<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO
_________________.
Commission File Number 0-26814
DATAWORKS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0209937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5910 PACIFIC CENTER BOULEVARD 92121
SUITE 300 (Zip Code)
SAN DIEGO, CALIFORNIA
(Address of principal executive offices)
(619) 546-9600
(Registrant's telephone number, including area code)
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. [X] Yes [ ] No
As of November 2, 1998, there were 14,401,144 shares of the Registrant's Common
Stock outstanding.
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DATAWORKS CORPORATION
FORM 10-Q INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 3
Consolidated Statements of Operations (unaudited)
for the Three Months and Nine Months Ended
September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows (unaudited)
for the Nine Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DATAWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 23,785 $ 17,418
Short-term investments, available-for-sale 9,897 30,503
Accounts receivable, net of allowance for doubtful
accounts of $2,654 and $2,360 at September 30, 1998
and December 31, 1997, respectively 56,635 53,617
Deferred income taxes 3,361 3,377
Other current assets 8,906 6,354
------------- -------------
Total current assets 102,584 111,269
Equipment, furniture and fixtures, net 11,077 8,184
Capitalized software costs, net 9,287 4,807
Intangible assets, net 10,977 6,083
Advances to related party 97 97
Other assets 3,824 696
------------- -------------
Total assets $ 137,846 $ 131,136
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,569 $ 11,802
Accrued compensation 8,077 10,476
Income taxes payable 2,782 1,732
Deferred revenue 15,192 14,271
Current portion of long-term obligations 893 721
Other accrued liabilities 2,359 5,611
------------- -------------
Total current liabilities 40,872 44,613
Deferred income taxes 1,030 964
Long-term obligations, less current portion 1,351 1,493
Commitments
Shareholders' equity:
Common shares, no stated par value:
Authorized shares - 50,000
Issued and outstanding shares - 14,400 and 13,967 at
September 30, 1998 and December 31, 1997, respectively 87,661 81,458
Retained earnings 6,296 2,445
Cumulative foreign currency translation adjustments 636 163
------------- -------------
Total shareholders' equity 94,593 84,066
------------- -------------
Total liabilities and shareholders' equity $ 137,846 $ 131,136
============= =============
</TABLE>
See accompanying notes
3
<PAGE> 4
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 18,550 $ 20,109 $ 56,571 $ 48,215
Maintenance and other services 22,865 15,369 61,371 44,412
Hardware 1,790 2,709 6,873 8,005
------------ ------------ ------------ ------------
Total revenues 43,205 38,187 124,815 100,632
Cost of revenues:
Software licenses 2,295 2,752 6,589 6,082
Maintenance and other services 16,819 10,637 45,823 30,984
Hardware 1,434 2,058 5,362 6,061
------------ ------------ ------------ ------------
Total cost of revenues 20,548 15,447 57,774 43,127
------------ ------------ ------------ ------------
Gross profit 22,657 22,740 67,041 57,505
Operating expenses:
Sales and marketing 12,881 10,979 35,134 28,523
General and administrative 5,913 5,194 15,652 12,969
Research and development 3,687 2,750 10,546 7,824
Restructuring costs 527 -- 527 --
Acquisition and related costs -- 15,565 -- 15,565
------------ ------------ ------------ ------------
Total operating expenses 23,008 34,488 61,859 64,881
------------ ------------ ------------ ------------
Income (loss) from operations (351) (11,748) 5,182 (7,376)
Other income, net 240 446 884 1,262
------------ ------------ ------------ ------------
Income (loss) before income taxes (111) (11,302) 6,066 (6,114)
Provision (credit) for income taxes (40) (2,112) 2,215 (253)
------------ ------------ ------------ ------------
Net income (loss) $ (71) $ (9,190) $ 3,851 $ (5,861)
============ ============ ============ ============
Net income (loss) per share - basic $ 0.00 $ (0.66) $ 0.27 $ (0.43)
============ ============ ============ ============
Net income (loss) per share - diluted $ 0.00 $ (0.66) $ 0.26 $ (0.43)
============ ============ ============ ============
Common shares outstanding - basic 14,397 13,870 14,272 13,765
============ ============ ============ ============
Common shares outstanding - diluted 14,397 13,870 14,843 13,765
============ ============ ============ ============
</TABLE>
See accompanying notes
4
<PAGE> 5
DATAWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,851 $ (5,861)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of intangible assets 5,570 3,652
Non cash acquisition and related costs -- 5,248
Compensation regarding granting of stock options 35 67
Deferred income taxes 82 (234)
Provision for doubtful accounts 838 965
Changes in operating assets and liabilities:
Accounts receivable (3,313) (2,752)
Write-off of bad debts (543) (339)
Other current assets (2,552) (1,185)
Accounts payable (233) 2,532
Accrued compensation (2,399) 976
Deferred revenue 921 1,754
Other accrued liabilities and income taxes payable (2,202) 263
------------ ------------
Net cash provided by operating activities 55 5,086
INVESTING ACTIVITIES
Purchases of equipment, furniture and fixtures (6,055) (3,523)
Purchases of short-term investments (21,210) --
Sale of short-term investments 41,816 --
Additions to capitalized software costs (4,761) (2,750)
Increase in intangible assets (1,715) (239)
Cash paid for acquisitions (2,613) --
Advances to related parties, net 0 58
Other assets (515) (80)
------------ ------------
Net cash provided by (used in) investing activities 4,947 (6,534)
FINANCING ACTIVITIES
Net increase (decrease) in obligations under line of credit (727) (655)
Proceeds from notes payable -- 500
Repayments of notes payable and capital lease obligations (884) (1,740)
Issuance of common stock, net 2,503 1,966
------------ ------------
Net cash provided by financing activities 892 71
Effect of exchange rate on cash 473 --
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,367 (1,377)
Cash and cash equivalents at beginning of period 17,418 50,825
------------ ------------
Cash and cash equivalents at end of period $ 23,785 $ 49,448
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 153 $ 371
============ ============
Cash paid during the period for income taxes $ 777 $ 1,649
============ ============
NON-CASH TRANSACTIONS
Common stock issued for business acquisitions $ 3,665 $ --
============ ============
Equipment acquired through capital leases $ 959 $ 321
============ ============
Earnouts payable for business acquisitions $ 682 $ 139
============ ============
</TABLE>
See accompanying notes
5
<PAGE> 6
DATAWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements included herein
have been prepared by DataWorks Corporation (the "Company" or "DataWorks")
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1997 included in the Company's Annual Report on Form 10-K. The results of
operations for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results which may be reported for any other
interim period or for the year ending December 31, 1998.
2. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income by the weighted
average shares of common stock outstanding during the periods. Diluted earnings
per share was computed by dividing net income by the weighted average shares of
common stock and common stock equivalents outstanding during the periods. The
dilutive effect of the potential exercise of outstanding options and warrants to
purchase shares of common stock was calculated using the treasury stock method.
3. RECEIVABLE FROM RELATED PARTY
At September 30, 1998 and December 31, 1997, the receivable from related party
consists of balances due from one of DataWorks' principal officers and
shareholders representing net advances totaling $97,000 at September 30, 1998
and December 31, 1997.
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). This statement
requires the Company to report in the financial statements, in addition to net
income, comprehensive income and its components including foreign currency
translation adjustments and unrealized gains and losses on its
available-for-sale securities. SFAS 130 also requires the Company to reclassify
financial statements for earlier periods provided for comparative purposes.
The components of comprehensive income for the three and nine months ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ (71) $ (9,190) $ 3,851 $ (5,861)
Unrealized gains (losses) on foreign
currency translation adjustments 491 (28) 473 (60)
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ 420 $ (9,218) $ 4,324 $ (5,921)
============ ============ ============ ============
</TABLE>
6
<PAGE> 7
5. SOFTWARE REVENUE RECOGNITION
As of January 1, 1998, the Company adopted Statement of Position No. 97-2,
Software Revenue Recognition ("SOP 97-2"), which provides guidance for
recognizing revenue related to sales by software vendors. The adoption of SOP
97-2 did not have a significant impact on the Company's financial statements for
the three and nine months ended September 30, 1998.
