sites.
UPPER TIER: ENTERPRISE CLIENT SERVER
The Company has under development the ECS system, which has been designed to
address the ERP needs of the upper tier of the mid-range manufacturing market.
This upper tier consists of companies with annual revenues ranging from $200
million to $1 billion. These organizations typically have substantial IS staff
because supporting a variety of both standard and custom applications in a
dynamic, multi-national corporation requires a significant investment in
information services. These enterprises are better able to invest in the tools
and technology necessary to support a complex, fully distributed client/server
computing environment and to provide the depth of staff and technological
expertise to maintain a more "customized" application set.
DataWorks believes its ECS system will provide valuable depth to its product
family and will enable the Company to provide a product for the upper tier that
is complementary to its mid-tier products,
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DataFlo and ManFact II. Generally, DataWorks believes that products currently
offered by ERP vendors serving Fortune 1000 firms that might potentially
compete with the Company in the upper tier of the mid-range manufacturing
market are complex and expensive, and usually require a multi-year "custom
implementation" process. The Company believes the ECS system can be
competitive with the products currently offered by large ERP system vendors by
offering superior technology, a more open solution, competitive pricing and
shorter, less costly deployment periods. The Company intends that the ECS
system, in addition to providing DataWorks with a product solution for the
upper tier of the mid- range market, will also provide a migration path for the
Company's current customers using DataFlo or ManFact II that may outgrow those
ERP systems and require the features of the ECS system.
The ECS system is a second generation client/server application for
manufacturing, planning, inventory, engineering, distribution, service and
finance. While the DataFlo and ManFact II systems provide a tightly coupled
4GL tool set and database architecture, ECS is built on tools and database
architectures from established market leaders, such as Microsoft, IBM, Oracle
and Sybase, to promote flexibility and technology independence. The Company
believes that the flexible and independent ECS system architecture can be
managed with the significant IS resources of typical upper tier manufacturers.
ECS employs an object oriented, three-tier client/server architecture, in which
the business logic, database and presentation layers can be allocated
independently across multiple processors (servers or clients). This
distributed model allows large corporations to deploy a series of smaller,
departmental or company servers to replace their existing mainframe computers.
DataWorks' ECS system has been designed to be database independent, initially
supporting the Oracle, Sybase and Microsoft SQL Server databases.
The Company currently anticipates commencing customer shipments of its ECS
system in late 1997. However, there can be no assurance that the Company will
commence such shipments in 1997, or at all. Furthermore, the Company has
limited experience in selling products to customers in the upper tier of the
mid-range manufacturing market and anticipates that selling products to such
customers will result in a longer sales cycle and will require a different
strategy than that employed by the Company in selling products to customers in
the mid-tier market. For example, as part of its upper tier marketing
strategy, the Company is exploring potential relationships with third party
integrators to facilitate implementation of the ECS system. There can be no
assurance that any such relationships will be formed or, if formed, will prove
beneficial to the Company. Accordingly, even if customer shipments of the ECS
system are timely commenced, there can be no assurance that the Company will be
successful in effectively marketing the ECS system or that the ECS system will
achieve market acceptance.
CORE FEATURES AND TECHNOLOGIES
The Company provides certain core technologies for the mid-range market
across its entire product line, and offers certain development and
implementation support tools to facilitate customization and deployment of the
Company's products.
PORTABILITY AND SCALABILITY
DataWorks provides its products on all major versions of Microsoft NT and
UNIX operating systems. These environments enable the Company's products to
have extensive portability and scalability.
DEVELOPMENT TOOLS
DataWorks has enabled each of its products with a sophisticated 4GL
development environment that allows the Company's software to be tailored to
the unique needs of users while ensuring the integrity of
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the database and applications. DataWorks' products support a Windows-based GUI
providing consistent, familiar desktop interfaces and connectivity to a wide
variety of third party products. Traditional screens and reports are managed
as templates and forms to provide flexible user views into the database.
The database and development environments of products designed for the lower
tier of the mid-range market are tightly integrated to minimize cost and
support requirements. Vista provides VB Forms, a powerful form design tool
that supports user-definable screen generation. Vantage is written in the
Progress 4GL and database, which provides a powerful, graphical development
tool set. To serve the mid-tier, DataWorks' Object Preview is an object based
development tool based on the Borland Delphi graphical development environment.
Through Object Preview, DataWorks is able to support products across multiple
operating systems from a single object code library. The ECS system, designed
for the upper tier, supports Powersoft's Powerbuilder 5.0 and Optima enterprise
development suite as the foundation of the Company's client/server
infrastructure ("CSI") development tool product. CSI's "object libraries" are
designed to support the complex development and deployment requirements of a
global enterprise, and are intended to ensure a consistent look and feel to all
functions of the ECS system.
RDBMS
DataWorks' products are designed to run on databases that are best suited for
the particular applications required by customers, including Microsoft Foxpro
and SQL Server, Progress, UniData, VMark uniVerse, Oracle and Sybase. SQL,
ODBC and sophisticated file transfer capabilities provide immediate access to
foreign databases and other host applications. DataWorks has chosen these
relational databases in order to maximize the throughput of its customers'
transactions, to provide realistic models of business data and to maximize
price and performance under the budget constraints of its customers in each
tier of the mid-range market.
SMARTLINKS
DataWorks' SmartLinks interface to third party applications provides a
standard parameterized interface mechanism between DataFlo and ManFact II
products and associated data and modules within selected third party
applications. Links have been established to a broad range of third party
applications, such as Microsoft Office and Autodesk AutoCad, for computer aided
design, scanned images, database graphics, word processing, spreadsheets,
multimedia, sales contact management, forecasting and project planning. The
Company plans to expand the SmartLinks capabilities to its other products.
DEPLOYMENT TOOLS
DataWorks' SmartTools data conversion system is a means for new customers,
implementation consultants or existing customers to convert data from either
legacy systems or third party applications, and process that data through the
business rules of the Company's ERP systems. SmartTools can greatly shorten
the time needed to build conversion routines and significantly increases
conversion accuracy. SmartTools electronically takes conversion data from the
legacy system and simulates the data being entered through a keyboard or
generated programmatically by the DataWorks system.
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THIRD PARTY PRODUCTS
DATABASES
DataWorks separately licenses database products to its customers. Microsoft
Foxpro and Progress support the Vista and Vantage product lines, respectively,
and the UniData and VMark uniVerse databases support the Dataflo and ManFact II
products. ECS has been designed as a database independent application, and
initially will support the Oracle, Sybase and Microsoft SQL Server databases.
CLIENT TOOLS
The Company's products support PC-based GUIs that manage application
presentation, desktop tools and network communications, and facilitate the
client workstation. DataWorks incorporates client GUI and development tools
such as Microsoft Visual Foxpro, Progress, Borland Delphi and Sybase
Powerbuilder.
HARDWARE
As part of its turnkey solutions, at the request of a customer DataWorks can
provide complete third party computer hardware systems and related computer
peripherals. In such situations hardware is either shipped directly from the
third party vendor or DataWorks resells the products. The Company does not
typically carry hardware inventory in either case. DataWorks implements its
ERP systems on a number of hardware platforms, including Hewlett-Packard
Company ("Hewlett-Packard"), IBM, Data General, Digital Equipment Corporation
("DEC") and Intel Pentium and other x86-based systems. Configurations may be
host-based, server-oriented, or full client/server with highly networked
solutions, in which DataWorks may participate in providing network hardware
solutions. Additionally, DataWorks offers peripherals, factory data-
collection equipment and communications equipment for resale to its customers.
NETWORKS
DataWorks supports a wide variety of network communication protocols as part
of its turnkey product support. DataWorks has support agreements with regional
and national communications suppliers and network suppliers to facilitate the
design and implementation of these environments.
SERVICE AND SUPPORT
DataWorks offers a full complement of services that allow its customers to
maximize the benefits of DataWorks' software products, including project
management, consulting, implementation, education and multi-media training,
professional programming, system integration and support, video conferencing,
maintenance and customer service. DataWorks' services are not typically
included in the price of its software. Maintenance support is billed annually
in advance, while implementation, consulting and programming services are
billed monthly as incurred.
IMPLEMENTATION SUPPORT PROGRAM
DataWorks offers its customers an Implementation Support Program ("ISP") with
their initial system order or significant upgrade to an existing system
installation. ISP provides a variety of project management and consulting
services to assist in rapid implementation and deployment of DataWorks'
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business solutions. Services offered include a variety of site-specific
technical and consulting services to assist in all phases of the implementation
process. DataWorks may also provide assistance in integrating its products
with the customer's other software, such as automated systems and devices for
factory automation and shop floor data collection. In addition, DataWorks
offers "first call" support that allows customers to call DataWorks with
service inquiries. As part of the implementation of its software, DataWorks
employs a pilot program that allows certain of its customers to simulate
running their businesses with the new software prior to full-scale "live"
implementation of the new system. The entire implementation process, and
specifically the pilot programs, are greatly aided by DataWorks' SmartTools
product. Pilot program simulations for more complex businesses are conducted
in an integrated series of hands-on classroom exercises that emphasize system
controls and procedures, using a database generated by SmartTools that
accurately represents the customer's business. By simulating a number of
relevant business scenarios, the pilot program gives key users valuable
experience with DataWorks' software, generates involvement in and commitment to
the new system and provides a means to track the progress of the implementation
of the system before actual full-scale use.
CUSTOMER SUPPORT PROGRAM
DataWorks offers its customers a Comprehensive Support Program ("CSP"). The
cost of CSP is based on a percentage of list price of the DataWorks software
purchased and is generally billed annually in advance. Through CSP, DataWorks
provides product enhancements and updates that maintain the customers' software
and documentation to the then-current standard release level licensed and
supported by DataWorks. CSP also includes hotline telephone support during
extended business hours for questions regarding software use. This support is
available to customers up to 24 hours per day, seven days per week, as a
separately priced option.
EDUCATION AND TRAINING
DataWorks offers education and training services that provide customers with
a formalized program to ensure that applications are implemented and utilized
in an efficient and cost-effective manner. Customers are also offered a
variety of software installation, technical support and user training services,
both on-site and in DataWorks' regional training centers. Customized education
and training programs are also available to meet customers' specific
development needs.
PROFESSIONAL CONSULTING SERVICES
DataWorks provides an array of on-site and classroom implementation and
training services that are tailored to the complexity of each of the Company's
ERP systems. Each new customer site is assigned an Account Manager who
coordinates DataWorks' activities with the customer. These activities include
project management, hardware/software installation scheduling, classroom
education scheduling, on-site training, conversion planning and pilot
simulation supervision. Windows-based project management software maintains a
detailed project plan, resource list, and schedule of events for each phase of
the implementation. Designed to meet the return on investment objectives of
the customer, the project plan is the customer's key feedback and monitoring
mechanism for managing the success of the implementation. The Account Manager
and an assigned team are responsible for guiding the new customer from initial
installation through successful operation of the system in a live environment.
The Account Manager is also the initial point of contact to introduce other
DataWorks resources to the customer. The implementation of Vista typically
only requires such services on a limited basis.
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PROFESSIONAL PROGRAMMING SERVICES
DataWorks provides professional programming services, including custom
applications analysis, design, development, training and deployment for most of
its ERP solutions. Custom software projects may range from simple report
development to designing and programming complete applications and integrating
legacy systems. Throughout the project, software and design reviews are
provided to the customer as defined in the project specification. Upon project
completion, custom software is delivered under revision control to a test
database where compliance testing is conducted by the customer. The revision
control tools within DataFlo and ManFact II allow testing, deployment and
management of new enhancements without affecting current software releases.
All software enhancements of DataFlo and ManFact II, regardless of scope, are
created using the Object Preview development environment and conform to
DataWorks' published guidelines for standards and conventions.
PRODUCT DEVELOPMENT
DataWorks' product development efforts are focused on enhancement of its
existing products and introduction of its ECS system. At December 31, 1996,
DataWorks had approximately 123 full-time employees in product development.
Research and development expenses are comprised primarily of salaries and a
portion of DataWorks' overhead for its in-house staff and amounts paid to
outside consultants, as appropriate, to supplement the product development
effors of its in-house staff. Research and development expenses are charged to
operations as incurred. Gross research and development expenditures totaled
approximately $6.9 million in 1996 and $4.5 million in 1995. Gross research
and development expenditures in such periods included amounts for capitalized
software totaling $2.5 million and $1.3 million, respectively.
DataWorks plans to continue to enhance its Vista, Vantage, DataFlo and
ManFact II application products and to develop its ECS system to suit the
evolving needs of the manufacturing market served by DataWorks. In particular,
DataWorks intends to pursue improved functionality on existing application
modules and the creation of new modules. In addition to applications
development, DataWorks will seek to improve and expand Object Preview, its
object development environment, with two fundamental objectives: continued user
empowerment with emphasis on ease- of-use, and increased flexibility to make
changes to the base products to suit specific customer requirements.
Internet/Intranet enabled applications will continue to be a focus of
development throughout the entire product line. The DataWorks Open Integration
Environment will expand traditional supply chain EDI communication protocols
with Object EDI and encapsulated "business objects." DataWorks expects to
continue to enhance the capabilities of its MES and factory data collection
applications to address the increasing focus on real time, wireless data
collection and acquisition. The Company also expects to enhance its strategic
planning and decision support capabilities through offerings in the area of
third party report writers, data warehousing and data mining products.
DataWorks plans to continue to expand its API and object frameworks across all
products thereby enhancing each systems ability to access the global supply
chain.
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SALES AND MARKETING
DOMESTIC
The Company sells its products in the United States primarily through a
direct sales force. As of December 31, 1996, the Company had 117 full-time and
51 part-time employees in its domestic sales organization, including sales
representatives, pre-sale consultants, telemarketers and sales management
personnel.
The key components of DataWorks' domestic sales strategy include
sophisticated prospect development and sales cycle management processes.
DataWorks uses a combination of electronic prospective client databases,
computer aided telemarketing and field sales methodologies to identify
potential candidates for its ERP systems from within its targeted markets who
are in the early stages of searching for a new business management system.
This process accounts for a large percentage of the Company's new accounts and
lessens the need for the sales force to engage in territory prospecting
activities of its own. Prospective DataWorks customers are monitored through a
comprehensive prospect management system that breaks the sales cycle into
several phases, each with multiple measurement points, to properly assess the
prospective client base.
The Company's domestic sales strategy also emphasizes a "regionalization"
concept. DataWorks believes a strong local presence is an important factor in
addressing the needs of mid-range manufacturers and establishing mutually
beneficial long-term relationships. Under the Company's regionalization
approach, the Company has decentralized much of its client development
activity, customer services and customer account responsibilities. DataWorks
has regional centers in Irvine, California; San Jose, California; Chicago,
Illinois; Boston, Massachusetts; and Atlanta, Georgia. In addition, DataWorks
has local offices in 10 other locations across the United States. DataWorks
intends to open two additional full-service regional centers by late 1997.
INTERNATIONAL
DataWorks currently addresses the international market with direct sales
efforts through its wholly-owned subsidiary in the United Kingdom, and through
product-specific distributor agreements in Australia and Canada. To date, the
Company has not generated a material amount of revenue through these
distributor agreements. DataWorks plans to increase its international sales
efforts through expanded direct sales and additional distribution arrangements,
each to be supported by the Company's domestically developed prospect
development and sales cycle management processes.
COMPETITION
The business information systems industry is intensely competitive, rapidly
changing and significantly affected by new product offerings and other market
activities. A number of companies offer products similar to the Company's
products, which are directed at the market for ERP systems. Many of the
Company's existing competitors, as well as a number of potential competitors,
have more established and larger marketing and sales organizations,
significantly greater financial and technical resources and a larger installed
base of customers than the Company. In addition, customers who have a large
installed base of legacy systems may resist committing the time and resources
necessary to convert to an open systems, client/server-based software product.
The Company has no proprietary barriers to entry which would limit competitors
from developing similar products or selling competing products in the Company's
markets. Accordingly, there can be no assurance that such competitors will not
offer or develop products that are superior to the Company's products or that
achieve greater market acceptance.
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In addition, suppliers of RDBMS or companies that develop management
information software applications for large multinational manufacturers are
beginning to market to the upper tier of the mid-range market targeted by the
Company or otherwise develop applications that compete effectively in the
Company's markets. Furthermore, the Company intends to expand its marketing
and product development efforts toward the upper end of its target market,
which could result in increased competition. As a result, competition
(including price competition) is likely to increase substantially, which may
result in price reductions and loss of market share. In addition, potential
customers may increasingly demand that ERP systems incorporate certain popular
RDBMS software not currently integrated into certain of DataWorks' product
offerings that are offered by its competitors. As the client/server computing
market expands, a large number of companies, some with significantly greater
resources than the Company, may enter the market or increase their market share
by acquiring or entering into alliances with competitors of the Company. There
can be no assurance that the Company will be able to compete successfully
against its competitors or that the competitive pressures faced by the Company
will not adversely affect its financial performance.
The Company has a large number of competitors that vary in size, primary
computer platforms and overall product scope. Within its market, the primary
competition comes from independent software vendors in four distinct groups
including (i) large multinational system developers in the upper tier of the
Company's mid-range market, including Baan Company, Oracle and qad, Inc., (ii)
companies offering high levels of functionality on the AS/400 platform such as
System Software Associates, Inc. and J.D. Edwards Company, (iii) traditional
mid-range market sector firms such as ROI Systems, Inc., Symic Systems, Inc.
and Interactive Group, Inc., and (iv) lower priced PC network-based offerings
from companies such as Fourth Shift Corporation, Lilly Software Associates and
Macola Software, Inc. There is also a large number of regional manufacturing
software suppliers who leverage as competitive advantages their concentrated
local support, reputation and, typically, lower price.
The Company's principal market is highly fragmented and consists of a few
large multinational suppliers and a much larger number of small, regional
competitors. The Company believes that its industry will experience
consolidation as business information systems become more complex and as more
manufacturers adopt sophisticated business information systems, forcing smaller
companies in the industry to specialize or merge with their competitors. In
order to compete effectively in the broad markets which the Company presently
targets, the Company will need to continue to grow and attain sufficient size
to ensure that it can develop new products on a timely basis in response to
evolving technology and new customer demands and can sell such products to a
variety of manufacturing industries worldwide. No assurance can be given that
the Company will be able to grow sufficiently to enable it to compete
effectively.
The Company believes its use of open systems technologies is an important
competitive factor. The Company also believes that the number of competitors
offering open systems solutions will grow significantly over the next several
years. Additionally, the Company believes that the typical mid-range customer
desires an easy-to-use, highly functional 4GL environment, fully integrated
throughout the ERP system, which the Company has provided through its
internally produced development tool set. The Company anticipates that a
significant source of future competition may be from larger manufacturing
software companies that may tailor their products for the mid-range market.
Only a few of the larger and better capitalized software systems companies
currently compete in the Company's targeted market. There can be no assurance
that such companies will not develop products that are superior to the
Company's products or that achieve greater market acceptance.
The principal elements affecting the buying decision of customers in the
mid-range sector are comprehensive application functionality that addresses a
wide range of business areas, rapid system
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deployment, ease-of-use, strong performance, quality of customer support, a
fully integrated application set supported by a user-oriented 4GL development
environment that allows for easy modification to applications where needed,
price and customer references. It is also mandatory that the ERP system be
enhanced on a regular basis throughout the license or maintenance term and that
such product enhancements be properly supported by necessary revision control
software provided by the vendor. In order to be successful in the future, the
Company must respond effectively to customer needs and properly select and
incorporate those technologies and application functionalities that will meet
the challenges posed by competitors' innovations. To accomplish this critical
objective, the Company must continue to invest in enhancing its current
products and, when necessary, introduce new products to remain competitive.
There can be no assurance that the Company will be able to continue to invest
in such enhancements or new products, or introduce such enhancements or new
products in a timely fashion or at all.
INTELLECTUAL PROPERTY
DataWorks regards its products as proprietary trade secrets and confidential
information. DataWorks relies on a combination of copyright, trademark and
trade secret laws, employee and third party nondisclosure agreements and other
industry standard methods for protecting ownership of its proprietary software.
There can be no assurance, however, that, in spite of these precautions, an
unauthorized third party will not copy or reverse-engineer certain portions of
DataWorks' products or obtain and use information that DataWorks regards as
proprietary. In addition, the laws of some foreign countries do not protect
DataWorks' proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the mechanisms used by DataWorks to
protect its software will be adequate or that DataWorks' competitors will not
independently develop software products that are substantially equivalent or
superior to DataWorks' software products.
DataWorks licenses products to end users under license agreements which are
generally in standard form, although each license is individually negotiated
and may contain variations. The standard form agreement allows the end user to
use the products solely on the end user's computer equipment for the end user's
internal purposes, and the end user is generally not permitted to sublicense or
transfer the products. DataWorks licenses the source code for its application
software to its customers to enable them to customize the software to meet
particular requirements. DataWorks' standard form agreement includes a
confidentiality clause protecting the products. In the event of termination of
the license agreement, the end user remains responsible for any accrued and
unpaid license fees and confidentiality obligations. However, there can be no
assurance that such customers will take adequate precautions to protect
DataWorks' source code or other confidential information.
DataWorks' has one software patent application pending, but there can be no
assurances that a patent will be issued or that, if a patent is issued, it will
provide the Company with competitive advantages or will not be challenged by
others. DataWorks believes that it has all necessary rights to market its
products, although there can be no assurance that third parties will not assert
infringement claims in the future. DataWorks may receive notices from third
parties claiming that DataWorks' products infringe third party proprietary
rights. DataWorks expects that, as the number of software products in the
industry increases and the functionality of these products further overlaps,
software products will increasingly be subject to such claims. Any such claim,
with or without merit, could result in costly litigation and require DataWorks
to enter into royalty or license arrangements. Such royalty or license
arrangements, if required, may not be available on terms acceptable to
DataWorks or at all.
DataWorks believes that, due to the rapid pace of innovation within the
computer industry, factors such as technological and creative skill of
personnel, knowledge and experience of management, name
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recognition, maintenance and support of software products, the ability to
develop, enhance, market and acquire software products and services, and
strategic relationships in the industry are more important in establishing and
maintaining a leading position within the industry than are patent, copyright
and other legal protections for intellectual property.
EMPLOYEES
At December 31, 1996, DataWorks had 482 full-time employees, including 117 in
sales and marketing, 123 in product development, 199 in support services and
43 in finance and administration. DataWorks also has 51 part-time employees,
primarily in the telemarketing area. DataWorks' employees are not represented
by any collective bargaining organization, and DataWorks has never experienced
a work stoppage. DataWorks believes that its relations with its employees are
good. The loss of certain key employees or DataWorks' inability to attract and
retain other qualified employees could have a material adverse effect on
DataWorks' business and operations.
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EXECUTIVE OFFICERS
The executive officers of DataWorks and their ages as of March 3, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Stuart W. Clifton 52 Chairman of the Board, President and Chief Executive Officer
Norman R. Farquhar 50 Executive Vice President, Chief Financial Officer and Director
Mark S. Howlett 51 Executive Vice President, Sales and Marketing
Robert W. Brandel 46 Executive Vice President, Chief Operating Officer
Rick E. Russo 45 Vice President, Finance and Secretary
</TABLE>
Stuart W. Clifton has served as President, Chief Executive Officer
and as Chairman of the Board of Directors since January 1987, when he and Mr.
Howlett acquired control of the Company. Between 1971 and 1987, Mr. Clifton
held various management positions at Triad Systems Corporation, a vertical
distribution software company, in which he was involved from its inception,
most recently as Executive Vice President and General Manager.
Norman R. Farquhar has served as Executive Vice President and Chief
Financial Officer of the Company since February 1996 and as a director of the
Company since August 1995. From April 1993 to December 1995, Mr. Farquhar
served as Senior Vice President, Chief Financial Officer and Secretary of
Wonderware Corporation, a manufacturer of software for the industrial
automation industry. From December 1991 to April 1993, he was Vice President
of Finance and Chief Financial Officer of MTI Technology Corporation, a
developer of system-managed storage solutions.
Mark S. Howlett has served as Executive Vice President of the Company
since January 1987, when he and Mr. Clifton acquired control of the Company.
In 1981, he joined Triad Systems Corporation, where he became its National
Sales Manager.
Robert W. Brandel has served as Executive Vice President, Chief
Operating Officer of the Company since February 1997. Following the Company's
acquisition of DCD, from September 1996 to February 1997, he served as Vice
President, General Manager of DCD and an executive officer of the Company.
From 1992 to September 1996, he served as President and a director of DCD.
From 1988 to 1992, Mr. Brandel was the President and Chief Executive Officer
of Network Communications Corporation, a computer network diagnostics company.
Rick E. Russo has served as Vice President, Finance since July 1994
and as Secretary since April 1995. From February 1992 to July 1994, Mr. Russo
served as Chief Financial Officer of MCC. Prior to joining the Company, Mr.
Russo served from 1985 to 1991 as Vice President of Finance for Media
Duplication Services Ltd., a subsidiary of Polaroid Corporation which provided
software manufacturing services. Mr. Russo is a Certified Public Accountant.
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CERTAIN RISK FACTORS RELATED TO THE COMPANY'S BUSINESS
In addition to those risks identified elsewhere in this Annual Report
on Form 10-K, the Company's business and results of operations are subject to
other risks, including the following risk factors:
Fluctuations in Quarterly Operating Results. The Company has experienced
significant fluctuations in its revenues and operating results from quarter to
quarter and anticipates that it will continue to experience such quarterly
fluctuations. The Company's revenues and operating results have generally been
higher in the fourth quarter than in any preceding quarter of the year. The
Company believes that fourth quarter revenues are positively impacted by
year-end capital purchases by most customers, as well as by the Company's sales
compensation plans. Seasonal factors, which the Company believes are common in
the computer software industry, are likely to increase as the Company focuses
on larger corporate accounts. As a result of these seasonal factors, first
quarter revenues in any year are typically lower than revenues in the
immediately preceding fourth quarter. In addition, the Company's revenues
occur predominantly in the third month of each quarter and tend to be
concentrated in the latter half of that third month. Accordingly, the
Company's quarterly results of operations are difficult to predict, and delays
in product delivery or in closings of sales near the end of a quarter could
cause quarterly revenues and, to a greater degree, net income to fall
substantially short of anticipated levels. Factors that may contribute to such
fluctuations in addition to seasonal factors include: the number of new orders
and product shipments; the size and timing of individual orders; the timing of
shipment of hardware or database software by third party vendors necessary in
order for the Company to recognize revenues; the timing of introduction of
products or product enhancements by the Company, the Company's competitors or
other providers of hardware, software and components for the Company's market;
competition and pricing in the software industry; market acceptance of new
products; reduction in demand for existing products and shortening of product
life cycles as a result of new product introductions by competitors; product
quality problems; customer order deferrals in anticipation of new products;
changes in customer budgets; changes in Company strategy; changes in Company
operating expenses; personnel changes; fluctuations in foreign currency
exchange rates; changes in the mix of products sold; conditions or events in
the manufacturing industry; and general economic conditions.
The Company's sales figures for DataFlo and ManFact II, the Company's
principal products, generally reflect a relatively high amount of revenues per
order. The loss or delay of individual orders for these products, therefore,
could have a more significant impact on the revenues and quarterly results of
the Company than on those of companies with higher sales volumes and lower
revenues per order. The Company's software products generally are shipped as
orders are received, and revenues are recognized upon delivery of the products,
provided no significant vendor obligations exist and collection of the related
receivable is deemed probable. As a result, software license revenues in any
quarter are substantially dependent on orders booked and shipped in that
quarter. The timing of license revenues derived from sales of the Company's
DataFlo and ManFact II products is difficult to predict because of the length
of the sales cycle for these products, which is typically three to nine months
from the initial contact. Because the Company's operating expenses are based
on anticipated revenue trends and because a high percentage of the Company's
expenses are relatively fixed, a delay in the recognition of revenue from a
limited number of license transactions could cause significant variations in
operating results from quarter to quarter and could result in losses. To the
extent such expenses precede, or are not subsequently followed by, increased
revenues, the Company's operating results would be materially adversely
affected. In addition, the achievement of anticipated revenues is
substantially dependent on the ability of the Company to attract, on a timely
basis, and retain skilled personnel, especially sales, service and
implementation personnel. As a result of these factors, revenues for any
quarter are subject to significant variation, and the Company believes that
period-to-period comparisons of its results of
21
<PAGE> 22
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Fluctuations in operating results may also
result in volatility in the price of the Company's Common Stock.
Competition. The business information systems industry is intensely
competitive, rapidly changing and significantly affected by new product
offerings and other market activities. A number of companies offer products
similar to the Company's products, which are directed at the market for ERP
systems. Many of the Company's existing competitors, as well as a number of
potential competitors, have more established and larger marketing and sales
organizations, significantly greater financial and technical resources and a
larger installed base of customers than the Company. In addition, potential
customers that have a large installed base of legacy systems may resist
committing the time and resources necessary to convert to an open systems-based
client/server software product. The Company has no proprietary barriers to
entry which would limit competitors from developing similar products or selling
competing products in the Company's markets. Accordingly, there can be no
assurance that such competitors will not offer or develop products that are
superior to the Company's products or that achieve greater market acceptance. In
addition, suppliers of RDBMS or companies that develop management information
software applications for large multinational manufacturers are beginning to
market to the upper tier of the mid-range market targeted by the Company or
otherwise develop applications that compete effectively in the Company's
markets. Furthermore, the Company intends to focus its marketing and product
development efforts increasingly toward the upper end of its target market,
which could result in increased competition. As a result, competition (including
price competition) is likely to increase substantially, which may result in
price reductions and loss of market share. In addition, potential customers may
increasingly demand that ERP systems incorporate certain popular RDBMS software
not currently integrated into certain of DataWorks' product offerings that are
offered by its competitors. As the client/server computing market expands, a
large number of companies, some with significantly greater resources than the
Company, may enter the market or increase their market share by acquiring or
entering into alliances with competitors of the Company. There can be no
assurance that the Company will be able to compete successfully against its
competitors or that the competitive pressures faced by the Company will not
adversely affect its financial performance.
The Company's principal market is highly fragmented and consists of a few
large multinational suppliers and a much larger number of small regional
competitors. The Company believes that its industry will experience
consolidation as business information systems become more complex and as more
manufacturers adopt sophisticated business information systems, forcing smaller
companies in the industry to specialize or merge with their competitors. In
order to compete effectively in the broad markets which the Company presently
targets, the Company will need to continue to grow and attain sufficient size
to ensure that it can develop new products on a timely basis in response to
evolving technology and new customer demands and can sell such products to a
variety of manufacturing industries worldwide. No assurance can be given that
the Company will be able to grow sufficiently to enable it to compete
effectively. The Company anticipates that a significant source of future
competition may be from larger manufacturing software companies that may tailor
their products for the mid-range market. Only a few of the larger and better
capitalized software systems companies currently compete in the Company's
targeted market. There can be no assurance that such companies will not
develop products that are superior to the Company's products or that achieve
greater market acceptance.
Ability to Recruit Sales, Service and Implementation Personnel. The ability
to achieve anticipated revenues is substantially dependent on the ability of
the Company to attract on a timely basis and retain skilled personnel,
especially sales, service and implementation personnel. In addition, the
Company believes that its future success will depend in large part on its
ability to attract and retain highly skilled
22
<PAGE> 23
technical, managerial, marketing and professional services personnel to ensure
the quality of products and services provided to its customers. Competition
for such personnel, in particular for product development, sales and
implementation personnel, is intense, and the Company competes in the market
for such personnel against numerous companies, including larger, more
established companies with significantly greater financial resources than the
Company. There can be no assurance that the Company will be successful in
attracting and retaining skilled personnel. The Company's inability to attract
and retain qualified employees could have a material adverse effect on the
Company's business and operations.
Introduction of ECS System. The Company currently anticipates commencing
customer shipments of its ECS system in late 1997. However, there can be no
assurance that the Company will commence such shipments in 1997, or at all.
Furthermore, the Company has limited experience in selling products to
customers in the upper tier of the mid-range manufacturing market and
anticipates that selling products to such customers will result in a longer
sales cycle and will require a different strategy than that employed by the
Company in selling products to customers in the mid-tier market. For example,
as part of its upper tier marketing strategy, the Company is exploring
potential relationships with third party integrators to facilitate
implementation of the ECS system. There can be no assurance that any such
relationships will be formed or, if formed, will prove beneficial to the
Company. Accordingly, even if customer shipments of the ECS system are timely
commenced, there can be no assurance that the Company will be successful in
effectively marketing the ECS system or that the ECS system will achieve market
acceptance.
Integration of DataWorks and DCD Operations. The Company acquired DCD in
September 1996. The process of rationalizing management services,
administrative organizations, facilities, management information systems and
other aspects of operations, while managing a larger and geographically
expanded entity, presents a significant challenge to the management of
DataWorks. There can be no assurance that the integration process will be
successful or that the anticipated benefits of the business combination will be
fully realized. The dedication of management resources to such integration may
detract attention from the day-to-day business of the Company. The
difficulties of integration may be increased by the necessity of coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. Integrating
the two companies has caused the Company to incur certain additional expenses,
and there can be no assurance that there will not continue to be substantial
costs associated with the integration process, that such activities will not
result in a decrease in revenues or that there will not be other material
adverse effects of these integration efforts. Such effects could materially
reduce the earnings of the Company. The Company incurred acquisition and
related costs totaling $3.7 million in the third quarter of 1996. There can be
no assurance that DataWorks will not incur additional charges in future
quarters to reflect costs associated with the acquisition.
Management of Growth. The Company's business has grown rapidly, both
internally and through acquisitions, with total revenues increasing to $60.7
million for the year ended December 31, 1996 from $43.0 million in the year
ended December 31, 1995. There can be no assurance that the Company will be
able to manage its recent growth and assimilate its new employees and products
successfully. To manage its growth effectively, the Company will be required
to expand, train and manage its employee base, enhance its operating and
financial systems, and effectively expand its product line. If the Company
continues to grow, there can be no assurance that the management skills and
systems currently in place will be adequate or that the Company will be able to
manage any additional growth effectively.
Dependence on Key Employees. The Company's continued success depends to a
significant extent upon its ability to retain certain key employees, including
Stuart W. Clifton, Norman R. Farquhar and
23
<PAGE> 24
Robert W. Brandel. The loss of certain key employees or the Company's
inability to attract and retain other qualified employees could have a material
adverse effect on the Company's business and operations.
Rapid Technological Change and New Products. The market for the Company's
software products is characterized by rapid technological advances, evolving
industry standards, changes in end-user requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies, such as the planned introduction of the ECS system, and the
emergence of new industry standards, could render the Company's existing
products and products currently under development obsolete and unmarketable.
Accordingly, the Company's future success will depend upon its ability to
enhance its current products and develop and introduce new products that keep
pace with technological developments, satisfy varying end-user requirements and
achieve market acceptance. Any failure by the Company to anticipate or respond
adequately to technological developments or end-user requirements, or any
significant delays in product development or introduction, could damage the
Company's competitive position and have an adverse effect on revenues. There
can be no assurance that the Company will be successful in developing and
marketing new products, including the ECS system, or product enhancements on a
timely basis or that the Company will not experience significant delays in the
future, which could have a material adverse effect on the Company's business
and operations. In addition, there can be no assurance that new products or
product enhancements developed by the Company will achieve market acceptance.
The Company may need to increase the size of its product development staff in
the near term to meet these challenges. There can be no assurance that the
Company will be successful in hiring and training an adequate number of
qualified product development personnel to meet its needs.
Software programs as complex as those offered by the Company may contain
undetected errors or "bugs" when first introduced or as new versions are
released that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. There can be no assurance
that errors will not be found in future releases of the Company's software, or
that any such errors will not impair the market acceptance of these products
and adversely affect operating results. Problems encountered by customers
installing and implementing new releases or with the performance of the
Company's products could have a material adverse effect on the Company's
business and operations.
Dependence on Manufacturing Industry. The Company's business depends
substantially upon the capital expenditures of mid-range discrete
manufacturers, which in part depend upon the demand for such manufacturers'
products. A recession or other adverse events affecting the manufacturing
industry in the United States or other markets served by the Company could
affect such demand, forcing manufacturers in the Company's target markets to
curtail or postpone capital expenditures on business information systems. Any
such change in the amount or timing of capital expenditures in its target
markets could have a material adverse effect on the Company's business and
operations.
Dependence on Third Party Software and Hardware. Most of the Company's
products incorporate and use software products and computer hardware and
equipment developed by other entities. The relational database management
systems currently used in the Company's products are those which the Company
believes are best suited for the particular applications required by the
mid-range discrete manufacturers. These RDBMS have been developed by UniData,
VMark, Progress and Microsoft. The operating systems on which the Company's
products can function (UNIX, SCO-UNIX, UnixWare, VMS and Microsoft NT) have been
developed or are owned by Novell Corporation ("Novell"), DEC and Microsoft. The
computer hardware and related equipment sold as part of the Company's turnkey
systems are manufactured by Hewlett-Packard, IBM, DEC and others. There can be
no assurance that all of these entities will remain in business, that such
entities will
24
<PAGE> 25
continue to support these product lines, that their product lines will remain
viable or that these products will otherwise continue to be available to the
Company. If any of these entities ceases to do business or abandons or fails
to enhance a particular product line, the Company may need to seek other
suppliers. This could have a material adverse effect on the Company's business
and operations. In addition, there can be no assurance that the Company's
current suppliers will not significantly alter their pricing in a manner
adverse to the Company.
