<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended February 28, 1998
OR
[ ] 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 0-21921
TEMPLATE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
VIRGINIA 52-1042793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45365 VINTAGE PARK PLAZA
DULLES, VIRGINIA 20166
(Address of principal executive offices) (Zip code)
</TABLE>
(703) 318-1000
(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.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock March 31, 1998
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<S> <C>
Common Stock, $.01 par value per share 4,987,475
</TABLE>
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TEMPLATE SOFTWARE, INC.
INDEX
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<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
For the Three Months Ended February 28, 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7
Item 2. Changes in Securities. 10
Item 6. Exhibits and Reports on Form 8-K. 10
Signatures 11
</TABLE>
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
- ---------------
amended (the "Exchange Act"), which are intended to be covered by the safe
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harbors created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the
ability of the Company to develop its products, as well as general market
conditions, competition and pricing. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-Q
will prove to be accurate. In light of the significant uncertainties inherent
in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
2
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PART I
FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS.
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
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<CAPTION>
FEBRUARY 28, 1998 NOVEMBER 30, 1997
(AUDITED)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,594 $ 2,739
Marketable securities 9,958 13,318
Accounts receivable, net 11,152 10,474
Income tax receivable 496 236
Deferred income taxes 734 406
Prepaid expenses and other current assets 1,058 689
---------------------------------------
Total current assets 27,992 27,862
Property and equipment, net 2,358 2,194
Software development costs, net 1,723 1,491
Goodwill, net 10,533 10,710
Deferred income taxes 408 408
Other assets 314 306
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Total assets $43,328 $42,971
=======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,746 $ 4,149
Current portion of long-term debt 321 179
Income taxes payable 95 35
Deferred income 763 795
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Total current liabilities 4,925 5,158
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Long-term liabilities:
Long-term debt, net of current portion 297 211
Other long-term liabilities 322 309
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Total liabilities 5,544 5,678
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Shareholders' equity:
Common Stock, $0.01 par value 49 47
Additional paid-in capital 34,767 33,911
Foreign currency translation (58) 49
Retained earnings 3,026 3,286
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Total shareholders' equity 37,784 37,293
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Total liabilities and shareholders' equity $43,328 $42,971
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
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TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
(UNAUDITED)
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<CAPTION>
FOR THE THREE MONTHS ENDED FEBRUARY 28,
1998 1997
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<S> <C> <C>
Revenues:
Products $ 1,309 $ 1,489
Services 6,901 2,465
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Total Revenues 8,210 3,954
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Cost of revenues:
Products 403 182
Services 4,619 1,467
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Total cost of revenues 5,022 1,649
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Gross profit 3,188 2,305
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Operating expenses:
Selling and marketing 2,165 824
Product development 354 326
General and administrative 1,276 633
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Total operating expenses 3,795 1,783
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Income (loss) from operations (607) 522
Interest expense 28 13
Other income 182 137
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Net income (loss) before income taxes (453) 646
Income tax provision (benefit) (193) 239
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Net income (loss) $ (260) $ 407
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Earnings (loss) per share - basic $ (0.05) $ 0.14
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Shares used in computing basic earnings
(loss) per share 4,762,180 2,905,550
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Earnings (loss) per share - diluted $ (0.05) $ 0.08
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Shares used in computing diluted
earnings (loss) per share 4,762,180 4,979,755
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
FOR THE THREE MONTHS ENDED FEBRUARY 28,
1998 1997
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<S> <C> <C>
Cash flows provided by (used in) by
operating activities (1,759) 79
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Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 3,367 (14,461)
Capital expenditures and leasehold improvements (380) (135)
Capitalization of software development costs (346) (211)
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Net cash provided by (used in) in
investing activities 2,641 (14,807)
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Cash flows from financing activities:
Revolving credit facility, net (5) --
Note payable, net 236 (23)
Payments on capital lease obligations (13) (12)
Income tax benefit related to stock options 313 --
Proceeds from issuance of capital
stock, net of issuance costs 448 19,953
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Net cash provided by (used in)
financing activities 979 19,918
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Effect of exchange rate changes on cash
and cash equivalents (6) (21)
---------------------------------------
Net increase in cash and cash equivalents 1,855 5,169
Cash and cash equivalents, beginning of period 2,739 8,397
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Cash and cash equivalents, end of period 4,594 13,566
Marketable securities, end of period 9,958 14,461
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Cash, cash equivalents and marketable
securities, end of period 14,552 28,027
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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TEMPLATE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE A -- BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements of Template Software, Inc. and subsidiaries (the "Company")
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contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's consolidated financial position as of
February 28, 1998, and the results of operations and cash flows for the periods
indicated. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 1997 Annual Report on
Form 10K. The results of operations for the three months ended February 28, 1998
are not necessarily indicative of the operating results to be expected for the
full year.