6. ACQUISITIONS
On January 28, 1998, DataWorks acquired a 19.9% interest in evosoft DataWorks
Software GmbH ("evosoft") for approximately $413,000 in cash. Evosoft, located
in Nuremberg, Germany, will market, distribute and support the Company's
products upon translation and localization into German specifications which is
anticipated to occur in early 1999. DataWorks has an option to purchase the
remaining interest in evosoft by January 2001. The Company accounts for its
investment in evosoft under the cost method.
On July 3, 1998 the Company acquired the assets of 7+7 Software AB ("7+7") in
exchange for cash payments over three years in the aggregate amount of $0.35
million. 7+7 was an enterprise software consulting group to mid-range
manufacturers. The transaction will be accounted for as a purchase, and the
results of operations of 7+7 will be included with the results of the Company's
operations subsequent to the date of acquisition.
On August 12, 1998, DataWorks acquired a 19.5% interest in JB Systems, Inc. ("JB
Systems") for $2.2 million in cash. A board member of DataWorks is an affiliate
of an entity which owns the majority of the remaining outstanding shares of JB
Systems. Therefore, the investment is accounted for using the equity method, and
the results of operations of JB Systems are included with the results of the
Company's operations subsequent to the purchase date to the extent of the
Company's ownership. JB Systems, headquartered in Woodland Hills, California,
supplies computerized plant maintenance and management software. DataWorks has
an option to purchase the remaining interest in JB Systems for a two-year period
commencing on the close of the initial investment. As discussed in Note 10,
upon the completion of the merger with Platinum, the Company's board member is
expected to resign. Accordingly, the Company will account for its investment in
JB Systems on the cost method.
The Company has determined that the aggregate impact on the results of
operations in the prior periods of the aforementioned acquisitions does not meet
the requirements for pro forma disclosure.
7. COMMITMENT
During September 1998, the Company entered into an agreement with a commercial
developer to lease buildings being developed and constructed by the commercial
developer. The buildings, which total approximately 160,000 square feet, will be
located in San Diego, California, and will serve as the corporate headquarters
for the Company. The lease agreement, which is for a ten-year period with two
five-year options to extend the term of the lease, is expected to commence in
September 1999. Total lease commitment approximates $33.6 million over the
initial lease term. Pursuant to the terms of the lease agreement, the Company
expects to incur approximately $5.2 million related to tenant improvements.
8. RESTRUCTURING COSTS
During the third quarter of 1998, the Company commenced an initial phase of a
Company-wide realignment. These costs consisted primarily of severance packages
offered to three executives of the Company.
9. REVISED EMPLOYEE STOCK PURCHASE PLAN
During June 1998, in conjunction with the Company's Annual Shareholders Meeting,
the shareholders approved an increase in the number of shares authorized for
issuance under the Employee Stock Purchase Plan (the "Plan") by 750,000 shares.
During July 1998, the Company adopted a revised Plan which included amendments
to the employee eligibility requirements and certain of the terms of rights
granted under the Plan.
7
<PAGE> 8
10. SUBSEQUENT EVENT
Pursuant to shareholder approval obtained at the Annual Meeting of Shareholders
of DataWorks held June 18, 1998, the Company completed its reincorporation in
Delaware on October 2, 1998.
On October 13, 1998, the Company entered into a definitive agreement (the
"Merger Agreement") with Platinum Software Corporation, ("Platinum"), a supplier
of software solutions for manufacturers and distributors in the mid-range
market, pursuant to which the Company will become a wholly-owned subsidiary of
Platinum in a stock-for-stock merger (the "Merger") intended to qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and accounted for as a purchase for financial
reporting purposes. Under the terms of the Merger Agreement, stockholders of the
Company will receive 0.794 shares of Platinum common stock for each share of
Company common stock they own at the time the Merger is consummated. In
addition, options and warrants to acquire Company common stock will be converted
as a result of the Merger into equivalent options and warrants for Platinum
common stock, based upon the exchange ratio. The Merger is expected to be
completed in December 1998, subject to approval of the Merger Agreement by the
stockholders of the Company and Platinum as well as the satisfaction or waiver
of customary closing conditions. The Company has filed a Current Report on Form
8-K (Date of Report: October 2, 1998) with respect to the transactions involving
the Company and Platinum, and the foregoing description of such transactions and
the various agreements entered into in connection therewith is qualified in its
entirety by reference to the documents filed as exhibits to such Form 8-K.
On October 13, 1998, the Company adopted a Shareholder Rights Plan (the "Plan")
under which all shareholders of record as of October 28, 1998 will receive
rights (the "Rights") to purchase shares of a new series of preferred stock. The
Rights will be distributed as a non-taxable dividend and will expire in ten
years from the record date. The Rights will be exercisable only if a person or
group acquires 15 percent or more of the Company's common stock or announces a
tender offer for 15 percent or more of the common stock. In the event a person
acquires 15 percent or more of the Company's common stock, all Rights holders
except the buyer will be entitled to acquire the Company's preferred stock at a
discount. Notwithstanding the foregoing, the Plan provides that the Company's
proposed merger with Platinum will not cause the rights to become exercisable as
long as Platinum is acting in accordance with the terms of the Merger Agreement.
On October 22, 1998 the Company's Board of Directors authorized an employee
stock option repricing effective November 9, 1998. Approximately 1,470,200
shares under options, with original per share prices of $9.75 to $25.75, were
repriced at $9.131 per share. The repricing affected the Company's 1995 Equity
Incentive Plan, the Interactive Group, Inc. 1995 Stock Option Plan and the
Interactive Group, Inc. 1997 Nonstatutory Stock Option Plan assumed by DataWorks
as part of the Company's acquisition of Interactive Group, Inc. The repricing
did not affect the number of shares issuable under options previously granted,
vesting period or expiration date of the options. However, there is a
twelve-month period following the repricing in which all repriced options
generally cannot be exercised.
A lawsuit was filed against DataWorks on November 3, 1998 seeking an unspecified
amount of damages on behalf of an alleged class of persons who purchased shares
of the Company's common stock at various times between January 28, 1998 to July
16, 1998. The complaint named as defendants the Company, certain of its officers
and former officers and certain directors of the Company, asserting that they
violated federal and state securities laws by misrepresenting and failing to
disclose certain information about the Company's business. The Company has not
yet formally responded to this complaint. Although the Company has insurance
which covers such actions, and intends to vigorously defend the actions against
the Company, there can be no assurance that an adverse result or settlement with
regards to this lawsuit would not have a material adverse effect on the
Company's financial condition or results of operations.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties such as
statements of the Company's plans, objectives, expectations and intentions. When
used in this report, the words "expects," "anticipates," "intends" and "plans"
and similar expressions are intended to identify certain of these
forward-looking statements. The cautionary statements made in this report should
be read as being applicable to all related forward-looking statements wherever
they appear in this report. DataWorks' actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, fluctuations in the Company's
operating results, continued new product introductions by the Company, market
acceptance of the Company's new product introductions, new product introductions
by competitors and the other factors referred to herein and in the Company's
Form 10-K for the year ended December 31, 1997.
The Company develops, markets, implements and supports open systems,
client/server based Enterprise Resource Planning ("ERP") software for mid-sized
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 are designed to allow mid-range
manufacturers to reduce order fulfillment cycle times, improve operating
efficiencies and measure critical company performance against defined plan
objectives. DataWorks' principal products include Avante, Impresa for MRO, Vista
and Vantage.
The Company derives a significant portion of its revenues from its international
business, which is subject to various risks common to international activities,
including currency fluctuations. Revenues and expenses of the Company's
international operations are translated at the average exchange rate in effect
during the period. Translation adjustments are reported as a separate component
of shareholders' equity.
Due to intense competition in the computer hardware market and an increasing
tendency for customers, particularly new accounts, to purchase hardware directly
from third-party vendors, DataWorks has experienced declining hardware revenues
as a percentage of each system it sells and declining profit margins with
respect to such hardware revenues. In the past, gross profit from hardware sales
has not been a significant part of DataWorks' total gross profit, and the
Company believes this trend will continue.
The Company believes its success has been due in large part to its strategy of
focusing marketing and development resources on eight "highly engineered
product" industries within the mid-range discrete manufacturing market sector.