Intellectual Property and Proprietary Rights. The Company relies on a
combination of copyright, trademark and trade secret laws, employee and
third-party nondisclosure agreements and other industry standard methods for
protecting ownership of its proprietary software. There can be no assurance,
however, that, in spite of these precautions, an unauthorized third party will
not copy or reverse-engineer certain portions of the Company's products or
obtain and use information that the Company regards as proprietary. The
Company provides the source code for its application software under licenses to
its customers to enable them to customize the software to meet particular
requirements. Although the Company's source code license contains
confidentiality and nondisclosure provisions, there can be no assurance that
such customers will take adequate precautions to protect the Company's source
code or other confidential information. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. There can be no assurance that the
mechanisms used by the Company to protect its software will be adequate or that
the Company's competitors will not independently develop software products that
are substantially equivalent or superior to the Company's software products.
The Company has and may from time to time receive notices from third parties
claiming that the Company's products infringe upon third party proprietary
rights. The Company expects that, as the number of software products in the
industry increases and the functionality of these products further overlaps,
software products will increasingly be subject to such claims. Any such claim,
with or without merit, could result in costly litigation and require the
Company to enter into royalty or licensing arrangements. Such royalty or
license arrangements, if required, may not be available, if at all, on terms
acceptable to the Company.
Product Liability. Because the Company markets and sells its software
products on a turnkey basis, which includes rendering professional consulting
services, the Company incurs significant risks of professional and other
liability. No assurance can be given that the limitations of liability set
forth in the Company's license agreements or other contracts would be
enforceable or would otherwise protect the Company from liability for damages
to a customer resulting from a defect in one of the Company's products or
arising as a result of professional services rendered by the Company. Such a
claim, if successful and of sufficient magnitude, could have a material adverse
effect on the Company's business and operations.
Influence of Existing Shareholders. As of March 3, 1997, the Company's
executive officers, directors and their affiliates beneficially owned
approximately 23.6% of the Company's outstanding shares of Common Stock. As a
result, these shareholders, if acting together, would be able to influence
matters requiring approval by the shareholders of the Company, including the
election of a majority of the directors. The voting power of these
shareholders under certain circumstances could have the effect of delaying or
preventing a change in control of the Company. The Company has entered into
agreements with its executive officers and directors indemnifying them against
losses they may incur in legal proceedings arising from their service to the
Company.
Possible Volatility of Stock Price. The market price of the Company's Common
Stock has fluctuated since its initial public offering in October 1995. The
price of the Company's stock may be subject to
25
<PAGE> 26
significant fluctuations in the future in response to variations in quarterly
operating results of the Company, announcements of new products by the Company
or by its competitors, and general trends in the software industry, as well as
fluctuations in the stock market that are unrelated to the operating
performance of particular companies. Also, the Company's revenues or operating
results in future quarters may be below the expectations of public market
securities analysts and investors, which could cause the price of the Company's
stock to decline, perhaps substantially. Such stock price and market
fluctuations could adversely affect the Company.
Effect of Certain Charter Provisions. The Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences and privileges of those shares without
any further vote or action by the shareholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no present plan to
issue any shares of Preferred Stock.
ITEM 2. PROPERTIES
DataWorks leases approximately 48,000 square feet of office space for its
corporate headquarters in San Diego, California, under a lease expiring in
1999. DataWorks leases approximately 25,000 square feet of office space for
its Los Angeles/Orange County division in Irvine, California, under a lease
expiring in 2001. The Company also leases approximately 30,000 square feet of
office space in Minneapolis, Minnesota for DCD, under a lease expiring in April
2002.
DataWorks also has approximately 15,000 square feet of office space under
lease and rental agreements in various locations across the United States in
support of its regional activities, and approximately 1,200 square feet of
office space in the United Kingdom for its United Kingdom subsidiary.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
26
<PAGE> 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Common Stock of DataWorks is traded on the Nasdaq National Market
under the symbol "DWRX." Prior to the initial public offering in October 1995,
there was no established public trading market for DataWorks' Common Stock.
The following table sets forth the range of high and low sales prices on the
National Market for the Common Stock since the initial public offering, as
reported by Nasdaq. Such quotations represent inter-dealer prices without
retail markup, markdown or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1996
<S> <C> <C>
Fourth Quarter $ 34.25 $ 20.75
Third Quarter 28.00 15.75
Second Quarter 19.50 11.50
First Quarter 14.50 10.25
1995
Fourth Quarter (from October 27) $ 15.00 $ 10.75
</TABLE>
The Company has never declared or paid any cash dividends on its Common
Stock. DCD, in 1994 and 1995 (prior to its acquisition by DataWorks), paid
dividends of approximately $393,000 and $649,000, respectively, to its employee
stock ownership plan. The Company's banking facilities contain certain
restrictions and limitations, including the prohibition against payment of
dividends. The Company currently intends to retain any future earnings for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future.
The Company had approximately 67 shareholders of record as of March 3, 1997.
The last sales price for the Company's Common Stock, as reported by Nasdaq on
March 3, 1997, was $15.00.
27
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements of the
Company and related notes thereto included elsewhere in this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(1):
Revenues:
Software licenses . . . . . . . . . . . . . . . . . $35,526 $22,874 $11,627 $6,692 $4,580
Hardware . . . . . . . . . . . . . . . . . . . . . 5,429 6,743 3,765 4,089 1,843
Maintenance and other services . . . . . . . . . . 19,793 13,394 7,689 4,741 3,525
-------- -------- -------- -------- --------
Total revenues . . . . . . . . . . . . . . . . . . 60,748 43,011 23,081 15,522 9,948
Cost of revenues:
Software licenses . . . . . . . . . . . . . . . . . 2,701 2,153 1,192 272 190
Hardware . . . . . . . . . . . . . . . . . . . . . 4,117 5,288 2,930 2,474 1,381
Maintenance and other services . . . . . . . . . . 14,203 8,330 4,717 3,747 3,448
-------- -------- -------- -------- --------
Total cost of revenues . . . . . . . . . . . . . . . 21,021 15,771 8,839 6,493 5,019
-------- -------- -------- -------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . 39,727 27,240 14,242 9,029 4,929
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . 18,653 12,057 7,404 3,843 2,760
Research and development . . . . . . . . . . . . . 4,329 3,214 2,521 1,230 1,065
General and administrative . . . . . . . . . . . . 7,203 5,032 3,202 2,350 2,586
Acquisition and related costs . . . . . . . . . . . 3,656 --- --- --- ---
ESOP contribution . . . . . . . . . . . . . . . . . --- 446 429 387 199
-------- -------- -------- -------- --------
Total operating expenses . . . . . . . . . . . . 33,841 20,749 13,556 7,810 6,610
-------- -------- -------- -------- --------
Income (loss) from operations . . . . . . . . . . . . 5,886 6,491 686 1,219 (1,681)
Other income (expense), net . . . . . . . . . . . . 444 (1,337) (1,141) (500) (224)
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item . . . . . . . . . . . . . . . . 6,330 5,154 (455) 719 (1,905)
Credit (provision) for income taxes . . . . . . . . . (3,094) (1,780) 264 --- ---
-------- -------- -------- -------- --------
Income (loss) before extraordinary item . . . . . . . 3,236 3,374 (191) 719 (1,905)
Extraordinary item, net of income taxes . . . . . . . --- (1,017) (157) --- ---
-------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . $ 3,236 $ 2,357 $ (348) $ 719 $ (1,905)
======== ======== ========= ======== ========
Per share information (1):
Income (loss) before extraordinary item . . . . . . $ .39 $ .61 $ (.05) $ .19 $(.71)
Extraordinary item . . . . . . . . . . . . . . . . - (.18) (.04) --- ---
-------- -------- --------- -------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . $.39 $.43 $(.09) $.19 $(.71)
======== ======== ========= ======== ========
Shares used in per share computations (1) . . . . . . 8,255 5,523 4,021 3,844 2,691
======== ======== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . . $47,143 $13,005 $1,458 $636 $491
capital (deficit) . . . . . . . . . . . . . 61,804 15,985 (3,882) (5,211) (5,068)
Total assets . . . . . . . . . . . . . . . 92,226 38,153 15,139 4,212 2,315
Long-term debt, less current portion . . . --- --- 7,832 1,501 2,476
Total shareholders' equity (deficit)(2) . . 71,802 22,892 (5,357) (5,650) (6,883)
- -----------------------
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements describing the
determination of the number of shares used in computing per share
information.
(2) In October 1995, the Company completed its initial public offering
resulting in net proceeds to the Company of $18.0 million. The net
proceeds from such offering were used to repay outstanding indebtedness, to
increase working capital and for general corporate purposes. In December
1996, the Company completed a follow-on equity offering resulting in net
proceeds to the Company of $41.3 million. The net proceeds were for
additional working capital, general corporate purposes, including expansion
of general sales and marketing and customer support activities,
international expansion and possible acquisitions and joint ventures.
28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
DataWorks was incorporated in 1986 and develops, markets, implements and
supports open systems, client/server-based ERP software for mid- range discrete
manufacturing companies with annual revenues between $3 million and $1 billion.
In May 1994, DataWorks acquired Madic-Compufact Corporation ("MCC") principally
for cash in a transaction accounted for as a purchase. DataWorks believes that
its acquisition of MCC allowed it to achieve several important strategic
objectives, including the addition of a complementary product to better serve
the make-to-order market and a significant expansion of DataWorks' customer and
revenue base. Because the acquisition of MCC was accounted for as a purchase,
the financial results of MCC prior to June 1994 are not included in DataWorks'
financial results. The MCC acquisition has had a significant effect on
DataWorks' subsequent financial results.
In September 1996, the Company acquired DCD Corporation ("DCD") in a
stock-for-stock transaction that was accounted for as a pooling-of-interests.
The financial results of DCD have been included in the financial results of the
Company included in this Annual Report. DataWorks believes that its
acquisition of DCD allowed it to achieve several important strategic
objectives, including the ability to better serve the lower tier of mid-range
manufacturers, within and outside the six "highly engineered product"
industries on which the Company has focused historically. The acquisition also
allowed the Company to expand geographically and to increase its customer and
revenue base. The DCD acquisition had a significant effect on DataWorks'
financial results.
Due to intense competition in the computer hardware market and an increasing
tendency for customers, particularly new accounts, to elect to purchase
hardware directly from third party vendors, the Company has experienced
declining hardware revenues as a percentage of each system it sells and
declining profit margins with respect to such hardware revenues. Recently,
gross profit from hardware sales has not been a significant part of the
Company's total gross profit, and the Company believes this trend will
continue.
The Company believes that its success has been due in part to its strategy of
focusing marketing and development resources on six "highly engineered product"
industries within the mid-range discrete manufacturing market sector. The
Company is unaware that any of its competitors is specifically targeting the
same group of industries. There can be no assurance that competitors with
significantly greater financial, technical and marketing resources than the
Company will not target these particular industries.
To date, substantially all of DataWorks' revenues have been derived from
domestic operations. Internationally, DataWorks established a wholly-owned
subsidiary in the United Kingdom in 1994 to serve its European operations.
The following discussion should be read in conjunction with the consolidated
financial statements included elsewhere within this Annual Report.
Fluctuations in quarterly and annual results may occur as a result of factors
affecting demand for the Company's products such as the timing of the Company's
and competitors' new product introductions and product enhancements. Due to
such fluctuations, historical results and percentage relationships are not
necessarily indicative of the operating results for any future period. The
forward-looking comments contained in the following discussion involve risks
and uncertainties. The Company's actual results may differ materially from
those discussed here. Factors that could cause or contribute to such
differences can be found in the following discussion and elsewhere throughout
this Annual Report on Form 10-K.
29
<PAGE> 30
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of total revenues represented by certain consolidated statement of
operations data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues:
Software licenses . . . . . . . . . . . . . . . . . . . 58% 53% 51%
Hardware . . . . . . . . . . . . . . . . . . . . . . . 9 16 16
Maintenance and other services . . . . . . . . . . . . 33 31 33
------ ------ ------
Total revenues . . . . . . . . . . . . . . . . . . . 100 100 100
------ ------ ------
Cost of revenues:
Software licenses . . . . . . . . . . . . . . . . . . . 5 5 5
Hardware . . . . . . . . . . . . . . . . . . . . . . . 7 12 13
Maintenance and other services . . . . . . . . . . . . 23 20 20
------ ------ ------
Total cost of revenues . . . . . . . . . . . . . . . 35 37 38
------ ------ ------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 65 63 62
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . 31 28 32
Research and development . . . . . . . . . . . . . . . 7 7 11
General and administrative . . . . . . . . . . . . . . 12 12 14
Acquisition and related costs . . . . . . . . . . . . . 6 -- --
ESOP contribution . . . . . . . . . . . . . . . . . . . -- 1 2
------ ------ ------
Total operating expenses . . . . . . . . . . . . . 56 48 59
------ ------ ------
Income from operations . . . . . . . . . . . . . . . . . 9 15 3
Other income (expense), net . . . . . . . . . . . . . . 1 (3) (5)
------ ------ ------
Income (loss) before income taxes and
extraordinary item . . . . . . . . . . . . . . . . . . 10 12 (2)
Credit (provision) for income taxes . . . . . . . . . . . (5) (4) 1
Extraordinary item, net of income taxes . . . . . . . . -- (2) (1)
------ ------ ------
Net income (loss) . . . . . . . . . . . . . . . . . . . . 5% 6% (2)%
====== ====== ======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Total Revenues. DataWorks' principal sources of revenues consist of
software license fees and related services, including software maintenance,
consulting and custom programming. In addition, DataWorks resells third party
hardware and operating systems software to provide turnkey systems solutions.
Total revenues increased 41% to $60.7 million in 1996 from $43.0
million in 1995. This increase was primarily due to an increase in sales of
software licenses to new accounts and an overall increase in maintenance and
other service revenues.
30
<PAGE> 31
Software License Revenues. Revenues from DataWorks' non-cancellable
software licenses are recognized upon delivery of the products, provided that
no significant Company obligations remain and collection of the related
receivable is deemed probable. DataWorks' Vista product line, which
represented approximately 14% and 15% of software license revenues for 1996 and
1995, respectively, carries a 30-day money back guarantee. DataWorks books
this revenue upon shipment and believes that it maintains adequate reserves.
Software license revenues increased 55% to $35.5 million in 1996 from
$22.9 million in 1995. This growth was attributable to increased marketing
efforts, expansion of the sales force and increased functionality in both the
Vista and Vantage products.
Cost of Software License Revenues. The cost of software license
revenues consists primarily of the cost of software products and firmware
security devices provided by third party suppliers and sold with DataWorks'
systems. The cost of software license revenues increased 25% to $2.7 million
in 1996 from $2.2 million in 1995. This increase was directly related to the
increase in software license revenues. The cost of software license revenues
represented approximately 8% and 9% of software license revenues for 1996 and
1995, respectively. This decrease in software license cost, as a percentage of
software license revenues, was due primarily to reductions in database costs on
a per user basis.
Hardware Revenues. Hardware revenues include computers (primarily
servers), data collection equipment, peripherals and related network and
communications products purchased from third party vendors and sold through
DataWorks to its customers.
Hardware revenues decreased 20% to $5.4 million in 1996 from $6.7
million in 1995. This represented approximately 9% of total revenues in 1996
as compared to approximately 16% of total revenues in 1995, reflecting an
increasing tendency for new customers, who purchase smaller systems, to
purchase hardware directly from third party vendors. This tendency and the
intense competition in the computer hardware market has caused DataWorks to
experience declining hardware revenues as a percentage of new account systems.
Cost of Hardware Revenues. The cost of hardware revenues consists
primarily of the cost of the computers (primarily servers), data collection
equipment, peripherals and related network and communications products
purchased from third party vendors.
The cost of hardware revenues decreased 22% to $4.1 million in 1996
from $5.3 million in 1995. The decrease is directly related to the decrease in
hardware revenues. The Company attempts to maintain a 20% gross profit on
hardware sales. Recently, gross profit from hardware sales has not been a
significant part of DataWorks' total gross profit, and DataWorks believes this
trend will continue.
Maintenance and Other Service Revenues. Maintenance and other service
revenues include fees primarily from software maintenance, consulting,
education and custom programming services. Software maintenance revenues are
generally prepaid and recognized ratably over the period of the maintenance
agreement. Consulting, education and custom programming revenues are generally
paid and recognized as the services are performed.
Maintenance and other service revenues increased 48% to $19.8 million
in 1996 from $13.4 million in 1995. This growth was due primarily to the
increase in new customers, and increased capacity created by the growth in
DataWorks' service organization.
31
<PAGE> 32
Cost of Maintenance and Other Service Revenues. DataWorks provides
its software maintenance, consulting and custom programming services through a
professional in-house staff. The cost of these services is primarily based on
salaries and a portion of DataWorks' overhead cost. Cost of maintenance and
other service revenues increased 71% to $14.2 million in 1996 from $8.3 million
in 1995. This increase was primarily due to the continued expansion of the
DataWorks' professional service organization required to support growth in new
customer accounts. Gross profit, as a percentage of maintenance and other
service revenues, decreased to 28% in 1996 from 38% in 1995 due primarily to
the delay between the time of incurring the cost associated with hiring a
significant number of new service personnel and the generation of revenue from
services provided by such personnel.
Gross Profit. Gross profit increased 46% to $39.7 million from $27.2
million and increased as a percentage of total revenues to 65.4% from 63.3% in
1996 as compared to 1995. These increases were due primarily to the increase
in software license revenues, which carry a higher gross profit percentage, and
to the decrease in hardware revenues, which carry a lower gross profit
percentage.
Sales and Marketing Expenses. Sales and marketing expenses increased
55% to $18.7 million in 1996 from $12.1 million in 1995 and increased as a
percentage of revenues to 31% from 28% for the same period. These increases
were attributable to DataWorks' expansion of its direct sales force, increased
marketing efforts, travel, commissions and other expenses related directly to
the increased sales activity. DataWorks expects sales and marketing expenses
will continue to increase in absolute dollars as the Company continues to
expand its sales and marketing programs.
Research and Development Expenses. Research and development expenses
are comprised primarily of salaries and a portion of DataWorks' overhead for
its in-house staff and amounts paid to outside consultants, as appropriate, to
supplement the product development efforts of its in-house staff. Research and
development expenses are charged to operations as incurred. Certain software
production costs related to DataWorks' ECS product, however, are capitalized as
required by Statement of Financial Accounting Standards No. 86, "Accounting for
Software Cost." Amortization of these costs will begin when the product is
initially released, which is expected in late 1997. DataWorks does not
capitalize internally developed software costs for any product other than ECS.
As of December 31, 1996, the amount capitalized for ECS was approximately $4.4
million.
Gross research and development expenditures increased 51% to $6.9
million in 1996 from $4.5 million in 1995, representing approximately 11% of
total revenues for each year. Gross research and development expenditures in
such periods included amounts for capitalized software totaling $2.5 million
and $1.3 million, respectively. The increase in gross expenditures was due
primarily to the employment of additional development personnel and reflects
DataWorks' belief that investments in research and development are necessary to
maintain a competitive position in its targeted market. DataWorks anticipates
continued increased expenditures on research and development for both the
enhancement of current products and the addition of new products.
General and Administrative Expenses. General and administrative
expenses increased 43% to $7.2 million in 1996 from $5.0 million in 1995. This
increase was due primarily to the increase in administrative staff and the
related facility costs necessary to support the growth of DataWorks.
Acquisition and Related Costs. Acquisition and related costs of $3.7
million represent the transaction costs incurred in connection with the
acquisition of DCD. These costs included investment banking fees, legal and
accounting fees and expenses necessary to integrate and combine the operations
of the two companies. There can be no assurance that the Company will not
incur additional charges in future periods to reflect costs associated with the
integration of the two companies.
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<PAGE> 33
ESOP Contributions and Dividends. DCD established the ESOP in 1992
for the benefit of all of its employees meeting certain eligibility
requirements. The ESOP was assumed by DataWorks in connection with its
acquisition of DCD. In 1992, DCD obtained financing from a commercial bank and
advanced proceeds to the ESOP in order to purchase certain shares from a
selling shareholder. See Note 4 of Notes to Consolidated Financial Statements.
Other Income and Expense. Interest expense relates primarily to
long-term debt, the amortization of debt discount and issue costs with respect
to prior financings and debt associated with the ESOP. DataWorks reported net
interest income of approximately $444,000 in 1996 as compared to net interest
expense of approximately $1.3 million in 1995. The net interest income for
1996 relates primarily to the income from the investment of a portion of the
net proceeds from DataWorks' initial public offering in October 1995 and from
the investment of the net proceeds from DataWorks' follow-on equity offering in
December 1996. The interest expense recorded for the same period in 1995
relates primarily to long-term debt, the amortization of debt discount and
issue costs with respect to prior financings, and the ESOP obligation. With
the exception of the ESOP obligation, all long-term debt was retired with a
portion of the proceeds from the initial public offering. In 1995, DataWorks
repaid in full all outstanding debt incurred in connection with prior
financings from the proceeds of DataWorks' Series A Preferred Stock financing
and initial public offering. With the prepayment of such indebtedness,
DataWorks recognized an extraordinary expense of approximately $1.0 million,
net of income tax benefit, arising from the write-off of the unamortized debt
issue cost, debt discount and the other related fees. See Note 5 of Notes to
Consolidated Financial Statements. In 1995, the ESOP obligation was repaid in
full with cash flows from operations.
Income Taxes. DataWorks' effective tax rate for 1996 was 48.9%, due
primarily to the non-deductibility of certain of the DCD acquisition and
related costs. The effective tax rate for such period without the acquisition
and related costs would have been approximately 40%. DataWorks' effective tax
rate for 1995 was 35%. DataWorks realized tax benefits in 1995 from the
deduction of certain tax credits and from contributions and dividends paid on
Common Stock held by the ESOP used to make ESOP debt service payments, which
reduced DataWorks' effective tax rate in such period. See Note 6 of Notes to
Consolidated Financial Statements.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Total Revenues. Total revenues increased 86% to $43.0 million in 1995
from $23.1 million in 1994. This increase was due primarily to significant
growth in software license fees and related service fees resulting from the
expansion of DataWorks' customer base and the availability of the Vista and
Vantage products, which were released in mid-1994.
Software License Revenues. Software license revenues increased 97% to
$22.9 million in 1995 from $11.6 million in 1994. This increase resulted from
a combination of factors, including, (i) the continued effects of
regionalization and expansion of the sales force and the increase in marketing
activities, (ii) the expansion of DataWorks' product offerings, including the
addition of new software application modules, (iii) the added product
functionality of existing software application modules and (iv) the increased
customer base from the acquisition of MCC in May 1994.
Cost of Software License Revenues. The cost of software license
revenues increased 81% to $2.2 million in 1995 from $1.2 million in 1994. This
increase was directly related to the increase in software license revenues.
The cost of software license revenues represented approximately 9% and 10% of
software license revenues for 1995 and 1994, respectively. This decrease in
software license cost, as a
33
<PAGE> 34
percentage of software license revenues, was due primarily to reductions in
database costs on a per user basis.
Hardware Revenues. Hardware revenues increased 79% to $6.7 million in
1995 from $3.8 million in 1994. This increase in hardware revenues was due, in
part, to the acquisition of MCC and its existing customer base as well as the
overall increase in sales transactions.
Cost of Hardware Revenues. The cost of hardware revenues increased
81% to $5.3 million in 1995 from $2.9 million in 1994. This increase was
directly related to the increase in hardware revenues.
Maintenance and Other Service Revenues. Maintenance and other service
revenues increased 74% to $13.4 million in 1995 from $7.7 million in 1994.
This increase was the result of the increased number of new accounts recorded
during this period and increased activity within DataWorks' existing account
base, including the addition of MCC customers.
Cost of Maintenance and Other Service Revenues. The cost of
maintenance and other service revenues increased 77% to $8.3 million in 1995
from $4.7 million in 1994. This increase primarily reflected the increased
costs associated with the acquisition of the MCC service staff in June 1994,
the initial staffing increases to support the establishment of regional
training centers in Chicago and Boston and a general increase in salaries to
remain competitive within the industry.
Gross Profit. Gross profit increased 91% to $27.2 million from $14.2
million and increased to 63.3% from 61.7% as a percentage of total revenues in
1995 as compared to 1994. These increases were due primarily to the increase
in software license revenues as a percentage of total revenues.
Sales and Marketing Expenses. Sales and marketing expenses increased
63% to $12.1 million in 1995 from $7.4 million in 1994. This increase
reflected the expansion of DataWorks' sales and marketing staff, additional
marketing required for the introduction of Vista and Vantage and increased
sales activity in this period. As a percentage of total revenues, sales and
marketing expenses decreased to 28% in 1995 from 32% in 1994, due primarily to
the increase in total revenues during 1995.
Research and Development. Gross research and development
expenditures, including capitalized amounts, increased 52% to $4.5 million in
1995 from $3.0 million in 1994, representing approximately 11% and 13%,
respectively, of total revenues. This increase in gross expenditures was due
primarily to the inclusion of MCC expenditures in 1995 that were not included
in the first five months of 1994.
General and Administrative. General and administrative expenses
increased 57% to $5.0 million in 1995 from $3.2 million in 1994. This increase
was due primarily to the expansion of DataWorks' administrative staff arising,
in part, from the increase in business activity following the MCC acquisition,
and the amortization of certain intangibles in connection with that
acquisition.
ESOP Contributions and Dividends. DCD established the ESOP in 1992
for the benefit of all of its employees meeting certain eligibility
requirements. The ESOP was assumed by DataWorks in connection with its
acquisition of DCD. In 1992, DCD obtained financing from a commercial bank and
advanced proceeds to the ESOP in order to purchase certain shares from a
selling shareholder. See Note 4 of Notes to Consolidated Financial Statements.
Other Income and Expense. Net interest expense increased 17% to $1.3
million in 1995 from $1.1 million in 1994. This increase was due primarily to
debt financing obtained in connection with the MCC acquisition. In 1995,
DataWorks repaid in full all outstanding debt incurred in connection with
34
<PAGE> 35
prior financings from the proceeds of DataWorks' Series A Preferred Stock
financing and initial public offering. With the prepayment of such
indebtedness, DataWorks recognized and extraordinary expense of approximately
$1.0 million, net of income tax benefit, arising from the write- off of the
unamortized debt issue cost, debt discount and the other related fees. See
Note 5 of Notes to Consolidated Financial Statements. In 1995, the ESOP
obligation was repaid in full with cash flows from operations.
Income Taxes. DataWorks' effective tax rate for 1995 was 35%.
DataWorks realized tax benefits in 1994 and 1995 from the deduction of certain
tax credits and from contributions and dividends paid on Common Stock held by
the ESOP used to make ESOP debt service payments, which reduced DataWorks'
effective tax rate in such periods. See Note 6 of Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in October 1995, DataWorks had
funded its operations primarily through long-term debt, term loans, bank lines
of credit directly tied to DataWorks' available accounts receivable and the
sale of Series A Preferred Stock. In October 1995, DataWorks completed an
initial public offering of 2,500,000 shares of Common Stock at $13.00 per
share, of which 1,600,000 shares were sold by DataWorks for net proceeds of
approximately $18.0 million. The net proceeds received by DataWorks were used
to repay outstanding indebtedness in the aggregate amount of $9.2 million. The
remaining proceeds were used for general corporate purposes and to increase
working capital. In December 1996, DataWorks completed a follow-on equity
offering of 2,300,00 shares of Common Stock at $21.00 per share, of which
2,112,735 shares were sold by DataWorks for net proceeds of approximately $41.3
million. The net proceeds received by DataWorks were for additional working
capital, general corporate purposes, including expansion of general sales and
marketing and customer support activities, international expansion and possible
acquisitions and joint ventures. Substantially all of the net proceeds
received by DataWorks were invested in short- term marketable securities.
Effective January 1996, DataWorks purchased certain assets of Arrowkey
Systems ("Arrowkey") for $450,000. In addition, DataWorks paid Arrowhead
$75,000 in 1997 and may be required to pay Arrowkey up to $75,000 annually
through 1998 if certain sales levels of Arrowkey software products are
achieved. Arrowkey software products provide shop floor data collection
systems, which are integrated into the Company's DataFlo product.
DataWorks has established an unsecured banking facility up to a
maximum of $6.0 million, at the bank's prime rate, expiring in June 1997. As
of December 31, 1996, there were no borrowings outstanding under this facility.
DCD also has a $1 million line of credit secured by substantially all of the
assets of DCD, expiring in July 1997.
In 1996, DataWorks' operating activities, excluding one-time
acquisition costs of approximately $3.7 million, provided cash of approximately
$1.3 million. Operating activities including one-time acquisition costs
required cash of approximately $2.4 million, primarily to support increases in
accounts receivable resulting from the growth in software licensing activity.
DataWorks' principal uses of cash for investing activities were for capital
equipment of approximately $3.0 million, the funding of DataWorks' ECS product
of approximately $2.5 million and the purchase of certain software products from
Arrowkey of $450,000. The increase in capital equipment was due, in part, to
increases in personnel and the relocation of the Company's Orange County,
California facility. In addition to the follow-on equity offering, financing
activities from the exercise of stock options, warrants and from
35
<PAGE> 36
stock purchases by employees through DataWorks' Employee Stock Purchase Plan
provided cash of approximately $1.2 million during 1996.
As of December 31, 1996, DataWorks had cash and cash equivalents
totaling approximately $47.1 million. DataWorks' principal commitments as of
December 31, 1996 consisted primarily of leases on facilities and equipment.
There were no material commitments for capital expenditures.
DataWorks' capital resources may be used to support working capital
requirements, product development, capital equipment requirements and possible
acquisitions of businesses, products or technologies complementary to
DataWorks' current business. DataWorks believes that its current cash
balances, available lines of credit and cash flow from operations are
sufficient to fund its operations for at least the next 12 months. However,
during this period or thereafter the Company may require additional financing.
There can be no assurance that such additional financing will be available on
terms favorable to the Company, or at all.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Company
required by this item are listed under item 14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the section entitled "Executive Officers" in Part I, Item 1 hereof
for information regarding executive officers.
The information required by this item with respect to directors is
incorporated by reference from the information under the caption of "Election
of Directors," contained in the Company's Definitive Proxy Statement to be
filed with the Commission pursuant to Regulation 14A in connection with the
1997 Annual Meeting (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the information under the caption "Executive Compensation" contained in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the information under the caption contained in "Certain Transactions" contained
in the Proxy Statement.
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<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a)(1) Index to Consolidated Financial Statements
The consolidated financial statements required by this item are
submitted in a separate section beginning on page F-1 of this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . F-2
Report of Price Waterhouse LLP, Independent Accountants . . . . . . . . . . . . . F-3
Consolidated Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . F-4
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 1996 . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Shareholders' Equity (Deficit)
for Each of the Three Years in the Period Ended December 31, 1996 . . . . . . . F-6
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1996 . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . F-8
</TABLE>
(a)(2) Index to Financial Statement Schedules
All schedules have been omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.
(a)(3) Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION OF DOCUMENT
<S> <C> <C>
(1) 3.1 Registrant's Amended and Restated Articles of Incorporation.
(1) 3.2 Registrant's Amended and Restated Bylaws.
(1) 3.3 Amendment to Bylaws.
(1) 4.1 Amended and Restated Registration Rights Agreement dated August 24, 1995.
(1) 4.2 Specimen stock certificate.
(5) 4.3 Agreement and Plan of Merger and Reorganization by and among the
Registrant, DataWorks Acquisition Sub., Inc., DCD Corporation and certain
shareholders of DCD Corporation, dated as of August 16, 1996.
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C>
(1) 10.1 Form of Indemnity Agreement entered into between the Registrant and its
directors and officers, with related schedule.
(3) 10.2 Registrant's 1995 Equity Incentive Plan (the "Equity Plan"), as amended.
(1)(3) 10.3 Forms of Incentive Stock Option and Nonstatutory Stock Option under the
Equity Plan.
(1)(3) 10.4 Form of Stock Option outside the Equity Plan.
(3) 10.5 Registrant's 1995 Non-Employee Directors' Stock Option Plan, as amended.
(3) 10.6 Registrant's 1995 Employee Stock Purchase Plan and form of Employee Stock
Purchase Plan Offering, as amended.
(1)(3) 10.7 Executive Employment Agreement entered into between the Registrant and
Stuart W. Clifton.
(1)(3) 10.8 Executive Employment Agreement entered into between the Registrant and Mark
S. Howlett.
(1)(3) 10.9 Agreement entered into between the Registrant and Rick E. Russo.
(3)(6) 10.10 Offer Letter, dated as of January 17, 1996, entered into between the
Registrant and Norman R. Farquhar.
(1) 10.11 Loan Agreement dated September 6, 1995 between the Registrant and First
Interstate Bank of California.
(1) 10.12 Sublease Agreement dated November 22, 1991 between the Registrant and the
Titan Corporation (the "Sublease").
(1) 10.13 First Amendment to Sublease dated December 1, 1994.
(1) 10.14 Lease Agreement dated September 1, 1991 between MCC and Pactel Properties.
(4)(6) 10.15 Value Added Reseller Agreement dated December 27, 1995 between the
Registrant and VMARK Software, Inc.
(1)(2) 10.16 Value Added Remarketer Agreement dated December 16, 1993 between the
Registrant and Sybase, Inc.
(1)(2) 10.17 Value Added Reseller Agreement dated March 1, 1994 between the Registrant
and UniData, Inc.
(5) 10.18 Reference is made to Exhibit 4.3.
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C> <C>
10.19 Lease Agreement dated January 16, 1997 between Registrant and Whiop Real
Estate Limited Partnership.
10.20 First Amendment to Credit Agreement dated December 20, 1996 between the
Registrant and Wells Fargo Bank, National Association as successors by
merger to First Interstate Bank of California.
(3) 10.21 Registrant's 1996 Executive Compensation Plan, dated February 2, 1996.
(3) 10.22 Executive Employment Agreement dated September 27, 1996 entered into
between the Registrant and Robert W. Brandel.
(3) 10.23 Form of Split Dollar Insurance Agreement (Endorsement) and underlying
agreements, entered into between Registrant and certain of its executive
officers.
(3) 10.24 Form of Split Dollar Insurance Agreement (Collateral Assignment) and
underlying agreements, entered into between Registrant and certain of
its executive officers.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Price Waterhouse LLP, Independent Accountants.
24.1 Power of Attorney. Reference is made to page 41.
27 Financial Data Schedule
- --------------------
</TABLE>
(1) Filed as an exhibit to the Registrant's Registration Statement
on Form SB-2 (No. 33-97022 LA) or amendments thereto and
incorporated herein by reference.
(2) Certain confidential portions deleted pursuant to Order
Granting Application Under the Securities Act of 1933, as
amended, and Rule 406 thereunder respecting Confidential
Treatment dated October 26, 1995.
(3) Indicates management or compensatory plan or arrangement
required to be identified pursuant to Item 14(c)
(4) Confidential treatment has been requested with respect to
certain portions of this exhibit. Omitted portions have been
filed separately with the Securities and Exchange Commission.
(5) Filed as an exhibit to the Registrant's Registration Statement
on Form S-4 (No. 333-11741) and incorporated herein by
reference.
(6) Filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995.
(b) Reports on Form 8-K
Not applicable.
(c) Exhibits
The exhibits required by this item are listed under Item 14(a)(3).
(d) Financial Statement Schedules
The financial statement schedules required by this item are listed
under Item 14(a)(2).
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATAWORKS CORPORATION
By: /s/ Stuart W. Clifton
---------------------------------------
Stuart W. Clifton
Chairman of the Board, President
and Chief Executive Officer
Date: March 28, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stuart W. Clifton and Norman R.
Farquhar, and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place, and stead, in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys- in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that all said attorneys-in-fact and agents, or any of them or their
or his substitute or substituted, may lawfully do or cause to be done by virtue
hereof.