NOTE B - ACQUISITIONS AND STRATEGIC VENTURES
MILESTONE SOFTWARE GES. MBH.
On March 30, 1998, the Company acquired the remaining 56% of the
issued and outstanding equity interests of milestone software Ges. mbH, an
Austrian corporation ("Milestone-Austria"), from Milestone-Austria's three
-----------------
owners for an aggregate cash purchase price of $100,000. The acquisition
agreement also provides for additional contingent consideration not to exceed
$250,000 of equivalent shares of common stock to all of the selling shareholders
if certain revenue and profit objectives are met by the Company's fiscal year
end. The acquisition is expected to be accounted for as a purchase. As a result
of this transaction, the Company owns 100% of Milestone Austria.
PRECISE CONNECTIVITY SOLUTIONS LTD.
On March 30, 1998, Template entered into a Convertible Note Purchase
Agreement with Precise Connectivity Solutions Ltd. ("Precise"), an Israeli
limited corporation, pursuant to which Template purchased a Note from Precise
for an aggregate purchase price of $500,000. The Note is convertible at the
option of Template or Precise into that number of fully-paid, non-assessable
shares of Preferred Stock of Precise equal to eight percent (8%) of the issued
and outstanding capital stock of Precise, on a fully-diluted basis, including
such shares of Preferred Stock.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
The financial Accounting Standards Board has issued two new standards
which become effective for reporting periods beginning after December 15, 1997:
SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. Management believes the
adoption of these statements will not have a material effect on the Company's
financial statements.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2,
Software Revenue Recognition, which will supersede SOP 91-1 effective January 1,
1998. Management has assessed this new statement and believes that its adoption
will not have a material effect on the timing of the Company's revenue
recognition or cause changes to the Company's revenue recognition policies.
6
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NOTE D - INCOME TAXES
The Company's effective tax rate of 43% for the quarter ended February
28, 1998 was higher than the effective tax rate of 37% for the quarter ended
February 28, 1997, primarily as a result of the German and French tax rates that
were higher than the effective tax rate of the Company prior to the acquisitions
of the German and French entities.
The Company recognized a tax benefit of approximately $313,000 from
disqualifying dispositions of stock options for the three months ended February
28, 1998. The benefit is the difference between the market value of the stock
issued at the time of exercise and the option price tax effected at the
Company's effective tax rate. This benefit was first applied to federal and
state income taxes payable with the remainder recorded as a deferred tax asset.
In accordance with APB 25, the tax benefit is credited directly to additional
paid in capital.
NOTE E - EARNINGS PER SHARE
Earnings per share is presented in accordance with SFAS No. 128,
Earnings per Share. Basic earnings per share is computed by dividing net income
(loss) available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed by
dividing net income (loss) available to common shareholders by the weighted
average of common shares outstanding after giving effect to all dilutive
potential common shares that were outstanding during the period. The Company
did not have any dilutive common shares during the three months ended February
28, 1998. Net income (loss) reported was not adjusted for the computation of
basis or diluted earnings per share.
The following table reconciles the weighted average number of common
shares outstanding during each period for basic earnings per share with the
comparable amount for diluted earnings per share.
<TABLE>
<CAPTION>
February 28,
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1998 1997
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<S> <C> <C>
Weighted average shares outstanding - basic 4,762,180 2,905,550
Potential common shares -- 2,074,205
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Weighted average shares outstanding - diluted 4,762,180 4,979,755
========= =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Revenue. Total Revenue was $8.2 million for the quarter ended
February 28, 1998 compared to $4.0 million for the quarter ended February 28,
1997, an increase of $4.2 million or 107.6%. This growth resulted principally
from volume increases in sales of software-related services and additional
revenue realized from acquisitions consummated after the first quarter of 1997.