The Company is unaware of any of its competitors specifically targeting the same
group of industries. There can be no assurance that competitors with
significantly greater financial, technical and marketing resources than
DataWorks will not target these particular industries.
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.
9
<PAGE> 10
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>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses 43% 53% 45% 48%
Maintenance and other services 53 40 49 44
Hardware 4 7 6 8
---------- ---------- ---------- ----------
Total revenues 100 100 100 100
Cost of revenues:
Software licenses 5 7 5 6
Maintenance and other services 39 28 37 31
Hardware 3 5 4 6
---------- ---------- ---------- ----------
Total cost of revenues 47 40 46 43
---------- ---------- ---------- ----------
Gross profit 53 60 54 57
Operating expenses:
Sales and marketing 30 29 28 28
General and administrative 14 14 13 13
Research and development 8 7 8 8
Restructuring costs 1 -- -- --
Acquisition costs -- 41 -- 16
---------- ---------- ---------- ----------
Total operating expenses 53 91 49 65
---------- ---------- ---------- ----------
Income from operations 0% (31)% 5% (8)%
========== ========== ========== ==========
</TABLE>
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues - Total revenues increased $5.0 million or 13% to $43.2 million for the
quarter ended September 30, 1998 from $38.2 million for the same period in the
prior year, and increased $24.2 million or 24% to $124.8 million for the first
nine months of 1998 from $100.6 million for the same period in 1997. Software
sales decreased 7% for the third quarter of 1998 compared to the same period in
1997, but increased 17% for the nine months ended September 30, 1998 as compared
to the same period in 1997. The third quarter decrease was attributable to lower
domestic Avante sales, partially offset by an increase in the Company's lower
tier products, Vista and Vantage, and to a lesser extent, Avante international
sales. Management believes the reduction in domestic Avante sales resulted from
a shortage of quota bearing sales representatives due to unusually high turnover
earlier in the year. Maintenance and service revenues increased 49% and 38% for
the three and nine months ended September 30, 1998, respectively, from the
corresponding periods in 1997. The increase in maintenance and other services
revenues was a result of the general growth in software license agreements the
Company has experienced recently, which provide for initial maintenance,
training, installation and support services. Hardware revenues decreased
slightly from the same prior year period as a result of de-emphasized
third-party hardware sales.
As a percentage of the Company's total revenues, international revenues
represented 25% in the third quarter of 1998 as compared to 16% in the third
quarter of 1997. For the nine months ended September 30, 1998, international
revenues represented 22% of the Company's total revenues as compared to 16%
during the corresponding period in 1997. The increase in international revenues
consisted primarily of sales from the Company's UK subsidiary and to a lesser
extent its Netherlands subsidiary, which was purchased June 1998. In addition to
the continued market acceptance of the Avante product, the Company has
experienced positive results from its introduction of the Vantage product in
Europe.
10
<PAGE> 11
Cost of Revenues - Total cost of revenues increased $5.1 million or 33% to $20.5
million for the quarter ended September 30, 1998 from $15.4 million in the same
prior year period, and increased $14.7 million or 34% to $57.8 million for the
first nine months of 1998 from $43.1 million for the same period in 1997. Cost
of software licenses as a percentage of software revenue was 12% and 14% for the
third quarters of 1998 and 1997, respectively. For the nine months ended
September 30, 1998 and 1997, software license cost as a percentage of software
revenue was 11% and 12%, respectively. The decrease in the software cost of
sales as a percentage of sales is a result of a favorable pricing agreement
established with a third-party provider of databases. Cost of maintenance and
other services as a percentage of related revenues increased to 74% from 69% for
the third quarter of 1998 as compared to the same period in 1997. For the nine
months ended September 30, 1998 and 1997, the cost of maintenance and other
services as a percentage of related revenues was 75% and 70%, respectively.
These expenses were impacted by the 1998 shift toward relatively higher service
revenue, which bear a higher cost than maintenance revenue. The Company has made
a significant investment in its professional consulting service organization,
which has experienced continuous growth during 1998. In addition to the
administrative downtime associated with orienting new staff, numerous existing
staff were cross-trained on the Company's various software offerings in response
to recent changes in customer demand. Although DataWorks experienced a temporary
reduction in the overall utilization rate of its professional service staff
during the second quarter of 1998 due to a concentration of administrative
downtime, the utilization rate increased to its previous levels during the third
quarter.
Gross Profit - Gross profit remained unchanged at $22.7 million for the 1998 and
1997 third quarters representing 53% and 60% of total revenues in those
quarters, respectively. Gross profit increased $9.5 million or 17% to $67.0
million from $57.5 million for the nine months ended September 30, 1998 compared
to the same period last year, representing 54% and 57% of total revenues,
respectively. Gross profit, as percentage of revenues, for both the three and
nine month periods ended September 30, 1998 was unfavorably impacted by the
changes in product mix and the lower overall margin in services as mentioned
above.
Sales and Marketing Expenses - Sales and marketing expenses increased $1.9
million or 17% to $12.9 million in the three months ended September 30, 1998
from $11.0 million for the same period in 1997, representing 30% and 29% of
total revenues, respectively. These expenses increased $6.6 million or 23% to
$35.1 million in the nine months ended September 30, 1998 from $28.5 million for
the same period in 1997, representing a constant 28% of total revenues for both
periods. The absolute dollar increase was primarily attributable to the
Company's expanded direct sales force, increased commissions associated with the
higher year to date revenues, increased marketing efforts, and additional
facility costs.
General and Administrative Expenses - General and administrative expenses
increased $0.7 million or 13% to $5.9 million for the three months ended
September 30, 1998 from $5.2 million for the same period in 1997, representing a
constant 14% of the total revenues for both periods. These expenses increased
$2.7 million or 21% from $13.0 million in the nine months ended September 30,
1997 to $15.7 million for the same period in 1998, representing 13% of total
revenues in each period. The increase, in absolute terms, resulted primarily
from additional staffing and information systems infrastructure to support the
Company's growth as well as increases in expenses associated with the expanding
operations of its foreign subsidiaries.
Research and Development Expenses - DataWorks continues to invest heavily in the
future by funding research and development projects. Research and development
expenses are comprised primarily of salaries and a portion of the Company's
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.
However, certain software production costs related to the Company's Impresa for
Backoffice product, are capitalized pursuant to Statement of Financial
Accounting Standards No. 86, Accounting for Software Costs. Amortization of
these costs will begin on a module by module basis when the product is initially
released, which is expected sometime in 1999. As of September 30, 1998, the
amount capitalized for Impresa for Backoffice was $7.9 million. In addition to
the in-house software development costs capitalized for the nine months ended
September 30, 1998, the Company has capitalized, and is currently selling, $1.2
million of software purchased from third-party software providers.
Gross research and development expenses increased $1.2 million or 32% to $5.0
million in the quarter ended September 30, 1998 from $3.8 million for the same
period in 1997, representing 12% and 10% of total revenues in
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<PAGE> 12
each quarter, respectively. These expenses increased $3.6 million or 34% to
$14.1 million in the nine months ended September 30, 1998 from $10.5 million for
the same period in 1997, representing 11% and 10% of total revenues,
respectively. Gross research and development expenditures included capitalized
software costs related to Impresa for Backoffice of $1.3 million and $1.0
million for the third quarters of 1998 and 1997, respectively; and $3.6 million
and $2.7 million for the nine months ended September 30, 1998 and 1997,
respectively.
Restructuring costs - Restructuring costs of $0.5 million during the nine months
ended September 30, 1998 represent the non-recurring costs incurred as part of
the initial phase of a Company-wide realignment. These costs were primarily due
to severance packages offered to three executives of the Company. During October
1998, the Company incurred $1.5 million related to the re-alignment and
workforce reduction and, during the remainder of the fourth quarter of 1998,
DataWorks expects to record an additional $2.5 million of non-recurring expenses
related to the realignment and workforce reduction.
Acquisition costs - Acquisition costs of $15.6 million in 1997 represent the
non-recurring costs incurred during the acquisition of the Interactive Group,
Inc.
