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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1999
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)
Virginia 52-1042793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45365 Vintage Park Plaza 20166
Dulles, Virginia (Zip code)
(Address of principal executive offices)
(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.
Outstanding at
Class of Common Stock October 22, 1999
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Common Stock, $.01 par value per 4,922,830
share 4,922,830
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TEMPLATE SOFTWARE, INC.
INDEX
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS. 3
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 4
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO THE FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II - OTHER INFORMATION 14
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 5. OTHER INFORMATION. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
SIGNATURE 17
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</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"),
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and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which are intended to be covered by the safe harbors created
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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. In addition, any forward-looking statements could be impacted by the
Company's pending merger with Level 8 Systems, Inc., which is described further
in this Report on Form 10-Q and in the Company's Report on Form 8-K dated
October 17, 1999 and filed November 2, 1999. 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
Item 1. Financial Statements.
Template Software, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,527 $1,831
Marketable securities 4,346 8,221
Accounts receivable, net 9,415 15,752
Deferred income taxes 4,511 1,873
Note receivable -- 500
Prepaid expenses 1,173 732
Other current assets 239 486
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Total current assets
Property and equipment, net 22,211 29,395
Software development costs, net 5,135 5,423
Goodwill, net 3,164 2,601
Other assets 8,667 10,298
1,427 1,367
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Total assets $40,604 $49,084
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $6,262 $6,791
Current portion of long-term debt 282 451
Deferred income 352 1,437
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Total current liabilities 6,896 8,679
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Long-term liabilities:
Long-term debt, net of current portion 68 76
Deferred income taxes 1,119 827
Other long-term liabilities 474 421
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Total liabilities 8,557 10,003
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Shareholders' equity:
Common stock 52 52
Additional paid-in capital 36,598 36,619
Deferred compensation (321) (727)
Accumulated other comprehensive income (loss) (867) 154
Retained earnings (2,117) 3,794
Treasury stock (1,298) (811)
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Total shareholders' equity 32,047 39,081
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Total liabilities and shareholders' equity $40,604 $49,084
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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)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Products $ 490 $ 1,214 $ 3,887 $ 5,106
Services 8,598 8,646 27,482 23,559
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Total Revenues 9,088 9,860 31,369 28,665
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Cost of revenues:
Products 500 349 1,583 1,102
Services 6,422 5,447 21,057 14,727
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Total cost of revenues 6,922 5,796 22,640 15,829
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Gross profit 2,166 4,064 8,729 12,836
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Operating expenses:
Selling and marketing 2,950 2,348 8,029 7,157
Product development 586 354 1,497 1,021
General and administrative 1,690 1,289 7,337 4,098
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Total operating expenses 5,226 3,991 16,863 12,276
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Income (loss) from operations (3,060) 73 (8,134) 560
Interest income 58 128 231 437
Other income (expense) (7) 36 (8) 210
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Net income (loss) before income taxes (3,009) 237 (7,911) 1,207
Income tax provision (benefit) (762) 207 (2,000) 557
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Net income (loss) $ (2,247) $30 $(5,911) $650
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Earnings (loss) per share - basic $(0.46) $0.01 $(1.19) $0.13
========== ========== ========== ==========
Shares used in computing basic
earnings (loss) per share 4,901,909 5,120,860 4,951,050 5,021,608
========== ========== ========== ==========
Earnings (loss) per share - diluted $(0.46) $0.01 $(1.19) $0.11
========== ========== ========== ==========
Shares used in computing diluted
earnings (loss) per share 4,901,909 5,669,497 4,951,050 5,803,578
========== ========== ========== ==========
</TABLE>
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net income (loss) $(2,247) $30 $(5,911) $650
Foreign currency translation adjustment 283 338 (474) 280
Unrealized loss on marketable
securities, net of taxes (48) -- (547) --
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Comprehensive income (loss) $(2,012) $368 $(6,932) $930
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Template Software, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
---------------------------------
1999 1998
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<S> <C> <C>
Cash flows used in operating activities $ (264) $ (11)
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Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities 5,165 8,400
Purchase of marketable securities (2,000) (5,201)
Purchase of convertible note -- (1,500)
Proceeds from note receivable 500 --
Capital expenditures and leasehold improvements (670) (3,390)
Capitalization of software development costs (1,348) (1,220)
Acquisition costs, net of cash acquired -- (58)
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Net cash provided (used in) by investing activities 1,647 (2,969)
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Cash flows from financing activities:
Revolving credit facility, net (69) 487
Increase in notes payable 102 269
Payments on notes payable (158) (157)
Capital lease obligations (41) (29)
Income tax benefit related to stock options 9 634
Proceeds from sale of common stock under stock programs 122 861
Purchase of common stock (487) (501)
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Net cash provided by (used in) financing activities (522) 1,564
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Effect of exchange rate changes on cash and cash equivalents (165) (77)
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Net increase (decrease) in cash and cash equivalents 696 (1,493)
Cash and cash equivalents, beginning of period $ 1,831 $ 3,425
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Cash and cash equivalents, end of period $ 2,527 $ 1,932
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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. and Subsidiaries
Notes to the Financial Statements
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 September
30, 1999 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 1998 Annual Report on
Form 10-K. The results of operations for the nine months ended September 30,
1999 are not necessarily indicative of the operating results to be expected for
the full year.
Note B -- Merger with Level 8 Systems, Inc.
On October 20, 1999, the Company announced that it had entered into an
Agreement and Plan of Merger dated as of October 19, 1999 (the "Merger
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Agreement") with Level 8 Systems, Inc., a Delaware corporation ("Level 8") and
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Level 8's wholly-owned subsidiary, TSAC, Inc., a Delaware corporation (the
"Subsidiary"). The Merger Agreement provides for Level 8's acquisition of the
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Company by the Company's merger with and into the Subsidiary (the "Merger").