Product Revenue was $1.3 million for the quarter ended February 28,
1998 compared to $1.5 million for the quarter ended February 28, 1997, a
decrease of $0.2 million or 12.1%. This decrease was primarily attributable to
the timing of orders for licenses. Services Revenue was $6.9 million for the
quarter ended February 28, 1998 compared to $2.5 million for the quarter ended
February 28, 1997, an
7
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increase of $4.4 million or 180.0%. This increase was primarily attributable to
the implementation of larger scale client engagements for complete solutions and
additional service revenue resulting from acquisitions.
Cost of Revenue. Total Cost of Revenue consists primarily of salaries
and related benefits for personnel, and also includes an allocated portion of
rent, building services and computer equipment services and expenses. Total
Cost of Revenue was $5.0 million for the quarter ended February 28, 1998
compared to $1.6 million for the quarter ended February 28, 1997, an increase of
$3.4 million or 204.5%. This increase was primarily attributable to additional
professional staff hired and or added through acquisition to perform the
increased volume of software services. Total Cost of Revenue was 61.2% of total
revenue for the quarter ended February 28, 1998 compared to 41.7% of total
revenue for the quarter ended February 28, 1997. This percentage increase was
primarily attributable to the Company's increase in service revenue with related
lower gross margin.
Cost of Product Revenue was $0.4 million for the quarter ended
February 28, 1998 compared to $0.2 million for the quarter ended February 28,
1997, an increase of $0.2 million or 121.4%. The Cost of Product Revenue
increased in the quarter ended February 28, 1998 due to the consolidation of the
Cost of Product Revenue from the Company's German operation, where the cost of
product revenue consisted primarily of royalties to third party software vendors
which are higher than the Company's cost of its products. Cost of Services
Revenue was $4.6 million for the quarter ended February 28, 1998 compared to
$1.5 million for the quarter ended February 28, 1997, an increase of $3.1
million or 214.9%. This increase resulted primarily from the cost associated
with staffing the growth in services contracts. Because such staffing is
relatively fixed in the short term, if any of the Company's engagements were to
be terminated on short notice, the Company would be unable to reduce Cost of
Services Revenue commensurate with the associated decrease in Services Revenue.
Any such termination would have a material adverse effect on the Company's
business, operating results and financial condition.
Selling and Marketing. Selling and Marketing expenses consist
primarily of expenses related to sales and marketing personnel, advertising,
promotion, trade show participation and public relations. Selling and Marketing
expenses were $2.2 million for the quarter ended February 28, 1998 compared to
$0.8 million for the quarter ended February 28, 1997, an increase of $1.4
million or 162.7% This increase resulted primarily from the Company's strategic
shift toward direct sales, expenditures related to expanding market awareness of
the Company's products and services, expenditures related to market research
relating to potential new industry templates and the consolidation of sales and
marketing expenditures of the German entity.
Product Development. Product Development expenses were $0.4 million
for the quarter ended February 28, 1998 compared to $0.3 million for the
quarter ended February 28, 1997, an increase of $0.1 million or 8.6%. This
increase resulted primarily from the development of enhancements to the
Company's Foundation Template, including the Process Monitor Component and the
Geographic Mapping Components and the development of the Company's new
integration product, Active Information Manager (AIM). Product Development
expenses in the three-month period ended February 28, 1997 included offsets of
$0.1 million as a result of the Company's participation in a Federal Technology
Reinvestment Program. The offsets generated by this program ended in the third
quarter of 1997.
General and Administrative. General and Administrative expenses
include costs of corporate services functions including accounting, human
resources and legal services, as well as the corporate executive staff. General
and Administrative expenses were $1.3 million for the quarter ended February 28,
1998 compared to $0.6 million for the quarter ended February 28, 1997 an
increase of $0.7 million or
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101.6%. This increase is primarily attributable to an increase in corporate
administrative staff and the goodwill amortization for the French subsidiary
acquired in March 1997 and the German subsidiary acquired in June 1997.