41
<PAGE> 42
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Stuart W. Clifton Chairman of the Board, President March 28, 1997
------------------------------------------- and Chief Executive Officer
(Stuart W. Clifton) (Principal Executive Officer)
/s/ Norman R. Farquhar Executive Vice President, March 28, 1997
------------------------------------------- Chief Financial Officer
(Norman R. Farquhar) and Director (Principal
Financial Officer)
/s/ Robert W. Brandel Executive Vice President, March 28, 1997
------------------------------------------- Chief Operating Officer
(Robert W. Brandel)
/s/ Rick E. Russo Vice President, Finance March 28, 1997
------------------------------------------- and Secretary (Principal
(Rick E. Russo) Accounting Officer)
Director March 28, 1997
/s/ Ronald S. Parker
-------------------------------------------
(Ronald S. Parker)
Director March 28, 1997
/s/ Finis F. Conner
-------------------------------------------
(Finis F. Conner)
Director March 28, 1997
/s/ Roy Thiele-Sardina
-------------------------------------
(Roy Thiele-Sardina)
Director March 28, 1997
/s/ Tony N. Domit
-------------------------------------
(Tony N. Domit)
Director March 28, 1997
/s/ Nathan W. Bell
-------------------------------------------
(Nathan W. Bell)
</TABLE>
42
<PAGE> 43
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DATAWORKS CORPORATION
AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors..................................................... F-2
Report of Price Waterhouse LLP, Independent Accountants............................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995.......................................... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994............ F-5
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994.. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994............ F-7
Notes to Consolidated Financial Statements............................................................ F-8
</TABLE>
F-1
<PAGE> 44
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
DataWorks Corporation
We have audited the accompanying consolidated balance sheets of DataWorks
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of DataWorks' management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of DCD Corporation, a company acquired during
1996 in a transaction accounted for as a pooling-of-interests, which statements
reflect total assets of $6,628,433 as of December 31, 1995, and total revenues
of $11,482,867 and $6,322,925 for the years ended December 31, 1995 and 1994,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to data included
for DCD Corporation, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of DataWorks Corporation at December 31,
1996 and 1995, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 31, 1997
F-2
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
DCD Corporation
In our opinion, the balance sheet and the related statements of
operations, of stockholders' equity (deficit) and of cash flows (not presented
separately herein) present fairly, in all material respects, the financial
position of DCD Corporation at December 31, 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the financial statements of DCD Corporation for any
period subsequent to December 31, 1995.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
April 5, 1996
F-3
<PAGE> 46
DATAWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $47,142,555 $13,004,609
Accounts receivable, net of allowance for doubtful accounts of $980,000
and $713,000 in 1996 and 1995, respectively ......................... 24,362,787 12,759,059
Refundable income taxes ............................................... 845,703 --
Deferred income taxes ................................................. 2,558,246 2,011,072
Other current assets .................................................. 4,391,234 1,381,229
-----------------------------
Total current assets .................................................... 79,300,525 29,155,969
Receivable from officer ................................................. 155,300 206,000
Equipment, furniture and fixtures, net .................................. 4,006,658 2,196,790
Capitalized software costs, net ......................................... 4,748,676 1,852,115
Intangible assets, net .................................................. 3,847,840 4,617,417
Other assets ............................................................ 167,475 125,045
-----------------------------
$92,226,474 $38,153,336
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 3,407,548 $ 3,072,961
Accrued compensation .................................................. 2,983,347 1,891,946
Income taxes payable .................................................. 705,436 1,010,722
Deferred revenue ...................................................... 8,050,688 5,853,941
Other accrued liabilities ............................................. 2,349,732 1,341,524
-----------------------------
Total current liabilities ............................................... 17,496,751 13,171,094
Deferred income taxes ................................................... 2,801,289 1,929,189
Deferred rent ........................................................... 126,286 160,822
Commitments and contingencies
Shareholders' equity:
Common shares, no stated par value:
Authorized shares -- 25,000,000
Issued and outstanding shares - 9,956,841 and 7,425,128 in 1996 and
1995, respectively ............................................ 71,680,394 26,006,540
Retained earnings (deficit) ........................................... 121,754 (3,114,309)
-----------------------------
Total shareholders' equity .............................................. 71,802,148 22,892,231
-----------------------------
$92,226,474 $38,153,336
=============================
</TABLE>
See accompanying notes
F-4
<PAGE> 47
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
-------------------------------------------------
<S> <C> <C> <C>
Revenues:
Software licenses ...................................... $35,526,412 $22,873,643 $11,627,367
Hardware ............................................... 5,428,562 6,742,935 3,765,089
Maintenance and other services ......................... 19,792,539 13,394,128 7,688,992
-------------------------------------------------
Total revenues ........................................... 60,747,513 43,010,706 23,081,448
Cost of revenues:
Software licenses ...................................... 2,700,694 2,153,428 1,191,573
Hardware ............................................... 4,116,440 5,288,369 2,930,223
Maintenance and other services ......................... 14,202,931 8,329,510 4,716,972
-------------------------------------------------
Total cost of revenues ................................... 21,020,065 15,771,307 8,838,768
-------------------------------------------------
Gross profit ............................................. 39,727,448 27,239,399 14,242,680
Operating expenses:
Sales and marketing .................................... 18,652,484 12,056,969 7,404,052
Research and development ............................... 4,329,124 3,214,040 2,520,802
General and administrative ............................. 7,203,188 5,031,440 3,201,965
Acquisition and related costs .......................... 3,656,112 -- --
ESOP contribution ...................................... -- 445,550 429,397
-------------------------------------------------
Total operating expenses ................................. 33,840,908 20,747,999 13,556,216
-------------------------------------------------
Income from operations ................................... 5,886,540 6,491,400 686,464
Interest income (expense), net ........................... 444,006 (1,337,287) (1,141,054)
-------------------------------------------------
Income (loss) before income taxes and extraordinary item . 6,330,546 5,154,113 (454,590)
(Provision) credit for income taxes ...................... (3,094,483) (1,780,433) 263,874
-------------------------------------------------
Income (loss) before extraordinary
item ................................................ 3,236,063 3,373,680 (190,716)
Extraordinary item, net of income
taxes ............................................... -- (1,017,154) (157,229)
-------------------------------------------------
Net income (loss) ........................................ $ 3,236,063 $ 2,356,526 $ (347,945)
=================================================
Per share information:
Income (loss) before extraordinary item ................ $ .39 $ .61 $ (.05)
Extraordinary item ..................................... -- (.18) (.04)
-------------------------------------------------
Net income (loss) ...................................... $ .39 $ .43 $ (.09)
=================================================
Shares used in per share computations .................... 8,255,000 5,523,000 4,021,000
=================================================
</TABLE>
See accompanying notes
F-5
<PAGE> 48
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
PREFERRED SHARES COMMON SHARES
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 ....................... -- $ -- 3,725,996 $ 372,835
Issuance of common stock upon exercise of
warrants ..................................... -- -- 11,537 300
Issuance of common stock in connection with the
acquisition of Madic-Compufact ............... -- -- 146,038 3,797
Issuance of warrants to purchase shares of
common stock ................................. -- -- -- 175,000
Dividends declared on common stock ............. -- -- -- --
Repayments of ESOP receivable .................. -- -- -- --
Net loss ....................................... -- -- -- --
----------------------------- ----------------------------
Balance at December 31, 1994 ..................... -- -- 3,883,571 551,932
Issuance of common stock to comply with certain
antidilution provisions ...................... -- -- 2,246 --
Issuance of warrants to purchase shares of
common stock ................................. -- -- -- 29,000
Issuance of Series A preferred stock, net ...... 864,696 5,937,563 -- --
Issuance of common stock upon exercise of
warrants ..................................... -- -- 1,050,843 1,475,436
Issuance of common stock upon exercise of stock
options ...................................... -- -- 23,772 9,144
Conversion of Series A preferred stock upon
initial public offering ...................... (864,696) (5,937,563) 864,696 5,937,563
Issuance of common stock upon initial public
offering, net ................................ -- -- 1,600,000 18,003,465
Dividends declared on common stock ............. -- -- -- --
Repayments of ESOP receivable .................. -- -- -- --
Net income ..................................... -- -- -- --
----------------------------- ----------------------------
Balance at December 31, 1995 ..................... -- -- 7,425,128 26,006,540
Issuance of common stock upon exercise of stock
options ...................................... -- -- 325,494 219,763
Issuance of common stock upon exercise of
warrants ..................................... -- -- 14,092 122,319
Issuance of common stock in follow-on public
offering, net ................................ 2,112,735 41,330,299
Issuance of common stock under Employee Stock
Purchase Plan ................................ -- -- 79,392 821,270
Tax benefit related to exercise of stock options -- -- -- 3,180,203
Net income ..................................... -- -- -- --
----------------------------- ----------------------------
Balance at December 31, 1996 ..................... -- $ -- 9,956,841 $71,680,394
============================= ============================
</TABLE>
<TABLE>
<CAPTION>
RETAINED SHAREHOLDERS'
EARNINGS RECEIVABLE EQUITY
(DEFICIT) FROM ESOP (DEFICIT)
--------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1994 ....................... $(4,080,731) $(1,942,858) $ (5,650,754)
Issuance of common stock upon exercise of
warrants ..................................... -- -- 300
Issuance of common stock in connection with the
acquisition of Madic-Compufact ............... -- -- 3,797
Issuance of warrants to purchase shares of
common stock ................................. -- -- 175,000
Dividends declared on common stock ............. (393,133) -- (393,133)
Repayments of ESOP receivable .................. -- 855,355 855,355
Net loss ....................................... (347,945) -- (347,945)
--------------------------------------------------
Balance at December 31, 1994 ..................... (4,821,809) (1,087,503) (5,357,380)
Issuance of common stock to comply with certain
antidilution provisions ...................... -- -- --
Issuance of warrants to purchase shares of
common stock ................................. -- -- 29,000
Issuance of Series A preferred stock, net ...... -- -- 5,937,563
Issuance of common stock upon exercise of
warrants ..................................... -- -- 1,475,436
Issuance of common stock upon exercise of stock
options ...................................... -- -- 9,144
Conversion of Series A preferred stock upon
initial public offering ...................... -- -- --
Issuance of common stock upon initial public
offering, net ................................ -- -- 18,003,465
Dividends declared on common stock ............. (649,026) -- (649,026)
Repayments of ESOP receivable .................. -- 1,087,503 1,087,503
Net income ..................................... 2,356,526 -- 2,356,526
--------------------------------------------------
Balance at December 31, 1995 ..................... (3,114,309) -- 22,892,231
Issuance of common stock upon exercise of stock
options ...................................... -- -- 219,763
Issuance of common stock upon exercise of
warrants ..................................... -- -- 122,319
Issuance of common stock in follow-on public
offering, net ................................ 41,330,299
Issuance of common stock under Employee Stock
Purchase Plan ................................ -- -- 821,270
Tax benefit related to exercise of stock options -- -- 3,180,203
Net income ..................................... 3,236,063 -- 3,236,063
--------------------------------------------------
Balance at December 31, 1996 ..................... $ 121,754 $ -- $ 71,802,148
==================================================
</TABLE>
See accompanying notes
F-6
<PAGE> 49
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .......................................................... $ 3,236,063 $ 2,356,526 $ (347,945)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Provision for doubtful accounts and returns .............................. 452,373 900,483 415,963
Depreciation and amortization of intangible assets ...................... 2,060,455 1,226,796 801,204
Amortization of debt discount and debt issue costs ....................... -- 213,702 255,251
Reduction of advances to officers charged to operating expenses .......... -- 108,500 199,701
Notes payable issued for professional services ........................... -- -- 314,087
Deferred rent expense .................................................... (34,536) 23,316 (18,595)
Deferred income taxes .................................................... 942,469 (227,732) (416,051)
Extraordinary item, non-cash portion ..................................... -- 886,020 157,229
Changes in operating assets and liabilities, net of effects
from purchase of Madic-Compufact Corporation
Accounts receivable .................................................... (12,056,101) (8,112,970) (2,664,823)
Other current assets ................................................... (2,028,939) (885,681) (105,720)
Deferred revenue ....................................................... 2,196,747 1,991,133 1,880,802
Accounts payable ....................................................... 334,587 755,823 34,779
Accrued compensation ................................................... 1,091,401 533,490 291,133
Other accrued liabilities and income taxes payable ..................... 1,438,813 1,220,855 68,763
Accrued ESOP contribution .............................................. -- -- (38,221)
------------------------------------------
Net cash provided by (used in) operating activities ........................ (2,366,668) 990,261 827,557
INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures ............................. (3,018,246) (1,562,936) (506,999)
Additions to capitalized software costs .................................... (2,979,061) (1,334,474) (474,887)
Payment for purchase of Madic-Compufact Corporation, net of cash
acquired of $155,445 ..................................................... -- -- (5,113,248)
Increase in intangible assets .............................................. -- (310,000) --
Advances to officers ....................................................... 50,700 (223,500) (91,000)
Other assets ............................................................... (42,430) (114,860) 54,233
------------------------------------------
Net cash used in investing activities ...................................... (5,989,037) (3,545,770) (6,131,901)
FINANCING ACTIVITIES
Net increase (decrease) in obligations under lines of credit ............... -- (2,750,991) 2,750,991
Proceeds from notes payable ................................................ -- 1,250,000 7,095,336
Repayments of notes payable ................................................ -- (6,409,160) (1,920,099)
Deferred debt issue costs .................................................. -- (164,249) (975,325)
Repayment of payables to shareholder ....................................... -- (50,000) (431,000)
Issuance of common stock, net .............................................. 42,493,651 18,188,048 300
Issuance of Series A preferred stock, net .................................. -- 4,687,563 --
Dividend paid on Class A common stock ...................................... -- (649,026) (393,133)
------------------------------------------
Net cash provided by financing activities .................................. 42,493,651 14,102,185 6,127,070
------------------------------------------
Net increase in cash and cash equivalents .................................. 34,137,946 11,546,676 822,726
Cash and cash equivalents at beginning of year ............................. 13,004,609 1,457,933 635,207
------------------------------------------
Cash and cash equivalents at end of year ................................... $ 47,142,555 $13,004,609 $ 1,457,933
==========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest ..................................... $ 53,148 $ 1,308,715 $ 866,129
==========================================
Cash paid during the year for income taxes ................................. $ 1,721,419 $ 473,790 $ 19,677
==========================================
</TABLE>
See accompanying notes
F-7
<PAGE> 50
DataWorks Corporation
Notes to Consolidated Financial Statements
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
DataWorks Corporation ("DataWorks") is a California corporation which
develops, markets, implements and supports open systems, client/server-based
Enterprise Resource Planning software for mid-range discrete manufacturing
companies.
As described more fully in Note 2, on September 27, 1996, the Company
acquired DCD Corporation (DCD). The acquisition was accounted for as a pooling
of interests and, accordingly, the consolidated financial statements reflect the
combined financial position and operating results for the Company and DCD for
all periods presented. In addition, the consolidated financial statements
include the accounts of DataWorks' wholly-owned subsidiaries Madic-Compufact
Corporation ("Madic") from May 27, 1994 (Note 2) and DataWorks (Europe) Ltd.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
remaining maturities, when acquired, of three months or less. DataWorks
evaluates the financial strength of institutions at which significant
investments are made and believes the related credit risk is limited to an
acceptable level.
DataWorks has classified its investments as available-for-sale in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Available-for-sale
securities are carried at amounts which approximate fair value, with unrealized
gains and losses, net of tax, reported in a separate component of shareholders'
equity. Realized gains and losses and declines in value judged to be
other-than-temporary, if any, in available-for-sale securities are included in
investment income. The cost of securities sold is based on the specific
identification method.
F-8
<PAGE> 51
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Included in cash and cash equivalents at December 31, 1996 were
approximately $29.9 million invested in tax exempt commercial paper and auction
securities, and $12.1 million invested in municipal bonds and corporate notes.
At December 31, 1995 approximately $11.1 million, was invested in a mutual fund
classified as available-for-sale. The mutual fund invests in U.S. Treasury
securities and obligations of U.S. government agencies. As of December 31, 1996
and 1995, the difference between amortized cost and the estimated fair value of
the investments was not material.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost. DataWorks provides
for depreciation on equipment, furniture and fixtures using the straight-line
method over the estimated useful lives of the assets, generally three to five
years.
Capitalized Software Costs
In accordance with Statement of Financial Accounting Standards No. 86
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", costs incurred in the research and development of new software
products and significant enhancements to existing software products are charged
against operations as incurred until the technological feasibility of the
product has been established. After technological feasibility has been
established, direct production costs, including programming and testing, are
capitalized. Amortization of these costs will begin when the product becomes
available for sale.
Capitalized software costs are amortized using the greater of the amount
computed using the ratio of current product revenues to estimated total product
revenues or the straight-line method over the estimated economic lives of the
products. It is possible that estimated total product revenues, the estimated
economic life of the product, or both will be reduced in the future. As a
result, the carrying amount of capitalized software costs may be reduced in the
future, which could result in material charges to the results of operations in
future periods.
Intangible Assets
Intangible assets arose primarily from the acquisition of Madic (see Note
2). The excess of cost over the fair value of the net assets purchased
(goodwill) is being amortized over 10 years. The customer list and non-compete
agreement are being amortized over 10 and 3 years, respectively. Periodically,
management assesses whether there has been a permanent impairment in the value
of intangible assets and the amount of such impairment is determined by
comparing anticipated undiscounted future cash flows from operating activities
with the carrying value of intangible assets.
F-9
<PAGE> 52
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is derived from licensing software, the sale of hardware,
maintenance, implementation and installation, consulting and custom programming
charges. Contract revenue related to software licenses and hardware sales is
recognized upon delivery of the products, provided that no significant vendor
obligations remain and the collection of the related receivable is deemed
probable, net of estimated future returns. Maintenance contract revenue is
recognized ratably over the period the service is provided. Revenue from
implementation and installation, consulting and custom programming is billed and
recognized as the services are provided. Amounts billed but not recognized are
deferred in the accompanying consolidated balance sheets. DataWorks' policy is
in compliance with the provisions of the American Institute of Certified Public
Accountants Statement of Position 91-1, "Software Revenue Recognition."
Interest Expense
Interest expense included amounts due under DataWorks' various loan
agreements and through 1995, amortization of debt issue costs and amortization
of debt discount.
Accounting Standard on Impairment of Long-Lived Assets
Effective January 1, 1996, DataWorks adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of". The adoption in 1996 had no material
effect on the consolidated financial statements.
Concentration of Credit Risk
DataWorks sells its products primarily to manufacturing companies located
throughout the United States. Credit is extended based on an evaluation of the
customer's financial condition and terms of DataWorks' sales normally require a
significant up-front cash deposit. DataWorks estimates its potential losses on
trade receivables on an ongoing basis and provides for anticipated losses in the
period in which the revenues are recognized. Actual losses may differ from
DataWorks' estimates, which could have a material impact on DataWorks' results
of operations in future periods.
Net Income (Loss) Per Share
For periods subsequent to the completion of the initial public offering (the
"IPO") in October 1995, income per share information is computed using the
weighted average number of common shares outstanding plus common share
equivalents arising from outstanding stock options and warrants using the
treasury stock method.
F-10
<PAGE> 53
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prior to the IPO, net income (loss) per share was computed pursuant to the
requirements of the Securities and Exchange Commission ("SEC"), which require
that common stock and convertible preferred shares issued by DataWorks during
the twelve months immediately preceding the IPO, plus the number of common
equivalent shares which were granted during the same period pursuant to the
grant of stock options and warrants, be included in the calculation of the
shares used in computing net income (loss) per share as if these shares were
outstanding for all periods presented using the treasury stock method.
For net income (loss) per share purposes, only those common shares held by
the Employee Stock Ownership Plan ("ESOP") which are allocated to participants
and committed to be released are considered to be outstanding.
2. BUSINESS COMBINATIONS
On September 27, 1996, the Company acquired DCD, a Minnesota corporation,
which designs, develops, markets and supports management software for use by
lower tier mid-range manufactures in the make-to-order manufacturing industry.
In connection with the acquisition, the shareholders of DCD received 1,763,704
shares of common stock of the Company. The acquisition has been accounted for
under the pooling-of-interests method of accounting. Accordingly, the historical
financial statements for periods prior to the consummation of the combination
have been restated as though the companies had been combined for all periods
presented.
Total revenues and net income (loss) of DataWorks and DCD for the
periods preceding the acquisition were:
<TABLE>
<CAPTION>
DataWorks DCD Combined
----------- ----------- -----------
<S> <C> <C> <C>
Nine months ended September 30, 1996
Total revenues .............................................. $31,055,299 $11,229,963 $42,285,262
Net income .................................................. 1,187,103 291,806 1,478,909
Year ended December 31, 1995
Total revenues .............................................. 31,527,839 11,482,867 43,010,706
Extraordinary item, net of income taxes ..................... (1,017,154) -- (1,017,154)
Net income .................................................. 575,474 1,781,052 2,356,526
Year ended December 31, 1994
Total revenues .............................................. 16,758,523 6,322,925 23,081,448
Extraordinary item, net of income taxes ..................... (157,229) -- (157,229)
Net income (loss) ........................................... (903,389) 555,444 (347,945)
</TABLE>
In January 1996, DataWorks purchased certain assets of Arrowkey Systems
("Arrowkey") for $450,000. In addition, DataWorks may be required to pay up to
$75,000 annually through 1998 if certain sales levels of Arrowkey software
products are achieved (as defined). The owner of Arrowkey is an employee of
DataWorks.
Effective May 27, 1994, DataWorks completed the acquisition of the
outstanding stock of Madic, a company which is dedicated to developing,
marketing and licensing integrated manufacturing and financial software
applications. The purchase price was $5,348,128, including acquisition costs of
$203,753 and 146,038 shares of common stock. The transaction was accounted for
as a purchase and DataWorks' statements of operations include the results of
operations of Madic from the date of acquisition.
F-11
<PAGE> 54
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
2. BUSINESS COMBINATIONS (CONTINUED)
The purchase price, including related acquisition costs, has been allocated
to the tangible and intangible assets acquired and liabilities assumed based on
their respective fair value on the date of acquisition as follows:
<TABLE>
<S> <C> <C>
Cash ............................ $ 155,445
Trade accounts receivable, net .. 1,713,721
Equipment, furniture and fixtures 174,470
Intangibles:
Customer list ................. $ 3,300,000
Goodwill ...................... 1,530,643
Covenant not to compete ....... 500,000 5,330,643
-----------
Other ........................... 96,043
-----------
Total assets .................. 7,470,322
Liabilities assumed ............. (2,122,194)
-----------
Net assets acquired ........... $ 5,348,128
===========
</TABLE>
3. FINANCIAL STATEMENT INFORMATION
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
--------------------------
<S> <C> <C>
Computer equipment........................ $ 3,999,382 $ 2,677,448
Office furniture, fixtures and equipment.. 2,862,887 1,166,575
--------------------------
6,862,269 3,844,023
Less accumulated depreciation............. (2,855,611) (1,647,233)
--------------------------
$ 4,006,658 $ 2,196,790
==========================
</TABLE>
Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---------------------------
<S> <C> <C>
Customer list...................... $ 3,300,000 $ 3,300,000
Goodwill........................... 1,530,643 1,530,643
Covenant not to compete............ 810,000 810,000
Other.............................. -- 51,243
---------------------------
5,640,643 5,691,886
Less accumulated amortization...... (1,792,803) (1,074,469)
---------------------------
$ 3,847,840 $ 4,617,417
===========================
</TABLE>
4. EMPLOYEE STOCK OWNERSHIP PLAN AND RECAPITALIZATION
DCD established an ESOP in 1992 for the benefit of all employees meeting
certain eligibility requirements. On November 13, 1992, DCD obtained financing
of $2,550,000 from a commercial bank and advanced the proceeds to the ESOP which
purchased 899,640 shares of common stock from a DCD stockholder. The ESOP note
payable was secured by the assets of DCD and a $500,000 personal guarantee of
the selling stockholder. During 1995, the ESOP note payable and "Receivable from
ESOP" were paid in full.
F-12
<PAGE> 55
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
4. EMPLOYEE STOCK OWNERSHIP PLAN AND RECAPITALIZATION (CONTINUED)
DCD recorded the funds advanced to the ESOP as a "Receivable from ESOP"
which was a reduction of stockholder's equity. As DCD made discretionary
contributions and dividends to the ESOP, these amounts were used to repay the"
Receivable from ESOP" and the related ESOP note payable. As the principal amount
of the loan was repaid, the "Receivable from ESOP" was reduced accordingly. The
amount of the repayments during 1995 and 1994 were $1,087,503 and $855,355,
respectively.
During 1995, DCD paid $56,408 of interest expense, contributed $438,477 to
the ESOP and incurred $7,073 of other ESOP related expenses. During 1994, DCD
paid $95,138 of interest expense, contributed $424,001 to the ESOP and incurred
$5,396 of other ESOP related expenses. During 1995 and 1994, DCD also paid
dividends of $649,026 and $393,133, respectively, on common stock owned by the
ESOP. At December 31, 1995 and 1994, the ESOP had released and allocated 899,640
and 529,573 shares, respectively.
5. FINANCING
Line of Credit
In December 1996, DataWorks amended its banking facility agreement to be
unsecured. This facility provides for borrowings up to a maximum of $6,000,000
and bears interest at the bank's prime rate (8.25% at December 31, 1996) and has
an expiration date of June 30, 1997. At December 31, 1996 and 1995, DataWorks
had no borrowings outstanding under the banking facility.
The agreement for the banking facility contains certain restrictions and
limitations on DataWorks' operations, including restrictions on advances to
certain officers, sale of assets, mergers or other forms of business
combinations, as well as the payment of dividends. The agreements also contain
covenants which require DataWorks to maintain certain levels of liquidity (as
defined), net worth, profitability and debt service coverage.
In July 1996, DCD secured a line of credit agreement with a bank which
provides for borrowings up to $1,000,000 at 1% over the bank's base rate (9.25%
at December 31, 1996). Borrowings under the line are secured by DCD's accounts
receivables, inventory, equipment and intangible assets. The agreement is
subject to various loan covenants. The line of credit expires on July 31, 1997.
At December 31, 1996, DCD had no borrowings outstanding under this credit
agreement.
F-13
<PAGE> 56
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
5. FINANCING (CONTINUED)
Extraordinary Items
In connection with a repayment of the note payable in May 1994 for
$1,340,000, the repayment of a senior term note payable in September 1995, and
the settlement of subordinated notes payable in August and November 1995, the
related unamortized debt issue costs and debt discount were written off. In
addition, DataWorks also incurred prepayment and other cash charges related to
the payment of the senior term note. In accordance with generally accepted
accounting principles, these write-offs and cash charges, net of the related
income tax benefits, have been reported as extraordinary items in the
accompanying consolidated statements of operations. The composition of the
extraordinary items are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
1995 1994
---------- --------
<S> <C> <C>
Write-off of unamortized debt issue costs and debt discount.............. $ 886,020 $248,229
Cash prepayment penalty and other cash charges........................... 837,967 --
---------- --------
1,723,987 248,229
Income tax benefit....................................................... (706,833) (91,000)
---------- --------
$1,017,154 $157,229
========== ========
</TABLE>
6. INCOME TAXES
The (provision) credit for income taxes consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Current:
Federal.......... $(1,688,870) $ (981,956) $(119,729)
State............ (463,144) (269,284) (32,448)
-----------------------------------------
(2,152,014) (1,251,240) (152,177)
Deferred:
Federal.......... (785,846) (474,248) 392,210
State............ (156,623) (54,945) 23,841
-----------------------------------------
(942,469) (529,193) 416,051
-----------------------------------------
$(3,094,483) $(1,780,433) $ 263,874
=========================================
</TABLE>
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial reporting and tax reporting
purposes. Significant components of deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
----------------------------
<S> <C> <C>
Deferred tax liabilities:
Difference in tax basis of acquired intangibles................... $(1,065,920) $(1,155,309)
Capitalized software costs........................................ (1,735,369) (723,700)
----------------------------
Total deferred tax liabilities....................................... (2,801,289) (1,879,009)
Deferred tax assets:
Net operating loss and credit carryforwards....................... 994,232 1,258,600
Deferred revenue and expenses..................................... 500,284 471,342
Allowance for doubtful accounts and product returns............... 307,460 182,772
Vacation accrual.................................................. 288,564 20,767
Commission accrual................................................ 618,491 27,411
----------------------------
Total deferred tax assets............................................ 2,709,031 1,960,892
----------------------------
Net deferred tax assets (liabilities)................................ $ (92,258) $ 81,883
============================
</TABLE>
F-14
<PAGE> 57
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
The effective income tax rate varied from the statutory federal rate as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Income tax benefit (provision) at statutory rate.. $(2,152,386) $(1,752,405) $154,604
State income tax provision, net of federal
benefits.......................................... (354,504) (244,024) (9,915)
Benefit of tax credits............................ 278,034 104,766 --
Non deductible merger expenses.................... (682,235) -- --
ESOP dividend tax benefit......................... -- 256,365 158,826
Other............................................. (183,392) (145,135) (39,641)
-----------------------------------------
$(3,094,483) $(1,780,433) $263,874
=========================================
</TABLE>
At December 31, 1996, DataWorks has federal research and development credit
carryforwards of approximately $249,000, which will begin to expire in 2006,
unless previously utilized. DCD has federal net operating loss carryforwards of
approximately $2,100,000 which will begin to expire in 2011, unless previously
utilized. Because these loss carryforwards were incurred by DCD before the
acquisition by DataWorks, they can only be utilized to offset future DCD
separate company taxable income.
In accordance with Sections 382 and 383 of the Internal Revenue Code, a
change in ownership of greater than fifty percent of a corporation within a
three-year period will place an annual limitation on the corporation's ability
to utilize its existing carryforwards. Upon the closing of DataWorks' initial
public offering an ownership change occurred; however, the limitation will not
have a material effect on DataWorks' ability to utilize its carryforwards. Also,
upon the acquisition of DCD by DataWorks, an ownership change occurred with
respect to DCD. However, the limitation will not have a material effect on DCD's
ability to utilize its carryforwards.
7. RECEIVABLE FROM OFFICER
At December 31, 1996 and 1995, the receivable from officer is from one of
DataWorks' principal officers and shareholders and consists of net advances
totaling $155,300 and $206,000, respectively. The advances will be repaid or
offset against any future performance bonuses earned and approved by the Board
of Directors.
8. LEASE COMMITMENTS
DataWorks leases its corporate and regional office facilities under
noncancellable operating leases that expire from 1996 to 2002. Two of DataWorks'
corporate office lease agreements provides for deferred payment terms. For
financial reporting purposes, rent expense is recorded on the straight-line
basis over the term of the lease. Accordingly, deferred rent in the accompanying
consolidated balance sheets represents the difference between rent expense
accrued and amounts paid under the lease agreement.
Annual future minimum payments for the years ending December 31, are as
follows:
<TABLE>
<S> <C>
1997...................... $1,707,181
1998...................... 1,645,761
1999...................... 1,396,392
2000...................... 1,174,179
2001 and thereafter....... 1,151,017
----------
$7,074,530
==========
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$1,319,529, $931,153 and $478,892, respectively.
F-15
<PAGE> 58
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY
Common Stock
In December 1996, the Company raised net proceeds of approximately
$41,300,000 through a follow-on public offering of its common stock.
Series A Preferred Stock
In August 1995, DataWorks received an aggregate of $6,250,000 through the
sale of Series A preferred stock of which $1,250,000 was obtained through the
conversion of subordinated notes payable. The Series A preferred stock was
issued at $7.23 per share and was automatically converted into 864,696 shares of
common stock upon closing of DataWorks' initial public offering.
As of December 31, 1996, DataWorks is authorized to issue 5,000,000 shares
of preferred stock; no shares are outstanding.
Warrants
In connection with various financing arrangements, DataWorks issued warrants
to purchase 1,382,183 shares of DataWorks' common stock at prices ranging from
$0.026 to $8.68 per share. In connection with the completion of the initial
public offering in November 1995, 1,345,869 warrants were converted to 1,050,843
shares of common stock for cash proceeds of $175,439 and the settlement of
$1,300,000 of subordinated notes payable. During 1996, warrants were exercised
for the purchase of 14,092 shares of common stock at $8.68 per share.
At December 31, 1996, warrants to purchase 22,222 shares of common stock at
$8.68 per share remain outstanding. The warrants expire in August, 2000.
Stock Option Exercised by Officer
In July 1996, an officer of DCD exercised an option to acquire 37% of DCD's
common shares in accordance with the terms of the option. For tax purposes, the
exercise of the option is compensatory. Accordingly, as of December 31, 1996,
the Company has recorded a tax benefit of approximately $2.5 million as an
addition to common stock.
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
DataWorks has an Equity Incentive Plan (the "Plan") under which 1,650,000
shares of common stock are reserved for issuance to eligible employees,
directors and consultants of DataWorks. The Plan provides for awards in the form
of options, stock bonuses, restricted shares or stock appreciation rights
("SARs"). The terms of any stock awards under the Plan, including vesting
requirements, are determined by the Board of Directors, subject to the
provisions of the Plan. Options issued under the Plan are either incentive stock
options
F-16
<PAGE> 59
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY (CONTINUED)
("ISOs") or nonstatutory stock options ("NSOs"). The exercise price of the ISOs
is not less than the fair market value on the date of grant and the exercise
price of the NSOs is determined by the Board of Directors. Options granted under
the Plan generally become exercisable over a period of four years and the
maximum term of options granted is ten years.
On September 13, 1995, DataWorks adopted the Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") under which 75,000 shares of common stock
are reserved for issuance upon exercise of options granted by DataWorks to
non-employee members of the board of directors. The exercise price of the
options will be at the fair market value of the stock on the date of grant.
Options granted under the Directors' Plan will become exercisable over three
years and expire ten years from the date of grant. As of December 31, 1996,
15,000 options were granted under the Directors' Plan.
In addition, DataWorks has outstanding options to purchase an additional
53,845 shares of common stock outside of the plans.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company has accounted
for its employee stock options under the fair value method of that Statement.
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.96%
and 6.45%; dividend yield of 0%; volatility factors of the expected market price
of the Company's common stock of 67.5% for 1996; and a weighted-average life of
the option of 4.09 years. Volatility factors are not applicable to non public
companies.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company
pro forma information follows (in thousands, except for earnings per share
information):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995
------------------------
<S> <C> <C>
Pro forma net income $2,557 $2,329
========================
Pro forma earnings per share $ .31 $ .42
========================
</TABLE>
The results above are not likely to be representative of the effects of
applying FAS 123 on reported net income or loss for future years as these
amounts reflect the expense for only one or two years vesting.
F-17
<PAGE> 60
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option activity, including those issued outside
of the plans, and related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ --------------------- ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------------------ --------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 801,321 $ 2.96 471,139 $ .23 394,216 $.21
Granted 609,950 18.71 392,415 5.58 76,923 .39
Exercised (325,494) .67 (23,772) .38 -- --
Forfeited (6,378) 5.85 (38,461) .39 -- --
------------------------ --------------------- ------------------
Outstanding-end of year 1,079,399 $12.57 801,321 $2.96 471,139 $.23
------------------------ --------------------- ------------------
Exercisable at end of 276,131 352,721 277,088
year
Weighted-average fair
value of options
granted during the $ 10.73 $ 1.18
year
</TABLE>
The weighted-average remaining contractual life of the options outstanding at
December 31, 1996 is 8.66 years.
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------- -----------------------------
REMAINING WEIGHTED EXERCISE PRICE
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER WEIGHTED
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE AVERAGE
- ---------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
$ .16 to .65 160,461 5.74 $ .34 124,141 $ .27
1.30 34,615 8.30 1.30 19,230 1.30
2.86 78,337 8.35 2.86 25,962 2.86
5.20 42,231 8.64 5.20 14,261 5.20
9.75 80,000 8.77 9.75 29,651 9.75
10.73 to 11.50 307,055 9.02 11.23 59,970 11.05
16.00 to 18.25 96,700 9.52 16.35 2,916 18.25
25.75 280,000 9.74 25.75 -- --
</TABLE>
At December 31, 1996, options for 350,180 shares were available for future
grant.
Employee Stock Purchase Plan
On September 13, 1995, DataWorks adopted an Employee Stock Purchase Plan (the
"Purchase Plan") under which 150,000 shares of common stock are reserved for
sale to employees. DataWorks' Board of Directors may grant eligible employees
the right to purchase a fixed number of shares of common stock (up to but not
exceeding 15% of each employee's earnings) over a fixed offering period (not to
exceed 27 months) at the lesser of 85% of the fair market value of the stock on
the grant date or 85% of the fair
F-18
<PAGE> 61
DataWorks Corporation
Notes to Consolidated Financial Statements (continued)
9. SHAREHOLDERS' EQUITY (CONTINUED)
market value on the purchase date or dates specified on the date of grant. At
December 31, 1996, 79,392 shares have been issued under the Purchase Plan.
Shares Reserved for Future Issuance
The following common stock is reserved for future issuance at December 31,
1996:
<TABLE>
<S> <C>
Stock options:
Granted and outstanding......... 1,079,399
Reserved for future grants...... 350,180
---------
1,429,579
Warrants........................... 22,222
Employee stock purchase plan....... 70,608
---------
1,522,409
=========
</TABLE>
10. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
Effective July 1, 1994, DataWorks established a 401(k) defined contribution
retirement plan (the "Retirement Plan") covering all employees. The Retirement
Plan provides for voluntary employee contributions from 1% to 15% of annual
compensation (as defined). DataWorks may contribute such amounts as determined
by the Board of Directors. Participants vest in employer contributions over five
years at a rate of 20% for each year of service. There were no employer
contributions to the Retirement Plan during the years ended December 31, 1996,
1995 or 1994.