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Under the Merger Agreement, each share of the Company's common stock will
be exchanged for $4.00 in cash plus $3.90 worth of Level 8 common stock, subject
to adjustment. The actual number of shares of Level 8 common stock to be
exchanged for each Company share will be based on the average trading price of
Level 8 stock for the 10 trading days prior to the third trading day before
Level 8's shareholder approval, but will not be less than 0.2838 Level 8 shares
per Company share (if Level 8's average trading price exceeds $13.74) or more
than 0.3672 Level 8 shares per Company share (if Level 8's average trading price
is less than $10.62). The Merger is intended to qualify as a tax-free
reorganization, which means that Company shareholders would generally be
permitted to defer taxes on the Level 8 stock portion of the merger
consideration.
In connection with the Merger, on October 17, 1999 the Company's Board of
Directors approved an amendment to the Rights Agreement by and between the
Company and First Union National Bank dated as of July 3, 1998 (the "Rights
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Agreement"). The amendment provides that neither Level 8 nor the Subsidiary
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will be considered an "Acquiring Person" (as that term is defined in the Rights
Agreement), and that the execution, delivery and consummation of the Merger
Agreement will not cause the occurrence of a "Distribution Date" or a "Stock
Acquisition Date" (as these terms are defined in the Rights Agreement). The
amendment thus ensures that the Merger will not trigger the distribution of
rights to the Company's shareholders under the Rights Agreement. In addition,
in connection with the Merger Agreement, the Company has agreed not to further
amend the Rights Agreement without the consent of Level 8.
The Merger is subject to certain conditions to closing, including
shareholder approval, regulatory approval, and necessary consents and filings.
6
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Note C - Recent Accounting Pronouncements
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9 (SOP 98-9), "Modification of SOP 97-2,
Software Revenue Recognition with Respect to Certain Transactions." The
provisions of this SOP that extend the deferral of the application of certain
passages of SOP 97-2 are effective December 15, 1998. All other provisions of
this SOP are effective for transactions entered into in fiscal years beginning
after March 15, 1999. Earlier adoption is permitted as of the beginning of
fiscal years or interim periods for which financial statements or information
have not been issued. Retroactive application of the provisions of this SOP are
prohibited. The adoption of SOP 98-9 is not expected to have a material impact
on the Company's operating results, financial position or cash flows.
Note D - Income Taxes
The Income Tax Benefit was $0.8 million for the quarter ended September 30,
1999 compared to an Income Tax Provision of $0.2 million for the quarter ended
September 30, 1998. The Income Tax Benefit for the nine months ended September
30, 1999 was $2.0 million compared to an Income Tax Provision of $0.6 million
for the nine month period ended September 30, 1998. The Company's effective tax
rate was 25% for the quarter ended September 30, 1999 compared to 87% for the
quarter ended September 30, 1998. The Company's effective tax rate was 25% for
the nine month period ended September 30, 1999 compared to 46% for the nine
month period ended September 30, 1998. These tax rates reflect the differences
in effective tax rates relative to the Company having pre-tax losses in 1999 and
pre-tax profits in 1998 along with lower tax rates applicable to losses in
foreign jurisdictions, the effect of the permanent differences relative to the
Company's profit/loss and the establishment in 1999 of valuation allowances for
deferred tax assets attributable to net operating losses in France in the amount
of approximately $482,000.
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
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 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 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>
Three Months Ended Nine Months Ended
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September 30, September 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Weighted average shares outstanding - basic 4,901,909 5,120,860 4,951,050 5,021,608
Potential common shares related to stock options -- 548,637 -- 781,970
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Weighted average shares outstanding - diluted 4,901,909 5,669,497 4,951,050 5,803,578
========= ========= ========= =========
</TABLE>
The Company did not have any dilutive common shares during the three and
nine month periods ended September 30, 1999. Net income (loss) reported was not
adjusted for the computation of basic or diluted earnings per share. In 1999,
443,857 and 395,815 shares primarily related to the inclusion of the effect of
potential stock options exercises were not included in the computation of
diluted earnings per share for the three and nine month periods ended September
30, 1999, respectively, because to do so would have been antidilutive for those
periods.
7
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
Revenue. Total Revenue was $9.1 million for the quarter ended September
30, 1999 compared to $9.9 million for the quarter ended September 30, 1998, a
decrease of $0.8 million or 7.8%. This decrease was primarily attributable to a
decrease in product revenue. Total Revenue for the nine month period ended
September 30, 1999 was $31.4 million compared to $28.7 million for the nine
month period ended September 30, 1998, an increase of $2.7 million or 9.4%.
This growth resulted principally from volume increases in sales of software-
related services for customers such as the National Imagery and Mapping Agency
("NIMA") in the United States and Commerzbank, Mannesmann and Delvag in Germany.
Product Revenue was $0.5 million for the quarter ended September 30, 1999
compared to $1.2 million for the quarter ended September 30, 1998, a decrease of
$0.7 million or 59.6%. This decrease is primarily attributable to significant
product transactions in the three month period ended September 30, 1998 with
Eagle Eye Technologies, Inc. and Motorola Center Computersysteme with no
transaction of comparable size in the three months ended September 30, 1999.
For the nine month period ended September 30, 1999, Product Revenue was $3.9
million compared to $5.1 million for the nine month period ended September 30,
1998, a decrease of $1.2 million or 23.9%. This decrease was primarily
attributable to the decrease in product revenue in Europe. The Company believes
that penetration into the German enterprise integration market has not occurred
primarily because German companies are spending their information technology
budgets on Year 2000 remediations and SAP implementations. In the three month
period ended June 30, 1999, the Company realigned its sales strategy in Germany
to penetrate the market with lighter products (i.e., products that have less
functionality and complexities) that are more relative to the enterprise
application integration market. The Company is now focussing on reselling
Vision Jade and Visual Edge, both lighter enterprise integration products, in an
effort to penetrate our German customer base. Services Revenue was $8.6 million
for the quarter ended September 30, 1999 and September 30, 1998. Services
Revenue was $27.5 million for the nine month period ended September 30, 1999,
compared to $23.6 million for the nine month period ended September 30, 1998, an
increase of $3.9 million or 16.7%. This growth resulted principally from volume
increases in sales of software-related services for customers such as the
National Imagery and Mapping Agency ("NIMA") in the United States and
Commerzbank, Mannesmann and Delvag in Germany.