Other Income, Net - Other income consists primarily of interest and dividend
income offset slightly by interest expense. Other income for both the three and
nine months ended September 30, 1998 was impacted by the decrease in interest
earning balances of cash, cash equivalents and short term investments as
compared to the same periods in 1997.
Provision for Income Taxes - During 1998, the Company's effective income tax
rate has remained a constant 37%. For the three and nine months ended September
30, 1997, the effective income tax rate was 19%, due primarily to the
non-deductibility of certain acquisition and related costs. The effective tax
rate for these periods without the non-recurring acquisition and related costs
would have been approximately 37%. The estimated annual effective tax rate is
relatively sensitive to the results of operations in various foreign
subsidiaries. Consequently, such projections may change in future periods and
the actual effective tax rate could differ from the current estimate.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations with cash generated from operations and its
current cash and short-term investment balances. During the first nine months of
1998, the Company's operating activities generated $55,000 of cash. This
included $3.9 million net income, $6.5 million of non-cash expenses offset by
$10.3 million of cash used for working capital purposes. The use of working
capital was attributable to an increase in accounts receivable and the payments
of year-end commissions and bonuses, accrued merger-related integration costs,
and prepaid third-party database and maintenance costs.
Cash provided by investing activities amounted to $5.0 million for the first
nine months of 1998. The increase was primarily due to the maturity of
short-term investments that totaled $20.6 million, net. Cash used in investing
activities included $4.8 million of capitalized software costs primarily related
to the Impresa for Backoffice development, $6.0 million of capital equipment
purchases, $2.2 million investment in JB Systems and the $1.4 million increase
of intangible assets associated with the purchase of CTi and C-WAY.
Financing activities provided $0.9 million during the nine months ended
September 30, 1998. Proceeds from the exercise of stock options and from stock
purchased by employees through the Company's Employee Stock Purchase Plan
provided cash of $2.5 million. Capital lease obligations, repayment of the
Company's line of credit obligation and the payment of non-interest bearing
earnout payables during the first two quarters of 1998 reduced cash provided by
financing activities by $1.5 million.
As of September 30, 1998 DataWorks had $61.7 million working capital, including
$23.8 million in cash and cash equivalents and $9.9 million in short-term
investments consisting of high-quality municipal bonds, U. S. government debt
securities and commercial paper and auction securities. DataWorks' principal
commitments as of September 30, 1998 consisted primarily of facilities and
equipment leases. During September 1998, DataWorks entered into an agreement
with a commercial developer to lease buildings being developed and constructed
by the commercial developer. The buildings, which total approximately 160,000
square feet, will be located in San Diego,
12
<PAGE> 13
California, and will serve as the corporate headquarters for DataWorks. The
lease agreement, which is for a ten-year period with two five-year options to
extend the term of the lease, is expected to commence in September 1999. Total
lease commitment approximates $33.6 million over the initial lease term and $5.2
million in tenant improvements. DataWorks is also obligated under certain
software reseller agreements with third-party providers to render quarterly or
annual minimum licenses and maintenance support payments. These payments amount
to $0.9 million, $3.3 million, $2.1 million and $2.8 million for the remainder
of 1998, 1999, 2000 and 2001, respectively.
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 the
Company's current business. The Company believes that its current cash and
short-term investment balances, available lines of credit and cash flows 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.
CERTAIN RISKS
Software Revenue Recognition - Prior to 1998, the Company recognized revenue in
accordance with the provisions of the American Institute of Certified Public
Accountants ("AICPA") Statement of Position No. 91-1, Software Revenue
Recognition ("SOP 91-1"). The AICPA has recently adopted Statement of Position
No. 97-2, Software Revenue Recognition ("SOP 97-2"), which supersedes SOP 91-1.
The Company adopted SOP 97-2 effective January 1, 1998. The adoption of SOP 97-2
did not have a significant impact on the Company's financial statements for the
three and nine months ended September 30, 1998. However, there can be no
assurance that subsequent interpretations of this pronouncement by the Company's
independent auditors or the Securities and Exchange Commission will not modify
the Company's revenue recognition policies, or that such modifications will not
have a material adverse effect on the operating results reported in any
particular quarter. There can be no assurance that the Company will not be
required to adopt changes in its software licensing or services practices to
conform to SOP 97-2.
Year 2000
The Company's State of Readiness - Significant uncertainty exists in the
software industry concerning the potential effects from the Year 2000 issue
associated with the date codes used in computer software and hardware systems.
The Year 2000 plan of DataWorks' internal support staff consists of four phases:
(1) complete an inventory of all mission critical systems employed in the
Company, including identification of hardware, software and embedded technology
that potentially may be affected by the Year 2000 issue; (2) categorize all
mission critical systems as compliant, compliant with minor issues, or
non-compliant; (3) identify steps to bring all compliant with minor issues and
non-compliant products into compliance through modifications and/or upgrades;
and (4) implement all necessary modifications and/or upgrades. All four phases
include evaluation of the Company's products, its information technology systems
and its non-information technology systems which include embedded technology,
such as microcomputers. The Company believes it has largely completed the first
two phases described above. Although it will continue efforts to identify issues
in this regard, the Company currently estimates that phases three and four will
be completed by mid-1999. In addition, the Company is dependent on products and
services provided by third parties and must rely on those third parties to
assess the impact of the Year 2000 issue on the technology they have supplied
and to take any necessary corrective action. The Company has obtained Year 2000
compliance documentation from the majority of these third-party suppliers and
expects to receive the remaining documentation by mid-1999.
Costs - Over the last two years, the Company has upgraded or replaced the
majority of its mission critical information and non-information technology
systems through its normal capital procurement programs. To date, no specific
expenditures have been made as a result of the Year 2000. Costs incurred by the
Company to remediate the Year 2000 problems within its own products included
software development efforts accomplished by its internal development staff.
These incremental costs were expensed as incurred to research and development
consistent with other on-going product enhancement efforts and were not
considered material. The Company expects to fund any future costs through cash
flows from operations and does not expect these costs to have a material adverse
effect on
13
<PAGE> 14
the Company's liquidity or results of operations. The cost of the project is
based on the Company's estimates, which make numerous assumptions about future
events. There can be no assurance that these estimates will be correct and
actual costs could differ materially from these estimates.
Most Reasonably Likely Worst Case Scenarios for the Company - The Company will
continue to devote resources to address its Year 2000 issues. However, there can
be no assurance that the Company's products do not contain undetected Year 2000
problems. Further, there can be no assurance that the Company's assessment of
third-party suppliers and vendors will be accurate. Furthermore, it has been
widely reported that a significant amount of litigation surrounding business
interruptions will arise out of Year 2000 issues. It is uncertain whether, or to
what extent, the Company may be affected by such litigation. Additionally,
third-party software and computer technology used internally may materially
impact the Company if not Year 2000 compliant. The Company's operations may be
at risk if its suppliers and other third-party service providers fail to
adequately address the problem. This issue could result in system failures, data
corruption, the generation of erroneous information, and other significant
disruptions of business activities. Based on currently available information,
management does not believe that the Year 2000 matters discussed above related
to internal systems or products sold to customers will have a material adverse
impact on the Company's financial condition or overall trends in results of
operations. However, to the extent that either the Company or a third-party
vendor or service provider on which the Company relies does not achieve Year
2000 readiness, the Company's results of operations may be adversely impacted.
The amount of such an impact cannot be quantified at present.
The Company's Contingency Plan - The Company does not have a Contingency Plan.
DataWorks is in the process of evaluating the need for a contingency plan and
expects to finish the evaluation by early 1999.