In addition, DCD has a profit sharing plan which provides for an annual
contribution not to exceed the maximum allowed as a deduction under the Internal
Revenue Code. The plan covers substantially all employees after specified
periods of service and the attainment of minimum age requirements. Each year's
contribution is determined by the Board of Directors. No Company contributions
to the plan were declared or made during 1996, 1995 or 1994.
Effective July 1996, DCD established a 401 (k) defined contribution
retirement plan (the "DCD plan") covering all employees of DCD. The DCD plan
provides for voluntary employee contributions from 1% to 15% of annual
compensation (as defined). DCD may match these contributions at 50% on the first
6% of employee contributions. For the year ended December 31, 1996, DCD
contributions to the plan totaled $87,393.
F-19
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT EXHIBIT PAGE
FOOTNOTE NUMBER DESCRIPTION OF DOCUMENT NUMBER
------------ ---------- ---------------------------------------------------------------- ------------
<S> <C> <C>
(1) 3.1 Registrant's Amended and Restated Articles of Incorporation.
(1) 3.2 Registrant's Amended and Restated Bylaws.
(1) 3.3 Amendment to Bylaws.
(1) 4.1 Amended and Restated Registration Rights Agreement dated
August 24, 1995.
(1) 4.2 Specimen stock certificate.
(5) 4.3 Agreement and Plan of Merger and Reorganization by and among the
Registrant, DataWorks Acquisition Sub., Inc., DCD Corporation and
certain shareholders of DCD Corporation, dated as of August 16,
1996.
(1) 10.1 Form of Indemnity Agreement entered into between the Registrant
and its directors and officers, with related schedule.
(3) 10.2 Registrant's 1995 Equity Incentive Plan (the "Equity Plan"),
as amended.
(1)(3) 10.3 Forms of Incentive Stock Option and Nonstatutory Stock Option
under the Equity Plan.
(1)(3) 10.4 Form of Stock Option outside the Equity Plan.
(3) 10.5 Registrant's 1995 Non-Employee Directors' Stock Option Plan, as
amended.
(3) 10.6 Registrant's 1995 Employee Stock Purchase Plan and form of
Employee Stock Purchase Plan Offering, as amended.
(1)(3) 10.7 Executive Employment Agreement entered into between the
Registrant and Stuart W. Clifton.
(1)(3) 10.8 Executive Employment Agreement entered into between the
Registrant and Mark S. Howlett.
(1)(3) 10.9 Agreement entered into between the Registrant and Rick E. Russo.
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT EXHIBIT PAGE
FOOTNOTE NUMBER DESCRIPTION OF DOCUMENT NUMBER
------------ ---------- ---------------------------------------------------------------- ------------
<S> <C> <C>
(3)(6) 10.10 Offer Letter, dated as of January 17, 1996, entered into between
the Registrant and Norman R. Farquhar.
(1) 10.11 Loan Agreement dated September 6, 1995 between the Registrant and
First Interstate Bank of California.
(1) 10.12 Sublease Agreement dated November 22, 1991 between the
Registrant and the Titan Corporation (the "Sublease").
(1) 10.13 First Amendment to Sublease dated December 1, 1994.
(1) 10.14 Lease Agreement dated September 1, 1991 between MCC and
Pactel Properties.
(4)(6) 10.15 Value Added Reseller Agreement dated December 27, 1995 between
the Registrant and VMARK Software, Inc.
(1)(2) 10.16 Value Added Remarketer Agreement dated December 16, 1993 between
the Registrant and Sybase, Inc.
(1)(2) 10.17 Value Added Reseller Agreement dated March 1, 1994 between the
Registrant and UniData, Inc.
(5) 10.18 Reference is made to Exhibit 4.3.
10.19 Lease Agreement dated January 16, 1997 between the Registrant and
Whiop Real Estate Limited Partnership.
10.20 First Amendment to Credit Agreement dated December 20, 1996
between the Registrant and Wells Fargo Bank, National Association
as successors by merger to First Interstate Bank of California.
(3) 10.21 Registrant's 1996 Executive Compensation Plan, dated February 2,
1996.
(3) 10.22 Executive Employment Agreement dated September 27, 1996 entered
into between the Registrant and Robert W. Brandel.
(3) 10.23 Form of Split Dollar Insurance Agreement (Endorsement) and underlying
agreements, entered into between Registrant and certain of its executive
officers.
(3) 10.24 Form of Split Dollar Insurance Agreement (Collateral Assignment) and
underlying agreements, entered into between Registrant and certain of
its executive officers.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Price Waterhouse, LLP, Independent Accountants
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE NUMBER
EXHIBIT EXHIBIT NUMBER
FOOTNOTE
DESCRIPTION OF DOCUMENT
<S> <C> <C>
24.1 Power of Attorney. Reference is made to page 41.
27 Financial Data Schedule
- ------------------
</TABLE>
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
SB-2 (No. 33-97022 LA) or amendments thereto and incorporated herein
by reference.
(2) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933, as amended, and Rule 406
thereunder respecting Confidential Treatment dated October 26, 1995.
(3) Indicates management or compensatory plan or arrangement required to
be identified pursuant to Item 14(c)
(4) Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(5) Filed as an exhibit to the Registrant's Registration Statement on Form
S-4 (No. 333-11741) and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
<PAGE> 1
EXHIBIT 10.2
DATAWORKS CORPORATION
1995 EQUITY INCENTIVE PLAN
ADOPTED OCTOBER 5, 1995
AS AMENDED FEBRUARY 3, 1997
INTRODUCTION
This DataWorks Corporation 1995 Equity Incentive Plan is an amendment
and restatement of the DataWorks Corporation 1987 Stock Option Plan. Shares
reserved for issuance under the 1987 Stock Option Plan shall hereafter be
reserved for issuance, and issued, under the terms of this 1995 Equity Incentive
Plan, as amended and restated in the form below.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees, Directors and Consultants to the Company, and its Affiliates, may be
given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock,
and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants of the Company or its
Affiliates, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
1.
<PAGE> 2
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means DataWorks Corporation, a California corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person employed by the Company or any
Affiliate of the Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
2.
<PAGE> 3
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the common stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
3.
<PAGE> 4
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(t) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(v) "PLAN" means this DataWorks Corporation 1995 Equity Incentive Plan.
(w) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(x) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(y) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(z) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(aa) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
4.
<PAGE> 5
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; whether a person shall be permitted to receive stock upon
exercise of an Independent Stock Appreciation Right; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 14.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). One
or more of these members may be Non-Employee Directors and/or Outside Directors,
if required. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the
Board. The Board may abolish the Committee at any time and revest in the Board
the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate two million five hundred thousand (2,500,000)
shares of the Company's common stock. If any Stock Award shall for any reason
expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Stock Award shall revert to
and again become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan shall not
be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5.
<PAGE> 6
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees or Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time of grant such Director is also an Employee or
Consultant.
(c) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Option is not exercisable after the expiration of five
(5) years from the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be determined by the Board or Committee.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than that
set forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (a) by delivery to the Company of other common stock of the Company, (b)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use
6.
<PAGE> 7
of other common stock of the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant to subsection 6(d), or (c)
in any other form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution or
pursuant to a domestic relations order satisfying the requirements of Rule 16b-3
and any administrative interpretations or pronouncements thereunder (a "DRO"),
and shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person or any transferee pursuant to a DRO. Notwithstanding
the foregoing, the person to whom the Option is granted may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionee, shall thereafter
be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement)
if the Optionee is an Employee at the time of such termination, (ii)
7.
<PAGE> 8
the date six (6) months after the termination of the Optionee's Continuous
Status as an Employee, Director or Consultant (or such longer or shorter period
specified in the Option Agreement) if the Optionee is a Director or Consultant,
but not an Employee, at the time of such termination, or (iii) the expiration of
the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised
8.
<PAGE> 9
(to the extent the Optionee was entitled to exercise the Option at the date of
death) by the Optionee's estate, by a person who acquired the right to exercise
the Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionee's death pursuant to subsection 6(d), but only within
the period ending on the earlier of (i) the date twelve (12) months following
the date of death (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of such Option as set forth in
the Option Agreement. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is intended to be an Incentive Stock
Option and which is granted to a 10% stockholder (as described in subsection
5(c)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the
9.
<PAGE> 10
original Option; provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 12(e) of the Plan and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares under subsection 4(a)
and shall be subject to such other terms and conditions as the Board or
Committee may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement. Notwithstanding the foregoing, the
Board or the Committee may determine that eligible participants in the Plan may
be awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or pursuant to a domestic relations order satisfying the
requirements of Rule 16b-3 and any administrative interpretations or
pronouncements thereunder, so long as stock awarded under such agreement remains
subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
10.
<PAGE> 11
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option (or in the case of a stock bonus
award, a reacquisition option) in favor of the Company in accordance with a
vesting schedule to be determined by the Board or the Committee and such other
terms and conditions as determined by the Board or Committee in its sole
discretion.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time subject to
Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock Award
Agreement of grant shall incorporate all the terms and conditions at the time
necessary to assure that the subsequent exercise of such right shall qualify for
the safe-harbor exemption from short-swing profit liability provided by the
rules (or any successor rules or regulations) promulgated under Section 16 of
the Exchange Act. No limitation shall exist on the aggregate amount of cash
payments the Company may make under the Plan in connection with the exercise of
Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall, except
as specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (a) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that
11.
<PAGE> 12
portion of the surrendered Option in which the Optionee is vested over (b) the
aggregate exercise price payable for such vested shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion of
the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (a) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (b) the
aggregate exercise price paid for such shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent
Rights will be granted independently of any Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section 6.
They shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an amount
equal to the excess of (a) the aggregate Fair Market Value (on the date of the
exercise of the Independent Right) of a number of shares of Company stock equal
to the number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is exercising the
Independent Right on such date, over (b) the aggregate Fair Market Value (on the
date of the grant of the Independent Right) of such number of shares of Company
stock. The appreciation distribution payable on the exercised Independent Right
shall be in cash or, if so provided, in an equivalent number of shares of stock
based on Fair Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
any Stock Appreciation Rights under the Plan and/or (ii) with the consent of the
affected holders of Options and/or Stock Appreciation Rights, the cancellation
of any outstanding Options and/or any Stock Appreciation Rights under the Plan
and the grant in substitution therefor of new Options and/or Stock Appreciation
Rights under the Plan covering the same or different numbers of shares of stock,
but having an exercise price per share not less than
12.
<PAGE> 13
eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option) or, in the
case of a 10% stockholder (as described in subsection 5(c)), not less than one
hundred ten percent (110%) of the Fair Market Value) per share of stock on the
new grant date. Notwithstanding the foregoing, the Board or the Committee may
grant an Option and/or Stock Appreciation Right with an exercise price lower
than that set forth above if such Option and/or Stock Appreciation Right is
granted as part of a transaction to which section 424(a) of the Code applies.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(b) Throughout the term of any Stock Award, the Company shall deliver
to the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement.
13.
<PAGE> 14
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause, the right of the Company's Board of
Directors and/or the Company's shareholders to remove any Director pursuant to
the terms of the Company's Bylaws and the provisions of the California
Corporations Code, or the right to terminate the relationship of any Consultant
pursuant to the terms of such Consultant's agreement with the Company or
Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock
under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a
14.
<PAGE> 15
cash payment; (2) authorizing the Company to withhold shares from the shares of
the common stock otherwise issuable to the participant as a result of the
exercise or acquisition of stock under the Stock Award; or (3) delivering to the
Company owned and unencumbered shares of the common stock of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company".)
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation, (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, (3) a sale of all or substantially all of the Company's assets, (4)
any other capital reorganization in which the beneficial ownership of more than
fifty percent (50%) of the shares of the Company entitled to vote changes, or
(5) the acquisition by any person, entity or group (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
subsidiary of the Company) of the beneficial ownership, directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting in the election of directors of the Company, then to the extent
permitted by applicable law: (i) any surviving or acquiring corporation, or an
Affiliate of such surviving or acquiring corporation, shall assume any Stock
Awards outstanding under the Plan or shall substitute similar Stock Awards for
those outstanding under the Plan, or (ii) such Stock Awards shall continue in
full force and effect. In the event any surviving or acquiring corporation and
its Affiliates refuse to assume or continue such Stock Awards, or to substitute
similar Stock Awards for those outstanding under the Plan, then the vesting
schedules applicable to all outstanding Stock Awards shall be accelerated so
that all outstanding Stock Awards are fully vested, and any Options shall be
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, the vesting schedules
15.
<PAGE> 16
applicable to all outstanding Stock Awards shall be accelerated so that all
outstanding Stock Awards are fully vested, and any Options shall be terminated
if not exercised prior to such event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
16.
<PAGE> 17
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on October 4, 2005, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the initial registration of any
class of the Company's equity securities under Section 12 of the Exchange Act,
but no Stock Awards granted under the Plan shall be exercised or vested unless
and until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.
17.
<PAGE> 1
EXHIBIT 10.5
DATAWORKS CORPORATION
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON SEPTEMBER 13, 1995
AS AMENDED MAY 23, 1996
1. PURPOSE.
(a) The purpose of the 1995 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which certain directors of DataWorks
Corporation (the "Company") who are not otherwise employees of the Company or of
any Affiliate of the Company (a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
certain persons now serving as Non-Employee Directors of the Company, to secure
and retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
1.
<PAGE> 2
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate seventy-five thousand (75,000)
shares of the Company's common stock after giving effect to the one for 2.6
reverse stock split to be effected in September 1995. If any option granted
under the Plan shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such option shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
(a) Options shall be granted only to Non-Employee Directors of the
Company who are Eligible Directors, as defined in subparagraph 4(b).
2.
<PAGE> 3
(b) Notwithstanding any other provision hereof, "Eligible Directors"
shall mean all Non-Employee Directors of the Company serving as members of the
Board from time to time after the effectiveness of the Company's initial public
offering of common stock (the "Effective Date"); provided, however, that any
Non-Employee Director whose membership on the Board commenced prior to the
Effective Date pursuant to a capital investment in the Company by an entity
which such Non-Employee Director represents shall become an Eligible Director
only if and when he or she is elected as a Non-Employee Director by the
shareholders of the Company after the Effective Date, which shall be treated as
such person's initial election to be a Non-Employee Director for purposes of the
Plan (including, but not limited to subparagraph 5(a) hereof).
5. NON-DISCRETIONARY GRANTS.
(a) Each person who, after the Effective Date, for the first time
becomes an Eligible Director automatically shall be granted, upon the date of
his or her initial election to be a Non-Employee Director by the Board or
shareholders of the Company, an option to purchase twenty thousand (20,000)
shares of common stock of the Company on the terms and conditions set forth
herein.
(b) On the date of each annual meeting of the shareholders of the
Company after the Effective Date, each person who is then an Eligible Director
and continues on the Board thereafter (other than a person who receives a grant
under subparagraph 5(a) on such date) automatically shall be granted an option
to purchase five thousand (5,000) shares of common stock of the Company on the
terms and conditions set forth herein.
3.
<PAGE> 4
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ten (10) years
from the date of grant (the "Expiration Date"). If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable under
the provisions of subparagraph 6(e) on the date of termination of all such
service.
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted.
(c) Payment of the exercise price of each option is due in full in cash
upon any exercise, provided that an option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
which results in the
4.
<PAGE> 5
receipt of cash (or check) by the Company prior to the issuance of shares of the
Company's common stock.
(d) An option shall not be transferable except by will or by the laws
of descent and distribution, or pursuant to a domestic relations order
satisfying the requirements of Rule 16b-3 under the Securities Exchange Act of
1934 ("Rule 16b-3"), and shall be exercisable during the lifetime of the person
to whom the option is granted only by such person (or by his or her guardian or
legal representative) or transferee pursuant to such an order. Notwithstanding
the foregoing, the optionee may, by delivering written notice to the Company in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the optionee, shall thereafter be entitled to exercise the option.
(e) The option shall become exercisable in installments over a period
of three years from the date of grant as follows: one twelfth (1/12) of the
shares shall vest on the date three months after the date of grant and one
thirty-sixth (1/36) of the shares shall vest each month thereafter, provided
that the optionee has, during the entire period prior to such vesting date,
continuously served as a Non-Employee Director or employee of or consultant to
the Company or any Affiliate of the Company, whereupon such option shall become
fully exercisable in accordance with its terms with respect to that portion of
the shares represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge
5.
<PAGE> 6
and experience in financial and business matters; and (ii) to give written
assurances satisfactory to the Company stating that such person is acquiring the
stock subject to the option for such person's own account and not with any
present intention of selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise of the option
has been registered under a then-currently-effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided,
6.
<PAGE> 7
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any option granted under the Plan, or any
stock issued or issuable pursuant to any such option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the shareholders of the
Company provided for in the
7.
<PAGE> 8
Bylaws of the Company and such other information regarding the Company as the
holder of such option may reasonably request.
(c) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Eligible Director any right to continue in the service of
the Company or any Affiliate or shall affect any right of the Company, its Board
or shareholders or any Affiliate to terminate the service of any Eligible
Director with or without cause.
(d) No Eligible Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(e) In connection with each option granted pursuant to the Plan, it
shall be a condition precedent to the Company's obligation to issue or transfer
shares to an Eligible Director, or to evidence the removal or lapse of any
restrictions on transfer, that such Eligible Director make arrangements
satisfactory to the Company to insure that the amount of any federal or other
withholding tax required to be withheld with respect to such sale or transfer,
or such removal or lapse, is made available to the Company for timely payment of
such tax.
(f) As used in this Plan, "fair market value" means, as of any date,
the value of the common stock of the Company determined as follows:
8.
<PAGE> 9
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the fair market value of a share of common stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the common stock is quoted on Nasdaq (but not on the
National Market thereof) or is regularly quoted by a recognized securities
dealer but selling prices are not reported, the fair market value of a share of
common stock shall be the mean between the bid and asked prices for the common
stock on the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the Board deems
reliable;
(iii) In the absence of an established market for the common
stock, the fair market value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company),
9.
<PAGE> 10
the Plan and outstanding options will be appropriately adjusted in the class(es)
and maximum number of shares subject to the Plan and the class(es) and number of
shares and price per share of stock subject to outstanding options. Such
adjustments shall be made by the Board, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) any other capital reorganization (including a sale of
stock of the Company to a single purchaser or single group of affiliated
purchasers) after which less than fifty percent (50%) of the outstanding voting
shares of the new or continuing corporation are owned by shareholders of the
Company immediately before such transaction, the time during which options
outstanding under the Plan may be exercised shall be accelerated to permit the
optionee to exercise all such options in full prior to such event, and the
options shall terminate if not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
10.
<PAGE> 11
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan; provided,
however, that the Board shall not amend the plan more than once every six (6)
months with respect to the provisions of the Plan which relate to the amount,
price and timing of grants, other than to comport with changes in the Code or
applicable regulations or rulings thereunder. Except as provided in paragraph 10
relating to adjustments upon changes in stock, no amendment shall be effective
unless approved by the shareholders of the Company within twelve (12) months
before or after the adoption of the amendment, where the amendment will:
(i) Increase the number of shares which may be issued under
the Plan;
or
(ii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to comply with the
requirements of Section 162(m) of the Code.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the date that is ten years after
the Effective Date.
11.
<PAGE> 12
No options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on the Effective Date (as defined
in subparagraph 4(b)), subject to the condition that the Plan be approved by the
shareholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
12.
<PAGE> 1
EXHIBIT 10.6
DATAWORKS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED SEPTEMBER 13, 1995
AS AMENDED FEBRUARY 3, 1997
1. PURPOSE.
(a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Dataworks Corporation, a California
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
1.
<PAGE> 2
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate three hundred thousand
(300,000) shares of the Company's common stock (the "Common Stock") after giving
effect to the one for 2.6 reverse stock split to be effected in September 1995.
If any right granted under the Plan shall for any reason terminate without
having been exercised, the Common Stock not purchased under such right shall
again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The provisions of separate Offerings need not be
identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not
2.
<PAGE> 3
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that, each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall have
the same characteristics as any rights originally granted under that Offering,
as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
3.
<PAGE> 4
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(d) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock effected in accordance with such Offering.
(b) In connection with each Offering made under this Plan, the Board or
the Committee shall specify a maximum number of shares which may be purchased by
any employee as well as a maximum aggregate number of shares which may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each
4.
<PAGE> 5
Offering which contains more than one Purchase Date, the Board or the Committee
may specify a maximum aggregate number of shares which may be purchased by all
eligible employees on any given Purchase Date under the Offering. If the
aggregate purchase of shares upon exercise of rights granted under the Offering
would exceed any such maximum aggregate number, the Board or the Committee shall
make a pro rata allocation of the shares available in as nearly a uniform manner
as shall be practicable and as it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any cash or deferred arrangement established by
the Company), which shall include commissions and overtime pay, but shall
exclude bonuses, incentive pay, profit sharing, other remuneration paid directly
to the employee, the cost of employee benefits paid for by the Company or an
Affiliate, education or tuition reimbursements, imputed income arising under any
group insurance or benefit program, traveling expenses, business and moving
expense reimbursements, income received in connection with stock options,
contributions made by the Company or an Affiliate under any employee benefit
plan, and similar items of compensation. The payroll deductions made for each
participant shall be credited to an account for such participant under the Plan
and shall be deposited with the general funds of the Company or an Affiliate. A
participant may reduce (including to zero), increase or begin such payroll
deductions after the beginning of any Offering only as provided for in the
Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Offering.
<PAGE> 6
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable, and,
except as provided in paragraph 14, shall be exercisable only by the person to
whom such rights are granted.
8. EXERCISE.
(a) On each date specified therefor in the relevant Offering ("Purchase
Date"), each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional shares shall be issued upon the exercise of rights
granted under the Plan. The amount, if any, of accumulated payroll deductions
remaining in each participant's account after the purchase of shares which is
less than the amount required to purchase one share of stock on the final
Purchase Date of an Offering shall be held in each such participant's account
for the purchase of shares under the next Offering under the Plan, unless such
participant withdraws from such next Offering, as provided in subparagraph 7(b),
or is no longer eligible to be granted rights under the Plan, as provided in
paragraph 5, in which case such amount shall be distributed to the participant
after such final Purchase Date, without interest. The amount, if any, of
accumulated payroll deductions remaining in any participant's account after the
purchase
6.
<PAGE> 7
of shares which is equal to the amount required to purchase whole
shares of stock on the final Purchase Date of an Offering shall be distributed
in full to the participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the Plan (including rights granted thereunder) is covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). If on a Purchase Date in any Offering hereunder the Plan is
not so registered, no rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject to such an effective registration statement, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered, no rights granted under
the Plan or any Offering shall be exercised and all payroll deductions
accumulated during the Offering (reduced to the extent, if any, such deductions
have been used to acquire stock) shall be distributed to the participants,
without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the rights granted under the
Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan shall
constitute general funds of the Company.
11. RIGHTS AS A SHAREHOLDER.
7.
<PAGE> 8
A participant shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to rights granted under
the Plan unless and until the participant's shareholdings acquired upon exercise
of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
rights will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding rights.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion (i) any surviving corporation may assume outstanding rights or
substitute similar rights for those under the Plan, (ii) such rights may
continue in full force and effect, or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under
the Plan; or
(ii) Modify the provisions as to eligibility for participation
in the Plan (to the extent such modification requires shareholder
approval in order for the Plan to obtain employee stock purchase plan
treatment under Section 423 of the Code).
Rule 16b-3.
8.
<PAGE> 9
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted or except as necessary to
comply with any laws or governmental regulation.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to him of such shares and cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on September 12, 2005. No rights may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted or except as necessary to comply with any laws
or governmental regulation.
16. EFFECTIVE DATE OF PLAN.
9.
<PAGE> 10
The Plan shall become effective upon the effectiveness of the Company's initial
public offering of shares of common stock, but no rights granted under the Plan
shall be exercised unless and until the Plan has been approved by the
shareholders of the Company.
10.
<PAGE> 1
EXHIBIT 10.19
TENANT'S COPY
WHIOP Real Estate Limited Partnership
Interchange Office Park
St. Louis Park, MN 55426
Tenant: DataWorks Corporation
Dated: January 16, 1997
Premises: Interchange Tower
Suite 1701 and 2000
28,942 total rentable square feet
<PAGE> 2
LEASE
This Lease is made and entered into as of January 16, 1997, between WHIOP REAL
ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), and
DATAWORKS CORPORATION, a California corporation ("Tenant").
1. Premises and Term.
Landlord leases to Tenant, and Tenant leases from Landlord the space known as
Suite 1701 and 2000 and shown hatched on the drawing attached to this Lease as
Exhibit A-1 and A-2 (the "Premises"), consisting of approximately 28,942 total
square feet and located on the 17th and 20th floor(s) in the building known as
Interchange Tower, located at 600 South Highway 169, St. Louis Park, Minnesota
55426 (the "Building"), which is one of the two buildings (together referred to
as "Tower/South") located on the land in Hennepin County, Minnesota legally
described on the attached Exhibit B (the "Land"), for a term commencing on
February 1, 1997 for Suite 1701 and commencing on April 1, 1997 for Suite 2000,
both terms ending on March 31, 2002 (the "Term"), unless sooner terminated as
provided in this Lease, subject to all of the terms, covenants and agreements
contained in this Lease.
2. Rent.
Tenant shall pay to Landlord at COMPASS Management and Leasing, Interchange
Tower, 600 South Highway 169, Suite 1585, St. Louis Park, MN 55426, or at such
other place as Landlord may from time to time designate, annual base rent (the
"Base Rent") of
$148,128.00 IN EQUAL MONTHLY INSTALLMENTS OF $12,344.00 EACH FOR
THE PERIOD OF FEBRUARY 1, 1997 THROUGH MARCH 31, 1997, AND
$607,800.00 IN EQUAL MONTHLY INSTALLMENTS OF $50,650.00 EACH FOR
THE PERIOD OF APRIL 1, 1997 THROUGH MARCH 31, 2002.
payable in advance on the first day of each calendar month
during the Term. If the Term commences on a day other than the first day of a
month, or ends on a day other than the last day of a month, then the Base Rent
for such fractional month will be prorated on the basis of 1/365th of the annual
Base Rent for each day of the fractional month. Base Rent shall be payable
without any prior demand and without any deductions or setoffs.
3. Adjustments.
The Base Rent of $21.00 per rentable square foot includes Landlord's estimate of
the 1996 ("Base Year") Taxes (as hereinafter defined) in the amount of $2.97 per
rentable square foot ("Base Year Taxes") and Operating Expenses (as hereinafter
defined) in the amount of $5.17 per rentable square foot ("Base Year Operating
Expenses").
Tenant shall pay to Landlord as additional rent per rentable square foot in the
Premises the amount by which all taxes and assessments assessed, levied or
imposed on, or allocated to, the Land and Tower/South, including interest on
deferred assessments, and all attorneys' fees, witness fees, court costs and
other expenses of Landlord in contesting such taxes and assessments (all of
which are herein referred to as "Taxes") per rentable square foot exceed the
Base Year Taxes.
<PAGE> 3
LEASE
LANDLORD: WHIOP REAL ESTATE LIMITED PARTNERSHIP
TENANT: DATAWORKS CORPORATION
DATE: January 16, 1997
1. Premises and Term ................................................. 1
2. Rent .............................................................. 1
3. Adjustments ....................................................... 1
4. Use ............................................................... 3
5. Services .......................................................... 4
6. Possession ........................................................ 4
7. Condition of Premises ............................................. 5
8. Repairs ........................................................... 5
9. Alterations ....................................................... 5
10. Damage or Destruction ............................................. 7
11. Insurance ......................................................... 8
12. Condemnation ...................................................... 9
13. Waiver of Claims and Indemnity .................................... 9
14. Waivers ........................................................... 10
15. Defaults and Remedies ............................................. 10
16. Surrender of Possession ........................................... 11
17. Holding Over ...................................................... 11
18. Costs, Expenses and Attorneys' Fees ............................... 11
19. Compliance with Laws .............................................. 12
20. Rights Reserved By Landlord ....................................... 12
21. Estoppel Certificates ............................................. 13
22. Rules and Regulations ............................................. 13
23. Relocation ........................................................ 13
24. Assignment and Subletting ......................................... 14
25. Notice ............................................................ 15
26. Conveyance by Landlord ............................................ 15
27. Subordination ..................................................... 16
28. Brokers ........................................................... 16
29. Security Deposit .................................................. 16
30. Miscellaneous ..................................................... 17
31. Exculpation ....................................................... 18
Rider to Lease Agreement
Exhibits I & II ................................................... Offer Space
Exhibit A-1 & A-2 .................................................... Premises
Exhibit B .................................................. Description of Land
Exhibit C ................................................ Rules and Regulations
Exhibit D ................................................. Tenant Improvements
<PAGE> 4
Tenant shall pay to Landlord as additional rent per rentable square foot in the
Premises the amount by which the Operating Expenses for each calendar year of
the Term per rentable square foot exceed the Base Year Operating Expenses.
Operating Expenses shall mean all costs, charges and expenses incurred by
Landlord, and not paid directly or separately by Tenant, in connection with
ownership, operation, security, maintenance and repair of the Land, Tower/South,
other improvements on the Land, appurtenances to the Tower/South, parking
driveways, landscaping, lighting, sidewalks, and common or public areas,
including but not limited to real estate taxes and insurance on common areas,
interior and exterior maintenance, insurance, utilities, fees or expenses for
management by Landlord or any other party, and amortization of capital
expenditures made to reduce Operating Expenses or to comply with the
requirements of any federal, state or local law or regulation, or for repairs to
Tower/South or purchase of equipment.
If during any calendar year of the Term, less than 95% of the Building's
rentable area is occupied by tenants, the variable Operating Expenses for that
year will be equitably adjusted to reflect Operating Expenses as though
Tower/South had been 95% occupied throughout the year.
To provide for current payments for Taxes and Operating Expenses during the
Term, Tenant shall pay monthly, as additional rent together with the Base Rent,
Landlord's estimate from time to time of the Taxes and Operating Expenses for
each calendar year in excess of the respective Base Year Taxes and Base Year
Operating Expenses. Landlord will keep books and records showing the Operating
Expenses, and will deliver to Tenant after the close of each calendar year
(including the calendar year in which this Lease terminates), a statement
setting forth the actual Taxes and Operating Expenses for the year, the
estimated amounts paid by Tenant and the amount owed by Tenant or to be credited
to Tenant, as the case may be. Within 10 days after receipt of the statement
Tenant shall pay to Landlord the amount of any underpayment, or Landlord shall
credit Tenant for the amount of any overpayment. No decrease in Taxes and/or
Operating Expenses shall reduce the amount of Base Rent, and no increase or
decrease shall change the amounts of the Base Year Taxes and Base Year Operating
Expenses set forth in the first paragraph of this Section. Operating Expenses
and Taxes shall at all times be computed separately.
The obligation of Tenant for payment of Base Rent and rent adjustments shall
survive the expiration or termination of this Lease. If Tenant does not give
Landlord written notice within one year after receiving Landlord's statement
that Tenant disagrees with the statement and specifying the amounts in dispute,
Tenant will be deemed to have waived the right to contest the statement. Tenant
will file no petition in Tax Court regarding the Taxes without Landlord's prior
written consent. The portion of Taxes and Operating Expenses to be paid by
Tenant for the years in which the Term begins and ends will be prorated.
Although Landlord treats Tower/South as one building for purposes of computing
and allocating Operating Expenses and Taxes, Landlord shall have the right,
after at least 30 days prior written notice to Tenant, to compute Operating
Expenses and Taxes with respect to only the building in which Tenant is located
and to separately allocate the Operating
-2-
<PAGE> 5
Expenses and Taxes for the Tower Building and the South Building and those
portions of the Land on which each is located, as described in Exhibit B.
4. Use.
Tenant shall use and occupy the Premises for general office purposes and for no
other purpose. Tenant shall not use or permit upon the Premises anything that
will invalidate or increase the cost of any policies of insurance now or
hereafter carried on the Premises or the Building. Tenant will pay all extra
insurance premiums which may be caused by the use which Tenant shall make of the
Premises. Tenant will not use or permit upon the Premises anything that may be
dangerous to life or limb. Tenant will not in any manner deface or injure the
Building or any part thereof or overload the floors of the Premises. Tenant will
not do anything or permit anything to be done upon the Premises in any way
tending to create a nuisance, or tending to disturb any other tenant in the
Building or the occupants of neighboring property or tending to injure the
reputation of the Building. Tenant will promptly and fully comply with all
governmental, health and police requirements and regulations respecting the
Premises. Tenant will not use the Premises for lodging or sleeping purposes or
for any immoral or illegal purposes. Tenant shall not conduct nor permit to be
conducted on the Premises any business which is contrary to any local, state or
federal laws, ordinances or regulations.
Tenant shall not use, handle, generate, treat, store or dispose of, or permit
the handling, generation, treatment, storage or disposal of any Hazardous
Materials in, on, under, around or above the Premises. Tenant will indemnify,
defend and save Landlord harmless from any actions, proceedings, claims, costs,
expenses and losses of any kind, including, but not limited to, those arising
from injury to any person, including death, damage to or loss of use or value of
real or personal property, and costs of investigation and cleanup with respect
to any breach by Tenant of the preceding sentence. The term "Hazardous
Materials", when used herein, shall include, but shall not be limited to, any
substances, materials or wastes to the extent quantities thereof are regulated
by any local, state or federal governmental authority, because of toxic,
flammable, explosive, corrosive, reactive, radioactive or other properties that
may be hazardous to human health or the environment, including asbestos and
including any materials or substances that are listed in the United States
Department of Transportation Hazardous Materials Table, as amended, 49 C.F.R.
172.101, or in the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. subsections 9601 et seq., or the Resources
Conservation and Recovery Act, as amended, 42 U.S.C. subsections 6901 et seq.,
or any other applicable governmental regulation imposing liability or standards
of conduct concerning any hazardous, toxic or dangerous substances, waste or
material, now or hereafter in effect. Tenant's obligations and liabilities under
this Section shall survive the expiration of the Term.
Tenant shall not at any time manufacture, sell, or give away, and shall not at
any time permit the manufacture, sale, use or gift of, any spirituous,
intoxicating or alcoholic liquors or controlled substances on the Premises,
except that the foregoing shall not be deemed to prohibit the occasional use of
alcoholic beverages for entertainment purposes, so long as Tenant has in full
force and effect a policy of host liquor liability or dram-shop insurance in
-3-
<PAGE> 6
form and amounts at all times satisfactory to Landlord and has delivered to
Landlord a certificate of insurance with respect thereto.
5. Services.
Landlord shall provide reasonable janitor service and elevator service for the
Premises. Landlord shall also provide heating, ventilating and air conditioning
during the periods from 8:00 a.m. to 5:00 p.m. (Saturdays to 1:00 p.m.), Sundays
and holidays excepted ("Normal Business Hours"). Landlord shall provide
electricity in reasonable amounts for ordinary office purposes. The cost of all
such services will be a part of the Operating Expenses. Neither Landlord nor any
agent or contractor of Landlord will be liable for any loss or damage resulting
from any temporary interruption of these services due to repairs, alterations or
improvements, or any variation, interruption or failure of these services due to
governmental controls, unavailability of energy, or any other cause beyond
Landlord's control. No such interruption or failure of these services will be
deemed an eviction of Tenant or will relieve Tenant from any of its obligations
under this Lease. Except for payment of Tenant's Share of Operating Expenses,
Tenant will not be required to pay for these services for ordinary office
purposes, but Tenant will pay to Landlord any charges Landlord establishes for
utilities or services provided outside Normal Business Hours at Tenant's
request, or provided because of uses other than ordinary office uses. Whenever
heat-generating machines or equipment installed by Tenant affect the temperature
otherwise maintained by Landlord in the Premises, or whenever the occupancy or
electrical load exceeds usual and customary office standards, Landlord reserves
the right to require Tenant to discontinue use of such heat-generating machines
or equipment, or install supplementary air conditioning units in the Premises,
the costs of installation, operation and maintenance of which shall be paid by
Tenant. Tenant will cooperate with Landlord and abide by all reasonable
regulations and requirements which Landlord may prescribe for the proper
functioning of the ventilating and air conditioning systems. Tenant shall not
waste or permit the waste of water.
All charges for any such services shall be deemed rent payable at the same time
as the installment of rent with which they are billed, or, if billed separately,
within 10 days after billing.