Income Tax (Benefit) Provision. The Income Tax Benefit was $0.2 for
the quarter ended February 28, 1998 compared to an Income Tax Provision of
$0.2 for the quarter ended February 28, 1997. The income tax benefit was
attributable to losses incurred by the Company's foreign operations during the
three-month period ended February 28, 1998. The Company's effective tax rate of
43% for the quarter ended February 28, 1998 was higher than the effective tax
rate of 38% for the quarter ended February 28, 1997, primarily as a result of a
German tax rate that was higher than the effective tax rate of the Company prior
to the German acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall cash and cash equivalents were $4.6 million at
February 28, 1998, which is an increase of approximately $1.9 million from
$2.7 million as of November 30, 1997. The Company's operating activities used
cash of $1.8 million for the three month period ended February 28, 1998. During
the three month period ended February 28, 1998, cash flow used by operating
activities reflected the net loss, a decrease in accrued expenses and increases
in accounts receivable, income tax receivable, deferred tax benefit and prepaid
expenses which were partially offset depreciation and amortization.
Cash provided by investing activities totaled $2.6 million during the
three month period ended February 28, 1998 relating primarily to $3.4 million of
proceeds from short-term, investment grade marketable securities with maturities
of less than one year which was partially offset by $0.4 million of capital
expenditures and $0.3 million of software capitalization.
Cash flow provided from financing activities totaled $1.0 million for
the three month period ended February 28, 1998 primarily relating to the net
proceeds from the issuance of Company's Common Stock under stock programs and
the issuance of a note payable for the Company's directors' and officers'
insurance premium.
The Company has a line of credit under a Loan and Security Agreement
(the "Loan Agreement") with Signet Bank (the "Bank") in the aggregate principal
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amount of $3.0 million. As of February 28, 1998, there were no amounts
outstanding under this line of credit. The Company has been in compliance with
all financial and non-financial covenants of the Loan Agreement. In addition,
the Company's French subsidiary maintains an unsecured line of credit with
Banque Hervet for 500,000FF for overdraft protection at an interest rate of
8.3%. As of February 28, 1998, 170,502FF ($28,996) was outstanding under this
line of credit.
The Company believes its cash balances, cash generated from operations
and borrowings available under its line of credit, will satisfy the Company's
working capital and capital expenditure requirements for at least the next
twelve months. In the longer term, the Company may require additional sources
of liquidity to fund future growth. Such sources of liquidity may include
additional equity offerings or debt financings. There are no assurances that
such sources of financing will be available to the Company and if they are, that
they will be sufficient to meet the Company's liquidity needs at such time.
9
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IMPACT OF YEAR 2000 ISSUE
The Company is in the process of assessing its computer applications
to ensure their functionality with respect to the "Year 2000" millennium change.
At present, the Company does not anticipate that material incremental costs will
be incurred in any single future year.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
Use of Proceeds
In the Company's Registration Statement on Form S-1 (Registration
No. 333-17063) effective January 28, 1997, 1,400,000 shares of Common Stock were
registered for the account of the Company and 700,000 shares of Common Stock
were registered for the accounts of selling security holders with an aggregate
offering price of $16.00 per share registered. The expenses incurred for the
Company's account in connection with the issuance and distribution of the
securities were $1,568,000 of underwriting discounts and commissions and
$1,068,641 of other expenses for a total expense of $2,636,641. The net offering
proceeds for the account of the Company were $19,763,359. From the effective
date of the Registration Statement, through the end date of the period covered
by this report, the Company used $7,356,848 to acquire other businesses,
$9,957,997 to purchase temporary investments in marketable securities and
$2,448,514 remains unused as cash and cash equivalents. There has not been a
material change in the use of proceeds described in the Company's prospectus.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed herewith:
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<CAPTION>
Exhibit
Number Exhibit Title
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<S> <C>
10.1 Service Agreement between the Company and Richard Collard
executed March 20, 1998
10.2 Share Purchase Agreement dated March 30, 1998 between
the Company and the shareholders of milestone software
Ges. mbH/1/
27.1 Financial Data Schedule for the three month period ended
February 28, 1998
27.2 Restated Financial Data Schedule for the three month period
ended February 28, 1997
</TABLE>
(b) Reports on Form 8-K
On April 6, 1998, the Company filed a report on Form 8-K (Commission
file no: 0-21921) regarding the acquisition of the remaining 56% of the issued
and outstanding equity interests of milestone software Ges. mbH. The
acquisition was consummated on March 30, 1998.