Cost of Revenue. Total Cost of Revenue is comprised of salaries and
related benefits for personnel, amortization of capitalized software development
costs and an allocated portion of rent, building services and computer equipment
services and expenses. Total Cost of Revenue was $6.9 million for the quarter
ended September 30, 1999 compared to $5.8 million for the quarter ended
September 30, 1998, an increase of $1.1 million or 19.5%. Total cost of revenue
was $22.6 million for the nine month period ended September 30, 1999 compared to
$15.8 million for the nine month period ended September 30, 1998, an increase of
$6.8 million or 43.0%. Total Cost of Revenue was 76.2% of total revenue for
the quarter ended September 30, 1999 compared to 58.8% of total revenue for the
quarter ended September 30, 1998. For the nine month period ended September 30,
1999, total cost of revenue was 72.2% of total revenue for the nine months ended
September 30, 1999 compared to 55.2% for the comparable period during 1998. The
increase in the cost of revenue and the related percentage relative to revenue
was attributable to (i) higher technical staff salaries, (ii) utilization of
third party subcontractors in conjunction with the Company's implementation of
the NIMA service engagement (iii)the purchase and integration of a third party
software product with the Company's software products
8
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and (iv) lower margins on service contracts. Also, certain contracts in Germany
achieved very low margins and technical personnel trained in the Company's
technology in France and Germany were under-utilized. As a result of these
issues, in the three month period ended June 30, 1999, the Company implemented a
reduction in force in Europe, primarily Germany in order to more closely align
the Company's European cost structure with its related revenue.
Cost of Product Revenue was $0.5 million for the quarter ended September
30, 1999 compared to $0.3 million for the quarter ended September 30, 1998, an
increase of $0.2 million or 43.6%. Cost of Product Revenue was $1.6 million for
the nine months ended September 30, 1999 compared to $1.1 million for the nine
months ended September 30, 1998, an increase of $0.5 million or 43.7%. The Cost
of Product Revenue increased in the three month and nine month periods ended
September 30, 1999 primarily due to an increase in software amortization
associated with the general availability release of the Company's Enterprise
Integration Template(TM) ("EIT").
Cost of Services Revenue was $6.4 million for the quarter ended September
30, 1999 compared to $5.4 million for the quarter ended September 30, 1998, an
increase of $1.0 million or 17.9%. Cost of Services Revenue was $21.0 million
for the nine month period ended September 30, 1999, compared to $14.7 million
for the nine month period ended September 30, 1998, an increase of $6.3 million
or 43.0%. This increase resulted primarily from the cost associated with
staffing the growth in services contracts. The Company believes that Service
Revenue gross margins have decreased due to the use of third party
subcontractors, the provision and integration of a third party software product
on the NIMA contract and the low service margins and under-utilization of the
technical staff in Germany. 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
$2.9 million for the quarter ended September 30, 1999 compared to $2.3 million
for the quarter ended September 30, 1998, an increase of $0.6 million or 25.6%.
Selling and marketing expenses were $8.0 million for the nine month period ended
September 30, 1999, compared to $7.2 million for the nine month period ended
September 30, 1998, an increase of $0.8 million or 12.2%. These increases
resulted primarily from additional expenditures targeted towards increasing
market awareness including public relations activities, tradeshows and expenses
associated with evaluating and generating proposals. The Company has hired and
intends to continue to hire additional sales personnel primarily in the United
States and Germany and is utilizing additional technical staff in sales
activities. The Company anticipates its selling and marketing expenses will
continue to increase.
Product Development. Product Development expenses were $0.6 million for
the quarter ended September 30, 1999, compared to $0.4 million for the quarter
ended September 30, 1998, an increase of $0.2 million or 65.5%. Product
development expenses were $1.5 million for the nine month period ended September
30, 1999, compared to $1.0 million for the nine month period ended September 30,
1998, an increase of $0.5 million or 46.6%. This increase resulted primarily
from the development of enhancements to the EIT and the writedown of peripheral
product development efforts that were not strategic to the Company's enterprise
application integration focus amounting to approximately $124,000 and $ 40,000
recorded in the three month periods ended June 30, 1999 and September 30, 1999,
respectively.
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 and goodwill
amortization. General and Administrative expenses were $1.7 million for the
quarter ended September 30, 1999 compared to $1.3 million for the quarter ended
September 30,
9
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1998 an increase of $0.4 million or 31.0%. This increase is primarily
attributable to increased personnel, recruiting costs and professional service
fees. General and administrative expenses were $7.3 million for the nine month
period ended September 30, 1999, compared to $4.1 million for the nine month
period ended September 30, 1998, an increase of $3.2 million or 78.9%. This
increase is primarily attributable to costs associated with the reduction in
force in Europe in the three month period ended June 30, 1999, increases in
personnel due to the higher level of revenues during the nine month period ended
September 30, 1999 compared to the same period in 1998 and the recognition of an
impairment loss to the goodwill associated with the Company's French acquisition
of approximately $1.0 million. As the result of the Company's ongoing evaluation
of the carrying value of its long-lived assets, in the three month period ended
June 30, 1999, the Company determined that the sales pipeline in the French
operations did not improve as originally anticipated; therefore, the Company
recognized an impairment loss equal to the unamortized balance of the goodwill
associated with the acquisition of the French operation. Goodwill amortization,
exclusive of the $1.0 million goodwill impairment loss, was $169,946 and
$587,772 for the three month period ended September 30, 1999 and September 30,
1998 and $206,468 and $608,811 for the nine months ended September 30, 1999 and
September 30, 1998, respectively.
Income Tax (Benefit) Provision. The Income Tax Benefit was $0.8 million
for the quarter ended September 30, 1999 compared to an Income Tax Provision of
$0.2 million for the quarter ended September 30, 1998. The Income Tax Benefit
for the nine months ended September 30, 1999 was $2.0 million compared to an
Income Tax Provision of $0.6 million for the nine month period ended September
30, 1998. The Company's effective tax rate was 25% for the quarter ended
September 30, 1999 compared to 87% for the quarter ended September 30, 1998.