Forward-looking Statements - The Company has made forward-looking statements
regarding its Year 2000 Program. Those statements include: the Company's
expectations about when it will be "Year 2000 ready"; the Company's expectations
about the impact of the Year 2000 problem on its ability to continue to operate
on and after January 1, 2000; the readiness of its suppliers, the costs
associated with the Year 2000; and worst case scenarios. The Company has
described many of the risks associated with those forward-looking statements
above. However, the Company wishes to caution the reader that there are many
factors that could cause its actual results to differ materially from those
stated in the forward-looking statements. This is especially the case because
many aspects of its Year 2000 Program are outside its control such as the
performance of many third-party suppliers. All of these factors made it
impossible for the Company to ensure that it will be able to resolve all Year
2000 problems in a timely manner to avoid materially adversely affecting its
operations or business or exposing the Company to third-party liability.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
DataWorks, and certain of its officers, directors and former officers,
consisting of Stuart W. Clifton, Norman R. Farquhar, Mark Hellinger,
Robert W. Brandel, Nathan W. Bell and Ronald S. Parker, have been named as
defendants in a lawsuit alleging violations of the federal securities
laws. The complaint, which was filed on November 3, 1998 in the United
States District Court for the Southern District of California, purports to
be brought on behalf of a class of stockholders, and alleges that between
January 28, 1998 and July 16, 1998, the defendants issued misleading
statements concerning DataWorks' acquisition of the Interactive Group,
Inc. and sales of certain products. The complaint does not specify the
dollar amount of damages alleged or relief requested. Platinum is also
named in the lawsuit as a defendant as a successor of DataWorks. DataWorks
intends to vigorously defend itself in the lawsuit, and denies the
allegations in the complaint. Although the Company has insurance which
covers such actions, and intends to defend the actions against the
Company, there can be no assurance that an adverse result of settlement
with regard to this lawsuit would not have a material adverse effect on
the Company's financial condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1- Separation Agreement dated August 4, 1998, between the
Company and Mark Hellinger.
Exhibit 11 - Statements of Consolidated Computation of Earnings Per Share
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K.
14
<PAGE> 15
On October 23, 1998, the Company filed a Current Report on Form 8-K dated
October 2, 1998 reporting under Item 5 ("Other Events"), that the Company
announced that it had entered into a definitive Agreement and Plan of
Reorganization with Platinum Software Corporation, a Delaware corporation
("Platinum"), pursuant to which the Company will become a wholly owned
subsidiary of Platinum in a stock-for-stock merger intended to qualify as
a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
The foregoing Current Report on Form 8-K dated October 2, 1998 also
reported under Item 5 ("Other Events"), that pursuant to shareholder
approval obtained at the Annual Meeting of Shareholders of DataWorks
Corporation (the "Company") held June 18, 1998, the Company had completed
its reincorporation in Delaware on October 2, 1998.
On October 19, 1998, the Company filed a Current Report on Form 8-K dated
October 13, 1998 reporting under Item 5 ("Other Events"), that the Company
adopted a Shareholder Rights Plan (the "Plan") under which all
shareholders of record as of October 28, 1998 will receive rights (the
"Rights") to purchase shares of a new series of preferred stock. The
Rights will be distributed as a non-taxable dividend and will expire in
ten years from the record date. The Rights will be exercisable only if a
person or group acquires 15 percent or more of the Company's common stock
or announces a tender offer for 15 percent or more of the common stock. In
the event a person acquires 15 percent or more of the Company's common
stock, all Rights holders except the buyer will be entitled to acquire the
Company's preferred stock at a discount. Notwithstanding the foregoing,
the Plan provides that the Company's proposed merger with Platinum will
not cause the rights to become exercisable as long as Platinum is acting
in accordance with the terms of the Merger Agreement.
15
<PAGE> 16
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATAWORKS CORPORATION
(Registrant)
Date: November 16, 1998 /s/ Stuart W. Clifton
----------------------------------
Stuart W. Clifton
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 16, 1998 /s/ Norman R. Farquhar
----------------------------------
Norman R. Farquhar
Chief Financial Officer and
Director
(Principal Financial Officer)
16
<PAGE> 1
Exhibit 10.1
[DataWorks Corporation Letterhead]
August 4, 1998
Mr. Mark Hellinger
1211 Santa Luisa Drive
Solana Beach, CA 92075
Dear Mark:
This letter sets forth the terms of your separation from DataWorks Corporation
(together with each of its subsidiaries, the "Company") and termination as an
officer, employee or member of the board of directors of the any subsidiary of
the Company. The terms of the separation are as follows:
1. SEPARATION. You will cease to be an officer, employee or member of the
board of directors of any subsidiary of the Company effective as of
August 4, 1998 (the "Separation Date").
2. ACCRUED SALARY AND PAID TIME OFF. The Company, forthwith, will pay you
all accrued salary, and all accrued and unused paid time off, consistent
with the Company's policies, earned through the Separation Date, subject
to standard payroll deductions and withholdings.
3. EXISTING AGREEMENTS WITH THE COMPANY; NONCOMPETITION. You are a party to
that certain offer letter entitled "Employment Terms" dated September
29, 1997 with the Company concerning, among other things, certain terms
of your separation from the Company. A copy of the Employment Terms is
attached as Exhibit A. You are also a party to a Noncompetition
Agreement with the Company dated September 29, 1997, a copy of which is
attached as Exhibit B. These agreements govern certain of your
activities from and after the Separation Date and you should read them
carefully. In particular, the Noncompetition Agreement contains certain
covenants concerning competing activities, nonsolicitation, and
noninterference with the Company's business through September 29, 2000.
4. SALARY AND RETENTION BONUS PAYMENTS. Pursuant to the Employment Terms,
you will be paid the balance of your retention bonus until fully paid.
You will also be paid an amount equal to your current base salary over a
twelve (12)-month period following termination.
5. OPTIONS. Each outstanding option to purchase Common Stock of the
Company which is held by you as of the Separation Date will continue to
be governed by the terms of the option agreement pursuant to which such
option was granted.
1.
<PAGE> 2
6. NO OTHER COMPENSATION OR BENEFITS. Except as expressly provided herein,
you will not receive any compensation, severance, benefits, and shares
of stock or stock options, after the Separation Date.
7. EXPENSE REIMBURSEMENTS. Within five (5) business days of the Separation
Date, you will submit your final documented expense reimbursement
statement reflecting all business expenses you incurred through the
Separation Date, if any, for which you seek reimbursement. The Company
will reimburse you for these expenses pursuant to its regular business
practice.
8. RETURN OF COMPANY PROPERTY. You will immediately return to the Company
all Company documents (and all copies thereof) and other Company
property which you have had in your possession at any time, including,
but not limited to, Company files, notes, drawings, records, business
plans and forecasts, financial information, specifications,
computer-recorded information, tangible property (including, but not
limited to, computers), credit cards, entry cards, identification
badges and keys; and, any materials of any kind which contain or embody
any proprietary or confidential information of the Company (and all
reproductions thereof).
9. PROPRIETARY INFORMATION OBLIGATIONS. Both during and after your
employment you will refrain from any use or disclosure of the Company's
proprietary or confidential information or materials without prior
written authorization from a duly authorized representative of the
Company. The Proprietary Information and Inventions Agreement which you
have executed, a copy of which is attached hereto as Exhibit C (the
"Proprietary Information and Inventions Agreement") will continue to
apply pursuant to its terms following the Separation Date. You should
read this document carefully to understand your obligations to the
Company.
Sincerely,
DataWorks Corporation
By:/s/ Norman R. Farquhar
---------------------------------
Norman R. Farquhar
Executive Vice President
and Chief Financial Officer
Exhibit A - Employment Terms
Exhibit B - Noncompetition Agreement
Exhibit C - Proprietary Information and Inventions Agreement
2.
<PAGE> 3
Employment Terms
1.
<PAGE> 4
DATAWORKS CORPORATION
5910 PACIFIC CENTER BLVD., SUITE 300
SAN DIEGO, CALIFORNIA 92121
September 29, 1997
Mr. Mark Hellinger
1211 Santa Luisa Drive
Solana Beach, CA 92075
Re: Employment Terms
Dear Mr. Hellinger:
DataWorks Corporation (the "Company") is pleased to offer you the
position of President, Mid-Tier Division, on the terms set forth below,
effective immediately following the closing of the strategic merger between the
Company and Interactive Group, Inc. As such, you will head DataWorks U.S.
Mid-Tier ERP market. You will report directly to me.
Your base compensation will be $200,000 per annum. Upon countersigning
this letter accepting this offer of employment (provided the closing of the
merger between the Company and Interactive has occurred), you will be entitled
to receive from the Company a "retention bonus" of $300,000, payable quarterly
over two years on the first day of each calendar quarter hereafter to be paid in
installments of $37,500 (with the first payment of $37,500 to be paid on October
1, 1997). Your compensation hereunder will be subject to 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. In any
event, you will be eligible to participate in and benefit from the employee
benefit plans and benefit arrangements of the Company, including its bonus and
stock award programs, to the same extent the Company's other executive officers
are so eligible. You will be evaluated for any award under the Company's bonus
plan as then in effect at the Executive Vice President level.