6. Possession.
If the Premises are not completed and ready for occupancy on the first day of
the Term, this Lease shall nevertheless continue in full force and effect, and
no liability shall arise against Landlord out of any such delay beyond the
abatement of rent until the Premises are ready for occupancy; provided, however,
there shall be no abatement of rent if the space is not ready for occupancy
because of failure to complete the installation of special equipment, fixtures
or materials ordered by Tenant, or due to Tenant's failure or inability to
complete plans for any leasehold improvements in the Premises prior to a date
agreed upon by Landlord and Tenant, or due to any act, failure to act, or fault
of Tenant, its employees or agents. The Premises shall not be deemed incomplete
or not ready for occupancy if only insubstantial details of construction,
decoration or mechanical adjustments remain to be done. The determination of
Landlord's architect or interior space planner for the Building shall be
conclusive as to whether the Premises are complete
-4-
<PAGE> 7
and ready for occupancy. Tenant agrees upon request of Landlord to promptly
acknowledge in writing the date of substantial completion of the Premises. If
Tenant shall enter into possession of all or any part of the Premises prior to
the first day of the Term, all of the covenants and conditions of this Lease
will apply as of the date of such possession and Tenant shall pay to Landlord as
rent for the period prior to the first day of the Term of this Lease a
proportionate amount of the rent set forth in Section 2.
7. Condition of Premises.
Tenant's occupancy of the Premises shall be deemed acceptance of the Premises,
except as to latent defects (which exception shall be effective for one year)
and so called "punchlist" items to be completed after occupancy. No promise of
the Landlord to alter, remodel, repair or improve the Premises or the Building
and no representations respecting the condition of the Premises or the Building
have been made by Landlord to Tenant, other than as may be contained herein or
in any Exhibit to this Lease.
8. Repairs.
Except as otherwise provided in Section 10 of this Lease, and subject to the
provisions of Section 9 of this Lease, Tenant shall, at its sole cost and
expense, keep the Premises in good order, repair and tenantable condition at all
times during the Term. Tenant shall promptly arrange with Landlord at Tenant's
sole cost and expense for the repair of all damages to the Premises and for the
replacement or repair of all damaged or broken glass, fixtures and
appurtenances, except for exterior window glass broken through no fault of
Tenant or its employees, agents, invitees or guests. If Tenant does not promptly
make such arrangements, Landlord may, but need not, make such repairs and
replacements and the costs paid or incurred by Landlord for such repairs and
replacements (including Landlord's overhead and profit, and the cost of general
conditions) shall be deemed additional rent due and payable within 10 days after
receipt of a statement from Landlord. Landlord may enter the Premises at all
reasonable times to make any repairs, alterations, improvements or additions,
including, but not limited to, ducts and all other facilities for heating and
air conditioning service, as Landlord shall desire or deem necessary for the
safety, maintenance, repair, preservation or improvement of the Building, or as
Landlord may be required or requested to do by governmental authorities. Such
work and any resultant interruption of services and facilities shall not be
deemed an eviction of Tenant, and the rent shall in no way abate, and Tenant
shall not be entitled to any setoff or damages.
9. Alterations.
Tenant shall not make any repairs, replacements, alterations, improvements or
additions ("Alterations") to the Premises without the prior written consent of
Landlord. In requesting such consent and prior to commencing any such work,
Tenant shall at its sole cost and expense:
(a) Submit to Landlord for review plans and specifications showing such
work in reasonable detail and pay to Landlord all costs incurred by Landlord in
connection with such review.
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(b) Furnish Landlord with the names and addresses of all contractors
and copies of all contracts.
(c) Provide Landlord with such security as Landlord may require, as
well as all necessary permits evidencing compliance with all applicable laws,
ordinances and regulations.
(d) Provide Landlord with certificates of insurance in forms and amounts
satisfactory to Landlord naming Landlord as an additional insured when required
by Landlord.
(e) Comply with such other requests as Landlord may reasonably make in
connection with such work.
All such work shall, at Landlord's election, be subject to supervision by
Landlord, in which case Tenant shall promptly pay to Landlord a supervision fee
equal to 15% of the cost of the work.
Tenant shall protect, defend, indemnify and hold Landlord, the Building and
other tenants of the Building harmless from and against any liabilities which
may arise out of or in connection with the Alterations.
Upon completing any Alterations, Tenant shall furnish Landlord with contractors'
affidavits, sworn statements and final and final waivers of lien and receipted
bills covering all labor and material expended and used. All Alterations shall
comply with all insurance requirements and with all applicable laws, ordinances
and regulations. All Alterations shall be completed in a good and workmanlike
manner and only good grades of material shall be used.
All Alterations, whether temporary or permanent in character, including, without
limitation, wall coverings, carpeting and other floor coverings, special
lighting installations, built-in or attached shelving, cabinetry and mirrors,
installed by Landlord or Tenant in the Premises shall become Landlord's property
and shall remain in the Premises at the expiration or termination of this Lease
without compensation to Tenant, except for Tenant's movable office furniture,
trade fixtures and office equipment. Landlord shall have the right to require
Tenant to remove Alterations at Tenant's sole cost and expense in accordance
with the provisions of Section 16 of this Lease.
Nothing contained in this Lease shall authorize or empower Tenant to do anything
to encumber Landlord's title to the Building, Land or Premises, nor in any way
subject Landlord's title to any claims of lien or encumbrance whether claimed by
operation of law or by virtue of any expressed or implied contract of Tenant. If
Tenant has not removed any such lien or encumbrance within 15 days after written
notice to Tenant by Landlord, Landlord may, but shall not be obligated to, pay
the amount necessary to remove the lien or encumbrance, without being
responsible for making any investigation as to the validity or accuracy thereof,
and the amount so paid, together with all costs and expenses (including
reasonable attorneys' fees) incurred by Landlord in connection therewith, shall
be deemed additional rent due and payable within 10 days after receipt of a
statement from Landlord.
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10. Damage or Destruction.
(a) If the Premises or any part of the Building is damaged by fire or
other casualty and if such damage does not render all or a substantial portion
of the Premises or the Building untenantable, then Landlord shall proceed to
repair and restore the same to its prior existing condition with reasonable
promptness, subject to reasonable delays for insurance adjustments and delays
caused by matters beyond Landlord's control. If any such damage renders all or a
substantial portion of the Premises or the Building untenantable, Landlord
shall, with reasonable promptness after the occurrence of such damage and in
good faith, estimate the length of time that will be required to substantially
complete the repair and restoration of such damage and shall by notice advise
Tenant of such estimate. If it is so estimated that the amount of time required
to substantially complete such repair and restoration will exceed 195 days from
the date such damage occurred, then either Landlord or Tenant shall have the
right to terminate this Lease as of the date of such damage upon giving notice
to the other at any time within 20 days after Landlord gives Tenant the notice
containing said estimate (it being understood that Landlord may, if it elects to
do so, also give such notice of termination together with the notice containing
said estimate). Unless this Lease is terminated as provided in the preceding
sentence, Landlord shall proceed with reasonable promptness and all due
diligence to repair and restore the Premises, subject to reasonable delays for
insurance adjustments and delays caused by matters beyond Landlord's control,
and also subject to zoning laws and building codes then in effect. Landlord
shall have no liability to Tenant, and Tenant shall not be entitled to terminate
this Lease (except as hereinafter provided) if such repairs and restoration are
not in fact completed within the time period estimated by Landlord, as
aforesaid, or within said 195 days, so long as Landlord shall proceed with
reasonable promptness and due diligence. Notwithstanding anything to the
contrary herein set forth: (i) if any such damage rendering all or a substantial
portion of the Premises or Building untenantable shall occur during the last 3
years of the Term, then Landlord shall have the option to terminate this Lease
by written notice to Tenant within 30 days after the date such damage occurred,
and if such option is so exercised, this Lease shall terminate as of the date of
such damage; (ii) Landlord shall have no duty to repair or restore any
Alterations made by or on behalf of Tenant in the Premises or improvements which
are not then building standard improvements; (iii) Landlord shall not be
obligated (but may, at its option, so elect) to repair or restore the Premises
or Building if any mortgagee applies proceeds of insurance to reduce its loan
balance, and the remaining proceeds, if any, available to Landlord are not
sufficient to pay for such repair or restoration; and (iv) Tenant shall not have
the right to terminate this Lease pursuant to this Section if the damage or
destruction was caused by the intentional or negligent act of Tenant, its agents
or employees.
(b) In the event any such fire or casualty renders the Premises
substantially untenantable and Tenant is not occupying the Premises, and this
Lease is not terminated, then rent shall abate beginning with the date of such
damage and ending with the date when Landlord substantially completes its repair
and restoration work. Such abatement shall be in an amount bearing the same
ratio to the total amount of rent for such period as the portion of the Premises
being repaired and restored by Landlord and not heretofore delivered to Tenant
from time to time bears to the entire Premises. In the event of
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termination of this Lease pursuant to this Section, rent shall be apportioned
on a per diem basis and be paid to the date of such fire or other casualty.
(c) In the event of any such fire or other casualty, and if this Lease
is not terminated, Tenant shall repair and restore any portion of Alterations
made by or on behalf of Tenant in the Premises, and during any such period of
Tenant's repair and restoration following substantial completion of Landlord's
repair and restoration work, rent shall be payable as if said fire or other
casualty had not occurred.
11. Insurance.
Tenant, at its sole cost and expense but for the mutual benefit of Landlord and
Tenant (when used in this Section the term "Landlord" shall include Landlord and
its officers, agents and employees), shall purchase and keep and maintain in
force and effect during the Term, insurance under policies issued by insurers of
recognized responsibility on its personal property, fixtures and tenant
improvements including, but not limited to, special wall and floor coverings,
special lighting fixtures, built-in cabinets and bookshelves and on its
merchandise, inventory, contents, furniture, equipment or other personal
property located in the Premises protecting Landlord and Tenant from damage or
other loss caused by fire or other casualty including, but not limited to,
vandalism and malicious mischief, perils covered by all risk and extended
coverage, theft, sprinkler leakage, water damage (however caused), explosion,
malfunction or failure of heating and cooling or other apparatus, and other
similar risks in amounts not less than the full insurable replacement value of
such property. Such insurance shall provide that it is specific and not
contributory and shall name the Landlord as an additional insured and shall
contain a replacement cost endorsement and a clause pursuant to which the
insurance carriers waive all rights of subrogation against the Landlord with
respect to losses payable under such policies. At Landlord's request, Tenant
shall deliver certificates of insurance evidencing such coverage upon execution
hereof and thereafter not less than 15 days prior to the expiration date of any
such policy.
Landlord shall maintain insurance on the Building against fire and such other
risks as may be included in extended coverage insurance from time-to-time
available in an amount not less than the greater of 80% of the full insurable
value of the Building or the amount sufficient to prevent Landlord from becoming
a co-insurer under the terms of the applicable policies. Such policies shall
contain a replacement cost endorsement and a clause pursuant to which the
insurance carriers waive all rights of subrogation against the Tenant with
respect to losses payable under such policies.
By this Section, Landlord and Tenant intend that the risk of loss or damage
referred to in this Section be borne by responsible insurance carriers to the
extent above provided, and Landlord and Tenant hereby release each other and
agree to look solely to, and to seek recovery only from, their respective
insurance carriers in the event of a loss of a type referred to in this Section
to the extent that coverage is to be provided under this Section. For this
purpose, any applicable deductible amount shall be treated as though it were
recoverable under such policies. Landlord and Tenant agree that applicable
portions of all monies collected from such insurance shall be used toward the
full compliance of the
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obligations of Landlord and Tenant under this Lease in connection with loss or
damage referred to in this Section.
Tenant shall, at Tenant's expense, maintain during the Term comprehensive public
liability insurance, contractual liability insurance and property damage
insurance, under policies issued by insurers of recognized responsibility, with
limits of not less than $3,000,000 for personal injury, bodily injury, sickness,
disease or death and $1,000,000 for damage or injury to or destruction of
property (including the loss of use thereof) for any one occurrence. Tenant's
policies shall name Landlord and its officers, agents and employees as
additional insureds. At Landlord's request, Tenant shall deliver certificates of
insurance evidencing such coverage upon execution hereof and thereafter not less
than 15 days prior to the expiration date of any such policy.
12. Condemnation.
If all or part of the Premises, Building or Land is taken or condemned by any
competent authority for any public or quasi-public use or purpose or if any
adjacent property or street is condemned or improved in such manner as to
require the use of any part of the Premises or of the Building, the Term, at the
option of Landlord, shall end upon the date when the possession of the part so
taken shall be required for such use or purpose and Landlord shall be entitled
to receive the entire award without any payment to Tenant, the Tenant hereby
assigning to the Landlord the Tenant's interest therein, if any, except for
amounts specifically awarded for Tenant's trade fixtures or as a relocation
payment or allowance which does not reduce Landlord's award. Current rent shall
be apportioned as of the date of such termination.
13. Waiver of Claims and Indemnity.
Tenant agrees that, to the extent not expressly prohibited by law, Landlord and
its officers agents, servants and employees shall not be liable for (nor shall
rent abate as a result of) any direct or consequential damage, unless caused by
the negligence or willful misconduct of Landlord, its employees, agents or
contractors (including damage claimed for actual or constructive eviction)
either to person or property sustained by Tenant, its employees, agents,
invitees or guests due to the Building or any part thereof or any appurtenances
thereof becoming out of repair, or due to the happening of any accident in or
about the Building, or due to any act or neglect of any tenant or occupant of
the Building or of any other person. This provision shall apply particularly
(but not exclusively) to damage caused by water, snow, frost, steam, sewage,
gas, electricity, sewer gas or odors or by the bursting, leaking or dripping of
pipes, faucets and plumbing fixtures and windows, and shall apply without
distinction as to the person whose act or neglect was responsible for the damage
and whether the damage was due to any of the causes specifically enumerated
above or to some other cause of an entirely different kind. Tenant further
agrees that all of Tenant's personal property in the Premises or the Building
shall be at the risk of Tenant only and that Landlord shall not be liable for
any loss or damage thereto or theft thereof. Tenant and Landlord shall protect,
indemnify and save each other and their officers, agents and employees harmless
from and against any and all obligations liabilities, costs, damages, claims and
expenses of whatever nature arising from injury to persons or damage to property
on the Premises or in or about the Building arising out of or in connection with
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Tenant's or Landlord's use or occupancy of the Premises or Tenant's activities
in the Building, or arising from any act or negligence of Tenant, Landlord or
their agents, contractors, servants, employees, or invitees.
14. Waivers.
No waiver of any provision of this Lease shall be implied by Landlord's failure
to enforce any remedy, and no express waiver shall affect any provision other
than the one specified in such waiver and that one only for the time and in the
manner specifically stated. No receipt of moneys by Landlord from Tenant after
expiration or termination of the Term or of Tenant's right of possession shall
reinstate, continue or extend the Term or affect any notice given to Tenant
prior to the receipt of such moneys.
Except as provided in Section 15 hereof, Tenant hereby expressly waives the
service of any notice of intention to terminate this Lease or to re-enter the
Premises and waives the service of any demand for payment of rent or for
possession and waives the service of any other notice or demand prescribed by
any statute or other law.
15. Defaults and Remedies.
If (a) Tenant defaults in the payment of rent or any other sum to be paid by
Tenant under this Lease, or under the terms of any other agreement between
Landlord and Tenant, and (with respect to the first two of such defaults in any
12-month period) such default continues for 10 days after written notice to
Tenant, or (b) Tenant defaults in the full and prompt performance of any other
obligations of Tenant under this Lease and such default continues for 30 days
after written notice to Tenant (or if such default involves a hazardous
condition and is not cured by Tenant immediately upon written notice to Tenant),
or (c) if the interest of Tenant in this Lease is levied on under execution or
other legal process, or (d) if any petition is filed by or against Tenant to
declare Tenant a bankrupt or to delay, reduce or modify Tenant's debts or
obligations, or (e) if any petition is filed or other action taken to reorganize
or modify Tenant's capital structure, if Tenant be a corporation or other
entity, or (f) if Tenant is declared insolvent according to law or if any
assignment of Tenant's property is made for the benefit of creditors, or (g) if
a receiver or trustee is appointed for Tenant or its property, (h) if Tenant
abandons or vacates the Premises during the Term, or (i) Tenant defaults in any
other lease for space in the Building, then Landlord may treat the occurrence of
any one or more of the foregoing events as a breach of this Lease, and may,
without notice or demand of any kind to Tenant or any other person, have any one
or more of the following described remedies in addition to all other rights and
remedies provided at law or in equity:
(a) Landlord may terminate this Lease and the Term, repossess the Premises
and recover damages equal to the value of the Base Rent and rent adjustments for
the balance of the Term, less the fair rental value of the Premises for said
period, plus any other sums or damages owed by Tenant to Landlord.
(b) Landlord may terminate Tenant's right of possession and repossess the
Premises without terminating this Lease, in which event Landlord may, but shall
not be obligated to, relet all or any part of the Premises, for such rent and
upon such terms as
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shall be satisfactory to Landlord. Landlord may relet all or a part of the
Premises for a term greater or lesser than the remaining Term for the same or a
different use, and may decorate to make repairs, changes, alterations or
additions. If Landlord does not relet the Premises, or if the Premises are relet
and a sufficient amount is not received by Landlord after paying all costs and
expenses of decorations, repairs, changes, alterations and additions and
expenses of reletting and collection of rent to satisfy all amounts to be paid
under this Lease, Tenant shall pay to Landlord as damages a sum equal to the
amount of the Base Rent and rent adjustments, or, if the Premises have been
relet, any such deficiency, upon demand. Landlord may sue to recover any sums
due under this paragraph and any other sums due under this Lease from time to
time. No suit or recovery of any portion due Landlord shall be any defense to
any subsequent action brought for any amount not previously reduced to judgment
in favor of Landlord.
16. Surrender of Possession.
(a) Before the date the Term expires or Tenant's right of possession
otherwise terminates, Tenant shall (i) restore the Premises to the same
condition as they were in at the beginning of the Term (except as otherwise
provided in Section 10) and remove those alterations, improvements or additions
installed for or during Tenant's occupancy, whether installed by Landlord or
Tenant, or acquired by Tenant from former tenants, which Landlord shall request
Tenant to remove; (ii) remove all of Tenant's personal property; and (iii)
surrender possession of the Premises to Landlord in a clean condition free of
all rubbish and debris.
(b) If Tenant does not comply with paragraph (a) of this Section, Landlord
may enter the Premises, put the Premises in such condition, and recover from
Tenant Landlord's cost of doing so.
Any property left in the Premises after expiration or termination of this Lease
or after the Premises have been vacated by Tenant will become the property of
Landlord to dispose of as Landlord chooses.
17. Holding Over.
Tenant shall pay to Landlord double the Base Rent plus double the rent
adjustments then applicable for each month or portion thereof Tenant shall
retain possession of the Premises or any part thereof after the termination of
this Lease, whether by lapse of time or otherwise, and also shall pay all
damages sustained by Landlord, whether direct or consequential, on account
thereof. At the option of Landlord, expressed in a written notice to Tenant and
not otherwise, such holding over shall constitute a renewal of this Lease at the
rental rates then prevailing for similar space in the Building for a period of
one year. The provisions of this Section shall not operate as a waiver by
Landlord of any right of re-entry.
18. Costs, Expenses and Attorneys' Fees.
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If any action or proceeding is brought by Landlord or Tenant to interpret or
enforce the provisions hereof, the prevailing party shall be entitled to
recover from the unsuccessful party therein, in addition to all other remedies
all costs incurred by the prevailing party in such action or proceeding,
including reasonable attorney's fees to be fixed by the court having
jurisdiction thereof.
19. Compliance with Laws.
Tenant will, at its expense, promptly comply with all laws, ordinances, rules,
orders, regulations and other requirements of governmental authorities now or
subsequently pertaining to the Premises. Tenant will pay any taxes or other
charges by any governmental authority on Tenant's property or trade fixtures in
the Premises or relating to Tenant's use of the Premises.
20. Rights Reserved By Landlord.
Landlord shall have the following rights, exercisable without notice and without
liability to Tenant for damage, eviction, disturbance of Tenant's use or
possession, or abatement of rent:
(a) To name the Building and to change the Building's name or street
address.
(b) To install, affix and maintain any and all signs on the exterior and
interior of the Building.
(c) To designate and approve, prior to installation, all types of window
shades, blinds, drapes, and other similar equipment, and to control all internal
lighting that may be visible from the exterior of the Building.
(d) To designate, restrict and control all sources from which Tenant may
obtain ice, drinking water, towels, toilet supplies, shoe shining, catering,
food and beverages, or like or other services on the Premises, and, in general,
to reserve to Landlord the exclusive right to designate, limit, restrict and
control any business and any service in or to the Building and its tenants.
Tenant shall he permitted to purchase vending services from the Building
cafeteria operator.
(e) On reasonable prior notice to Tenant, to show the Premises to
prospective tenants at reasonable hours during the last 12 months of the Term
and, if vacated during such period to decorate, remodel, repair or otherwise
prepare the Premises for re-occupancy without affecting Tenant's obligation to
pay rent.
(f) To retain at all times, and to use in appropriate instances, keys to
all doors within and into the Premises. No locks shall be changed without the
prior written consent of Landlord.
(g) To decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building, enter
the Premises, temporarily close doors, entryways, public space and corridors,
interrupt Building services and facilities,
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all without abatement of rent or affecting any of Tenant's obligations, so long
as the Premises are reasonably accessible.
(h) To have and retain a paramount title to the Premises free and clear of
any act of Tenant purporting to burden or encumber it.
(i) To grant to anyone the exclusive right to conduct any business or
render any service in or to the Building, if it does not exclude Tenant's
permitted use of the Premises.
(j) To approve the weight, size and location of safes and other heavy
equipment and bulky articles in and about the Premises and the Building (so as
not to overload the floors of the Premises), and to require all such items and
furniture and similar items to be moved into and out of the Building and
Premises only at such times and in such manner as Landlord shall direct. Any
damages done to the Building or Premises or to other tenants in the Building by
taking in or putting out safes, furniture and other items, or from overloading
the floor in any way, shall be paid by Tenant. Furniture, boxes, merchandise or
other bulky articles shall be transported within the Building only upon or by
vehicles equipped with rubber tires and shall be carried only in the freight
elevators and at such times as the management of the Building shall require.
Movements of Tenant's property into or out of the Building and within the
Building are entirely at the risk and responsibility of Tenant.
21. Estoppel Certificates.
Tenant agrees that from time to time upon not less than 10 days' prior request
by Landlord, Tenant shall deliver to Landlord a statement provided by Landlord
certifying (a) that this Lease is unmodified and in full force and effect (or if
there have been modifications that the Lease as modified is in full force and
effect); (b) the dates to which the rent and other charges have been paid; (c)
that neither Landlord nor Tenant is in default under any provision of this
Lease, or, if in default, the nature thereof in detail; and (d) that there are
no offsets or defenses to the payment of Base Rent, additional rent or any other
sums payable under this Lease or, if there are any such offsets or defenses,
specifying such in detail.
22. Rules and Regulations.
Tenant shall observe and comply with the rules and regulations set forth in
Exhibit C attached to this Lease, and with such reasonable modifications and
additions as Landlord may make for the safety, care and cleanliness of the
Building and Premises and for the preservation of good order. Landlord shall not
be liable to Tenant for violation of such rules and regulations by any other
tenant or any other person.
23. Relocation.
Upon at least 30 days' prior notice to Tenant, Landlord may substitute for the
Premises other premises similar to the Premises in area and use for Tenant's
purposes (the "New Premises"). If Tenant is in occupancy of the Premises,
Landlord shall pay the expense of
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Tenant for moving from the Premises to the New Premises and improving the New
Premises so that they are substantially similar to the Premises.
24. Assignment and Subletting.
Tenant shall not, without the prior written consent of Landlord, (j) assign,
convey, mortgage, pledge or otherwise transfer this Lease, or any part thereof,
or any interest hereunder; (ii) permit any assignment of this Lease, or any part
thereof, by operation of law; (iii) sublet the Premises or any part thereof; or
(iv) permit the use of the Premises, or any part thereof, by any parties other
than Tenant, its agents and employees. Tenant shall, by notice in writing,
advise Landlord of any intention to assign this Lease or to sublet all or any
part of the Premises. Tenant's notice shall include all of the terms of, and
consideration for, the proposed assignment or sublease, the proposed effective
date, the name and address of the proposed assignee or subtenant and a true and
complete copy of the proposed assignment or sublease and any other related
agreements. In order to be effective, Tenant's notice must also be accompanied
by audited financial statements for the proposed assignee or subtenant, prepared
by an independent certified public accountant, for the two most recently ended
fiscal years of such proposed assignee or subtenant. Landlord shall have the
right by written notice to Tenant within 30 days after receipt of Tenant's
notice, to recapture the space described in Tenant's notice. The recapture
notice shall, if given, cancel and terminate this Lease with respect to the
space therein described as of the date stated in Tenant's notice. If Tenant's
notice covers all of the Premises, and Landlord exercises its recapture right,
the Term shall expire on the date stated in Landlord's recapture notice. If this
Lease is canceled with respect to less than the entire Premises, Base Rent and
rent adjustments shall be adjusted on the basis of the number of square feet
retained by Tenant in proportion to the number of square feet contained in the
Premises, and this Lease as so amended shall continue in full force and effect.
If Landlord after receiving Tenant's notice does not exercise its recapture
right, and if Tenant is not in default, Landlord will not unreasonably withhold
its consent to Tenant's proposed assignment or subletting to the party
identified in Tenant's notice. If Landlord consents to any such assignment or
subletting, Tenant shall pay to Landlord any profit derived by Tenant from such
assignment or subletting. Profit shall be deemed to include, but shall not be
limited to, the amount paid or payable to Tenant to effect or to induce Tenant
to enter into any such transaction, and the amount of all rent and other
consideration of whatever nature payable by the assignee or sublessee in excess
of the Base Rent and rent adjustments payable by Tenant under this Lease. If
part of the consideration for the assignment or subletting is payable other than
in cash, the payment to Landlord of its share of the non-cash consideration
shall be in such form as is satisfactory to Landlord. Tenant shall and hereby
agrees that it will furnish to Landlord upon request from Landlord a complete
statement, certified by an independent certified public accountant, setting
forth in detail the computation of all profit derived and to be derived from
such assignment or subletting, such computation to be made in accordance with
generally accepted accounting principles. Tenant agrees that Landlord or its
authorized representatives shall be given access at all reasonable times to the
books, records and papers of Tenant relating to any such assignment or
subletting, and Landlord shall have the right to make copies thereof. The profit
due Landlord shall be paid to Landlord within 10 days of receipt by Tenant of
all payments made from time to time by the assignee or subtenant.
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Any change in the ownership of Tenant, by sale, assignment, operation of law or
otherwise, resulting in a change in the present control of such corporation,
shall be deemed to be an assignment within the meaning of this Section .
No subletting or assignment shall release or discharge Tenant of or from any
liability, whether past, present or future, under this Lease, and Tenant shall
continue fully liable. Any subtenant or assignee shall agree in a form
satisfactory to Landlord to comply with and be bound by all provisions of this
Lease to the extent of the space sublet or assigned. Tenant shall deliver such
agreement to Landlord promptly after execution, together with an executed copy
of each such sublease or assignment. Tenant shall pay to Landlord, on demand,
all reasonable costs incurred by Landlord (including fees paid to consultants
and attorneys) in connection with any request by Tenant for Landlord to consent
to any assignment or subletting by Tenant. Any sale, assignment, mortgage,
transfer, or subletting of this Lease not in compliance with this Section shall
be void.
25. Notice.
All notices, demands, approvals and consents which may or are required to be
given by one party to the other under this Lease shall be in writing and shall
be delivered personally or by a nationally-recognized air courier service or
mailed by United States certified mail, postage prepaid, (a) if for the Tenant,
addressed to the Tenant at the Premises or at such other place as Tenant may
from time to time designate by notice to Landlord, or (b) if for the Landlord,
addressed to:
WHIOP Real Estate Limited Partnership
Attn: John F. Markey
Senior Vice President-East
c/o WCB Properties
3400 Park Lane
Pittsburgh, PA 15275
With a copy to:
COMPASS Management and Leasing, Inc.
600 So Hwy 169, Suite 1585
St. Louis Park, MN 55426
or at such other place as Landlord may from time to time designate by notice to
Tenant. Mailed notices shall be deemed given upon posting in the United States
mails.
26. Conveyance by Landlord.
If Landlord or any successor owner of the Premises shall convey or otherwise
transfer the Premises to another party, the other party shall become Landlord
under this Lease and shall assume all liabilities and obligations of this Lease
to be performed by Landlord which first arise after the date of conveyance or
transfer, and the conveying or transferring
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Landlord shall, from and after the date of conveyance, be free of all
liabilities and obligations relating to the period after said date.
27. Subordination of Lease.
The rights of the Tenant under this Lease shall be and are subject and
subordinate at all times to all ground leases and underlying leases, if any, now
or hereafter in force against the Property, and to the lien of any mortgages now
or hereafter in force against such leases, the Land or the Building, or all of
them, and to all advances made or hereafter to be made, and to all renewals,
modifications, amendments, consolidations, replacements and extensions thereof.
This Section is self-operative and no further instrument of subordination shall
be required. Any mortgagee may, however, elect to have this Lease be superior to
its mortgage. At Landlord's request, Tenant shall execute a document in
recordable form confirming that this Lease is subordinate (or at the mortgagee's
election, superior) to any mortgage. Tenant hereby irrevocably appoints Landlord
as attorney-in-fact for Tenant with full power and authority to execute and
deliver in the name of Tenant any such documents. Tenant, at the option of any
mortgagee, agrees to attorn to such mortgagee in the event of a foreclosure sale
or deed in lieu thereof.
28. Brokers.
Tenant represents and warrants to Landlord that neither it nor its officers or
agents nor anyone acting on its behalf has dealt with any real estate broker
other than COMPASS Management and Leasing, Inc. in the negotiation or making of
this Lease, and Tenant agrees to indemnify and hold harmless Landlord from the
claim or claims of any other broker or brokers claiming to have interested
Tenant in the Building or Premises or claiming to have caused Tenant to enter
into this Lease.
29. Security Deposit.
-16-
<PAGE> 19
30. Miscellaneous.
(a) All rights and remedies of Landlord under this Lease shall be
cumulative and none shall exclude any other rights and remedies allowed by law.
(b) All payments due from Tenant shall be considered as rent, and if
not paid when due shall bear interest from such date until paid at the rate of
2% per annum in excess of the corporate base rate in effect from time to time at
The First National Bank of Chicago (unless a lesser rate shall then be the
maximum rate permissible by law with respect thereto, in which event such lesser
rate shall be charged).
(c) The word "Tenant" means Tenants in all cases where there is more
than one Tenant, and the necessary grammatical changes are deemed made to apply
either to corporations, partnerships or individuals, men or women.
(d) Each of the provisions of this Lease shall extend to and shall, as
the case may require, bind or inure to the benefit, not only of Landlord and of
Tenant, but also of their respective heirs, legal representatives, successors
and assigns, provided this clause shall not permit any assignment contrary to
Section 24.
(e) All of the representations and obligations of Landlord are
contained herein, and no modification, waiver or amendment of this Lease or of
any of its conditions or provisions shall be binding upon the Landlord unless in
writing signed by Landlord or by a duly authorized agent of Landlord empowered
by a written authority signed by Landlord.
(f) Submission of this instrument for examination shall not bind
Landlord in any manner, and no lease or obligation on Landlord shall arise until
this instrument is signed and delivered by Landlord and Tenant.
(g) No rights to light or air over any property, whether belonging to
Landlord or any other person, are granted to Tenant by this Lease.
(h) Sectional headings in this Lease are solely for convenience of
reference and shall not in any way limit or amplify the terms and provisions
hereof.
(i) The laws of the State of Minnesota shall govern the validity,
performance and enforcement of this Lease. The invalidity or unenforceability of
any provision of this Lease shall not offset or impair any other provision. If
any provision of this Lease is capable of two constructions, one of which would
render the provision invalid and the other of which would make the provision
valid, then the provision shall have the meaning which renders it valid.
(j) Nothing contained in this Lease shall be deemed or construed to
create any relationship between Landlord and Tenant other than the relationship
of landlord and tenant.
(k) Landlord shall have the right to apply payments received from
Tenant pursuant to this Lease (regardless of Tenant's designation of such
payments) to satisfy any
-17-
<PAGE> 20
obligations of Tenant hereunder, in such order and amounts, as Landlord in its
sole discretion, may elect.
(l) All indemnities, covenants and agreements of Tenant contained
herein which inure to the benefit of Landlord shall be construed to also inure
to the benefit of Landlord's officers, shareholders, directors, partners, agents
and employees.
31. Exculpation.
Any obligation of Landlord, or its agent, under or with respect to this
Lease or the Building shall be enforceable only against and payable out of
Landlord's interest in the Building and Land. Neither Tenant nor any other
person shall have or may assert any right, recourse or remedy to or against
Landlord or its agent or any assets of Landlord, except to the extent (if any)
of their respective interests in the Building and Land. No officer, shareholder,
director, employee, partner, trustee or beneficiary of Landlord or its agent
assumes or shall have any personal liability of any kind whatsoever under this
Lease.
LANDLORD:
WHIOP Real Estate Limited Partnership
By: WHIOP Gen-Par, Inc.,
a Delaware limited partnership
By: /s/ John F. Markey
----------------------------------------------------------
John F. Markey
-------------------------------------------------------------
Senior Vice President-East
-------------------------------------------------------------
TENANT:
DataWorks Corporation
By: /s/ Robert W. Brandel
----------------------------------------------------------
Robert W. Brandel
-------------------------------------------------------------
Vice President & General Manager
-------------------------------------------------------------
By: /s/ Norman R. Farquhar
----------------------------------------------------------
Norman R. Farquhar
-------------------------------------------------------------
Executive Vice President, Chief Financial Officer & Director
-------------------------------------------------------------
-18-
<PAGE> 21
RIDER TO LEASE AGREEMENT
THIS RIDER to Lease Agreement is attached to and forms a part of that
certain Lease dated January 16, 1997, by and between WHIOP REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership, as Landlord ("Landlord") and
DATAWORKS CORPORATION, a California corporation, as Tenant ("Tenant"), as the
same shall modify, amend, supplement or alter the terms and provisions of said
Lease Agreement and by these presents shall be incorporated therein by reference
and form a part thereof for all purposes.
In consideration of the Premises, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereto further mutually agree as follows:
Expansion
Landlord will give Tenant written notice of the availability of any
portion of the space in the drawing attached hereto as Exhibit I & II prior to
the date when that space (the "Offer Space") is available to Landlord for
leasing and the party in possession of the Offer Space has no desire to remain
in possession. The notice will state the Base Rent for the Offer Space. Tenant
will have the right to lease the Offer space under this Section if:
(a) Tenant is not in default under this Lease.
(b) Other tenants in the Building with present or future rights to
lease the Offer Space have no desire to lease it.
(c) Tenant delivers to Landlord written notice exercising its right to
lease the Offer Space within 10 business days of receipt of Landlord's notice.
If Tenant fails to exercise its right to lease the Offer Space, Tenant
will have no further right to lease the Offer Space under this Section .
A lease of space under this Section will contain the following:
(1) Base Rent will be the amount stated in Landlord's notice.
(2) Taxes and Operating Expenses will be determined in the manner set
out in Landlord's then-current standard form of lease for the Building.
<PAGE> 22
(3) The commencement date for the lease will be the later of the date
the Offer Space becomes available to Landlord for occupancy or 30 days
after notice from Landlord that the Offer Space is available.
(4) The Term will end on the expiration or earlier termination of this
Lease, subject to any renewal option contained in this Lease.
(5) Tenant will take the space in an "As-Is" condition with all
improvements to be Tenant's responsibility at Tenant's cost.
(6) All other terms and conditions will be the same as contained in
this Lease, except that there will be no rent concessions, inducements,
allowances, or similar provisions applicable to the Offer Space.
IN WITNESS WHEREOF, Landlord and Tenant respectively have executed this
Rider to Lease Agreement this 16 day of Jan, 1997.
LANDLORD:
WHIOP Real Estate Limited Partnership
By: WHIOP Gen-Par, Inc.
a Delaware corporation, general partner
By: /s/ John F. Markey
------------------------------------------------
John F. Markey
---------------------------------------------------
Senior Vice President-East
------------------------------------------------
TENANT: DataWorks Corporation
By: /s/ Robert W. Brandel
------------------------------------------------
Robert W. Brandel
---------------------------------------------------
(Print Name)
V.P. & General Manager
---------------------------------------------------
Title
<PAGE> 23
EXHIBIT B
DESCRIPTION OF LAND ON WHICH
INTERCHANGE TOWER AND INTERCHANGE SOUTH
ARE LOCATED
Legal Description for Interchange Tower/South
Parcel 1:
Lot 2, Block 7, Shelard Park, AND that part of Lot 1, Block 7, Shelard Park,
lying Easterly of a line drawn from a point on the North line of said lot
distance 64.51 feet Westerly of the Northeast corner of said Lot to a point on
the South line of said Lot distant 68.97 feet Westerly of the Southeast corner
of said Lot, according to the plat of Shelard Park on file and of record in the
office of the Register of Deeds in and for said County and State.