The Company's effective tax rate was 25% for the nine month period ended
September 30, 1999 compared to 46% for the nine month period ended September 30,
1998. These tax rates reflect the differences in effective tax rates relative to
the Company having pre-tax losses in 1999 and pre-tax profits in 1998 along with
lower tax rates applicable to losses in foreign jurisdictions, the effect of the
permanent differences relative to the Company's profit/loss and the
establishment in 1999 of valuation allowances for deferred tax assets
attributable to net operating losses in France in the amount of approximately
$482,000.
Liquidity and Capital Resources
The Company's overall cash and cash equivalents were $2.5 million at
September 30, 1999, which is an increase of approximately $0.7 million from $1.8
million as of December 31, 1998. The Company's operating activities used cash
of $0.3 million for the nine month period ended September 30, 1999. During the
nine month period ended September 30, 1999, cash flow used in operating
activities reflected the net loss, the deferred tax provision and the decrease
in deferred income, partially offset by depreciation and amortization and the
decrease in accounts receivable.
Cash provided by investing activities totaled $1.6 million during the nine
month period ended September 30, 1999. During the nine months ended September
30, 1999 the Company invested $0.7 million in property and equipment and
capitalized $1.3 million in software development costs. Additionally, the
Company sold $5.2 million and reinvested $2.0 million of marketable securities,
netting $3.2 million for working capital. Precise Connectivity Solutions, Ltd.
repaid its $0.5 million note to the Company in full.
Cash used in financing activities totaled $0.5 million for the nine month
period ended September 30, 1999 primarily relating to the Company's re-purchase
of common stock in conjunction with its stock buy-back program.
The Company has a line of credit under a Loan and Security Agreement (the
"Loan Agreement") with First Union National Bank , previously Signet Bank (the
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"Bank"), in the aggregate principal amount of $3.0 million. As of September 30,
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1999, 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
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Agreement. The Loan Agreement bears interest at the LIBOR Market Index Rate (for
the United States Dollar quoted by the British Bankers Association) plus 1.85%.
The Company's French subsidiary maintains with Banque Hervet an unsecured line
of credit for 500,000FF plus an additional 500,000FF of credit collateralized by
70% of accounts receivable (approximately $180,000 in aggregate) at an interest
rate of 8.3%. The Company's Austrian subsidiary maintains a line of credit with
Raiffeisen Bank for 1,000,000ATS (approximately $85,000), collateralized by 100%
of accounts receivable at an interest rate of 5%. As of September 30, 1999,
515,384FF (approximately $84,000) was outstanding under the French line of
credit and no amounts were outstanding under the Austrian line of credit.
The Company's Board of Directors, on September 18, 1998, authorized the
repurchase of up to 500,000 shares of the Company's Common Stock in open market
transactions effected in accordance with Rule 10b-18 of the Securities Exchange
Act of 1934, as amended. During the three and nine month periods ended
September 30, 1999, the Company purchased 40,600 and 115,800 shares of its
Common Stock for $140,975 and $486,994, respectively. As of September 30, 1999,
the Company had cumulatively repurchased 299,800 shares of its Common Stock in
such transactions for $1,298,219 at an average purchase price of $4.33 per
share.
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 operating activities. Such sources of liquidity may
include additional equity offerings or debt financings. There can be 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.
Impact of Year 2000 Issue
The "Year 2000 Issue" is the result of computer programs that were written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the Year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
The majority of the Company's systems have been confirmed as Year 2000
compliant as the result of the Company's Year 2000 compliance program conducted
to identify and correct any non-compliant software or systems that would cause a
significant detrimental effect on the Company. The Company's compliance program
identified its Year 2000 risk in four categories: internal administrative
software; internal operational software and embedded chip technology; external
noncompliance by customers and suppliers; and Company products.
INTERNAL ADMINISTRATIVE SOFTWARE. All of the Company's internal
administrative software is "off-the-shelf' commercially available software. The
Company gathered data to assess the impact of the Year 2000 on its
administrative systems such as the accounting and human resources systems. The
Company's main domestic accounting system has been determined to be non-
compliant and is being replaced with new compliant software. The estimated cost
of such replacement is expected to approximate $300,000. The Company expects to
be in full compliance with its internal administrative financial systems before
December 31, 1999. However, if due to unforeseen circumstances, the
implementation is not completed on a timely basis, the Year 2000 could have a
material impact on the operations of the Company. In the event the Company
determines that there is a risk that the non-compliant domestic accounting
system cannot be implemented before Year 2000, the Company will develop
contingency plans accordingly.
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INTERNAL OPERATIONS SOFTWARE AND EMBEDDED CHIP TECHNOLOGY. The Company
gathered data to assess the impact of the Year 2000 on its operational systems
such as production systems and communication systems. The Company believes its
material, critical systems are Year 2000 compliant resulting from responses
received from inquiries made to the applicable vendors. Additionally, as a
contingency, the Company believes it can replace any failing system with an
alternative commercially available system in a short timeframe.
EXTERNAL NONCOMPLIANCE BY CUSTOMERS AND SUPPLIERS. The Company is
continuing the process of reviewing the state of readiness of its critical
suppliers and service providers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remedy their
own Year 2000 issues. This exercise includes compliance inquiries and reviews
that will continue throughout 1999. To the extent that responses to Year 2000
readiness are unsatisfactory, the Company intends to change suppliers or service
providers to those who have demonstrated Year 2000 readiness but cannot be
assured that it will be successful in finding such alternative suppliers and
service providers. The Company does not currently have any formal information
concerning the Year 2000 compliance status of its customers but has received
indications that most of its customers are working on Year 2000 compliance. In
the event that any of the Company's significant customers and suppliers do not
successfully and timely achieve Year 2000 compliance, and the Company is unable
to replace them with new customers or alternate suppliers, the Company's
business or operations could be adversely affected.
COMPANY PRODUCTS. The Company provides its customers with licensed
software products that are manufactured and developed internally and licensed
software products that are obtained from third party software vendors and
resold. The following compliance statement covers the Company's internally
produced software products and is provided to the general public on the
Company's website.