Immediately following the effectiveness of your employment with the
Company as provided above, you will be granted an option to purchase 25,000
shares of Common Stock of the Company pursuant to the Company's 1995 Equity
Incentive Plan, at an exercise price equal to 110% of the fair market value of
the Common Stock on the date of such effectiveness and vesting in accordance
with the Company's standard policies so long as you continue to be employed with
the Company. Such option shall be an incentive stock option to the extent
compliant with applicable law, and a nonstatutory stock option to the extent
necessary to ensure such compliance. Further, the grant of such option shall not
preclude you from receiving other option grants as described in the preceding
paragraph.
You will be paid on the Company's normal paydays. As an exempt salaried
employee, you will be expected to work the hours required by the nature of your
work assignments. The
<PAGE> 5
Mr. Mark Hellinger
September 29, 1997
Page 2
Company or may modify your position, duties, work location, compensation and
benefits from time to time as it deems necessary; provided, however that an
adverse and substantial reduction in the nature or status of your
responsibilities or in your base compensation, other than for Cause (as defined
below), shall be deemed a constructive termination without Cause for purposes of
this Agreement.
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.
Your employment relationship with the Company is at-will. Subject only
to the obligation to pay you the severance benefits described in next paragraph
and the retention bonus payment described above in the event the Company
terminates your employment without Cause, in order to protect our mutual
employment rights, either you or the Company may terminate your employment
relationship 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 duly authorized officer of the Company.
In the event the Company terminates your employment without Cause, in
addition to receiving continued payment of your retention bonus until it is
fully paid, you shall receive as severance an aggregate amount equal to your
then annual base salary, which amount shall be paid in equal monthly
installments over the 12-month period following the date of termination. "Cause"
for termination shall mean (a) willful breach or habitual neglect of your duties
and failure to remedy your performance within 30 days after written notice to
you, or (b) misconduct, including but not limited to: (i) conviction of any
felony or of any crime involving moral turpitude or dishonesty; (ii)
participation in any fraud against the Company; (iii) breach of your Proprietary
Information and Inventions Agreement; or (iv) conduct by you which in the good
faith and reasonable determination of the Board of Directors of the Company
demonstrates your gross unfitness to serve.
The employment terms in this letter supersede any other agreements or
promises made to you by anyone, whether oral or written, including any
employment agreement or arrangement between you and the Company in existence
prior to the date hereof.
Sincerely,
DATAWORKS CORPORATION
/s/ Norman R. Farquhar
----------------------------------------
Norman R. Farquhar
Executive Vice President and
Chief Financial Officer
<PAGE> 6
Mr. Mark Hellinger
September 29, 1997
Page 3
Chief Financial Officer
Accepted by:
/s/ Mark Hellinger
- ------------------------
Mark Hellinger
9/29/97
- ------------------------
Date
<PAGE> 7
Exhibit B
Noncompetition Agreement
<PAGE> 8
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (the "Agreement") is made as of September
29, 1997, by and among DataWorks Corporation, a California corporation
("Parent"), DataWorks Acquisition Sub, Inc., a Delaware corporation ("Merger
Sub"), and Mark Hellinger ("Stockholder").
RECITALS
Stockholder is a stockholder of Interactive Group, Inc., a Delaware
corporation ("Company"). Parent, Merger Sub and Company have entered into an
Agreement and Plan of Merger and Reorganization dated as of July 31, 1997 (the
"Reorganization Agreement"), providing for the acquisition (the "Acquisition")
by Parent of Company pursuant to a merger of Merger Sub and Company (the
"Merger"). Stockholder plans to vote in favor of the Merger and receive all the
benefits of the Merger; and in connection therewith and in exchange for the
additional consideration provided herein, Stockholder has agreed pursuant to and
to the extent permitted by Section 16601 of the Business and Professions Code of
the State of California not to compete with Company in the manner and to the
extent herein set forth. Stockholder is entering into this Agreement as an
inducement to Parent and Merger Sub to consummate the Merger, with all of the
attendant financial benefits to Stockholder as a stockholder of Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein
contemplated and intending to be legally bound hereby, Merger Sub, Parent and
Stockholder agree as follows:
1. ACKNOWLEDGMENTS BY STOCKHOLDER. Stockholder acknowledges that by virtue of
his position with Company he has developed considerable expertise in the
business operations of Company and has had access to extensive confidential
information with respect to Company. Stockholder recognizes that Merger Sub and
Parent would be irreparably damaged, and their substantial investment in Company
materially impaired, if Stockholder were to enter into an activity competing
with Company's business in violation of the terms of this Agreement or if
Stockholder were to disclose or make unauthorized use of any confidential
information concerning the business of Company. Accordingly, Stockholder
expressly acknowledges that he is voluntarily entering into this Agreement and
that the terms and conditions of this Agreement are fair and reasonable to
Stockholder in all respects.
2. CONFIDENTIALITY. Stockholder hereby expressly affirms that any
confidentiality agreement previously entered into between Company and
Stockholder in effect as of the date hereof (the "Confidentiality Agreement") is
and shall remain in full force and effect and Stockholder specifically agrees
that the rights and privileges of Company under the Confidentiality Agreement
shall inure to the benefit of Parent and Merger Sub, to the same extent as if
they were original parties thereto, as well as to Company. Further, Stockholder
hereby expressly agrees that Company's rights under this Agreement are in
addition to, but not in substitution of, its rights under the Confidentiality
Agreement and the Confidentiality Agreement remains in full force and effect.
<PAGE> 9
3. NONCOMPETITION. Until the later of (a) three (3) years after completion of
the Merger or (b) two (2) years after termination of Stockholder's employment
with Parent, Stockholder shall not, directly or indirectly, without the prior
written consent of Parent, (i) own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant, licensor, licensee or otherwise with, any business
or enterprise engaged in any business which is competitive with the business of
Company, within each of the geographical units which are listed in Appendix A
hereto (the "Territory"), or (ii) engage in any other manner, within the
Territory, in any business which is competitive with the business of Company.
For the purposes of this Section 3, the "business of Company" shall be defined
as set forth in Appendix B hereto (which also includes a list of companies
deemed by the parties to be in competition with the business of Company and
therefore covered by the terms of this Noncompetition Agreement).
Notwithstanding the above, Stockholder shall not be deemed to be engaged
directly or indirectly in any business in contravention of subparagraphs (i) or
(ii) above, if (x) Stockholder participates in any such business solely as a
passive investor in up to 1% of the equity securities of a company or
partnership, the securities of which are publicly traded, or (y) Stockholder is
employed by a business or enterprise that is engaged primarily in a business
other than the business of Company and Stockholder does not apply his expertise
at such business or enterprise to that part of such business or enterprise that
is or could be competitive with the business of Company.
4. NON-INTERFERENCE. Stockholder further agrees that until the later of (a)
three (3) years following completion of the Merger or (b) two (2) years
following termination of Stockholder's employment with Parent, he will not,
without the prior written consent of Parent, (i) interfere with the business of
Company, Parent or Merger Sub, by soliciting, attempting to solicit, inducing,
or otherwise causing any employee or consultant of Company, Parent or Merger Sub
to terminate his or her employment as such in order to become an employee,
consultant or independent contractor to or for any competitor of Company, Parent
or Merger Sub or to or for any company with which Stockholder is associated in
any way; or (ii) induce or attempt to induce any customers, suppliers,
distributors, resellers, or independent contractor of Company to terminate their
relationships with, or to take any action that would be disadvantageous to the
business of, Company.
5. NONCOMPETITION PAYMENT. In consideration of Stockholder's obligations
described herein, concurrent with the Effective Time (as defined in the
Reorganization Agreement) of the Merger, the Company shall pay to Stockholder
the amount of $525,000.