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/1/ Incorporated by reference to the report on Form 8-K (Commission file
no: 0-21921) filed by the Company on April 6, 1998.
10
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SIGNATURE
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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.
Dated: April 15, 1998 TEMPLATE SOFTWARE, INC.
By: /s/ Kimberly E. Osgood
------------------------
Kimberly E. Osgood
Chief Financial Officer and
Chief Accounting Officer
11
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Exhibit 10.1
SERVICE AGREEMENT
DATED OCTOBER 1ST 1997
PARTIES:
(1) Template Software Inc. of 45365 Vintage Park Plaza, Suite 100, Dulles,
VA 20166, United States of America
("the Company"), and
(2) Richard Hugh Collard, of 42 Gregories Road, Beaconsfield, Bucks
HP9 1HQ, United Kingdom ("the Executive").
OPERATIVE TERMS:
DEFINITIONS
In this agreement
"the Board" means the board of directors of the Company from time to time
"Effective Date" means 1st January 1997
"the Employment" means the employment established by this Agreement.
References to clauses and schedules are to clauses of and schedules to this
Agreement.
1. TITLE; PERIOD OF EMPLOYMENT
1.1 The Company shall employ the Executive and the Executive shall serve
the Company as Vice President of European Operations.
1.2 The Employment began on the Effective Date and shall continue until
the earlier of (a) November 30, 1998, ("the Initial Expiry Date"), (b) a later
date one or more years later than this if the contract is extended as below
("the Extended Expiry Date"), or (c) the date on which the Agreement is
terminated in accordance with its terms.
1.3 The Executive has been employed by the Company continuously since
January 1, 1995. There is no employment with a previous employer (other than
earlier continuous employment with the Company, subsidiary or associate of the
Company) which counts as part of the Executive's continued period of employment
for the purposes of the Employment Protection (Consolidation) Act of 1978.
1.4 If the Agreement is not terminated in accordance with its terms prior
to the Initial Expiry Date or any Extended Expiry Date then the term of this
Agreement shall be automatically
1
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extended for an additional 12 month period to an Extended Expiry Date of
November 30th in the year following the immediate preceding term.
2. TERMINATION BY THE COMPANY.
2.1 The Company shall have the right to terminate this Agreement with or
without cause at any time during the term of this Agreement by giving written
notice to the Executive. The Termination shall become effective on the date
specified in the notice, which termination date shall not be a date prior to the
date 5 days following the date of the notice of termination itself. In the
event that the Executive is terminated for cause, the Company shall pay the
Executive salary through the day on which such termination is effective. In the
event that the Executive is terminated without cause, the Company shall pay to
the Executive compensation equal to the greater of (i) the compensation due to
Executive through the end of the term of this Agreement, and (ii) twelve (12)
months of the Executive's salary and bonus accrued as of the effective date of
termination.
2.2 For purposes of this Section 2, "cause" shall mean (i) a material
--------- -----
breach by the Executive of any covenant or condition hereunder; (ii) a material
neglect of duty by the Executive; or (iii) the commission by the Executive of
any act or omission constituting gross negligence, dishonesty, fraud, immoral or
disreputable conduct which is, or in the reasonable opinion of the Company's
Board of Directors is likely to be, harmful to the Company or its reputation.
3. TERMINATION BY DEATH OR DISABILITY OF THE EXECUTIVE.
3.1 In the event of the Executive's death during the term of this
Agreement, all obligations of the parties hereunder shall terminate immediately,
and the Company shall pay to the Executive's beneficiary or estate, the salary
and other compensation due the Executive through the day on which his death
shall have occurred plus one month of salary continuation.
3.2 If the Executive is unable to perform his duties hereunder due to
mental, physical or other disability for a period of 180 consecutive days, as
determined by the Company, or for 180 days in any period of 12 consecutive
months, this Agreement may be terminated by the Company, at its option, by
written notice to the Executive, effective on the termination date specified in
such notice, provided such termination date shall not be a date prior to the
date of the notice of termination itself. In this case, the Company will pay
the Executive the salary and other compensation due him through the day on which
such termination is effective.