Year 2000 Compliance Statement
The Company recognizes that most customers use Company software products in
business-critical applications and that customers want to know if the Company's
products are "Year 2000 Compliant." The compliance statements below cover the
Company's software products: Foundation Template (including the SNAP Template,
Web Component, Geographic Mapping Component and Process Monitoring Component),
Workflow Template ("WFT"), System Management Template ("SMT") and the Enterprise
Integration Template ("EIT").
Definition:
There is no single definition of the term "Year 2000 Compliant" that is
generally accepted in the industry. The Company has created the definition
below which we believe meets the letter and the spirit of a notice of compliance
that meets our customer's requirements.
A software product is "Year 2000 Compliant" when: (1) the software product
itself does not fail at or near January 1, 2000 and (2) the software product
provides documented time and date facilities that allow developers to build
software that does not fail at or near January 1, 2000. The phrase at or near
January 1, 2000 specifically includes treating the Year 2000 as a leap year.
Compliance Statements:
The Foundation Template (including the SNAP Template, Web Component,
Geographic Mapping Component and Process Monitoring Component) provided by the
Company is Year 2000 Compliant.
The Workflow Template ("WFT") provided by the Company is Year 2000
Compliant.
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The Systems Management Template ("SMT") provided by the Company is Year
2000 Compliant.
The Enterprise Integration Template ("EIT") provided by the Company is Year
2000 Compliant.
How Compliance is Achieved:
The Foundation Template, WFT, SMT and EIT meet the first criterion because
they employ a single module to obtain or provide time and date information.
This module has been extensively tested in many product development cycles and
in many customer solutions. It handles the Year 2000 as a leap year.
The Foundation Template, WFT, SMT and EIT meet the second criterion because
they use a common data structure for time and date information. All time
requests start by getting the operating system time, then developers use one
function to convert operating system time to a single portable SNAP environment
data structure. Developers use this data structure in applications to obtain
time and date information. All time and date information is supplied as integer
values. To provide a portable data structure the conversion algorithm is
different for different operating system environments. The integer value
returned for `year' is a number representing the number of years since 1900.
The year value can be very large (over 10,000). The integer value will
increment continuously at the turn of the century and beyond. The algorithm
used to determine the current year (1900 + year) remains constant before and
after the turn of the century.
When using Company products that are Year 2000 Compliant it is still
possible for application developers to introduce code that will make the overall
application non-compliant.
End of Company Year 2000 Compliance Statement
The Company has investigated each third party software vendor whose
software products the Company resells regarding Year 2000 compliance of those
products. The Company has determined that all of the third party products it
currently resells are Year 2000 compliant based upon the representations of the
respective third party software vendor. In all cases the third party software
vendor's license agreement is passed on to the Customer and the Company is not a
party thereto.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks. Though the Company faces and manages
other types of risks, such as credit and liquidity risks, the Company's market
risk arises primarily from risks inherent in currency rate movements and from
risk inherent in the Company's marketable securities. The Company regularly
assesses these risks and has established policies and business practices to
protect against the adverse effects of these and other potential exposures.
A substantial portion of the Company's revenues are generated from
international operations. Revenues from foreign subsidiaries and export sales
accounted for 49.0%, 51.9% and 48.7% of the Company's total revenues in fiscal
years 1997 and 1998 and the nine months ended September 30, 1999, respectively,
or $12.3 million, $21.2 million and $15.3 million, respectively. As a result,
the Company is subject to numerous international market-based risks (as well as
risks related specifically to these international operations, which are
discussed elsewhere in this report). These risks include unexpected changes in
regulatory requirements, export limitations on encryption technologies, tariffs
and other trade barriers, political and economic instability in foreign markets,
difficulty in the staffing, management and integration of foreign operations,
longer payment cycles, greater difficulty in accounts receivable
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collection, currency fluctuations and potentially adverse tax consequences. The
uncertainty of the monetary exchange values has caused, and may in the future
cause, some foreign customers to delay new orders or delay payment for existing
orders. These factors may, in the future, contribute to fluctuations in the
Company's financial condition and results of operations. The Company believes
that the Company's currency exchange risk is mitigated somewhat by the fact that
the Company conducts operations from international as well as domestic
locations, allowing it to minimize the impact of any currency movements by, for
example, paying its German debtors in German deutsche marks. Although the
Company's results of operations have not been materially adversely affected to
date as a result of currency fluctuations, the long-term impact of currency
fluctuations, including any possible effect on the business outlook in other
developing countries, cannot be predicted.
The fair value of the Company's investments in marketable securities at
September 30, 1999 was $4.3 million. The Company's marketable securities
portfolio is invested (i) in short-term securities with at least an investment
grade rating to minimize interest rate and credit risk as well as provide an
immediate source of funds with a market value of $1.0 million as of September
30, 1999 and (ii) long-term federally backed zero coupon bonds with a market
value of $3.3 million as of September 30, 1999. In this regard, the Company has
gross unrealized losses of approximately $1.1 million from its longer-term
marketable securities as of September 30, 1999, and there can be no assurance
that the Company will be able to recoup these losses if realized. The Company
has filed an arbitration claim with the National Association of Securities
Dealers against Merrill Lynch Pierce Fenner & Smith with respect to certain of
these issues. See "Part II -- Item 1 Legal Proceedings." As a general matter,
although changes in interest rates may affect the fair value of the marketable
securities portfolio and cause unrealized gains or losses, such gains or losses
would not be realized unless the investments are liquidated.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has entered into a settlement agreement with Automated Financial
Systems, Inc. ("AFS") regarding an action that the Company had filed that has
been pending since December 23, 1998. A description of the basis of this action
is contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-21921). As part of the settlement, AFS has paid
the Company $260,000 on August 27, 1999 and dismissed its counterclaims against
the Company.