6. INDEPENDENCE OF OBLIGATIONS. The covenants of Stockholder set forth in this
Agreement shall be construed as independent of any other agreement or
arrangement between Stockholder, on the one hand, and Merger Sub, Company or
Parent or any of their subsidiaries, on the other, and the existence of any
claim or cause of action by Stockholder against Merger Sub, Company or Parent or
any of their subsidiaries shall not constitute a defense to the enforcement of
such covenants against Stockholder.
7. EQUITABLE RELIEF. Stockholder expressly acknowledges that damages alone will
not be an adequate remedy for any breach by Stockholder of the covenants set
forth in Sections 2, 3, and 4 hereof and that the other parties hereto, in
addition to any other remedies which they may
<PAGE> 10
have, shall be entitled, as a matter of right, to injunctive relief, including
specific performance, in any court of competent jurisdiction with respect to any
actual or threatened breach by Stockholder of any of said covenants.
8. SEVERABILITY, ETC.
(a) If any provision of this Agreement shall be held by a court of competent
jurisdiction to be excessively broad as to duration, activity or subject, it
shall be deemed to extend only over the maximum duration, activity and/or
subject as to which such provision shall be valid and enforceable under
applicable law. If any provisions shall, for any reason, be held by a court of
competent jurisdiction to be invalid, illegal or unenforceable, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
(b) The parties intend that the covenant contained in Section 3 above shall be
construed as a series of separate covenants, one for each geographical unit
specified. Except for geographical coverage, each such separate covenant shall
be deemed identical in terms to the covenant contained in Section 3 above. If,
in any judicial proceeding, a court shall refuse to enforce any of the separate
covenants deemed included in this Agreement, then the unenforceable covenant
shall be deemed eliminated from these provisions for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants
to be enforced.
9. NOTICES. All notices or other communications hereunder shall be in writing
and deemed given if and when delivered to a party in person, or if and when
mailed by registered or certified mail, return receipt requested, to the parties
at the addresses set forth below or such other addresses as shall be specified
by notice to the other party hereunder:
To Parent or
Merger Sub at:
DataWorks Corporation
5910 Pacific Center Boulevard
San Diego, CA 92121
Attn: President
To Stockholder at:
1211 Santa Luisa Drive
Solana Beach, CA 92075
10. WAIVER OF BREACH. The failure or delay by Parent or Merger Sub in enforcing
any provision of this Agreement shall not operate as a waiver thereof, and the
waiver by Parent or Merger Sub or a breach of any provision of this Agreement by
Stockholder shall not operate or be construed as a waiver of any subsequent
breach or violation thereof. All waivers shall be in writing and signed by the
party to be bound.
<PAGE> 11
11. ASSIGNMENT. This Agreement shall be assignable by Parent or Merger Sub only
to any person, firm or corporation which may become a successor in interest by
purchase, merger or otherwise to Parent, Merger Sub or Company or the business
operated by Parent, Merger Sub or Company. This Agreement is not assignable by
Stockholder.
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Confidentiality
Agreement represent the entire agreement and understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings of the parties in connection therewith (other than the
Confidentiality Agreement). They may not be altered or amended except by an
agreement in writing signed by the parties to be bound.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of Parent and its permitted successors and assigns and Stockholder and
Stockholder's heirs and legal representatives.
14. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California as applied to
contracts entered into between California residents and to be performed entirely
within California.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
STOCKHOLDER
/s/ Mark Hellinger
----------------------------------------
DATAWORKS CORPORATION
By: /s/ Norman R. Farquhar
----------------------------------------
DATAWORKS ACQUISITION SUB, INC.
By: /s/ Norman R. Farquhar
----------------------------------------
<PAGE> 12
APPENDIX A
TERRITORY
(1) All counties of California, (2) all other states and territories of
the United States of America and provinces and territories of Canada, and (3)
any other foreign country or territory in which the business of Company is
carried on, or in which Company intends to carry on business.
5.
<PAGE> 13
APPENDIX B
BUSINESS
Enterprise Resource Planning (ERP)-related software applications for
the manufacturing and industrial product marketplaces.
<PAGE> 14
Exhibit C
Proprietary Information and Inventions Agreement
7.
<PAGE> 15
DATAWORKS CORPORATION
CONFIDENTIALITY, NON-DISCLOSURE, ASSIGNMENT
OF INTELLECTUAL PROPERTY AND
ASSOCIATION AGREEMENT
I. PREAMBLE:
A. The parties to this Agreement are:
1. DataWorks Corporation, Inc., its subsidiaries and affiliates
(hereinafter "DataWorks");
2. Mark Hellinger, a potential current employee of, or current
independent contractor with DataWorks (hereinafter "ASSOCIATE").
B. Consideration:
ASSOCIATE is an employee, a prospective employee or independent
contractor working for DataWorks. This Agreement is intended to formalize in
writing certain understandings and procedures which have been in effect since
the time the ASSOCIATE was initially employed or engaged by DataWorks. In
consideration of the ASSOCIATE's original and continuing employment with, or
work for DataWorks in a capacity in which he or she may receive, or contribute
to the production of, Confidential Information or Intellectual Property (as
defined below), ASSOCIATE hereby confirms his or her understanding and agreement
as follow:
II. DEFINITIONS:
A. For purposes of this agreement, "Confidential Information" shall mean
information or material proprietary to DataWorks or designated as Confidential
Information by DataWorks and not generally known by non-DataWorks personnel,
which the ASSOCIATE develops, or of which ASSOCIATE obtains knowledge, or to
which the ASSOCIATE may obtain access, through or as result of, the ASSOCIATE's
relationship with DataWorks (including information conceived, originated,
discovered or developed in whole or in part by ASSOCIATE). Confidential
Information includes, but is not limited to the following types of information
and other information of a similar nature (whether or not reduced to writing):
discoveries, ideas, concepts, software in various stages of development,
designs, drawings, specifications, techniques, models, data, source code, object
code, data structures, instruction sets, documentation, diagrams, flow charts,
research, development, training methods, training manuals, processes,
procedures, "know-how", marketing techniques and materials, marketing and
development plans, customer names and other information related to customers,
price lists, pricing policies and financial information. Confidential
Information also includes any information described above which DataWorks
obtains from other entities and which DataWorks treats as proprietary or
designates as Confidential Information, whether or not owned or developed by
DataWorks. INFORMATION PUBLICLY KNOWN THAT IS GENERALLY EMPLOYED BY THE TRADE AT
OR AFTER THE TIME ASSOCIATE FIRST LEARNS OF SUCH INFORMATION, OR GENERIC
INFORMATION OR KNOWLEDGE WHICH
<PAGE> 16
ASSOCIATE WOULD HAVE LEARNED IN THE COURSE OF SIMILAR EMPLOYMENT OR WORK
ELSEWHERE IN THE TRADE, SHALL NOT BE DEEMED PART OF THE CONFIDENTIAL
INFORMATION.
B. For purposes of this agreement, "DataWorks' Business" shall mean the
design, manufacture, fabrication, development, testing, marketing, advertising,
servicing, authorship, sales, and licensing of: computers, computer hardware,
computer software, services, services related to the support of data processing
services, computer firmware and computer manuals as well as the training and
education of computer users.
C. For purposes of this agreement "Intellectual Property" shall mean
those forms of authorship (as understood from Title 17 of the United States
Code), invention (as understood by Title 35 of the United States Code) and
identification (as understood from Title 15 of the United States Code
Section 1051 et seq., trademarks and servicemarks) and such other forms of
property rights in ideas, "know-how", inventions discoveries or in their
physical embodiments as shall be authorized by state, local, territorial,
federal or international law.
III. ASSOCIATE AGREES:
A. ASSOCIATE agrees during his or her employment by DataWorks and for
two years thereafter to hold in confidence and not to directly or indirectly
reveal, report, publish, copy, disclose or transfer any Confidential Information
to any person or entity or utilize any Confidential Information for any purpose
except in the course of ASSOCIATE's work for DataWorks.
B. ASSOCIATE agrees to promptly disclose to DataWorks, all Intellectual
Property conceived during the term of his or her employment.
C. ASSOCIATE agrees that all Intellectual Property meeting the
conditions of California Labor Code, Section 2870, is the exclusive property of
DataWorks.