4. TERMINATION BY THE EXECUTIVE.
4.1 The Executive may voluntarily terminate this Agreement at any time,
with or without cause, by giving 30 days written notice to the Company. Any
such termination, if without cause, shall become effective on the date specified
in such notice, provided that the Company may elect to have such termination
become effective on a date after, but not more than 14 days after, the date of
the notice. If such termination is with cause, it shall become effective
2
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on the 30 days after the date of such notice, provided the Company has failed to
cure the cause specified in the notice.
4.2 After the date of any such termination, the Executive shall be
entitled to the salary due him through the day on which such termination becomes
effective, unless such termination was for cause, in which case he shall be
entitled to receive from the Company compensation equal to the compensation the
Executive would have received had the Company terminated this Agreement without
cause pursuant to Section 2.1.
4.3 For purposes of this Section 4, "cause" shall mean a material failure
---------
by the Company to perform its obligations under this Agreement.
5. SUSPENSION. In the event the Company has reasonable cause to believe that
there exists cause for termination of this Agreement as defined in Section 2,
---------
immediately upon written notice to the Executive, the Company may but shall not
be obligated to suspend the Executive, with pay, for a period not to exceed four
(4) weeks, either as a disciplinary measure or in order to investigate the
Company's belief that such cause exists. No such suspension shall prevent the
Company for thereafter exercising its rights to terminate this Agreement in
accordance with its terms.
6. DUTIES:
6.1 The Executive shall:
6.1.1 exercise the powers and functions and perform the duties
reasonably assigned to him from time to time by or under the authority of the
Chief Executive Officer in such manner as shall be specified by the Chief
Executive Officer;
6.1.2 the Executive shall report to the Chief Executive Officer of
the Company as and when required;
6.1.3 Address himself to the Company's business (unless prevented by
illness or other incapacity and except as may from time to time by permitted or
required by the Board) during the Company's normal business hours of 9.00 a.m.
to 5.30 p.m. Monday to Friday inclusive and at such other times as may
reasonably be necessary in the interests of the Company to the performance of
his duties.
6.1.4 When reasonably requested by the Company undertake duties for
directly associated companies within the same group of companies where such
assignment does not materially affect the Executive's working conditions or if
such effect is present then with the agreement of the Executive.
6.1.5 Well and faithfully serve the Company and use his best
endeavours to promote and protect the interests of the Company.
3
<PAGE>
6.1.6 When requested to do so fully and promptly give the Board such
explanations information and assistance as it may require.
7. PLACE OF EMPLOYMENT
7.1 The Executive's place of employment shall be at the offices of the
Company at Windsor, Berks, United Kingdom or at such other place as the Company
may reasonably require. If the Company requests the Executive to change his
residence and the Executive agrees to such a move then the Company will
reimburse such removal and other expenses relating to such change of residence
as the parties agree are fair and reasonable in the circumstances. In addition,
the Executive shall travel to such parts of the world as the board shall
reasonably direct or authorize provided that the Executive shall not be required
to spend more than 100 nights per year outside the U.K. on the Company's
business.
8. REMUNERATION AND BENEFITS
8.1 The Executive shall be paid for the proper performance of his duties:
8.1.1 an annual salary and bonus plan as detailed in the attached
Schedule. This salary shall accrue from day to day and shall be payable by
equal monthly installments in arrears on the last day of each month and shall
include any sums receivable as director's fees. The bonus shall be payable as
mutually agreed and set out in the Schedule.
8.1.2 The Executive shall also receive the following benefits:
8.1.2.1 The Executive shall be entitled to be a member of the
Company's BUPA Private Medical Expenses Scheme or such other medical expenses
scheme as the Company may make available from time to time.
8.1.2.2 The Executive shall be entitled to the benefit of
life insurance cover of a sum insured equal to four times the Executive's annual
base salary.
8.1.2.3 The Executive shall be entitled to be a member of the
Company's Permanent Health Insurance Scheme as the Company may make available
from time to time.
9. EXPENSES:
9.1 The Executive shall be reimbursed all reasonable hotel, travelling,
entertainment and other expenses properly incurred by him in the course of the
Employment in accordance with the Company's regulations as published from time
to time. The Executive shall produce vouchers or other evidence of expenses in
respect of which he claims reimbursement;
9.1.1 Any credit card supplied to the Executive by the Company shall
be used only for expenses incurred by him in the course of the Employment.