On June 30, 1999, the Company filed a claim with the National Association
of Securities Dealers for arbitration against Merrill Lynch Pierce Fenner &
Smith ("Merrill Lynch") seeking compensatory damages of $950,000 plus attorney's
fees and lost income resulting from advice rendered by Merrill Lynch to
purchase, and the failure of Merrill Lynch to divest at the Company's
instruction, the Company's portfolio of zero coupon long-term bonds. Discovery
has commenced in the arbitration. The Company expects that the arbitration will
be completed by the end of 1999. The Company cannot predict the outcome of this
arbitration proceeding. If the Company is not successful in this arbitration,
there could be a material adverse effect on the Company's business, results of
operations and financial condition.
On July 15, 1999, the Company filed an action against Manugistics, Inc.
("Manugistics") in the United States District Court for the Eastern District of
Virginia, seeking compensatory damages of approximately $1,250,000 resulting
from breach of certain representations contained in a license agreement for
Manugistics-developed software that the Company had attempted to incorporate
into a project that the Company is committed to delivering to an agency of the
federal government. Manugistics has filed a counterclaim against the Company,
asserting breach of contract, breach of alleged settlement, and wrongful hiring.
On October 19, 1999, the Company filed an amended complaint
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to include two additional claims, fraud in the inducement and constructive
fraud, seeking additional damages of $2,000,000. Discovery has commenced in the
action. No trial date has been set for this action, and the Company cannot
currently predict the outcome of this litigation. If the Company is not
successful in pursuing these claims, there could be a material adverse effect on
the Company's business, results of operations and financial condition.
In addition, the Company is and may from time to time be involved in
ordinary routine litigation incidental to its business. Other than as described
above, the Company is not aware of any pending or threatened litigation that
could have a material adverse effect on the Company's business, results of
operations or financial condition
Item 5. Other Information.
On October 20, 1999, the Company announced that it had entered into an
Agreement and Plan of Merger dated as of October 19, 1999 (the "Merger
------
Agreement") with Level 8 Systems, Inc., a Delaware corporation ("Level 8") and
- --------- -------
Level 8's wholly-owned subsidiary, TSAC, Inc., a Delaware corporation (the
"Subsidiary"). The Merger Agreement provides for Level 8's acquisition of the
- -----------
Company by the Company's merger with and into the Subsidiary (the "Merger").
------
Under the Merger Agreement, each share of the Company's common stock will
be exchanged for $4.00 in cash plus $3.90 worth of Level 8 common stock, subject
to adjustment. The actual number of shares of Level 8 common stock to be
exchanged for each Company share will be based on the average trading price of
Level 8 stock for the 10 trading days prior to the third trading day before
Level 8's shareholder approval, but will not be less than 0.2838 Level 8 shares
per Company share (if Level 8's average trading price exceeds $13.74) or more
than 0.3672 Level 8 shares per Company share (if Level 8's average trading price
is less than $10.62). The Merger is intended to qualify as a tax-free
reorganization, which means that Company shareholders would generally be
permitted to defer taxes on the Level 8 stock portion of the merger
consideration.
In connection with the Merger, on October 17, 1999 the Company's Board of
Directors approved an amendment to the Rights Agreement by and between the
Company and First Union National Bank dated as of July 3, 1998 (the "Rights
------
Agreement"). The amendment provides that neither Level 8 nor the Subsidiary
- ---------
will be considered an "Acquiring Person" (as that term is defined in the Rights
Agreement), and that the execution, delivery and consummation of the Merger
Agreement will not cause the occurrence of a "Distribution Date" or a "Stock
Acquisition Date" (as these terms are defined in the Rights Agreement). The
amendment thus ensures that the Merger will not trigger the distribution of
rights to the Company's shareholders under the Rights Agreement. In addition,
in connection with the Merger Agreement, the Company has agreed not to further
amend the Rights Agreement without the consent of Level 8.
The Merger is subject to certain conditions to closing, including
shareholder approval, regulatory approval, and necessary consents and filings.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed herewith:
Exhibit
Number Exhibit Title
------ -------------
2.1 Agreement and Plan of Merger, dated as of October 19, 1999, by and
among Level 8 Systems, Inc., TSAC, Inc., and Template Software,
Inc. (exhibits and schedules
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omitted but will be furnished supplementally to the Securities and
Exchange Commission upon request)./1/
10.1 Stockholders Agreement by and among Level 8 Systems, Inc., Template
Software, Inc., and various stockholders of Level 8 and Template
(schedules omitted but will be furnished supplementally to the
Securities and Exchange Commission upon request)./1/
10.2 Rights Agreement, dated as of July 3, 1998, by and between Template
Software, Inc. and First Union National Bank, as Rights Agent./2/
10.3 Amendment to Rights Agreement, dated as of October 19, 1999, by and
between Template Software, Inc. and First Union National Bank, as
Rights Agent./1/
10.4 Service Agreement, dated as of September 24, 1999, between Template
Software, Inc. and Richard Hugh Collard (schedules omitted but will
be furnished supplementally to the Securities and Exchange
Commission upon request).
10.5 Employment Agreement, dated as of September 24, 1999, between
Template Software, Inc. and Benjamin J. Martindale (schedules
omitted but will be furnished supplementally to the Securities and
Exchange Commission upon request).
10.6 Employment Agreement, dated as of October 1, 1999, between Template
Software, Inc. and David L. Kiker (schedules omitted but will be
furnished supplementally to the Securities and Exchange Commission
upon request).
27.1 Financial Data Schedule for the nine month period ended September
30, 1999.
27.2 Restated Financial Data Schedule for the nine month period ended
September 30, 1998.
- --------------
1 Incorporated by reference to the Company's Report on Form 8-K, dated October
17, 1999 and filed November 2, 1999 (File No. 0-21921).
2 Incorporated by reference to the Company's Report on Form 8-K, dated
September 30, 1998 and filed October 15, 1998 (File No. 0-21921).
______________
(b) Reports on Form 8-K
During the fiscal quarter ended September 30, 1999, the Company did not
file any reports on Form 8-K.
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SIGNATURE
- ---------
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: November 8, 1999 TEMPLATE SOFTWARE, INC.