D. ASSOCIATE agrees to assign to DataWorks all right, title and interest
in any Intellectual Property belonging to DataWorks under Section 2870 of the
California Labor Code.
E. ASSOCIATE agrees to promptly execute all papers and otherwise
cooperate as is necessary to obtain and enforce U.S. and foreign patents,
copyrights, trademark, servicemark and trade secret protection on Intellectual
Property belonging to DataWorks.
F. ASSOCIATE agrees that all works of authorship prepared by ASSOCIATE
in the course of his or her employment including computer programs and other
software, as well as manuals describing the operation of said programs and
software, or manuals prepared for training, constitute works for hire under 17
U.S.C. Section 101 and 201(b).
G. ASSOCIATE agrees that all notes, data, reference materials,
schedules, drawings, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to DataWorks and ASSOCIATE agrees to turn over all copies of such
materials, in the ASSOCIATE's control, to DataWorks upon request or upon
termination of the ASSOCIATE's relationship with DataWorks.
<PAGE> 17
H. ASSOCIATE agrees that tangible embodiments of Confidential
Information are not to be removed from DataWorks premises without DataWorks'
prior written consent.
I. ASSOCIATE agrees to cooperate with DataWorks in the protection of
DataWorks' Confidential Information for five (5) years after ASSOCIATE's
termination, provided DataWorks covers ASSOCIATE's expenses and tenders a per
diem allowance equivalent to ASSOCIATE'S then current salary.
J. ASSOCIATE agrees to participate in a termination interview
immediately (within two (2) working days) upon leaving DataWorks. Said interview
will include requiring:
1. ASSOCIATE to certify that all Confidential Information of
DataWorks has been returned; and
2. ASSOCIATE shall certify what non-DataWorks Confidential
Information or Intellectual Property ASSOCIATE has created while employed at
DataWorks.
K. ASSOCIATE acknowledges that future promotions or participation in
ownership may be contingent on execution of or a more stringent secrecy and
non-use agreement.
IV. DATAWORKS AGREES:
A. To pay any costs of obtaining and maintaining U.S. and foreign
protection on any Intellectual Property belonging to DataWorks.
B. DataWorks agrees to pay the salary, benefits and/or fees for
ASSOCIATE as previously agreed.
C. Nothing contained in this agreement obligates DataWorks to apply for
any patent, copyright, trademark or servicemark protection.
V. LEGAL IMPLICATIONS:
A. Because of the unique nature of the Confidential Information,
ASSOCIATE understands and agrees that DataWorks will suffer irreparable harm in
the event that ASSOCIATE fails to comply with any of his or her obligations
under this agreement and that monetary damages will be inadequate to compensate
DataWorks for such breach. Accordingly, ASSOCIATE agrees that DataWorks will, in
addition to any other remedies available to it, at law or in equity, be entitled
to injunctive relief to enforce the terms of this agreement.
B. This agreement shall be governed by the California law applicable to
contracts between residents of California which are wholly executed and
performed in California.
C. In the event of legal action brought by either party, the prevailing
party shall be entitled to reimbursement of full legal fees and costs as set by
the court.
D. ASSOCIATE agrees to jurisdiction and venue exclusively in the courts
of San Diego County, California.
<PAGE> 18
E. ASSOCIATE acknowledges that DataWorks has made no representations as
to any right of ASSOCIATE to continued employment and ASSOCIATE hereby
acknowledges that his or her employment is "AT WILL".
1. ASSOCIATE acknowledges that no modification of this "AT WILL"
employment is effective unless made to ASSOCIATE in writing by the President of
DataWorks.
F. This agreement contains the full and complete understanding of the
parties with respect to the subject matter hereof and supersedes all prior
representations and understandings whether oral or in writing.
G. This agreement can only be modified in writing. Any modification of
this agreement must be executed by the President of DataWorks to be enforceable
against DataWorks.
VI. EXCEPTIONS FROM AGREEMENT:
A. The parties agree that any invention embodied in an issued patent or
disclosed in a patent application filed prior to the commencement of ASSOCIATE's
relationship with DataWorks shall not be subject to the terms of this agreement.
B. The parties agree that any Intellectual Property set forth in Exhibit
A attached to this agreement shall not be subject to the terms of this
agreement.
C. The parties agree that any Intellectual Property not belonging to
DataWorks under California Labor Code Section 2870 - Section 2872 (reprint
attached hereto as Exhibit "B") shall not be subject to the terms of this
agreement.
1. Exhibit "A" attached: [ ]
2. No exclusions requiring an Exhibit "A" exist: [ ]
<PAGE> 19
VII. EXECUTION:
I agree to the above terms and acknowledge receipt of a copy of this
agreement.
Dated:12/23/97
/s/ Mark Hellinger
----------------------------------------
Associate
Mark Hellinger
----------------------------------------
Name (Printed)
----------------------------------------
Social Security Number
1211 Santa Luisa Drive
----------------------------------------
Mailing Address
Solana Beach, CA
----------------------------------------
92075
----------------------------------------
Dated: /s/ Stuart W. Clifton
------------------- ----------------------------------------
DataWorks Corporation
President
<PAGE> 20
ARTICLE 3.5
INVENTIONS MADE BY EMPLOYEE
Section 2870. Employment Agreements; Assignment or Rights
Any provision in an employment agreement which provides that an
employee shall assign or offer to assign any of his or her rights in an
invention to his or her employer shall not apply to an invention for which no
equipment, supplies, facility, or trade secret information of the employer was
used and which was developed entirely on the employee's own time, and (a) which
does not related (1) to the business of the employer or (2) to the employer's
actual or demonstrably anticipated research or development, or (b) which does
not result from any work performed by the employee for the employer. Any
provision which purports to apply to such an invention is to that extent against
the public policy of this state and is to that extent void and unenforceable.
Section 2871. Condition of Employment or Continued Employment;
Disclosure of Invention
No employer shall require a provision make void and unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States as required
by contracts between the employer and the United States or any of its agencies.
Section 2872. Notice to Employee; Burden of Proof
If an employment agreement entered into after January 1, 1980, contains
a provision requiring the employee to assign or offer to assign any of his or
her rights in any invention to his or her employer, the employer must also, at
the time the agreement is made, provide a written notification to the employee
that the agreement does not apply to an invention which qualifies fully under
the provisions of Section 2870. In any suit or action arising thereunder, the
burden of proof shall be on the employee claiming the benefits of its
provisions.
<PAGE> 1
Exhibit 11
DATAWORKS CORPORATION
STATEMENTS OF CONSOLIDATED COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net Income (loss) $ (71) $ (9,190) $ 3,851 $ (5,861)
========== ========== ========== ==========
Weighted average number of common shares outstanding 14,397 13,870 14,272 13,765
========== ========== ========== ==========
Basic earnings (loss) per share $ 0.00 $ (0.66) $ 0.27 $ (0.43)
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE:
Net Income (loss) $ (71) $ (9,190) $ 3,922 $ (5,861)
========== ========== ========== ==========
Weighted average number of common shares outstanding 14,397 13,870 14,272 13,765
Weighted average options and warrants to purchase common
Stock as determined by the treasury method -- -- 571 --
---------- ---------- ---------- ----------
Weighted average number of diluted common shares outstanding 14,397 13,870 14,843 13,765
========== ========== ========== ==========
Diluted earning (loss) per share $ 0.00 $ (0.66) $ 0.26 $ (0.43)
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 23,785
<SECURITIES> 9,897
<RECEIVABLES> 59,289
<ALLOWANCES> 2,654
<INVENTORY> 0
<CURRENT-ASSETS> 102,584
<PP&E> 25,254
<DEPRECIATION> 14,177
<TOTAL-ASSETS> 137,846
<CURRENT-LIABILITIES> 40,872
<BONDS> 1,351
0
0
<COMMON> 87,661
<OTHER-SE> 6,932
<TOTAL-LIABILITY-AND-EQUITY> 137,846
<SALES> 63,444
<TOTAL-REVENUES> 124,815
<CGS> 11,951
<TOTAL-COSTS> 57,774
<OTHER-EXPENSES> 61,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153
<INCOME-PRETAX> 6,066
<INCOME-TAX> 2,215
<INCOME-CONTINUING> 3,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,851
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