Parcel 2:
Reciprocal easement in favor of Parcel 1 for pedestrian passageway and arcade
over that part of Lot 3, Block 7, Shelard Park described as follows: Commencing
at the Northeast corner of Lot 2, Block 7, Shelard Park, thence on an assumed
bearing of North 88 degrees, 6 minutes West along the North line of Lot 2 a
distance of 180.24 feet to the point of beginning of the parcel of land to be
described; thence North 46 degrees 54 minutes East a distance of 61.46 feet;
thence North 1 degree 54 minutes East a distance of 40.43 feet; thence North 88
degrees 6 minutes West a distance of 12.17 feet; thence South 1 degree 54
minutes West a distance of 33.71 feet; thence South 46 degrees 54 minutes West a
distance of 70.97 feet more or less to the North line of Lot 2, thence Easterly
to the point of beginning, as set forth in Document No.4071903.
Parcel 3:
An easement in favor of Parcel 1 for driveway purposes over that part of lot 4,
Block 7, Shelard Park, lying Northerly of a line run from a point on the
Northwesterly line of Lot 4, distant 110 feet Southwesterly from the most
Northerly corner of said Lot 4, to a point on the Easterly line of said Lot 4,
distant 105 feet Southerly from the most Northerly corner of said Lot 4, and
lying Southerly of a line run from a point on the Northwesterly line of Lot 4,
distant 69 feet Southwesterly from the most Northerly corner of said Lot 4, to a
point on the Easterly line of said Lot 4, distant 66 feet Southerly from the
most Northerly corner of said Lot 4, as set forth in Document No.4070549.
Parcel 4:
An easement in favor of Parcel 132 feet in width for driveway purposes running
in an east and west direction across Lot 4, Block 7, Shelard Park, the Southerly
line of said easement runs from a point on the Northwesterly line of lot 4,
distant 515.2 feet Southwesterly from
B-1
<PAGE> 24
the most Northerly corner of said Lot 4, to a point on the Easterly line of said
Lot 4, distant 418.5 feet Southerly from the most Northerly corner of said Lot
4, as set forth in Document No.4070550.
Parcel 5:
Easement in favor of Parcel 1 for purposes of construction and maintenance of a
pedestrian concourse building over the following described premises.
That part of the utility and drainage easement on Lots 2 and 3, Block 7, Shelard
Park lying within the following described parcel:
Commencing at the Northeast corner of Lot 2, Block 7, Shelard Park, thence on an
assumed bearing of North 88 degrees 6 minutes West along the North line of Lot 2
a distance of 180.24 feet to the point of beginning of the parcel of land to be
described; thence North 46 degrees 54 minutes East a distance of 11 feet; thence
North 88 degrees 6 minutes West a distance of 18.89 feet; thence South 46
degrees 54 minutes West a distance of 22 feet; thence South 88 degrees 6 minutes
east a distance of 18.89 feet; thence North 46 degrees 54 minutes East a
distance of 11 feet more or less to the point of beginning, except that portion
lying below the bottom of the footings of said buildings constructed above said
easement, as set forth in Document No. 4079834.
Parcel 6:
Lot 3, Block 7, Shelard Park.
Parcel 7:
Reciprocal easement in favor of Parcel 6 for pedestrian passageway and arcade
over that part of Lot 2, Block 7, Shelard Park described as follows: Commencing
at the Northeast corner of Lot 2, Block 7, Shelard Park, thence on an assumed
bearing of North 88 degrees 6 minutes West along the North line of Lot 2 a
distance of 180.24 feet to the point of beginning of the parcel of land to be
described; thence South 46 degrees 54 minutes West a distance of 61.39 feet;
thence South 1 degree 54 minutes West a distance of 28.29 feet; thence North 88
degrees 6 minutes West a distance of 30.19 feet; thence South 46 degrees 54
minutes West a distance of 31.11 feet; thence North 43 degrees 6 minutes West a
distance of 12.00 feet; thence North 46 degrees 54 minutes East a distance of
120.50 feet more or less to the North line of Lot 2, thence Easterly to the
point of beginning.
Parcel 8:
Easement in favor of Parcel 6 for purposes of construction and maintenance of a
pedestrian concourse building over the following described premises:
B-2
<PAGE> 25
That part of the utility and drainage easement on Lots 2 and 3, Block 7, Shelard
Park lying within the following described parcel:
Commencing at the Northeast corner of Lot 2, Block 7, Shelard Park, thence on an
assumed bearing of North 88 degrees 6 minutes West along the North line of Lot 2
a distance of 180.24 feet to the point of beginning of the parcel of land to be
described; thence North 46 degrees 54 minutes East a distance of 11 feet; thence
North 88 degrees 6 minutes West a distance of 18.89 feet; thence South 46
degrees 54 minutes West a distance of 22 feet; thence South 88 degrees 6 minutes
East a distance of 18.89 feet; thence North 46 degrees 54 minutes East a
distance of 11 feet more or less to the point of beginning, except that portion
lying below the bottom of the footings of said buildings constructed above said
easement, as set forth in Document No. 4079834.
B-3
<PAGE> 26
EXHIBIT C
RULES AND REGULATIONS
To the extent that there is any inconsistency between the provisions of
the Lease and these Rules and Regulations, the provisions of the Lease shall
control. For purposes of these Rules and Regulations, the term Tenant means
Tenant and the employees, agents, visitors or licensees of Tenant.
(1) The sidewalks, walks, entries, corridors, concourses, ramps, staircases,
escalators and elevators shall not be obstructed or used by Tenant for any
purpose other than ingress and egress to and from the Premises. No bicycle or
motorcycle shall be brought into the Building or kept on the Premises without
the consent of Landlord.
(2) No freight, furniture or bulky matter will be received into the Building or
carried into the elevators except as may be approved by Landlord. Any hand
trucks, carryalls, or similar appliances used for the delivery or receipt of
merchandise or equipment shall be equipped with rubber tires, side guards and
such other safeguards as Landlord shall require.
(3) Tenant shall not at any time place, leave or discard any rubbish, paper,
articles, or objects of any kind outside the doors of the Premises or in the
corridors or passageways of the Building. No animals or birds shall be brought
or kept in or about the Building except seeing-eye dogs.
(4) Tenant shall not place, or cause or allow to be placed, any sign or
lettering in the windows of the Premises. Tenant shall not place any sign or
lettering in or about the Premises on multi-tenant floors which are visible from
public lobbies or corridors except in and at such places as may be designated by
Landlord and consented to by Landlord in writing. All lettering and graphics on
corridor doors on multi-tenant floors shall conform to the standard prescribed
by Landlord.
(5) Canvassing, soliciting or peddling in the Building is prohibited and Tenant
shall cooperate to prevent same.
(6) Any person in the Building will be subject to identification by employees
and agents of Landlord. All persons in leaving or entering the Building shall be
required to comply with the security policies of the Building. Tenant shall keep
doors to unattended areas locked and shall otherwise exercise reasonable
precautions to protect property from theft, loss, or damage. Landlord shall not
be responsible for the theft, loss, or damage of any property.
(7) Tenant shall not do any cooking (other than microwave heating of food for
employees) or conduct any restaurant, luncheonette, automat, or cafeteria for
the sale of
C-1
<PAGE> 27
food, or permit the delivery of any food or beverage to the Premises, except by
such persons delivering the same as shall be approved by Landlord and only under
regulations fixed by Landlord.
(8) Tenant shall not without Landlord's prior written approval bring or permit
to be brought or kept in or on the Premises any flammable, combustible,
corrosive, caustic, poisonous, or explosive substance, or cause or permit any
odors to permeate in or emanate from the Premises.
(9) No additional locks or bolts of any kind shall be placed on any door in the
Building or the Premises and no lock on any door therein shall be changed or
altered in any respect without the consent of Landlord. Any additional locks or
bolts shall be consistent with Landlord's security system in the Building. If
Landlord permits Tenant to have additional locks, Tenant shall furnish Landlord
the keys and combinations of such locks. Landlord shall furnish two keys for
each lock on exterior doors to the Premises and shall, on Tenant's request and
at Tenant's expense, provide additional duplicate keys. All keys shall be
returned to Landlord upon termination of the Lease. Landlord may at all times
keep a pass key to the Premises. All entrance doors to the Premises shall be
left closed at all times, and left locked when the Premises are not in use.
(10) Tenant shall give immediate notice to Landlord in case of theft,
unauthorized solicitation, or accident in the Premises or in the Building or of
defects therein or in any fixtures or equipment, or of any known emergency in
the Building.
(11) The requirements of Tenant will be attended to only upon application at the
office of Landlord in the Building. Employees of Landlord shall not perform any
work or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
(12) No awnings, draperies, shutters, or other interior or exterior window
coverings that are visible from the exterior of the Building or from the
exterior of the Premises within the Building may be installed by Tenant except
as otherwise provided for therein.
(13) Tenant shall not make excessive noises, cause disturbances or vibrations or
use or operate any electrical or mechanical devices that emit excessive sound or
other waves or disturbances or create obnoxious odors, any of which may be
offensive to the other tenants and occupants of the Building, and shall not
place or install any projections, antennas, aerials or similar devices inside or
outside of the Premises or on the Building other than in accordance with a
written agreement of Landlord and Tenant.
(14) The water and wash closets, drinking fountains and other plumbing fixtures
shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, coffee grounds or other substances
shall be thrown therein. All damages resulting from any misuse of the fixtures
by Tenant shall be borne by Tenant. No person shall waste water by interfering
or tampering with the faucets or otherwise.
C-2
<PAGE> 28
(15) Tenant shall, when using the parking facilities in and around the Building,
observe and obey all signs regarding fire lanes and no parking zones, and when
parking always park between the designated lines. Landlord reserves the right to
tow away, at the expense of the owner, any vehicle which is improperly parked or
parked in a no parking zone. All vehicles shall be parked at the sole risk of
the owner, and Landlord assumes no responsibility for any damage to or loss of
vehicles.
(16) Landlord shall have the right to prohibit any advertising by Tenant which,
in Landlord's opinion, tends to impair the reputation of the Building or its
desirability for offices, and, upon written notice from Landlord, Tenant will
refrain from or discontinue such advertising. In no event shall Tenant, without
the prior written consent of Landlord, use the name of the Building or use
pictures or illustrations of the Building.
(17) Tenant shall not mark, paint, drill into, or in any way deface any part of
the Building or Premises. No coring, boring, driving of nails or screws,
cutting, or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. Tenant shall not install any
resilient tile or similar floor covering in the Premises except with the prior
approval of Landlord.
(18) Tenant shall not use the Premises or permit the Premises to be used for
photographic, multilith or multigraph reproductions, except in connection with
its own business and not as a service for others, without Landlord's prior
permission.
(19) Tenant shall not use or permit any portion of the Premises to be used as an
office for a public stenographer or typist, offset printing, the sale of liquor
or tobacco, a barber or manicure shop, an employment bureau, a labor union
office, a doctor's or dentist's office, a dance or music studio, any type of
school, or for any use other than those specifically granted in this Lease.
(20) Tenant shall not advertise for laborers giving the Premises as an address,
nor pay such laborers at a location in the Premises.
(21) Tenant shall at all times keep the Premises neat and orderly.
(22) All telegraph, telephone, and electric connections which Tenant may
desire shall be first approved by Landlord in writing, by contractors approved
by Landlord and subject to the direction of Landlord. Landlord reserves the
right to control access to telephone cabinets and limit access to vendors or
contractors specified by Landlord. Tenant shall pay all costs in connection with
installation of telephone cables and related wiring in the Premises, including,
without limitation, any hook-up, access and maintenance fees. Upon expiration of
the Term hereof, by lapse of time or otherwise, Tenant shall, if requested by
Landlord, remove all telephone cables and related wiring installed by Tenant for
and during Tenant's occupancy.
C-3
<PAGE> 29
EXHIBIT D
THIS RIDER is attached to and forms a part of a certain lease dated January 16,
1997, between WHIOP Real Estate Limited Partnership, as Landlord, and DataWorks
Corporation, as Tenant.
Work to be Done in the Premises.
Landlord shall provide the Tenant a leasehold improvement allowance of
$35,000.00 to be used to remodel and redecorate the Premises in accordance with
Paragraph 9 of the Lease (Alteration). Tenant shall use the funds by no later
than July 31, 1998.
In addition, Landlord shall ensure that the office furniture system currently in
place in Suite 1701, Interchange Tower, shall be conveyed at no cost to the
Tenant.
In the event Tenant fails to deliver its plans within the time required below or
in the event that Tenant modifies or changes its plans thereafter, then it shall
be conclusively presumed that delivery of the Premises was delayed by the amount
of time equivalent to such delay in delivery, of plans or by the amount of time
requited to make revised plans, correct work and otherwise make the changes
required by Tenant and in this event Tenant shall pay to Landlord all its costs
for such changes and a sum equal to the base annual rent for the period of such
delay.
If the Tenant desires alterations and improvements in excess of or other than
the work heretofore provided for in this section ("Tenant's Additional Work"),
the Landlord shall do the same at the Tenant's expense, provided the work shall
be approved by the Landlord, which approval shall not be unreasonably withheld,
and further provided that no part of the work shall be of a character which will
require changes outside the Premises or will adversely affect the legality of
the use of the Building at the cost of fire insurance for the Building.
The Tenant shall reimburse the Landlord from time to time on demand for the
cost of Tenant's Additional Work, including the cost of architectural or
engineering services required to coordinate Tenant's Additional Work with the
Landlord's Work. Costs as used herein shall include all bona tide charges to
Landlord either from a general contractor or from suppliers, materialmen,
laborers or other contractors for material, labor, contractor's charges and
other out-of-pocket costs plus 15% for overhead and profit, other expenses and
contingencies. Any amount for which the Tenant fails to reimburse the Landlord
on demand shall be considered Additional Rent hereunder, and may be added to any
installation of Rent thereafter becoming due, and the Landlord shall have the
same remedies for a default in such reimbursement as for a default in the
payment of Rent.
In order to permit integration with other work being done by the Landlord in the
Premises and the Building without causing any delays in such work, the Tenant
shall furnish the Landlord with the Tenant's drawings not later than N/A and
color selections not later than N/A for any work to be done pursuant to this
Section .
<PAGE> 30
TENANT ESTOPPEL CERTIFICATE
To: CS First Boston Mortgage Capital Corp., its successors and/or assigns
WHIOP Real Estate Limited Partnership, its successors and/or assigns
Re: Interchange Office Park
600 South Highway 169
St. Louis Park, MN 55426
Lease Date: January 16, 1997
Between: WHIOP Real Estate Limited Partnership, a Delaware limited
partnership,
as Landlord, and
DataWorks Corporation, as Tenant
Square Footage Leased: 28,942
Suite Number: 1701 and 2000
Gentlemen:
The undersigned ("TENANT") understands that CS First Boston Mortgage
Capital Corp., a Delaware corporation ("LENDER"), is about to make a loan (the
"LOAN") to WHIOP Real Estate Limited Partnership, a Delaware limited partnership
("LANDLORD"), which Loan is to be secured by a mortgage encumbering the
above-referenced property (the "PROPERTY") and the leases, rents and profits
thereof. Landlord has requested the undersigned to deliver this Tenant Estoppel
Certificate to Lender. The undersigned, as tenant under the above-referenced
lease (the "LEASE"), hereby certifies to Landlord and to Lender, its successors
and assigns, as of the date hereof as follows:
1. The Lease is in full force and effect. Landlord and Tenant have not
entered into any other agreements that have modified, supplemented or amended in
any way the terms and provisions of the Lease, except as follows: None.
The Lease, as amended (if amended), represents the entire agreement between the
parties as to the above-referenced demised premises (the "DEMISED PREMISES").
2. The monthly rental currently being paid for the Demised Premises
is as follows:
<TABLE>
<S> <C>
base rent $50,650.00
in excess of base year common area charges $ 1,182.00
in excess of base year real estate taxes $ 289.00
other ( _________) $ 0
</TABLE>
Tenant has paid all rent for the Demised Premises up to and including
______________, 199__.
3. Tenant's security deposit under the Lease is $00.00 (the "SECURITY
DEPOSIT"). Except for the Security Deposit, Tenant has no claim against Landlord
for any deposits or other security.
1
<PAGE> 31
4. In accordance with Paragraph 3 of the Lease, the base year common
area charges and real estate taxes, as defined in the Lease, are:
<TABLE>
<S> <C>
Operating Expenses $5.17
Property Taxes $2.97
</TABLE>
5. The commencement date of the Lease was February 1, 1997 for Suite
1701 portion and April 1, 1997 for entire space, the Lease terminates on March
31, 2002, and Tenant has the following renewal or extension options: None
6. All work to be performed for Tenant under the Lease has been
performed as required and has been accepted by Tenant; and any payments, free
rent, partial rent, rebate of rent or other payments, credits, allowances or
abatements required to be given by Landlord to Tenant have been received by
Tenant, except (if none, state none):
7. No default on the part of Landlord or Tenant exists under the
Lease. To the best of Tenant's knowledge, no event that with the giving of
notice or the passage of time, or both, would constitute a default by Landlord
or Tenant, or their assignees, under the Lease has occurred. Tenant has no
offset, defense, deduction or claim against Landlord.
8. Tenant has not assigned, sublet or transferred its interest in the
Lease and/or the Demised Premises, or any part thereof, except as follows:
None..
9. Tenant is in possession of the Demised Premises and no one other
than Tenant and its employees occupies the Demised Premises, unless assigned or
sublet as noted in Paragraph 8 above.
10. Tenant has no right or option to expand the Demised Premises, to
lease additional space at the Property, to relocate to different space or any
right of first refusal to lease additional space at the Property, other than the
following: Expansion rights to Suite 1700, 1750 and 1200.
11. Tenant has no option or right pursuant to the Lease or otherwise to
purchase the Property of which the Demised Premises are a part, or any part
thereof.
12. Neither the Lease nor any obligations of Tenant thereunder have
been guaranteed by any person or entity, except as follows: None.
13. No bankruptcy or insolvency proceedings are pending by or against
Tenant.
14. There is no outstanding material dispute of any nature between
Tenant and Landlord in respect of the Lease.
15. Tenant acknowledges and consents to Landlord's assignment of the
Lease and the rents to be paid thereunder to Lender and recognizes that Lender
would not make the Loan to Landlord but for the execution by Tenant of this
Tenant Estoppel Certificate.
2
<PAGE> 32
The statements contained herein may be relied upon by Lender and
Lender's successors and assigns.
The undersigned person is duly authorized to execute this Tenant
Estoppel Certificate. In addition, if Tenant is a corporation, the undersigned
person is a duly appointed officer of Tenant and is the incumbent in the office
indicated under his name.
DATED this 9 day of March, 1997.
TENANT:
DataWorks Corporation
By: /s/ Robert W. Brandel
--------------------------------------
Name
Exec. VP & C.O.O.
-----------------------------------------
Title
3
<PAGE> 33
TENANT'S copy
STORAGE LEASE
This Lease is entered into as of February 25, 1997, between WHIOP REAL
ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord") and
DATAWORKS CORPORATION, a California corporation ("Tenant").
1. Definitions. In this lease:
(a) "Building" means the building at 600 South Highway 169, St.
Louis Park, Minnesota, commonly known as Interchange Tower,
located on the land described in the Office Lease defined
below.
(b) "Office Lease" means the Lease Agreement between Landlord and
Tenant dated January 16, 1997 covering certain office space in
the Building.
(c) "Rent" means $506.00 each calendar month.
(d) "Storage Space" means approximately 675 square feet of space
referred to as Storage Space No. 2130, on the 21st floor level
of the Building as crosshatched on the attached Exhibit A.
(e) "Term" means the period from April 1, 1997 to and including
March 31, 2002, or the date of termination of the Office
Lease, if earlier.
2. Lease of Space. Landlord leases the Storage Space to Tenant, and Tenant
accepts and leases the Storage Space from Landlord, for the Term, under the
terms and conditions of this Lease.
3. Rent. Tenant will pay the Rent to Landlord monthly in advance at the
time and in the manner provided for rental payments under the Office Lease.
4. Additional Terms. All provisions of the Office Lease will be deemed to
be a part of this Lease and will apply to the Storage Space in the same manner
as such provisions apply to the Premises defined in the Office Lease except for
any provisions of the Office Lease regarding free rent, improvement allowances,
moving allowances, options to renew, options to expand, or similar concessions,
and except in the following provisions of the Office Lease:
Section 2 (Rent)
Section 5 (Services - This will include only heat, lighting and
taxes on the Storage Space)
Section 4 (Use of Premises)
Section 29 (Security Deposit)
<PAGE> 34
Storage Lease
5. Use. The Storage Space may be used for general storage and for no other
purposes. No perishable or hazardous products may be stored in the Storage Space
and Tenant will permit no noxious or objectionable vapors or odors to emanate
from the Storage Space. Tenant will comply with all laws, ordinances and
regulations of any governmental authority or insurer for the Building, and will
not store anything in the Storage Space which will conflict with Landlord's
insurance policies or result in increased premiums. Tenant will not overload any
floor, wall, hallway, or elevator, in the Storage Space or elsewhere in the
Building. Tenant will keep the Storage Space in a neat, clean, orderly and safe
condition.
6. Services. Landlord will have no obligation to supply janitor service or
any utilities other than existing electric lighting and heat appropriate for
storage areas.
7. Risk of Loss or Damage. All property located in the Storage Space will
be there at Tenant's risk. Landlord will not be liable for any damage, theft,
misappropriation, or any other loss of or damage to such property. and Tenant
will be fully responsible for its own security in the Storage Space.
Landlord and Tenant have executed this Lease to be effective as of the date
stated in the first paragraph.
Tenant: Landlord:
DataWorks Corporation WHIOP Real Estate Limited Partnership
By: COMPASS Management and
Leasing, Inc., Its Managing Agent
By: /s/ Robert W. Brandel By: /s/ Douglas L. Johnson
------------------------------ --------------------------------------
Douglas L. Johnson
Its: Executive Vice President Its: General Manager
& Chief Operating Officer -------------------------------------
------------------------------
(Title)
<PAGE> 35
EXHIBIT I
[FLOOR PLAN SIXTH-NINETEENTH FLOOR]
Suite 1750 Suite 1700
Charles M. Cook, Co. ISI Systems
1,877 rentable square feet 8,929 rentable square feet
Lease Expiration 11-30-97 Lease Expiration 2-29-00
ISI System
- one 5 year option to renew
- right to expand into Suite 1750
INTERCHANGE TOWER - TYPICAL FLOOR (SIXTH - NINETEENTH)
- ------------------------------------------------------------------------NORTH>
600 HWY 169, MPLS, MN 55426
[PLANSPACE LOGO] 17 MARCH, 1995
<PAGE> 36
EXHIBIT II
[FLOOR PLAN TWELFTH FLOOR]
Suite 1200
Fireman's Fund Insurance
17,859 rentable square feet
Lease Expiration 5-31-99
INTERCHANGE TOWER - TWELFTH FLOOR
- ------------------------------------------------------------------------NORTH>
600 HWY 169, MPLS, MN 55426
[PLANSPACE LOGO] 17 MARCH, 1995
<PAGE> 37
EXHIBIT A-1
[FLOOR PLAN TWENTIETH FLOOR]
Suite 2000
21,889 rentable square feet
INTERCHANGE TOWER - TWENTIETH FLOOR
- ------------------------------------------------------------------------NORTH>
600 HWY 169, MPLS, MN 55426
[PLANSPACE LOGO] 17 MARCH, 1995
<PAGE> 38
EXHIBIT A-2
[FLOOR PLAN SIXTH - NINETEENTH FLOOR]
Suite 1701
7,053 rentable square feet
INTERCHANGE TOWER - TYPICAL FLOOR (SIXTH - NINETEENTH)
- ------------------------------------------------------------------------NORTH>
600 HWY 169, MPLS, MN 55426
[PLANSPACE LOGO] 17 MARCH, 1995
<PAGE> 39
EXHIBIT A
[FLOOR PLAN TWENTY-FIRST FLOOR]
Suite 2130
675 usable square feet
INTERCHANGE TOWER - TWENTY-FIRST FLOOR
- ------------------------------------------------------------------------NORTH>
600 HWY 169, MPLS, MN 55426
[PLANSPACE LOGO] 7 FEBRUARY, 1996
<PAGE> 1
Exhibit 10.20
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as
of December 20, 1996, by and between DATAWORKS CORPORATION ("Borrower") and
WELLS FARGO BANK, NATIONAL ASSOCIATION as successor by merger to FIRST
INTERSTATE BANK OF CALIFORNIA ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of September 6, 1995, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 6.4 is hereby deleted in its entirety, and the following substituted
therefor:
"6.4 Acquisitions and Investments. Make any Acquisition or enter into
any agreement to make any Acquisition, or make any Investment, except
Investments in cash and Cash Equivalents and Permitted Investments and
acquisitions within the same line of business as Borrower provided,
however, that Borrower demonstrates to Bank that on a post-acquisition
basis Borrower would be in compliance with all the terms and conditions
of this agreement."
2. Section 6.5 is hereby deleted in its entirety, and the following substituted
therefor:
"6.5 Distributions. Distributions are permitted so long as Borrower is,
and would be, in compliance with all the terms and conditions of this
agreement both prior to and after such Distribution."
3. Section 6.10 is hereby deleted in its entirety without substitution.
4. Section 6.11 is hereby deleted in its entirety without substitution.
1
<PAGE> 2
5. Section 6.12 is hereby deleted in its entirety, and the following
substituted therefor:
"6.12 Debt to Worth Ratio. Permit as of the end of any Fiscal Quarter
the ratio of Total Liabilities divided by Total Net Worth to be greater
than 0.50 to 1.00." Accounting terms not specifically defined shall be
defined according to Generally Accepted Accounting Principals
consistently applied.
6. Section 6.13 is hereby deleted in its entirety, and the following
substituted therefor:
"6.13 Positive Net Income Before Taxes. Permit Net Income Before Taxes
(a) as of the end of any Fiscal Quarter, for the period consisting of
that Fiscal Quarter and the three immediately preceding Fiscal
Quarters, to be less than $1.00, or (b) as of the end of any two
consecutive Fiscal Quarters to be less than $1.00."
7. Section 6.14 is hereby deleted in its entirety, and the following
substituted therefor:
"6.14 Quick Ratio. Permit the Quick Ratio as of the last day of any
Fiscal Quarter to be less than 2.00 to 1.00."
8. Section 6.15 is hereby deleted in its entirety without substitution.
9. Section 6.17 is hereby deleted in its entirety without substitution.
10. The following is hereby added to the Credit Agreement as Section 6.18:
"6.18 Minimum Tangible Net Worth. Permit as of the last day of any
Fiscal Quarter Minimum Tangible Net Worth, defined as Tangible Assets
minus Total Liabilities to be less than Fifty Million Dollars. Tangible
Assets shall be defined according to Generally Accepted Accounting
Principals consistently applied, with the exception that capitalized
software shall be considered a tangible asset.
11. Section 7.1(e) is hereby deleted in its entirety without substitution.
12. Section 7.1(f) is hereby deleted in its entirety without substitution.
2
<PAGE> 3
13. (a) Bank hereby releases its security interest in the Collateral. Each of
the Collateral Documents (as defined in the Credit Agreement) is hereby
deemed to be terminated and of no further force and effect.
(b) The first sentence of Section 2.5 is hereby deleted in its entirety.
(c) Section 4.18 is hereby deleted in its entirety without substitution.
(d) Section 9.1 (k) is hereby deleted in its entirety without substitution.
(e) Bank hereby agrees to provide Borrower with any further documentation
reasonably requested by Borrower to effect the release of Bank's
security interest in Collateral, including, without limitation, (i) UCC
termination statements and (ii) releases to be filed with the United
States Patent and Trademark Office and United States Copyright Office.
Bank shall also promptly return to Borrower any Collateral currently in
the Bank's possession including, without limitation, the Pledged
Securities (as defined in the Borrower Pledge Agreement).
14. Except as specifically provided herein, all terms and conditions of the
Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
15. Borrower hereby remakes all representations and warranties contained in the
Credit Agreement and reaffirms all covenants set forth therein. Borrower further
certifies that as of the date of this Amendment there exists no Event of Default
as defined in the Credit Agreement, nor any conditions, act or event which with
the giving of notice or the passage of time or both would constitute any such
Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
DATAWORKS CORPORATION WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Rich Russo By: /s/ David G. Ligon
------------------------------- --------------------------------------
Title: V.P. Finance Title: V.P.
---------------------------- -----------------------------------
3
<PAGE> 4
Insert 12A
12A. (a) Bank hereby releases its security interest in the Collateral. Each of
the Collateral Documents (as defined in the Credit Agreement) is hereby deemed
to be terminated and of no further force or effect.
(b) The first sentence of Section 2.5 is hereby deleted in its entirety.
(c) Section 4.18 is hereby deleted in its entirety without substitution.
(c) Section 9.1(k) is hereby deleted in its entirety without substitution.
(d) Bank hereby agrees to provide Borrower with any further documentation
reasonably requested by Borrower to effect the release of Bank's security
interest in the Collateral, including, without limitation, (i) UCC termination
statements and (ii) releases to be filed with the United States Patent and
Trademark Office and United States Copyright Office. Bank shall also promptly
return to Borrower any Collateral currently in the Bank's possession including,
without limitation, the Pledged Securities (as defined in the Borrower Pledge
Agreement).
1.
<PAGE> 1
EXHIBIT 10.21
RECOMMENDED DATAWORKS EXECUTIVE
COMPENSATION PLAN SUMMARY
OBJECTIVES
The plan is designed to meet these key objectives:
- Provide an objective structure and process for setting goals,
evaluating performance, and making pay decisions:
- Provide a leveraged financial incentive to meet corporate goals,
business unit goals, individual goals, and to help attract and retain
key employees:
- Enhance alignment between employees, Company success, and shareholder
interests:
ADMINISTRATION
The Compensation Committee of the Board of Directors will be responsible for
administering the Plan and will delegate specific administrative tasks to
corporate staff, as appropriate.
ELIGIBILITY
Vice Presidents and above are eligible to participate in the Plan. The
CEO/Chairman recommends participants and their participation levels at the start
of the performance period to the Compensation Committee for approval. Sales
commission eligible positions will not participate in the Plan.
AWARD OPPORTUNITY
Target annual Award or bonus amounts, may be expressed as a percent of base
salary or as fixed amounts, based on individual executive's program
participation level (i.e. Vice President, Executive Vice President,
President/CEO etc.). Actual Awards will vary above or below t&get levels
depending upon performance against objectives and may range as high as 250
percent of target awards.
The incentive award opportunity may be determined on corporate and individual
performance objectives, or solely on corporate objectives, as recommended by the
CEO/Chairman and approved by the Compensation Committee.
<PAGE> 2
PLAN FUNDING
Aggregate awards under the Plan will be equal to the "sum of required payments"
to individual participants according to the performance/award schedule
recommended by the CEO/Chairman and approved by the Compensation Committee at
the beginning of each fiscal year:
THRESHOLD PERFORMANCE
Minimum performance levels as approved by the Compensation Committee at the
beginning of each fiscal year, must be achieved before awards will be earned.
Participants are not entitled to any award under the Plan if minimum corporate
and business unit performance objectives are not achieved. However, the
Compensation Committee, in its sole discretion and pursuant to circumstances it
deems relevant, may reward outstanding individual performers for their
contribution to the organization for the Plan year.
TIMING AND FORM OF AWARD PAYMENT
Payment of awards will occur as soon as practical following the relevant
performance period, generally within sixty (60) days following the end of the
fiscal or Plan year (and following audited results), and thirty (30) days
following the end of the semi-annual performance period.
One hundred percent of awards will be paid in cash. The payment of awards is
subject to normal tax withholding requirements.
AWARD RANGE
<TABLE>
<CAPTION>
CORPORATE INDIVIDUAL (1,2)
<S> <C>
0%-250% of target 0%-150% of target
</TABLE>
(1) - Individual amounts above 100% require minimum
of 100% achievement of corporate objective.
(2) - Individual objectives to be established no later than
March 31, 1996.
INDIVIDUAL PERFORMANCE TABLE
<TABLE>
<CAPTION>
MULTIPLIER
INDIVIDUAL RATING ON GOAL ACHIEVEMENT (AS A % OF TARGET)
<S> <C>
5 = Consistently exceeds all goals 150%
4 = Frequently exceeds most goals 125%
3 = Meets and occasionally exceeds goals 100% Target
2 = Needs improvement 50%
1 = Unacceptable 0%
</TABLE>
<PAGE> 3
AWARD DETERMINATION/PERFORMANCE MEASURES
The Compensation Committee will assess performance based on measures that
reflect the Company's annual Management Financial Plan and analyst expectations
as deemed appropriate. At the corporate and business unit levels, measures
relate directly to value creation, focusing on profitability, growth, and asset
utilization. At the individual level, line-of-sight measures to support these
overall corporate and business unit goals will be used.
- CORPORATE LEVEL
- Operating Income (pre-tax - from normal ongoing operations)
- or Earnings Per Share (EPS)
These figures may be adjusted for any extraordinary activity such as
acquisitions, mergers, major product licensing etc. to arrive at a
normalized operating income or EPS on which to measure executive
management team performance. In these cases, the Compensation
Committee may elect to qualify award amounts on other factors, such as
acquisition/merger success criteria versus planned objectives.
- INDIVIDUAL LEVEL (examples of individual goals typically
associated with individual business unit)
- Net Sales/Gross Margin
- Expense Control/Asset Management
- Quality/Reliability
- Customer Satisfaction
- Service/Quality
- Time-to-Market/Technology
- Value/Cost
At the individual level, individual goals will be set as part of a
performance management system. Goals may include both quantitative and
qualitative criteria.
PERFORMANCE PERIOD AND AWARD FREQUENCY
Awards will be earned and paid based on the following schedule:
<TABLE>
<CAPTION>
SEMI-ANNUAL
LEVEL PERFORMANCE ANNUAL PERFORMANCE
<S> <C> <C>
Pres/CEO Up to 35% of annual target 100% of annual target award
Exec VP award (net of 6-month award)
Vice President 50% of annual target award 50% of annual target award
</TABLE>
<PAGE> 4
EXHIBIT I:
<TABLE>
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.72 200% 225% 250% 250% 250%
0.69 140% 150% 150% 150% 150%
EPS 0.67 100% 100% 100% 100% 100%
(S) 0.65* 65% 70% 75% 75% 75%
0.61** 40% 45% 50% 50% 50%
- --------------------------------------------------------------------
90% 95% 100% 105% 110%
of Plan of Plan of Plan of Plan of Plan
---------------------------------------------------
</TABLE>
NET SALES
* Current analyst projection
** Minimum achievement level for any award participation
NOTES:
- This schedule effects only the corporate performance-oriented award
segment. Individual measurements will be judged separately from
corporate goals. All EPS figures are net of payout of all performance
Award amounts.
- Semi-annual Corporate Award Payments require a minimum of $0.24
(analyst projection level for first two quarters).
- Semi-annual Corporate Award Payments will be only paid to a maximum of
100% of Award amount. Performance in excess of 100% will be accounted
for in year-end Award calculations.
ANNUAL AND MAXIMUM INCENTIVE OPPORTUNITY (Expressed as a percent of
recommended Award amount for 1996)
<TABLE>
<CAPTION>
---------------------------------------------------
ANNUAL TARGET
AWARD BREAKDOWN %
---------------------------------------------------
Level Corporate Individual
---------------------------------------------------
<S> <C> <C>
CEO/Chairman 80 20
---------------------------------------------------
Exec VP* 70 30
---------------------------------------------------
Vice President 60 40
---------------------------------------------------
</TABLE>
* Norm Farquhar was granted a modified plan for 1996
as part of his employment agreement.
<PAGE> 5
ANNUAL AWARD AMOUNT EXAMPLES (for Vice President Level)
Example 1: Average
Assumptions:
- Achieve EPS of $0.67
- Achieve Net Sales of 100% of Plan
- Vice President achieves Individual objectives
<TABLE>
<S> <C>
Corp = Individual Total Target Award x Individual % Allocation x Multiple from Matrix
Award = $45K x 60% x 100% = $27K
Individual = Individual Total Target Award x Individual % Allocation x Achievement Multiplier
Award = $45K x 40% x 100% = $18K
----
TOTAL AWARD: $45K
====
</TABLE>
Example 2: Maximum
Assumptions:
- Achieve EPS of $0.72
- Achieve Net Sales of 105% of Plan
- Vice President achieves a "Consistently exceeds goals" rating
<TABLE>
<S> <C> <C> <C> <C>
Corp Award = $45K x 60% x 250% = $67.5K
Individual Award = $45K x 40% x 150% = $27 K
------
TOTAL AWARD: $94.5K
======
</TABLE>
Example 3: Minimum
Assumptions:
- Achieve EPS of $0.61
- Achieve Net Sales of 90% of Plan
- Vice President achieves "Needs improvement" rating
<TABLE>
<S> <C> <C> <C> <C>
Corp Award = $45K x 60% x 40% = $10.8K
Individual Award = $45K x 40% x 50% = $9 K
------
TOTAL AWARD: $19.8K
======
</TABLE>
<PAGE> 6
COMPENSATION FOR DATAWORKS EXECUTIVE GROUP
FOR 1996 PER BOARD COMPENSATION
COMMITTEE APPROVAL 212/96
<TABLE>
<CAPTION>
1996 COMP PLAN*
BASE AWARD
SALARY AMOUNT
<S> <C> <C>
Clifton 272 150
CEO/President
Howlett 180 90
EVP/Sales & Marketing
Farquhar 200 50
EVP/CFO
Russo 120 45
VP/Finance
J. Hiraoka 140 45
VP/ECS
P. Turner 135 45
VP/Current Product Development
P. Batten 130 45
VP/Professional Services Division
S.Hiraoka 145 45
VP/Integrated Products Division
</TABLE>
* Effective January 1, 1996. All advances/draws, etc. to be discontinued.