By: /s/ Peter Russo
Peter Russo
Executive Vice President and
Chief Financial Officer
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EXHIBIT 10.4
SERVICE AGREEMENT
DATED September 24/th/, 1999
PARTIES:
(1) Template Software Inc. of 45365 Vintage Park Plaza, Suite 100, Dulles, VA
20166, United States of America and, jointly and severally, its wholly owned
subsidiary Template Software (UK) Ltd., of 39/45 Victoria Street, Windsor,
Berks, UK
("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 1995
"the Employment" means the employment established by this Agreement which
shall be subject to the employment laws of the United Kingdom.
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) December 31, 1999, ("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.
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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 UK 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 extended for an additional 12 month period to
an Extended Expiry Date of December 31st 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
either the legal minimum as provided by the ruling employment law for the United
Kingdom or the date 5 days following the date of the notice of termination
itself, whichever is the greater. In the event that the Executive is terminated
for cause, the Company shall pay the Executive base salary and bonus due 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 base salary
and bonus due through the day on which such termination is effective plus a
compensation for loss of office equal to not less than 12 months salary and
bonus prorated for 12 months. The bonus paid will be for 12 months, paid
monthly at a monthly rate, and calculated by taking the bonus earned for the
prior twelve months, based on the quarterly achievements of the most recent 4
reporting quarters of the Company. Thus, should termination occur in late
February, then the "bonus year" would be the calendar year of the preceding
year. Should termination occur in late May, then the bonuses for the 2nd, 3rd,
and 4th quarter of the preceding year and the bonus for the 1st quarter of the
same year constitute the "prior twelve" months or stated in the prior paragraph.
Benefits (insurance, etc.) that are in force prior to termination will continue
to be carried by the Company for 12 months or until the Executive begins full
time employment with another organization, whichever occurs first.
2.2 For purposes of Section 2.1 and Section 2.3, "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 amounting to gross misconduct; (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; (iv) violation by the Executive of the
Company's material policies as set forth in the Company's personnel handbook, if
one has been adopted in the United Kingdom, which violation remains uncured
thirty (30) days after written notice to the Executive by the Company regarding
such violation has been provided; or (v) the performance by the Executive of any
act or omission demonstrating an intentional or reckless disregard of the
interests of the Company.
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2.3 Change of Control of the Company and Termination. In the event of a
Change of Control (as defined below) of the Company, then following the
consummation of such Change of Control and termination by the Company of the
Executive without cause (as defined in Section 2.2) within 12 months of the date
of consummation of such Change of Control, all unexercisable Incentive and Non-
Qualified Stock Options granted to the Executive prior to such date will become
immediately exercisable in full upon such termination. The Company and the
Executive will promptly enter into amendments to the appropriate stock option
agreements governing the Executive's previously-granted stock options to reflect
these agreements.
For purposes of this Section 2.3, a Change of Control shall mean any
of the following:
(a) the merger or consolidation of the Company with or into another
unaffiliated entity, or the merger of another unaffiliated entity into the
company or any subsidiary thereof with the effect that immediately after such
transaction the stockholders of the Company immediately prior to such
transaction hold less than fifty percent (50%) of the total voting power of all
securities generally entitled to vote in the election of directors, managers or
trustees of the entity surviving such merger or consolidation;
(b) the sale, lease or other transfer of all or substantially all of
the Company's assets to an unaffiliated person or group (as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or the sale
or transfer of more than fifty-one percent (51%) of the Company's then
outstanding voting stock (other than in a restructuring transaction which
results in the continuation of the Company's business by an affiliated entity)
to such persons or group; or
(c) the adoption by the stockholders of the Company of a plan relating
to the liquidation or dissolution of the Company.
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 calendar
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.
3
<PAGE>
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 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 from 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.
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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.
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 agreed with the Chief
Execuitve and modified from time to time. This salary shall accrue from day to
day and shall be payable by equal monthly instalments 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 ruling Incentive
Plan.
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.
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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.
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 interest. 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;
6
<PAGE>
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.
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:
7
<PAGE>
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.
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.
IN WITNESS the Company and the Executive have signed this Agreement
- ----------
for Template Software, Inc.
/s/ Joseph M. Fox
- -----------------
J Fox
Chairman
/s/ Richard H. Collard
- ----------------------
R. H. Collard
8
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
Executive Vice President
------------------------
THIS EMPLOYMENT AGREEMENT, is made and entered into as of the 24th day of
September, 1999, by and between TEMPLATE SOFTWARE, INC., a Virginia corporation
(the "Company") and Benjamin J. Martindale, II (the "Executive").
RECITALS
--------
A. The Company desires to retain Executive to provide the services
hereinafter set forth.
B. Executive is willing to provide such services to the Company on the
terms and conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the promises and the terms and conditions set forth in
this Agreement, the parties agree as follows:
1. Employment and Term. The Company agrees to employ the Employee and the
-------------------
Employee agrees to work for the company, effective as of the date hereof,
subject to the terms and conditions below. This Agreement shall be for a term
of twelve (12) months after the date hereof, provided, that the term of this
Agreement shall automatically extend for one additional month at the end of each
month during the term hereof unless either party provides thirty (30) days prior
written notice to the other of its desire not to automatically extend the term
of this Agreement.
2. Compensation; Benefits. Subject to the terms and conditions of this
----------------------
Agreement, the Company shall pay to the Executive a base salary as set forth on
Schedule A, attached hereto and made a part hereof, payable in accordance with
- ----------
the Company's regular payroll policies. In addition to this base salary, the
Executive shall be entitled to the benefits and bonuses described on Schedule A,
----------
subject to the terms and conditions described therein. In addition, the
Executive shall be entitled to receive such other benefits including, but not
limited to, vacation, holidays and sick leave, as the Company generally provides
to its employees holding similar positions as that of the Executive.
Notwithstanding the foregoing, the Company reserves the right to adopt, amend or
discontinue any employee benefit plan or policy in accordance with then-
applicable law.
3. Duties. The Executive shall initially be employed as Executive Vice
------
President. The Executive shall diligently and conscientiously devote the
Executive's full time, attention and best efforts to discharge the duties
assigned to the Executive by the Company. The Executive shall perform such
duties as may be assigned to the Executive from time to time by the Company.