4
<PAGE>
10. COMPANY CAR:
10.1 The Executive shall be reimbursed for the use of his private car for
Company business in accordance with the policy and Schedule attached and
modified from time to time.
11. PENSION:
11.1 The Executive is entitled to receive payments from the Company into
his Personal Pension scheme in accordance with the details of the relevant
scheme which are given in the Schedule.
12. HOLIDAYS:
12.1 The Executive shall in addition to normal statutory and bank holidays
be entitled to five weeks (25 working days) paid holiday during each year
commencing on 1st January and pro rata for any lesser period. The Company will
endeavour to meet the Executive's reasonable requests as to time and duration of
holidays but it reserves the right to fix holidays in its interests. The
Executive's entitlement to holidays and to holiday pay shall be subject to the
rules of the Company from time to time in force relating to holiday entitlement
and holiday pay, an example of which is attached as an appendix.
13. OUTSIDE INTERESTS:
13.1 During the Executive's employment he shall not (save with the prior
written consent of the Board);
13.1.1 Directly or indirectly be engaged concerned or interested in
any capacity in any business, trade or occupation whatsoever other than those of
the Company except as (a) a holder of not more than 5% of the issued shares or
securities of any companies which are listed or dealt in on any recognised stock
exchange or market or (b) in a manner which does not hinder or materially
interfere with the Executive's performance of his duties. "Occupation" shall
include any public, private, or charitable work;
13.1.2 Introduce or transact business of any kind with which the
Company is able to deal to or for the account of himself or any other person
firm or company.
14. COPYRIGHT
14.1 The Copyright in any literacy, dramatic or artistic work (which in
this context is intended to include, but is not limited to, computer programs)
made by the Executive at any time while employed by the Company which is of
relevance to the business of the Company (whether or not the work was made by
direction of the Company or was intended to benefit the Company) shall belong to
the Company and to the extent that such Copyright is not otherwise vested in the
Company the Executive hereby assigns the same to the Company.
5
<PAGE>
15. CONFIDENTIAL INFORMATION AND TRADE SECRETS:
15.1 The Executive acknowledges that in the ordinary course of the
Employment he will be exposed to information about the Company's business and
that of its suppliers and customers which amounts to a trade secret, is
confidential or is commercially sensitive and which may not be readily available
to others engaged in a similar business to that of the Company or to the general
public.
15.2 The Executive shall keep secret and shall not at any time either
during the Employment, or after its termination, for whatever reason, use
communicate or reveal to any person for the Executive's own or another's
benefit, any secret or confidential information concerning the business,
finances or organisation of the Company, its suppliers or customers which shall
have come to his knowledge during the cause of the Executive's Employment. The
Executive shall also use his best endeavours to prevent the publication or
disclosure of any such information.
15.3 For the purposes of this Clause and by way of illustration and not
limitation information will prima facie be secret and confidential if it is not
in the public domain and relates to:
- research and developments
- formulae, formulations, including details of software products
- methods of treatment, processing, manufacture or production, process
and production controls including quality controls
- suppliers and their production and delivery capabilities
- customers and details of their particular requirements
- costings, profit margins, discounts, rebates and other financial
information
- marketing strategies and tactics
- current activities and current and future plans
15.4 The restrictions contained in this clause shall not apply to:
15.4.1 any disclosure or case authorised by the Board or required in
the ordinary and proper course of the Employment or as required by the order of
a court of competent jurisdiction or an appropriate regulatory authority; or
15.4.2 any information which the Executive can demonstrate was known
to the Executive prior to the commencement of the Executive's employment by the
Company or is in the public domain otherwise than as a result of a breach of
this clause.
16. MISCELLANEOUS PROVISIONS:
16.1 This Agreement records the entire agreement and understanding between
the parties and supersedes and cancels all previous agreements understandings or
representations reached between or made by the parties or either of them in
connection with the Executive's employment.
6
<PAGE>
16.2 Any notice to be given to the Company shall be delivered or sent by
first class post to its registered office for the time being and any notice to
be given to the Executive shall be delivered to him personally or sent by first
class post to his usual place of abode last known to the Company and any such
notice if posted shall be deemed to have been served on the day following that
on which it was posted.