<PAGE> 1
EXHIBIT 10.22
DCD CORPORATION
600 HIGHWAY 169
2000 INTERCHANGE TOWER
MINNEAPOLIS, MN 55426
September 27, 1996
Mr. Robert W. Brandel
14500 McGinty Road West
Wayzata, MN 55391
Re: Employment Terms
Dear Mr. Brandel:
DCD Corporation (the "Company") is pleased to offer you the position of
Vice President and General Manager, on the terms set forth below. When you
countersign this letter accepting this offer of employment (provided the closing
of the merger between the Company and a subsidiary of DataWorks Corporation has
occurred), you will receive as soon as practicable from the Company a "retention
bonus" of $80,000. However, this retention bonus is conditioned upon your
continued full-time employment with the Company for two years following the date
of your countersignature, and in the event your employment terminates prior to
such time (unless terminated by the Company without cause), you will be required
to return to the Company immediately following such termination the portion of
your retention bonus equal in proportion to the remaining portion of your two
year obligation described in this sentence.
Your compensation will be $180,000 per annum, less payroll deductions
and all required withholdings, and you will be entitled to additional
compensation, including stock options, as may be agreed upon by you and the
Company. You will be paid on the Company's normal paydays and you will be
eligible for the standard Company benefits. As an exempt salaried employee, you
will be expected to work the hours required by the nature of your work
assignments. The Company may modify your position, duties, work location,
compensation and benefits from time to time as it deems necessary.
As a Company employee, you will be expected to abide by Company rules
and regulations, and (if requested by the Company) sign and comply with a
confidentiality agreement or a proprietary information and inventions agreement,
which, among other things, prohibits unauthorized use or disclosure of Company
proprietary information.
<PAGE> 2
Mr. Robert W. Brandel
September 27, 1996
Page Two
Your employment relationship with the Company is at-will. You may
terminate your employment with the Company at any time and for any reason
whatsoever simply by notifying the Company. Likewise, the Company may terminate
your employment at any time and for any reason whatsoever, with or without
cause or advance notice. This at-will employment relationship cannot be changed
except in a writing signed by a Company officer.
The employment terms in this letter supersede any other agreements or
promises made to you by anyone, whether oral or written, and all prior
employment agreements between you and the Company.
Sincerely,
DCD CORPORATION
/s/ Norman R. Farquhar, E.V.P. & C.F.O.
----------------------------------------
Name and Title
Accepted by:
/s/ Robert W. Brandel
- ----------------------------
Robert W. Brandel
September 27, 1996
- ----------------------------
Date
<PAGE> 1
EXHIBIT 10.23
DATAWORKS CORPORATION
SPLIT-DOLLAR INSURANCE AGREEMENT
[ENDORSEMENT]
THIS AGREEMENT is made and entered into this _____ day of
_______________, 1997, by and between DATAWORKS CORPORATION, a California
corporation, with its principal place of business located in San Diego,
California (hereinafter referred to as "Employer"), and ______________
(hereinafter referred to as "Employee").
WHEREAS, Employee is a valued employee of Employer and Employer wishes
to retain him in its employ; and
WHEREAS, Employer, as an inducement to such continued employment,
wishes to assist Employee with his personal life insurance program.
NOW THEREFORE, in consideration of the premises and of the mutual
promises contained herein, Employer and Employee agree as follows:
1. (a) Employer has purchased or will purchase a policy of life
insurance insuring Employee's life (hereinafter referred to as "Policy"). The
Policy is Policy Number ____________ and is issued by New York Life Insurance
and Annuity Corporation (hereinafter referred to as "Insurer") in the amount of
$________________. Employer and Employee agree that the Policy shall be subject
to the terms and conditions of this Agreement and that Employer and Employee
shall take any action that may be necessary to cause the Policy to conform to
the provisions of this Agreement, including the execution and filing by Employer
of a form of endorsement with the Insurer setting forth the applicable terms of
this Agreement. Except as provided in Section 2, Employer shall be the sole and
absolute owner of the Policy and, except in the event of a Change in Control, as
defined in Section 10, the direct beneficiary of an amount of the death benefit
proceeds equal to the greater of (a) the cash surrender value of the Policy as
of the date to which premiums have been paid, or (b) the premiums paid to
Insurer by the Employer; provided, however, that upon and following the
occurrence of a Change in Control as defined in Section 10, Employer shall have
the right to receive only the cash surrender value of the Policy. Except as
otherwise provided in this Agreement, Employer shall have the right to borrow or
withdraw from the cash surrender value of the Policy. Any indebtedness on the
Policy incurred by Employer will first be deducted from the proceeds payable to
the Employer, including any accrued but unpaid interest due on such
indebtedness.
(b) Upon the death of Employee, Employer promptly shall take
all action necessary to obtain payment of the death benefit provided under the
Policy. Death benefit proceeds payable under the Policy shall be paid first to
Employer, as provided in this Section 1. Any remaining proceeds then shall be
paid to the beneficiary described in Section 2. No amount shall be paid from the
death benefit proceeds to the beneficiary until the full amount due
1.
<PAGE> 2
Employer hereunder has been paid. The parties hereto agree that the beneficiary
designation of the Policy shall conform to the provisions hereof.
2. Employee shall have the right to designate and change direct and
contingent beneficiaries of any death benefit proceeds remaining after the
amounts described in Section 1, above, are paid to Employer, and to elect and
change a payment plan for such beneficiaries. Any assignment of the Policy
proceeds by the Employee pursuant to Section 8, of this Agreement, shall be
limited to the death proceeds only and shall not apply to the amounts payable to
the Employer as described in Section 1.
3. (a) Premiums on the Policy shall be paid in accordance with this
Section 3. During such period as Employer is required to pay the premiums, the
entire premium on the Policy shall be paid by Employer as it becomes due, or
within the grace period provided therein, or Employer shall, as applicable,
cause the cash value of the Policy to be used to pay such premiums. Employer
shall not permit the Policy to lapse or to be canceled by Insurer because of
Employer's failure to pay or cause to be paid sufficient premiums in a timely
manner to keep the Policy in full force and effect. Employer shall be obligated
to pay the premiums or cause the premiums to be paid so long as Employee is
employed by Employer unless either (i) this Agreement, prior to the occurrence
of a Vesting Event as defined in Section 6, is terminated as provided in Section
5, or (ii) the Policy, prior to the occurrence of a Vesting Event, is disposed
of by the Employer, as provided in Section 4. On or following the occurrence of
a Vesting Event, Employer shall continue to pay the premiums or to cause the
premiums on the Policy to be paid until the Employee's death, regardless of
whether Employee continues employment with Employer or terminates employment
with Employer. Notwithstanding any provision in this Agreement to the contrary,
Employer's obligation to pay premiums on the Policy or to cause such premiums to
be paid is conditioned on Employee entering into, for each year, and prior to
the date such premiums are due, a promissory note, to the extent such note is
required as described in Section 9, below. Upon request, Employer shall promptly
furnish Employee evidence of timely payment of each premium. Employer annually
shall furnish Employee with a statement of the amount of income reportable by
Employee for federal and state income tax purposes as a result of its payment of
such premium.
(b) Dividends, if any, declared on the Policy shall be applied
to reduce the amount of premiums due on the Policy. The parties hereto agree
that the dividend election provisions of the Policy, if any, shall conform to
the provisions hereof.
4. Prior to the occurrence of a Vesting Event, while Employee remains
employed by Employer, Employer shall not sell, surrender, change the insured or
transfer ownership of the Policy while this Agreement is in effect or terminate
the dividend election thereof, if any, without obtaining the written consent of
Employee and without first giving Employee the option to purchase the Policy
during a period of sixty (60) days from notice to Employee of such intention. If
Employee elects to purchase the Policy, the purchase price of the Policy shall
be the cash surrender value of the Policy as of the date of transfer to
Employee, less any Policy and premium loans and any other indebtedness secured
by the Policy. Provided, however, that if at the time Employee elects to
purchase the Policy, the cash surrender value of the Policy is less
2.
<PAGE> 3
than the premium paid to the Insurer by Employer, as reduced by any Policy and
premium loans and any other indebtedness secured by the Policy, the difference
between such cash surrender value of the Policy and the premiums paid to the
Insurer by Employer also shall be paid to Employer by Employee. The exercise by
the Employer of the right to surrender the Policy or to change the insured will
terminate the rights of the Employee under this Agreement. Employer shall have
no rights provided in this Section 4 on or following the occurrence of a Vesting
Event.
5. This Agreement may be terminated by either party hereto, prior to
the occurrence of a Vesting Event, as defined in Section 6(b), and only with the
consent of the other party by giving notice of termination in writing to the
other party. In addition, prior to the occurrence of a Vesting Event, this
Agreement shall terminate automatically upon termination of Employee's
employment with Employer for any reason other than Employee's death. This
Agreement may not be terminated on or following the occurrence of a Vesting
Event, except with the consent of both parties. In the event of termination of
the Agreement, Employee shall have the right to purchase the Policy from
Employer on the same terms and conditions as specified in Section 4 hereof.
6. Following the occurrence of the earlier of (i) Employee's completion
of sixty (60) full months of employment with Employer, the first month of which
period shall be the month in which this Agreement is executed, (ii) Employee's
attainment of age fifty-five (55), (iii) Employee becoming Disabled or (iv) the
occurrence of a Change in Control, as described in Section 10 (hereinafter
collectively referred to as a "Vesting Event"), Employee shall become fully
vested in and shall have the unconditional right in the death benefit proceeds
described in Section 2 of this Agreement regardless of whether Employee
continues in employment with Employer or terminates employment with Employer.
Upon the occurrence of a Vesting Event, Employer shall relinquish any rights to
act unilaterally with respect to the Policy as set forth in Sections 4 and 5 of
this Agreement; provided, however, that, except in the event of the occurrence
of a Change in Control, Employer may borrow or withdraw from the cash surrender
value of the Policy or assign the cash value of the Policy as collateral for a
loan upon or following the occurrence of a Vesting Event. Employer shall have no
right to borrow, withdraw from or assign the cash surrender value of the Policy
as collateral for a loan effective as of the date immediately preceding a Change
in Control. In the event Employer borrows the cash value of the Policy, interest
on such loan shall be paid by Employer in accordance with the terms of the
Policy loan or, to the extent interest is accrued but unpaid at the time of any
payment to Employer under this Agreement, such accrued but unpaid interest shall
reduce the amount to be paid to Employer. Employer shall immediately notify
Insurer, in writing, of the occurrence of a Vesting Event.
For purposes of this Agreement, "Disability" shall mean Employee's incapacity to
engage in any substantial gainful activity because of a medically determinable
physical or mental impairment which can be expected to result in death, or which
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months. The performance and degree of such impairment shall be
supported by medical evidence.
3.
<PAGE> 4
7. The Insurer shall be fully discharged from its obligations under the
Policy by payment of the Policy death benefit to the beneficiary or
beneficiaries named in the Policy, subject to the terms and conditions of the
Policy and endorsements on the Policy. In no event shall the Insurer be
considered a party to this Agreement, or any modification or amendment hereof.
No provision of this Agreement, nor of any modification or amendment hereof,
shall in any way be construed as enlarging, changing, varying or in any other
way affecting the obligations of the Insurer as expressly provided in the
Policy, except insofar as the provisions hereof are made a part of the Policy by
the endorsement, executed by Employer and filed with the Insurer in connection
herewith.
8. Employee shall have the right to assign any part or all of
Employee's interest in the Policy and this Agreement to any person, entity or
trust by execution of a written assignment delivered to Employer and to the
Insurer. Provided, however, that if the original application to the Insurer
provides that such third party is the owner of such rights then Employee shall
have no rights or any incidents of ownership in the Policy.
9. As an inducement to Employer to undertake this Agreement, Employee
agrees to execute a promissory note in favor of Employer (the "Note"), to the
extent required under this Section 9. Such Note shall be substantially in the
form attached hereto as Exhibit A and incorporated by this reference herein. The
amount of the Note at any time and from time-to-time shall be the difference
between the amount of the premiums advanced by Employer and the cash surrender
value of the Policy, as initially determined on the execution date of the Note
and as subsequently adjusted on the last business day of each calendar quarter
("Principal Adjustment Date"). The Note shall be due and payable upon Employee
terminating employment with Employer for any reason prior to the occurrence of a
Vesting Event. The Note shall be canceled upon the occurrence of a Vesting
Event. Upon such Principal Adjustment Date when the cash surrender value of the
Policy equals or exceeds the amount of the premiums advanced by Employer, the
obligation of Employee under the Note will be extinguished and the Note will be
canceled.
10. In the event a Change of Control of Employer occurs, as defined in
this Section 10, then on the date immediately preceding the effective date of
such Change in Control, Employee's rights under this Agreement shall fully vest,
as provided in Section 6 of this Agreement, and Employer shall execute an
irrevocable trust for the benefit of Employee substantially in the form set
forth in the trust agreement attached hereto as Exhibit B (the "Trust") and
incorporated by this reference herein, and contemporaneously with the execution
of the Trust, Employer shall transfer ownership of the Policy to the Trust,
unless, under the terms of the Trust or this Agreement, Employee's beneficiary
is entitled to an immediate distribution or payment of death benefit proceeds,
in which case such payment shall be made without the necessity of transferring
the Policy to the Trust. Effective as of the date immediately preceding the
effective date of the Change in Control, the Employer shall relinquish any
powers to act unilaterally with respect to the Policy as set forth in Sections 4
and 5 of this Agreement and shall relinquish all rights with respect to the cash
value of the Policy other than the right to receive an amount from the death
benefit proceeds equal to the cash surrender value. As of the date immediately
preceding the effective date of a Change in Control, Employer shall
4.
<PAGE> 5
have no further right to borrow or withdraw from the cash surrender value of the
Policy or assign the cash value of the Policy as collateral for a loan. Employer
shall immediately notify Insurer, in writing, of the occurrence of a Change in
Control.
For purposes of this Agreement, "Change in Control" shall mean (1) a
merger or consolidation in which Employer is not the surviving corporation, (2)
a reverse merger in which Employer is the surviving corporation but the shares
of Employer's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, (3) a sale of all or substantially all of
Employer's assets, (4) any other capital reorganization in which the beneficial
ownership of more than fifty percent (50%) of the shares of Employer entitled to
vote changes, or (5) the acquisition by any person, entity or group (excluding
any employee benefit plan, or related trust, sponsored or maintained by Employer
or any subsidiary of Employer) of the beneficial ownership, directly or
indirectly, of securities of Employer representing more than fifty percent (50%)
of the combined voting in the election of directors of Employer.
11. The following provisions are part of this Agreement and are
intended to meet the requirements of the Employee Retirement Income Security Act
of 1974:
(a) Employer is the named fiduciary.
(b) The funding policy under this Agreement is that all
premiums on the Policy be remitted to the Insurer by Employer when due.
(c) Direct payment of death proceeds by the Insurer is the
basis of payment of benefits under this Agreement, with those benefits
in turn being conditioned on the payment of premiums as provided in
this Agreement.
(d) For claims procedure purposes, the "Claims Manager" shall
be Employer.
(1) If for any reason a claim for benefits under this
Agreement is denied, the Claims Manager shall deliver to the
claimant a written explanation setting forth the specific
reasons for the denial, pertinent reference to the Agreement
section on which the denial is based, such other data as may
be pertinent and information on the procedures to be followed
by the claimant in obtaining a review of his claim, all
written in a manner calculated to be understood by the
claimant. For this purpose:
(A) The claimant's claim shall be deemed
filed when presented orally or in writing to the
Claims Manager.
(B) The Claims Manager's explanation shall
be in writing and delivered to the claimant within 90
days of the date the claim is filed.
5.
<PAGE> 6
(2) The claimant shall have 60 days following his or
her receipt of the denial of the claim to file with the Claims
Manager a written request for review of the denial. For such
review, the claimant or his representative may submit
pertinent documents and written issues and comments.
(3) The Claims Manager shall decide the issue on
review and furnish the claimant with a copy of its review
determination within 60 days of receipt of the claimant's
request for review of his or her claim. The decision on review
shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by
the claimant, as well as specific references to the pertinent
provisions of this Agreement on which the decision is based.
If a copy of the review decision is not so furnished to the
claimant within such 60 days, the claim shall be deemed denied
on review.
12. This Agreement shall be binding and inure to the benefit of
Employer and its successors and assigns, and Employee and his successors,
assigns, heirs, executors, administrators and beneficiaries.
13. Terms such as "cash value", "cash surrender value" and other terms
shall be as defined in the Policy, a specimen of which is attached hereto as
Exhibit C and incorporated by this reference herein.
14. This Agreement shall not be deemed (a) to give Employee any right
to be retained in the employ of Employer or (b) to interfere with the right of
Employer to discharge Employee at any time and for any reason, which right is
hereby reserved.
15. Any notice, consent or demand required or permitted to be given
under the provisions of this Agreement shall be in writing, and shall be signed
by the party giving or making the same. If such notice, consent or demand is
mailed to a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as shown on the
records of Employer. The date of such mailing shall be deemed the date of
notice, consent or demand.
16. This Agreement, and the rights of the parties hereunder, shall be
governed by and construed in accordance with the laws of the State of
California.
//
//
//
6.
<PAGE> 7
IN WITNESS WHEREOF the parties have signed and sealed this Agreement as
of the day and year first above written.
DATAWORKS CORPORATION
By:
------------------------
Its:
------------------------
EMPLOYEE
-----------------------
7.
<PAGE> 8
ENDORSEMENT
Policy No.: ________________ Insured: ___________________
Supplementing and amending the application for the above referenced Policy to
the New York Life Insurance and Annuity Corporation (hereinafter, the
"Insurer"), the undersigned DATAWORKS CORPORATION, the applicant and owner of
the Policy, requests and directs that:
1. RIGHTS OF OWNER. The Owner of the Policy shall be DATAWORKS CORPORATION, a
California corporation with its principal place of business in San Diego,
California. The Owner may exercise all Policy rights, except to the extent such
rights are restricted as specified in this Paragraph 1, and except that the
Owner shall not have the rights specified in Paragraph 2, below.
a. The Owner designates itself or its successors as direct beneficiary
of the greater of (i) an amount equal to the cash surrender value as of the date
to which premiums have been paid, or (ii) its premiums paid to the Insurer for
the Policy; provided, however, that upon and following the occurrence of a
Change in Control of Owner, Owner shall have the right to receive only the cash
surrender value of the Policy. For purposes of this Endorsement, "Change in
Control" shall have the same meaning given such term in that certain
Split-Dollar Insurance Agreement entered into between the Owner and the Insured
as of _________________, 1997 (the "Split-Dollar Agreement").
b. The Owner may not sell, surrender, change the Insured or transfer
ownership of the Policy without the written consent of Insured. Further, the
Owner's right to sell, surrender, change the Insured or transfer ownership of
the Policy shall terminate upon the occurrence of a Vesting Event; provided,
however, that Owner shall continue to have the right after the occurrence of a
Vesting Event to transfer ownership of the Policy to the Trust under DataWorks
Corporation Split-Dollar Insurance Agreements, as provided in Paragraph 10 of
the Split-Dollar Agreement. For purposes of this Endorsement, "Vesting Event"
shall have the same meaning given such term in the Split-Dollar Agreement.
c. The Owner shall have no right to borrow from, withdraw from or
assign as collateral for a loan the cash surrender value of the Policy effective
as of the date immediately preceding a Change in Control.
The Insurer will have the right to rely on any statement signed by Owner setting
forth the amount referred to above, stating whether a Change in Control with
respect to Owner has occurred and the effective date of such Change in Control,
or stating whether a Vesting Event has occurred, and any decisions made by
Insurer in reliance upon such statement will be conclusive and will fully
protect the Insurer.
2. RIGHTS OF INSURED. The Insured shall have the following rights with respect
to the proceeds not payable in Paragraph 1, above.
1.
<PAGE> 9
a. The Insured shall have the sole right to designate and change the
beneficiaries of the proceeds payable under this Paragraph 2.
b. The Insured shall have the right to elect and change a payment plan
for the beneficiaries of the proceeds payable under this Paragraph 2.
c. The Insured shall have the right to assign the proceeds payable
under this Paragraph 2 or assign any part or all of the Insured's interest in
the Policy, by execution of a written assignment delivered to Owner and to the
Insurer.
d. The Insured has designated his beneficiary on the Insurer's
Beneficiary Designation Form, or the original application for life insurance, as
the case may be.
This Paragraph 2 will not limit the rights of the Owner as specified in
Paragraph 1, above.
3. EFFECTIVE ONLY WHEN FULLY EXECUTED. This Endorsement will not be effective
until signed by the proper parties. The signed original of this Endorsement must
be returned to the Home Office of the Insurer.
4. ADDITIONAL PROVISIONS.
a. Any collateral assignment made by Owner will be deducted only from
the proceeds payable in Paragraph 1, above.
b. Any assignment by the Insured of the proceeds specified in Paragraph
2, above, will be limited only to the proceeds payable under Paragraph 2.
c. Any indebtedness on the Policy, including, but not limited to, any
accrued but unpaid interest, will be deducted only from the proceeds payable in
Paragraph 1, above.
d. The exercise by the Owner of the right to surrender the Policy or to
change the Insured will terminate the rights of the Insured specified in
Paragraph 2, above.
e. The Policy rights specified in Paragraphs 1 and 2, above, may be
exercised by the Owner or the Insured, respectively, or their successors or
transferees.
f. If no beneficiaries named in Paragraph 1, or on the Insurer's
Beneficiary Designation Form, are alive when the Insured dies, payment under
Paragraph 1 will be paid to the Owner's successors, and payment under Paragraph
2 will be paid to the Insured's estate.
g. The Owner, with respect to the proceeds specified in Paragraph 1,
and the Insured, with respect to the proceeds specified in Paragraph 2, will
have the right to exercise the conversion privilege if applicable to such
portion and will be the Owner or Insured, as the case may be, of any new policy
issued in lieu of such benefit.
2.
<PAGE> 10
h. This Endorsement shall not be amended, altered or terminated by
Owner, except to reflect the terms of the Split-Dollar Agreement, without the
express written consent of the Insured; provided, however, that if Insured
becomes the Owner of the Policy, this Endorsement shall terminate.
i. This Endorsement shall terminate upon the earlier of (i) receipt by
Insurer of a termination notice executed by Owner and Insured, or (ii) the
payment in full of Policy benefits provided herein.
Executed this ___ day of ______________________, 1997.
DATAWORKS CORPORATION, OWNER AND
APPLICANT
---------------------------------------
By:
------------------------------------
Title:
------------------------------------
INSURED:
------------------------------------
3.
<PAGE> 11
PROMISSORY NOTE
Principal Amount to be adjusted from time to time on the last business day of
each calendar quarter and not to exceed the Premiums paid on the Policy, as
defined herein.
San Diego, California
Date:
----------------
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of DATAWORKS CORPORATION, a California corporation (the
"Employer"), or its successors or assigns, at 5910 Pacific Center Boulevard,
Suite 300, San Diego, California 92121, or at such other place as the holder
hereof may designate in writing, in lawful money of the United States of America
and in immediately available funds, the principal sum as determined below
together with interest accrued from the date hereof on the unpaid principal at
the rate per annum which shall be the lowest rate available that shall avoid
imputed interest or original issue discount under all applicable sections of the
Internal Revenue Code, as determined by the Employer, or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, and which interest rate shall be determined as of the
Principal Repayment Date, as defined herein, as follows:
PRINCIPAL AMOUNT. The initial principal amount of this Note
shall be determined as of the date hereof and thereafter shall be the
amount as adjusted from time to time on the last business day of each
subsequent calendar quarter (the "Principal Adjustment Date"). The
principal amount at any time shall be the principal amount determined
on the later of the date hereof or the Principal Adjustment Date
coincident with or immediately preceding the date on which such
determination of principal amount is made. The principal amount of this
Note shall be the amount determined as of the relevant date under the
following formula:
A = B - C
where
A represents the principal amount
B represents the Premiums (as defined below) as of the
relevant date and C represents the Cash Surrender Value (as
defined below) as of the relevant date
For purposes of this Note, "Cash Surrender Value" means the cash
surrender value of the life insurance policy (the "Policy"), which is
the subject of the DATAWORKS CORPORATION SPLIT-DOLLAR INSURANCE
AGREEMENT entered into between Employer and the undersigned effective
______________, 1997 (the "Agreement"); and
1.
<PAGE> 12
"Premiums" means the aggregate premiums paid by Employer on the Policy
(the "Premiums"). The Cash Surrender Value and the Premiums shall be
such amounts as are determined from records maintained by the Employer.
PRINCIPAL REPAYMENT. The outstanding principal amount
hereunder shall be due and payable in full upon the date the
undersigned terminates employment with Employer prior to the occurrence
of a Vesting Event ("Principal Repayment Date"). For purposes of this
Note, "Vesting Event" shall have the same meaning given such term in
the Agreement;
INTEREST PAYMENTS. Interest shall be payable in arrears on the
Principal Repayment Date and shall be calculated on the principal
amount determined on such date on the basis of a 365-day year for the
actual number of days elapsed;
provided, however, that upon the occurrence of a Vesting Event prior to a
Principal Repayment Date, this Note shall be canceled and no payments of
principal or interest shall be due hereunder.
This Note shall be canceled and the liability of the undersigned
hereunder shall be terminated as of the Principal Adjustment Date on which the
Cash Surrender Value equals or exceeds the Premiums.
The Employer shall have no right to accelerate this Note.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Employer, and is subject to all of the terms and provisions of the
Pledge Agreement, of even date herewith between the undersigned and the
Employer.
The provisions of this Note shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
undersigned may not assign or transfer any of its rights or obligations under
this Note without the prior written consent of Employer.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
2.
<PAGE> 13
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed
----------------------------
3.
<PAGE> 14
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by
_______________, an individual with a residence at
________________________________________________ ("Pledgor"), in favor of
DATAWORKS CORPORATION, a California corporation with its principal place of
business at 5910 Pacific Center Boulevard, Suite 300, San Diego, California
92121 ("Pledgee"), and its successors and assigns.
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note (the "Note") in favor of Pledgee in the principal amount as
determined therein in accordance with the terms of the DATA WORKS CORPORATION
SPLIT-DOLLAR INSURANCE AGREEMENT between Pledgee and Pledgor; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Pledged Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and
performance when due (whether by stated maturity, or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Note as determined
initially as of the execution date of the Note (all such indebtedness being the
"Liabilities"), together with, without limitation, the prompt payment of all
expenses, including, without limitation, reasonable attorneys' fees and legal
expenses, incidental to the collection of the Liabilities and the enforcement or
protection of Pledgee's lien in and to the collateral pledged hereunder, Pledgor
hereby pledges to Pledgee, and grants to Pledgee, a first priority security
interest in all of the following (collectively, the "Pledged Collateral"):
(a) ____________________________ (______) shares of Common
Stock of Pledgee represented by Certificates numbered
___________________________ (the "Pledged Shares"), and all dividends, cash,
instruments, and other property or proceeds from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing
the right to vote any Pledged Shares subject to any voting trust; and
(c) such additional shares, and the certificates representing
such additional shares, and all dividends, cash, instruments, and other property
or proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares, as may be necessary to
be added to the Pledged Shares in order that the total aggregate value of the
Pledged Shares is not less than the amount of the Liabilities (which additional
shares
1.
<PAGE> 15
shall be deemed to be part of the Pledged Shares). For purposes of this Section
1(c), the value of the Pledged Shares shall be determined by multiplying the
number of Pledged Shares by the market value of each Pledged Share. "Market
Value" shall mean, as of the relevant date, the public market price then in
effect. For purposes of this provision, the amount of the Liabilities and the
value of the Pledged Shares shall be determined on each Principal Adjustment
Date, as such term is defined in the Note, which occurs on or next following the
anniversary of the execution date of the Note.
The Pledged Collateral shall be held in Escrow by Norman R. Farquhar
("Escrow Agent"). The parties hereto shall enter into Joint Escrow Instructions
essentially in the form attached hereto as Exhibit A.
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness may be or hereafter becomes unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) insure, process and preserve the Pledged Collateral; (3)
exercise as to such Pledged Collateral all the rights, powers and remedies of an
owner, except that so long as no default exists under the Note or hereunder
Pledgor shall retain all voting rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) the levy of any attachment, execution or other
process against the Pledged Collateral; or (3) the insolvency, commission of an
act of bankruptcy, general assignment for the benefit of creditors, filing of
any petition in bankruptcy or for relief under the provisions of Title 11 of the
United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due or upon
the happening of any of the events specified in the last preceding paragraph,
Pledgee may then, or at any time thereafter, at its election, apply, set off,
collect or sell in one or more sales, or take such steps as may be necessary to
liquidate and reduce to cash in the hands of Pledgee in whole
2.
<PAGE> 16
or in part, with or without any previous demands or demand of performance or
notice or advertisement, the whole or any part of the Pledged Collateral in such
order as Pledgee may elect, and any such sale may be made either at public or
private sale at its place of business or elsewhere, or at any broker's board or
securities exchange, either for cash or upon credit or for future delivery;
provided, however, that if such disposition is at private sale, then the
purchase price of the Pledged Collateral shall be equal to the public market
price then in effect. Pledgee may be the purchaser of any or all Pledged
Collateral so sold and hold the same thereafter in its own right free from any
claim of Pledgor or right of redemption. Demands of performance, notices of
sale, advertisements and presence of property at sale are hereby waived, and
Pledgee is hereby authorized to sell hereunder any evidence of debt pledged to
it. Any sale hereunder may be conducted by any officer or agent of Pledgee.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine.
Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of
sale and all other rights, powers and remedies granted to Pledgee hereunder
shall continue to exist and may be exercised by Pledgee at any time and from
time to time irrespective of the fact that the indebtedness or any part thereof
may have become barred by any statute of limitations, or that the personal
liability of Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as provided herein. The amount of such releases, if any, shall be
determined on each Principal Adjustment Date which occurs on or next following
the anniversary of the execution date of the Note. Such release from pledge
shall be at a rate equal to the number of whole shares of Pledged Shares
determined by dividing the decrease, if any, in the indebtedness on the Note as
determined on the later of the execution date of the Note or the Principal
Adjustment Date that occurred one calendar year preceding the Principal
Adjustment Date on which such determination occurs, and the indebtedness on the
Note as determined on the Principal Adjustment Date on which such determination
occurs, by the Market Value. For this purpose Market Value shall be determined
on the Principal Adjustment Date for which such determination occurs.
3.
<PAGE> 17
10. In the event that the Note is canceled as provided in the Note, the
Liabilities shall be canceled and Pledgee shall deliver the Pledged Collateral
to Pledgor within five (5) days following the cancellation of the Note and the
receipt of Pledgor shall be a complete and full acquittance for the Pledged
Collateral so delivered, and Pledgee shall thereafter be discharged from any
liability or responsibility therefor.
11. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
12. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
13. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
14. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State.
15. This Pledge Agreement shall inure to the benefit of Pledgee's
successors and assigns. Pledgor shall not assign this Pledge Agreement without
Pledgee's prior written consent.
Dated:
-------------------
PLEDGOR
---------------------------
Printed Name:
4.
<PAGE> 18
EXHIBIT A
ESCROW INSTRUCTIONS
5.
<PAGE> 19
EXHIBIT B
PROMISSORY NOTE
6.
<PAGE> 20
JOINT ESCROW INSTRUCTIONS
Norman R. Farquhar
Chief Financial Officer
DataWorks Corporation
5910 Pacific Center Boulevard
Suite 300
San Diego, CA 92121
Dear Sir:
As Escrow Agent for both DATAWORKS CORPORATION, a California
corporation ("Employer") and ___________________ ("Employee"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Stock Pledge Agreement ("Agreement") dated as of
_____________________, 1997, to which a copy of these Joint Escrow Instructions
is attached as Exhibit A, in accordance with the following instructions:
1. In the event Employer or an assignee elects to apply, set off,
collect, sell in one or more sales, or liquidate and reduce to cash in the hands
of Employer in whole or in part, (collectively, "foreclose"), the whole or any
part of the shares held in escrow, Employer or its assignee will give to
Employee and you a written notice specifying the number of shares of stock to be
foreclosed upon and the time for a closing thereunder at the principal office of
Employer. Employee and Employer hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
2. At the closing for the foreclosure, you are directed (a) to date the
stock assignments necessary for the transfer in question, (b) to fill in the
number of shares being transferred, and (c) to deliver the same, together with
the certificate evidencing the shares of stock to be transferred, to the
transferee designated in the written notice, including, without limitation,
Employer, against the simultaneous delivery to you of suitable acknowledgment of
cancellation of indebtedness for the number of shares of stock being foreclosed
upon pursuant to the default on the Note, as defined in the Agreement.
3. The Pledge Agreement provides for a release of shares in the event
the amount of the indebtedness on the Note (as defined in the Agreement) is
reduced. In the event Employee elects to exercise the right to have shares
released from Escrow, Employee will give to Employer and you a written notice
specifying the number of shares of stock to be released from escrow pursuant to
the Agreement and the time for a closing thereunder at the principal office of
Employer. Employer and Employee hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
1.
<PAGE> 21
4. At the closing for the release from escrow, you are directed (a) to
date the stock assignments necessary for the transfer in question, (b) to fill
in the number of shares being released from escrow, and (c) to deliver the same,
together with the certificate evidencing the shares of stock to be transferred,
to Employee, or to Employee's transferee as specified in the notice, against the
simultaneous delivery to you of suitable acknowledgment of reduction of
indebtedness for the number of shares of stock being released from escrow
pursuant to the reduction of indebtedness under the Note.
5. Employee irrevocably deposits with you any certificates evidencing
shares of stock to be held by you hereunder and any additions and substitutions
to said shares as specified in the Agreement. Employee does hereby irrevocably
constitute and appoint you as his attorney-in-fact and agent for the term of
this escrow to execute with respect to such securities all documents necessary
or appropriate to make such securities negotiable and complete any transaction
herein contemplated, including but not limited to any appropriate filing with
state or government officials or bank officials. Subject to the provisions of
this paragraph 5, Employee shall exercise all rights and privileges of a
shareholder of the Employer while the stock is held by you.
6. This escrow shall terminate upon the foreclosure of all of the stock
held in escrow, the payment in full on the Note, or the cancellation of the
Note, as provided in the Note, whichever occurs first.
7. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Employee,
you shall deliver all of the same to Employee and shall be discharged of all
further obligations hereunder.
8. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
9. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Employee while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
10. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
2.
<PAGE> 22
11. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
12. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
13. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Chief Financial Officer or if you shall resign by written
notice to each party. In the event of any such termination, Employer shall
appoint its Chief Financial Officer as successor Escrow Agent, and Employee
hereby confirms the appointment of such successor as his attorney-in-fact and
agent to the full extent of your appointment.
14. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
15. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
16. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier, or four (4) days after deposit in the United States
Post Office, by registered or certified mail with postage and fees prepaid,
addressed to each of the other parties entitled to such notice at the following
addresses, or at such other addresses as a party may designate by ten days'
advance written notice to each of the other parties hereto.
EMPLOYER: DataWorks Corporation
5910 Pacific Center Boulevard
Suite 300
San Diego, California 92121
EMPLOYEE:
----------------------------
----------------------------
----------------------------
3.
<PAGE> 23
ESCROW AGENT: Norman R. Farquhar
Chief Financial Officer
DataWorks Corporation
5910 Pacific Center Boulevard
Suite 300
San Diego, California 92121
17. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
18. You shall be entitled to employ such legal counsel and other
experts (including, without limitation, the firm of Cooley Godward LLP) as you
may deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and you may pay such
counsel reasonable compensation therefor. The Employer shall be responsible for
all fees generated by such legal counsel in connection with your obligations
hereunder.
19. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
20. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of California, as such laws are applied
by California courts to contracts made and to be performed entirely in
California by residents of that state.
Very truly yours,
DATAWORKS CORPORATION
By:
-----------------------
Its:
-----------------------
EMPLOYEE:
---------------------------
ESCROW AGENT:
- --------------------------------
NORMAN R. FARQUHAR
4.