16.3 The headings in this agreement are inserted for convenience only and
shall not affect its construction.
16.4 This agreement shall be governed by English law and parties submit to
the jurisdiction of the English Courts and Tribunals.
7
<PAGE>
IN WITNESS the Company and the Executive have signed this Agreement for
Template Software, Inc.
/s/ E. Linwood Pearce
- -----------------------------------
E. Linwood Pearce (March 20, 1998)
Chairman
/s/ R. H. Collard
- -----------------------------------
R.H. Collard
8
<PAGE>
SCHEDULE 1
HOLIDAY RULES
The holiday year is from (1st January) to (31st December). Up to five
(5) days holiday in any holiday year may be carried forward into the
next year at the Company's discretion.
Not more than three (3) weeks may be taken at any one time unless
agreed to by the Company.
After five (5) years service employees are entitled to an extra five
(5) days holiday in each holiday year.
Employees who are leaving the employment of the Company will receive
holidays on a pro rata basis for the number of completed calendar
months they have worked during the current holiday year less any
holidays already taken in this period. (Employees who leave the
Company before taking holiday due to them on this basis will receive a
payment with their final salary in lieu of the holiday).
Employees who leave after taking holidays which would not be deemed to
have accrued under this paragraph will refund to the Company the
unearned holiday pay.
9
<PAGE>
SCHEDULE 2
REMUNERATION
SALARY
From January 1, 1997 through November 30, 1997, (Pounds)70,000 per annum
payable monthly in arrears through Template Software UK Ltd. PAYE scheme.
For period commencing December 1, 1997 through November 30, 1998, salary as
set by the Board or the Chief Executive Officer, not less than the above.
BONUS PLAN
SALES BONUS
- -----------
1997. For the fiscal year 1997, a bonus shall be payable at a rate of
----
(Pounds)0.008 per $ of Qualifying Sales intending to lead to a total bonus of
(Pounds)40,000 for attainment of the target of $5,000,000, more for over
achievement. For purposes hereof, "Qualifying Sales" shall mean consolidated
----------------
sales of Template Software products and related services from Europe, the
Middle East and Africa, but shall not include sales from Milestone Software
in Germany for fiscal year 1997.
MILESTONE BONUS
- ---------------
At the end of fiscal year 1997 (payable within 30 days following the
completion of a year-end audit), the Executive shall be entitled to a one-
time bonus of (Pounds)10,000 for management of the Milestone operations
during the period commencing July 1, 1997 and ending November 30, 1997 (the
"Five Month Period") if the aggregate revenues for Milestone's operations for
------------------
the Five Month Period equal or exceed $5,500,000 and the profit from those
operations during the Five Month Period equals or exceeds $1,455,700.
1998. For fiscal year 1998 a bonus plan will be mutually agreed between
----
the Executive and the CEO based upon planned revenue and contribution goals
which will lead to not less than (Pounds)40,000 for 100% achievement of
goals.
10
<PAGE>
PENSION PLAN
EXECUTIVE PENSION PLAN NAME CONTRIBUTION ENTITLEMENT
NAME
R. Collard Personal Plan in name 10% of Basic Salary
of R.H. Collard
CAR ALLOWANCE
During the term of this Agreement, the Executive shall be reimbursed for
the cost of his automobile lease at a rate of (Pounds)10,000 per year and
shall be further reimbursed for mileage at the maximum rate permitted by
the U.K. Inland Revenue.
11
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<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet, consolidated statement of operations and
consolidated statement of cash flows included in the Company's Form 10-Q for the
period ending February 28, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
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<PERIOD-END> FEB-28-1998
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<RECEIVABLES> 11,689
<ALLOWANCES> 537
<INVENTORY> 0
<CURRENT-ASSETS> 27,992
<PP&E> 3,567
<DEPRECIATION> 1,029
<TOTAL-ASSETS> 43,328
<CURRENT-LIABILITIES> 4,925
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<COMMON> 50
<OTHER-SE> 37,734
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> (453)
<INCOME-TAX> (193)
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<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
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consolidated statement of cash flows included in the Company's Form 10-Q for the
period ending February 28, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
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<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.08
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