<PAGE> 1
EXHIBIT 10.24
DATAWORKS CORPORATION
SPLIT-DOLLAR INSURANCE AGREEMENT
[COLLATERAL ASSIGNMENT]
THIS AGREEMENT is made and entered into this _____ day of
_______________, 1997, by and between DATAWORKS CORPORATION, a California
corporation, with its principal place of business located in San Diego,
California (hereinafter referred to as "Employer") and ______________________
(hereinafter referred to as "Employee").
WHEREAS, Employee is a valued employee of Employer and Employer wishes
to retain him in its employ; and
WHEREAS, Employer, as an inducement to such continued employment,
wishes to assist Employee with his personal life insurance program.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, Employer and Employee agree as follows:
1. Employee shall purchase or cause to be purchased a policy of life
insurance insuring Employee's life (hereinafter referred to as the "Policy")
which is being issued by New York Life Insurance and Annuity Corporation
(hereinafter referred to as the "Insurer") in the amount of Three Million
Dollars ($3,000,000.00) The parties hereto agree that they each will take all
necessary action to cause the Insurer to issue the Policy, and shall take any
further action that may be necessary to cause the Policy to conform to the
provisions of this Agreement. The parties hereto agree that the Policy shall be
subject to the terms and conditions of this Agreement and of a collateral
assignment filed by Employee with the Insurer relating to the Policy
(hereinafter referred to as the "Collateral Assignment"), as described in
Section 3.
2. Employee shall be the sole and absolute owner of the Policy, and may
exercise all ownership rights granted to the owner thereof by the terms of the
Policy, except as may otherwise be granted herein and in the Collateral
Assignment to the Employer. Such ownership rights exercisable by Employee shall
include, without limitation, the right to designate and change direct and
contingent beneficiaries of any death benefit proceeds remaining after the
amounts described in Section 7(b), below, are paid to Employer, and to elect and
change a payment plan for such beneficiaries.
3. To secure the repayment to Employer of the amount of the premiums on
the Policy paid by it hereunder, Employee has, contemporaneously herewith,
assigned the Policy to Employer as collateral, under the form attached hereto as
Exhibit A, and providing the rights to the Employer described in Section 7(b) of
this Agreement. The Collateral Assignment of the Policy to Employer hereunder
shall not be terminated, altered or amended by Employee, except
to reflect the terms of this Agreement, as it may be amended from time to time,
without the
1.
<PAGE> 2
express written consent of Employer. The parties hereto agree to take all action
necessary to cause such Collateral Assignment to conform to the provisions of
this Agreement.
4. (a) Premiums on the Policy shall be paid in accordance with this
Section 4. During such period as Employer is required to pay the premiums, and
on or before the due date of each Policy premium, or within the grace period
provided therein, Employer shall pay the full amount of the premium to the
Insurer, or shall, as applicable, cause the cash value of the Policy to be used
to pay such premiums. Employer shall not permit the Policy to lapse or to be
canceled by Insurer because of Employer's failure to pay or cause to be paid
sufficient premiums in a timely manner to keep the Policy in full force and
effect. Employer shall be obligated to pay the premiums or cause the premiums to
be paid so long as Employee is employed by Employer unless either (i) this
Agreement, prior to the occurrence of a Vesting Event (as defined in Section
6(b)), is terminated as provided in Section 5, or (ii) the Policy, prior to the
occurrence of a Vesting Event, is disposed of by Employee as provided in Section
6(a). On or following the occurrence of a Vesting Event, Employer shall continue
to pay or to cause the premiums on the Policy to be paid until Employee's death,
regardless of whether Employee continues employment with Employer or terminates
employment with Employer. Notwithstanding any provision in this Agreement to the
contrary, Employer's obligation to pay or cause to be paid premiums on the
Policy for any year is conditioned on Employee entering into, for each year, and
prior to the date such premiums are due, a promissory note to the extent such
note is required as described in Section 8, below. Employer shall, upon request,
promptly furnish Employee evidence of timely payment of each premium. Employer
annually shall furnish Employee with a statement of the amount of income
reportable by Employee for federal and state income tax purposes, as a result of
its payment of such premium.
(b) Dividends, if any, declared on the Policy shall be applied
to reduce the amount of premiums due on the Policy. The parties hereto agree
that the dividend election provisions of the Policy, if any, shall conform to
the provisions hereof.
5. This Agreement may be terminated by either Employer or Employee,
only prior to the occurrence of a Vesting Event, as defined in Section 6(b),
only with the consent of the other, by giving notice of termination in writing
to the other party. Prior to the occurrence of a Vesting Event, this Agreement
shall terminate automatically upon termination of Employee's employment with
Employer for any reason other than Employee's death. This Agreement may not be
terminated on or following the occurrence of a Vesting Event, except with the
consent of both the Employer and Employee. In the event of termination of the
Agreement, Employee shall have the right to purchase the Collateral Assignment
from Employer. The purchase price for the Collateral Assignment under this
Section 5 shall be the cash surrender value of the Policy as of the date of
transfer to Employee, less any Policy or premium loans and any other
indebtedness taken by Employer and secured by the Policy. Provided, however,
that if at the time Employee elects to purchase the Collateral Assignment, the
cash surrender value of the Policy, as reduced by any Policy or premium loans
and other indebtedness taken by Employer and secured by the Policy, is less than
the premium paid to Insurer by Employer, the difference between such cash
surrender value of the Policy and the premiums paid by Employer also shall be
paid to Employer by Employee.
2.
<PAGE> 3
6. (a) Except as otherwise provided herein, Employee shall not sell,
assign, transfer, borrow against, withdraw from, surrender or cancel the Policy,
while this Agreement is in effect and shall not terminate the dividend election,
if any, thereof without obtaining, in any such case, the express written consent
of Employer. In the event Employee exercises the rights provided in this Section
6(a), Employee shall have the same rights to purchase the Collateral Assignment,
as provided in Section 5.
(b) Following the occurrence of the earlier of (i) Employee's
completion of sixty (60) full months of employment with Employer, the first
month of which period shall be the month in which this Agreement is executed,
(ii) Employee's attainment of age fifty-five (55), (iii) Employee becoming
Disabled, or (iv) a Change in Control, as described in Section 9, (hereinafter
collectively referred to as a "Vesting Event"), Employee shall become fully
vested in and shall have the unconditional right to receive the death benefit
proceeds described in Section 7(b) of this Agreement and shall retain such fully
vested right to receive the death benefit proceeds regardless of whether
Employee continues in employment with Employer or terminates employment with
Employer. Upon Employee becoming fully vested in the death benefit proceeds as
provided in this Section 6, Employer shall relinquish any powers to act
unilaterally with respect to the Policy as set forth in Section 5 of this
Agreement; provided, however, that except in the event of the occurrence of a
Change in Control, Employer may borrow or withdraw from the cash surrender value
of the Policy or assign the cash value of the Policy as collateral for a loan
upon or following the occurrence of a Vesting Event. Employer shall have no
right to borrow, withdraw from or assign the cash surrender value of the Policy
as collateral for a loan effective as of the date immediately preceding a Change
in Control. In the event Employer borrows the cash value of the Policy, interest
on such loan shall be paid by Employer in accordance with the terms of the
Policy loan or, to the extent interest is accrued but unpaid at the time of any
payment to Employer under this Agreement, such accrued but unpaid interest shall
reduce the amount to be paid to Employer. Employer shall immediately notify
Insurer, in writing, of the occurrence of a Vesting Event.
For purposes of this Agreement, "Disability" shall mean Employee's incapacity to
engage in any substantial gainful activity because of a medically determinable
physical or mental impairment which can be expected to result in death, or which
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months. The performance and degree of such impairment shall be
supported by medical evidence.
7. (a) Upon the death of Employee, Employee promptly shall take all
action necessary to obtain payment of the death benefit provided under the
Policy.
(b) Except as otherwise provided in this Agreement, Employer shall have
the right under the Collateral Assignment to borrow or withdraw from the cash
surrender value of the Policy and, except in the event of a Change in Control as
defined in Section 9, to receive an amount of the death benefit proceeds equal
to the greater of (a) the cash surrender value of the Policy as of the date to
which premiums have been paid, or (b) the premiums paid to Insurer by Employer;
provided, however, that the Collateral Assignment shall provide that upon and
following the occurrence of a Change in Control, Employer shall have the right
to receive only the cash surrender value of the Policy. Proceeds payable under
the Policy shall be paid first to Employer in accordance with the Collateral
Assignment. Any indebtedness of the Policy
3.
<PAGE> 4
incurred by Employer will first be deducted from the proceeds payable to
Employer, including any accrued but unpaid interest due on such indebtedness.
The balance of the death benefit provided under the Policy, if any, then shall
be paid directly to beneficiary, in the manner and in the amount or amounts
provided in the beneficiary designation provision of the Policy. No amount shall
be paid from such death benefit proceeds to the beneficiary until the full
amount due Employer hereunder has been paid. The parties hereto agree that the
beneficiary designation provision of the Policy shall conform to the provisions
hereof.
8. As an inducement to Employer to undertake this Agreement, the Trust
agrees to execute a promissory note in favor of Employer (the "Note"), to the
extent required under this Section 8. Such Note shall be substantially in the
form attached hereto as Exhibit B and incorporated by this reference herein. The
amount of the Note at any time and from time-to-time shall be the difference
between the amount of the premiums advanced by Employer and the cash surrender
value of the Policy, as initially determined on the execution date of the Note
and as subsequently adjusted on the last business day of each calendar quarter
("Principal Adjustment Date"). The Note shall be due and payable upon Employee
terminating employment with Employer for any reason prior to the occurrence of a
Vesting Event. The Note shall be canceled upon the occurrence of a Vesting
Event. Upon such Principal Adjustment Date when the cash surrender value of the
Policy equals or exceeds the amount of the premiums advanced by Employer, the
obligation of Employee under the Note will be extinguished and the Note will be
canceled.
9. In the event a Change in Control of Employer occurs, as defined in
this Section 9, on the date immediately preceding the effective date of such
Change in Control, Employer shall relinquish the powers set forth in Section 5
of this Agreement and shall relinquish all rights with respect to the cash value
of the Policy other than the right to receive an amount from the death benefit
proceeds equal to the cash surrender value. As of the date immediately preceding
the effective date of the Change in Control, Employer shall have no further
right to borrow or withdraw from the cash value of the Policy or assign the cash
surrender value of the Policy as collateral for a loan. Employer shall
immediately notify Insurer, in writing, of the occurrence of a Change in
Control.
For purposes of this Agreement, "Change in Control" shall mean (1) a
merger or consolidation in which Employer is not the surviving corporation, (2)
a reverse merger in which Employer is the surviving corporation but the shares
of Employer's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, (3) a sale of all or substantially all of
Employer's assets, (4) any other capital reorganization in which the beneficial
ownership of more than fifty percent (50%) of the shares of Employer entitled to
vote changes, or (5) the acquisition by any person, entity or group (excluding
any employee benefit plan, or related trust, sponsored or maintained by Employer
or any subsidiary of Employer) of the beneficial ownership, directly or
indirectly, of securities of Employer representing more than fifty percent (50%)
of the combined voting in the election of directors of Employer.
10. The Insurer shall be fully discharged from its obligations under
the Policy by payment of the Policy death benefit to the beneficiary or
beneficiaries named in the Policy, subject to the terms and conditions of the
Policy. In no event shall the Insurer be considered
4.
<PAGE> 5
a party to this Agreement, or any modification or amendment hereof. No provision
of this Agreement, nor of any modification or amendment hereof, shall in any way
be construed as enlarging, changing, varying or in any other way affecting the
obligations of the Insurer as expressly provided in the Policy, except insofar
as the provisions hereof are made a part of the Policy by the Collateral
Assignment, executed by Employee and filed with the Insurer in connection
herewith.
11. The following provisions are part of this Agreement and are
intended to meet the requirements of the Employee Retirement Income Security Act
of 1974:
(a) Employer is the named fiduciary.
(b) The funding policy under this Agreement is that all
premiums on the Policy be remitted to the Insurer by Employer when due.
(c) Direct payment of death proceeds by the Insurer is the
basis of payment of benefits under this Agreement, with those benefits
in turn being conditioned on the payment of premiums as provided in
this Agreement.
(d) For claims procedure purposes, the "Claims Manager" shall
be Employer.
(1) If for any reason a claim for benefits under this
Agreement is denied, the Claims Manager shall deliver to the
claimant a written explanation setting forth the specific
reasons for the denial, pertinent reference to the Agreement
section on which the denial is based, such other data as may
be pertinent and information on the procedures to be followed
by the claimant in obtaining a review of his claim, all
written in a manner calculated to be understood by the
claimant. For this purpose:
(i) The claimant's claim shall be deemed
filed when presented orally or in writing to the
Claims Manager.
(ii) The Claims Manager's explanation shall
be in writing and delivered to the claimant within 90
days of the date the claim is filed.
(2) The claimant shall have 60 days following his or
her receipt of the denial of the claim to file with the Claims
Manager a written request for review of the denial. For such
review, the claimant or his representative may submit
pertinent documents and written issues and comments.
(3) The Claims Manager shall decide the issue on
review and furnish the claimant with a copy of its review
determination within 60 days of receipt of the claimant's
request for review of his or her claim. The decision on review
shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by
the claimant, as well as specific references to the pertinent
provisions of this Agreement on which the decision is
5.
<PAGE> 6
based. If a copy of the review decision is not so furnished to
the claimant within such 60 days, the claim shall be deemed
denied on review.
12. This Agreement shall be binding upon and inure to the benefit of
Employer and its successors and assigns and Employee, his successors, assigns,
heirs, executors, administrators and beneficiaries.
13. Terms such as "cash value", "cash surrender value" and other terms
shall be as defined in the Policy, a specimen of which is attached hereto as
Exhibit C and incorporated by this reference herein.
14. This Agreement shall not be deemed (a) to give Employee any right
to be retained in the employ of Employer or (b) to interfere with the right of
Employer to discharge Employee at any time and for any reason, which right is
hereby reserved.
15. Any notice, consent or demand required or permitted to be given
under the provisions of this Agreement shall be in writing, and shall be signed
by the party giving or making the same. If such notice, consent or demand is
mailed to a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as shown on the
records of Employer. The date of such mailing shall be deemed the date of
notice, consent or demand.
16. This Agreement, and the rights of the parties hereunder, shall be
governed by and construed in accordance with the laws of the State of
California.
//
//
//
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the day and year first above written.
DATAWORKS CORPORATION
By:
----------------------------
Its:
----------------------------
EMPLOYEE
By:
-----------------------------
7.
<PAGE> 8
COLLATERAL ASSIGNMENT
ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL
Policy No. _________________ Insured: _________________
A. FOR VALUE RECEIVED the undersigned hereby assigns, transfers and sets over to
DATAWORKS CORPORATION, a California corporation with its principal place of
business in San Diego, California, its successors and assigns, (herein called
the "Assignee") Policy No. _____________________ issued by NEW YORK LIFE
INSURANCE AND ANNUITY CORPORATION (herein called the "Insurer") and any
supplemental contracts issued in connection therewith (said policy and contracts
being herein called the ("Policy"), upon the life of ________________________
(herein called the "Insured") and all claims, options, privileges, rights, title
and interest therein and thereunder (except as restricted in Paragraph B hereof
and as provided in Paragraph C hereof), subject to all the terms and conditions
of the Policy and to all superior liens, if any, which the Insurer may have
against the Policy. The undersigned by this instrument agrees and the Assignee
by the acceptance of this assignment agrees to the conditions and provisions
herein set forth.
B. It is expressly agreed that, without detracting from the generality of the
foregoing, the following specific rights are included in this assignment and
pass by virtue hereof:
1. The right to collect from the Insurer the greater of (i) an amount
equal to the cash surrender value of the Policy as of the date to which premiums
have been paid, or (ii) the premiums paid to the Insurer for the Policy;
provided, however, that upon and following the occurrence of a Change in Control
of Assignee, Assignee shall have the right hereunder to receive only the cash
surrender value of the Policy. For purposes of this Collateral Assignment,
"Change in Control" shall have the same meaning given such term in that certain
Split-Dollar Insurance Agreement entered into between Assignee and the
undersigned as of ____________, 1997 (the "Split-Dollar Agreement"); and
2. Except as specified in this Paragraph B.2 and in Paragraph C below,
the sole right to obtain one or more loans from or withdraw from the cash
surrender value of the Policy, and to pledge or assign the Policy as security
for such loans or withdrawals; provided, however, that Assignee shall have no
right to borrow from, withdraw from or assign as collateral for a loan the cash
surrender value of the Policy effective as of the date immediately preceding a
Change in Control. Any indebtedness on the Policy incurred by Assignee,
including, but not limited to, any accrued but unpaid interest, will be deducted
only from the proceeds payable to the Assignee.
C. It is expressly agreed that the following specific rights, so long as the
Policy has not been surrendered, are reserved and excluded from this assignment
and do not pass by virtue hereof:
1. The right to designate and change the beneficiary with respect to
any death benefits remaining after the amounts described in B.1 above, are paid
to Assignee; and
1.
<PAGE> 9
2. The right to elect and change a payment plan for the beneficiary of
the proceeds payable after the amounts described in B.1, above, are paid to
Assignee.
D. This assignment is made and the Policy is to be held as collateral security
for certain amounts payable by Owner to Assignee under the Split-Dollar
Agreement and represented by promissory notes referred to therein.
E. The Assignee and Owner agree as follows:
1. Owner shall not sell, assign, transfer, borrow against, withdraw
from, surrender or cancel the Policy without first obtaining the express written
consent of Assignee; and
2. That the Assignee will upon request forward without unreasonable
delay to the Insurer the Policy for endorsement of any designation or change of
beneficiary or any election of a payment plan.
F. The Insurer is hereby authorized to recognize the Assignee's claims to rights
hereunder without investigating the reason for any action taken by the Assignee,
or the giving of any notice or otherwise, or the application to be made by the
Assignee of any amounts to be paid to the Assignee. The sole signature of the
Assignee shall be sufficient for the exercise of any rights under the Policy
assigned hereby and the sole receipt of the Assignee for any sums received shall
be a full discharge and release therefor to the Insurer.
G. Insurer will have the right to rely on any statement signed by Assignee with
respect to whether a Change in Control of Assignee has occurred and the
effective date of such Change in Control and any decisions made by Insurer in
reliance upon such statement will be conclusive and will fully protect Insurer.
H. Checks for all or any part of the sums payable under the Policy and not
subject to this Assignment, shall be drawn to the exclusive order of the
beneficiary or beneficiaries named by Owner if, when, and in such amounts as may
be, requested by such beneficiary or beneficiaries.
I. The exercise of any right, option, privilege or power given herein to the
Assignee shall be at the option of the Assignee, subject to the limitations
herein, but the Assignee may exercise any such right, option, privilege or power
without notice to, or assent by, or affecting the liability of, or releasing any
interest hereby assigned by the undersigned.
J. This Collateral Assignment shall not be amended, altered or terminated by the
Owner, except to reflect the terms of the Split-Dollar Agreement, without the
express written consent of Assignee.
K. This Collateral Assignment shall terminate upon the earlier of (i) receipt by
Insurer of a termination notice executed by Assignee and Insured, or (ii) the
payment in full of Policy benefits provided herein.
2.
<PAGE> 10
Signed this day of , 1997.
----------------- --------------------------
OWNER:
By:
----------------------------
ACCEPTED BY ASSIGNEE:
DATAWORKS CORPORATION
By:
----------------------------
Its:
----------------------------
3.
<PAGE> 11
PROMISSORY NOTE
Principal Amount to be adjusted from time to time on the last business day of
each calendar quarter and not to exceed the Premiums paid on the Policy, as
defined herein.
San Diego, California
Date:
----------------
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of DATAWORKS CORPORATION, a California corporation (the
"Employer"), or its successors or assigns, at 5910 Pacific Center Boulevard,
Suite 300, San Diego, California 92121, or at such other place as the holder
hereof may designate in writing, in lawful money of the United States of America
and in immediately available funds, the principal sum as determined below
together with interest accrued from the date hereof on the unpaid principal at
the rate per annum which shall be the lowest rate available that shall avoid
imputed interest or original issue discount under all applicable sections of the
Internal Revenue Code, as determined by the Employer, or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, and which interest rate shall be determined as of the
Principal Repayment Date, as defined herein, as follows:
PRINCIPAL AMOUNT. The initial principal amount of this Note
shall be determined as of the date hereof and thereafter shall be the
amount as adjusted from time to time on the last business day of each
subsequent calendar quarter (the "Principal Adjustment Date"). The
principal amount at any time shall be the principal amount determined
on the later of the date hereof or the Principal Adjustment Date
coincident with or immediately preceding the date on which such
determination of principal amount is made. The principal amount of this
Note shall be the amount determined as of the relevant date under the
following formula:
A = B - C
where
A represents the principal amount
B represents the Premiums (as defined below) as of the
relevant date and C represents the Cash Surrender Value (as
defined below) as of the relevant date
For purposes of this Note, "Cash Surrender Value" means the cash
surrender value of the life insurance policy (the "Policy"), which is
the subject of the DATAWORKS CORPORATION SPLIT-DOLLAR INSURANCE
AGREEMENT entered into between Employer
1.
<PAGE> 12
and the undersigned effective ______________, 1997 (the "Agreement");
and "Premiums" means the aggregate premiums paid by Employer on the
Policy (the "Premiums"). The Cash Surrender Value and the Premiums
shall be such amounts as are determined from records maintained by the
Employer.
PRINCIPAL REPAYMENT. The outstanding principal amount
hereunder shall be due and payable in full upon the date ______________
terminates employment with Employer prior to the occurrence of a
Vesting Event ("Principal Repayment Date"). For purposes of this Note,
"Vesting Event" shall have the same meaning given such term in the
Agreement;
INTEREST PAYMENTS. Interest shall be payable in arrears on the
Principal Repayment Date and shall be calculated on the principal
amount determined on such date on the basis of a 365-day year for the
actual number of days elapsed;
provided, however, that upon the occurrence of a Vesting Event prior to a
Principal Repayment Date, this Note shall be canceled and no payments of
principal or interest shall be due hereunder.
This Note shall be canceled and the liability of the undersigned
hereunder shall be terminated as of the Principal Adjustment Date on which the
Cash Surrender Value equals or exceeds the Premiums.
The Employer shall have no right to accelerate this Note.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Employer, and is subject to all of the terms and provisions of the
Pledge Agreement, of even date herewith between __________________ and the
Employer.
The provisions of this Note shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
undersigned may not assign or transfer any of its rights or obligations under
this Note without the prior written consent of Employer.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
2.
<PAGE> 13
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed
-------------------
3.
<PAGE> 14
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by
_______________, an individual with a residence at
________________________________________________ ("Pledgor"), in favor of
DATAWORKS CORPORATION, a California corporation with its principal place of
business at 5910 Pacific Center Boulevard, Suite 300, San Diego, California
92121 ("Pledgee"), and its successors and assigns.
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note (the "Note") in favor of Pledgee in the principal amount as
determined therein in accordance with the terms of the DATA WORKS CORPORATION
SPLIT-DOLLAR INSURANCE AGREEMENT between Pledgee and Pledgor; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Pledged Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and
performance when due (whether by stated maturity, or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Note as determined
initially as of the execution date of the Note (all such indebtedness being the
"Liabilities"), together with, without limitation, the prompt payment of all
expenses, including, without limitation, reasonable attorneys' fees and legal
expenses, incidental to the collection of the Liabilities and the enforcement or
protection of Pledgee's lien in and to the collateral pledged hereunder, Pledgor
hereby pledges to Pledgee, and grants to Pledgee, a first priority security
interest in all of the following (collectively, the "Pledged Collateral"):
(a) ____________________________ (______) shares of Common
Stock of Pledgee represented by Certificates numbered
___________________________ (the "Pledged Shares"), and all dividends, cash,
instruments, and other property or proceeds from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing
the right to vote any Pledged Shares subject to any voting trust; and
(c) such additional shares, and the certificates representing
such additional shares, and all dividends, cash, instruments, and other property
or proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares, as may be necessary to
be added to the Pledged Shares in order that the total aggregate value of the
Pledged Shares is not less than the amount of the Liabilities (which additional
shares
1.
<PAGE> 15
shall be deemed to be part of the Pledged Shares). For purposes of this Section
1(c), the value of the Pledged Shares shall be determined by multiplying the
number of Pledged Shares by the market value of each Pledged Share. "Market
Value" shall mean, as of the relevant date, the public market price then in
effect. For purposes of this provision, the amount of the Liabilities and the
value of the Pledged Shares shall be determined on each Principal Adjustment
Date, as such term is defined in the Note, which occurs on or next following the
anniversary of the execution date of the Note.
The Pledged Collateral shall be held in Escrow by Norman R. Farquhar
("Escrow Agent"). The parties hereto shall enter into Joint Escrow Instructions
essentially in the form attached hereto as Exhibit A.
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness may be or hereafter becomes unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) insure, process and preserve the Pledged Collateral; (3)
exercise as to such Pledged Collateral all the rights, powers and remedies of an
owner, except that so long as no default exists under the Note or hereunder
Pledgor shall retain all voting rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) the levy of any attachment, execution or other
process against the Pledged Collateral; or (3) the insolvency, commission of an
act of bankruptcy, general assignment for the benefit of creditors, filing of
any petition in bankruptcy or for relief under the provisions of Title 11 of the
United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due or upon
the happening of any of the events specified in the last preceding paragraph,
Pledgee may then, or at any time thereafter, at its election, apply, set off,
collect or sell in one or more sales, or take such steps as may be necessary to
liquidate and reduce to cash in the hands of Pledgee in whole
2.
<PAGE> 16
or in part, with or without any previous demands or demand of performance or
notice or advertisement, the whole or any part of the Pledged Collateral in such
order as Pledgee may elect, and any such sale may be made either at public or
private sale at its place of business or elsewhere, or at any broker's board or
securities exchange, either for cash or upon credit or for future delivery;
provided, however, that if such disposition is at private sale, then the
purchase price of the Pledged Collateral shall be equal to the public market
price then in effect. Pledgee may be the purchaser of any or all Pledged
Collateral so sold and hold the same thereafter in its own right free from any
claim of Pledgor or right of redemption. Demands of performance, notices of
sale, advertisements and presence of property at sale are hereby waived, and
Pledgee is hereby authorized to sell hereunder any evidence of debt pledged to
it. Any sale hereunder may be conducted by any officer or agent of Pledgee.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine.
Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of
sale and all other rights, powers and remedies granted to Pledgee hereunder
shall continue to exist and may be exercised by Pledgee at any time and from
time to time irrespective of the fact that the indebtedness or any part thereof
may have become barred by any statute of limitations, or that the personal
liability of Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as provided herein. The amount of such releases, if any, shall be
determined on each Principal Adjustment Date which occurs on or next following
the anniversary of the execution date of the Note. Such release from pledge
shall be at a rate equal to the number of whole shares of Pledged Shares
determined by dividing the decrease, if any, in the indebtedness on the Note as
determined on the later of the execution date of the Note or the Principal
Adjustment Date that occurred one calendar year preceding the Principal
Adjustment Date on which such determination occurs, and the indebtedness on the
Note as determined on the Principal Adjustment Date on which such determination
occurs, by the Market Value. For this purpose Market Value shall be determined
on the Principal Adjustment Date for which such determination occurs.
3.
<PAGE> 17
10. In the event that the Note is canceled as provided in the Note, the
Liabilities shall be canceled and Pledgee shall deliver the Pledged Collateral
to Pledgor within five (5) days following the cancellation of the Note and the
receipt of Pledgor shall be a complete and full acquittance for the Pledged
Collateral so delivered, and Pledgee shall thereafter be discharged from any
liability or responsibility therefor.
11. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
12. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
13. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
14. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State.
15. This Pledge Agreement shall inure to the benefit of Pledgee's
successors and assigns. Pledgor shall not assign this Pledge Agreement without
Pledgee's prior written consent.
Dated:
-------------------
PLEDGOR
--------------------------------
Printed Name:
-------------------
4.
<PAGE> 18
EXHIBIT A
ESCROW INSTRUCTIONS
5.
<PAGE> 19
EXHIBIT B
PROMISSORY NOTE
6.
<PAGE> 20
JOINT ESCROW INSTRUCTIONS
Norman R. Farquhar
Chief Financial Officer
DataWorks Corporation
5910 Pacific Center Boulevard
Suite 300
San Diego, CA 92121
Dear Sir:
As Escrow Agent for both DATAWORKS CORPORATION, a California
corporation ("Employer") and ___________________ ("Employee"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Stock Pledge Agreement ("Agreement") dated as of
_____________________, 1997, to which a copy of these Joint Escrow Instructions
is attached as Exhibit A, in accordance with the following instructions:
1. In the event Employer or an assignee elects to apply, set off,
collect, sell in one or more sales, or liquidate and reduce to cash in the hands
of Employer in whole or in part, (collectively, "foreclose"), the whole or any
part of the shares held in escrow, Employer or its assignee will give to
Employee and you a written notice specifying the number of shares of stock to be
foreclosed upon and the time for a closing thereunder at the principal office of
Employer. Employee and Employer hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
2. At the closing for the foreclosure, you are directed (a) to date the
stock assignments necessary for the transfer in question, (b) to fill in the
number of shares being transferred, and (c) to deliver the same, together with
the certificate evidencing the shares of stock to be transferred, to the
transferee designated in the written notice, including, without limitation,
Employer, against the simultaneous delivery to you of suitable acknowledgment of
cancellation of indebtedness for the number of shares of stock being foreclosed
upon pursuant to the default on the Note, as defined in the Agreement.
3. The Pledge Agreement provides for a release of shares in the event
the amount of the indebtedness on the Note (as defined in the Agreement) is
reduced. In the event Employee elects to exercise the right to have shares
released from Escrow, Employee will give to Employer and you a written notice
specifying the number of shares of stock to be released from escrow pursuant to
the Agreement and the time for a closing thereunder at the principal office of
Employer. Employer and Employee hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
1.
<PAGE> 21
4. At the closing for the release from escrow, you are directed (a) to
date the stock assignments necessary for the transfer in question, (b) to fill
in the number of shares being released from escrow, and (c) to deliver the same,
together with the certificate evidencing the shares of stock to be transferred,
to Employee, or to Employee's transferee as specified in the notice, against the
simultaneous delivery to you of suitable acknowledgment of reduction of
indebtedness for the number of shares of stock being released from escrow
pursuant to the reduction of indebtedness under the Note.
5. Employee irrevocably deposits with you any certificates evidencing
shares of stock to be held by you hereunder and any additions and substitutions
to said shares as specified in the Agreement. Employee does hereby irrevocably
constitute and appoint you as his attorney-in-fact and agent for the term of
this escrow to execute with respect to such securities all documents necessary
or appropriate to make such securities negotiable and complete any transaction
herein contemplated, including but not limited to any appropriate filing with
state or government officials or bank officials. Subject to the provisions of
this paragraph 5, Employee shall exercise all rights and privileges of a
shareholder of the Employer while the stock is held by you.
6. This escrow shall terminate upon the foreclosure of all of the stock
held in escrow, the payment in full on the Note, or the cancellation of the
Note, as provided in the Note, whichever occurs first.
7. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Employee,
you shall deliver all of the same to Employee and shall be discharged of all
further obligations hereunder.
8. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
9. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Employee while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
10. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
2.
<PAGE> 22
11. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
12. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
13. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Chief Financial Officer or if you shall resign by written
notice to each party. In the event of any such termination, Employer shall
appoint its Chief Financial Officer as successor Escrow Agent, and Employee
hereby confirms the appointment of such successor as his attorney-in-fact and
agent to the full extent of your appointment.
14. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
15. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
16. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier, or four (4) days after deposit in the United States
Post Office, by registered or certified mail with postage and fees prepaid,
addressed to each of the other parties entitled to such notice at the following
addresses, or at such other addresses as a party may designate by ten days'
advance written notice to each of the other parties hereto.
EMPLOYER: DataWorks Corporation
5910 Pacific Center Boulevard
Suite 300
San Diego, California 92121
EMPLOYEE:
-----------------------------
-----------------------------
-----------------------------
3.
<PAGE> 23
ESCROW AGENT: Norman R. Farquhar
Chief Financial Officer
DataWorks Corporation
5910 Pacific Center Boulevard
Suite 300
San Diego, California 92121
17. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
18. You shall be entitled to employ such legal counsel and other
experts (including, without limitation, the firm of Cooley Godward LLP) as you
may deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and you may pay such
counsel reasonable compensation therefor. The Employer shall be responsible for
all fees generated by such legal counsel in connection with your obligations
hereunder.
19. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
20. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of California, as such laws are applied
by California courts to contracts made and to be performed entirely in
California by residents of that state.
Very truly yours,
DATAWORKS CORPORATION
By:
------------------------
Its:
------------------------
EMPLOYEE:
------------------------
ESCROW AGENT:
- --------------------------------
NORMAN R. FARQUHAR
4.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF DATAWORKS CORPORATION
1. Madic-Compufact Corporation, a Delaware corporation
2. DataWorks (Europe) Limited, a United Kingdom limited corporation
3. DCD Corporation, a Minnesota corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-99586) pertaining to the 1995 Equity Incentive Plan, Stock Options
Issued Outside the 1995 Equity Incentive Plan, 1995 Employee Stock Purchase
Plan, and the 1995 Non-Employee Directors' Stock Option Plan of DataWorks
Corporation of our report dated January 31, 1997, with respect to the
consolidated financial statements of DataWorks Corporation included in the
Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
San Diego, California
March 25, 1997
<PAGE> 1
Employer hereunder has been paid. The parties hereto agree that the beneficiary
designation of the Policy shall conform to the provisions hereof.
2. Employee shall have the right to designate and change direct and
contingent beneficiaries of any death benefit proceeds remaining after the
amounts described in Section 1, above, are paid to Employer, and to elect and
change a payment plan for such beneficiaries. Any assignment of the Policy
proceeds by the Employee pursuant to Section 8, of this Agreement, shall be
limited to the death proceeds only and shall not apply to the amounts payable to
the Employer as described in Section 1.
3. (a) Premiums on the Policy shall be paid in accordance with this
Section 3. During such period as Employer is required to pay the premiums, the
entire premium on the Policy shall be paid by Employer as it becomes due, or
within the grace period provided therein, or Employer shall, as applicable,
cause the cash value of the Policy to be used to pay such premiums. Employer
shall not permit the Policy to lapse or to be canceled by Insurer because of
Employer's failure to pay or cause to be paid sufficient premiums in a timely
manner to keep the Policy in full force and effect. Employer shall be obligated
to pay the premiums or cause the premiums to be paid so long as Employee is
employed by Employer unless either (i) this Agreement, prior to the occurrence
of a Vesting Event as defined in Section 6, is terminated as provided in Section
5, or (ii) the Policy, prior to the occurrence of a Vesting Event, is disposed
of by the Employer, as provided in Section 4. On or following the occurrence of
a Vesting Event, Employer shall continue to pay the premiums or to cause the
premiums on the Policy to be paid until the Employee's death, regardless of
whether Employee continues employment with Employer or terminates employment
with Employer. Notwithstanding any provision in this Agreement to the contrary,
Employer's obligation to pay premiums on the Policy or to cause such premiums to
be paid is conditioned on Employee entering into, for each year, and prior to
the date such premiums are due, a promissory note, to the extent such note is
required as described in Section 9, below. Upon request, Employer shall promptly
furnish Employee evidence of timely payment of each premium. Employer annually
shall furnish Employee with a statement of the amount of income reportable by
Employee for federal and state income tax purposes as a result of its payment of
such premium.
(b) Dividends, if any, declared on the Policy shall be applied
to reduce the amount of premiums due on the Policy. The parties hereto agree
that the dividend election provisions of the Policy, if any, shall conform to
the provisions hereof.
4. Prior to the occurrence of a Vesting Event, while Employee remains
employed by Employer, Employer shall not sell, surrender, change the insured or
transfer ownership of the Policy while this Agreement is in effect or terminate
the dividend election thereof, if any, without obtaining the written consent of
Employee and without first giving Employee the option to purchase the Policy
during a period of sixty (60) days from notice to Employee of such intention. If
Employee elects to purchase the Policy, the purchase price of the Policy shall
be the cash surrender value of the Policy as of the date of transfer to
Employee, less any Policy and premium loans and any other indebtedness secured
by the Policy. Provided, however, that if at the time Employee elects to
purchase the Policy, the cash surrender value of the Policy is less
2.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 47,142,555
<SECURITIES> 0
<RECEIVABLES> 24,362,787
<ALLOWANCES> 980,000
<INVENTORY> 0
<CURRENT-ASSETS> 79,300,525
<PP&E> 6,862,269
<DEPRECIATION> 2,855,611
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0
0
<COMMON> 71,680,394
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<SALES> 40,954,974
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<CGS> 6,817,134
<TOTAL-COSTS> 51,204,861
<OTHER-EXPENSES> 3,656,112
<LOSS-PROVISION> 452,373
<INTEREST-EXPENSE> (444,006)
<INCOME-PRETAX> 6,330,546
<INCOME-TAX> 3,094,483
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<EXTRAORDINARY> 0
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<NET-INCOME> 3,236,063
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