4. Right to Contract; Conflict of Interest. The Executive hereby represents
---------------------------------------
and warrants to the Company that (i) the Executive has full right and authority
to enter into this Agreement and to perform
-1-
<PAGE>
the Executive's obligations hereunder and (ii) the execution and delivery of
this Agreement by the Executive and the performance of the Executive's
obligations hereunder will not conflict with or breach any agreement, order or
decree to which the Executive is a party or by which the Executive is bound.
During the term of this Agreement, the Executive shall not directly or
indirectly consult, advise, be retained or employed by, or in any manner perform
any service with any other business or entity engaged in a competing business to
that of the Company without first obtaining consent in writing from the Company.
5. Transfer by Company. If at any time during the term of this Agreement,
-------------------
the Company transfers the Executive to another location, the Company will
reimburse the Executive for all reasonable moving expenses incurred as a result
of such transfer. In the event that the Executive terminates this Agreement
without cause pursuant to Section 9 hereof within one year after any such
---------
transfer, the Executive shall refund to the Company all amounts paid to the
Executive by the Company as moving expenses (including temporary housing and
incidental expenses) pursuant to this Section 5. The Executive agrees that any
---------
amounts owing to the Company under this Section 5 may be deducted from any
---------
salary, bonuses or other amounts owed to the Executive by the Company,
consistent with applicable law.
6. Termination by the Company.
--------------------------
(a) 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 base 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 6 months salary and bonus prorated
for 6 months. The bonus paid will be for 6 months, paid monthly at a monthly
rate, and calculated by taking the bonus earned for the prior twelve months,
based on the quarterly achievements of the most recent 4 reporting quarters of
the Company. Thus, should termination occur in late February, then the "bonus
year" would be the calendar year of the preceding year. Should termination
occur in late May, then the bonuses for the 2nd, 3rd, and 4th quarter of the
preceding year and the bonus for the 1st quarter of the same year constitute the
"prior twelve" months or stated in the prior paragraph. Benefits (insurance,
etc.) that are in force prior to termination will continue to be carried by the
Company for 6 months or until the Executive begins full time employment with
another organization, whichever occurs first.
(b) For purposes of this Section 6 and Section 8, "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; (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; (iv) conviction of, or a plea or nolo contendere by, the Executive
with respect to any crime consisting of a felony; (v) violation by the Executive
of the Company's material policies as set forth in the Company's personnel
handbook, if one has been adopted, or announced by Company management from time
to time, which violation remains uncured thirty (30) days after written notice
to the Executive by the Company regarding such violation has been provided; (vi)
violation of the Company's drug and alcohol policy as set forth in the Company's
-2-
<PAGE>
personnel handbook, if one has been adopted, or announced by Company management
from time to time; or (vii) the performance by the Executive of any act or
omission demonstrating an intentional or reckless disregard of the interests of
the Company.
7. Termination by Death or Disability of the Executive.
---------------------------------------------------
(a) 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 base
salary and other compensation due the Executive through the day on which the
Executive's death shall have occurred.
(b) If the Executive is unable to perform the Executive's duties
hereunder due to mental, physical or other disability for a period of 90
consecutive business days, as determined by the Company, or for 90 business 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. The Company
shall pay to the Executive compensation equal to 6 months salary and bonus
prorated for 6 months. The bonus paid will be for 6 months, paid monthly at a
monthly rate, and calculated by taking the bonus earned for the prior twelve
months, based on the quarterly achievements of the most recent 4 reporting
quarters of the Company. Thus, should termination occur in late February, then
the "bonus year" would be the calendar year of the preceding year. Should
termination occur in late May, then the bonuses for the 2nd, 3rd, and 4th
quarter of the preceding year and the bonus for the 1st quarter of the same year
constitute the "prior twelve" months or stated in the prior paragraph. Benefits
(insurance, etc.) that are in force prior to termination will continue to be
carried by the Company for 6 months or until the Executive begins full time
employment with another organization, whichever occurs first.
8. Change of Control of the Company and Termination. In the event of a Change
-------------------------------------------------
of Control (as defined below) of the Company, then following the
consummation of such Change of Control and termination by the Company of
---
the Executive without cause (as defined in Section 6) within 12 months of
the date of consummation of such Change of Control, all unexercisable
Incentive and Non-Qualified Stock Options granted to the Executive prior to
such date will become immediately exercisable in full upon such
termination. For purposes of this Section 8, "termination by the Company of
the Executive" shall be constituted by: Termination of the Executive by the
Company without cause (as defined in Section 6) within 12 months of the
date of consummation of such Change of Control; Or, at the discretion of
the Executive, shall be constituted by any of the following circumstances:
A reduction by the Company in the Executive's Base Salary as in effect
as of the date hereof or as the same may be increased from time to
time;
The relocation of the Company's principal executive offices to a
location more than 30 miles from the location as of the date hereof or
the company's requiring the Executive to be based anywhere other than
the Company's principal executive offices, except for
-3-
<PAGE>
required travel on the Company's business to an extent substantially
consistent with the Executive's present business travel obligations.
The Company and the Executive will promptly enter into amendments to the
appropriate stock option agreements governing the Executive's previously-
granted stock options to reflect these agreements.
For purposes of this Section 8, a Change of Control shall mean any of the
---------
following:
(a) the merger or consolidation of the Company with or into another
unaffiliated entity, or the merger of another unaffiliated entity into the
company or any subsidiary thereof with the effect that immediately after such
transaction the stockholders of the Company immediately prior to such
transaction hold less than fifty percent (50%) of the total voting power of
all securities generally entitled to vote in the election of directors,
managers or trustees of the entity surviving such merger or consolidation;
(b) the sale, lease or other transfer of all or substantially all of
the Company's assets to an unaffiliated person or group (as such term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or
the sale or transfer of more than fifty-one percent (51%) of the Company's
then outstanding voting stock (other than in a restructuring transaction
which results in the continuation of the Company's business by an affiliated
entity) to such persons or group; or
(c) the adoption by the stockholders of the Company of a plan relating
to the liquidation or dissolution of the Company.
9. Termination by the Executive.
----------------------------
(a) 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 on the date 30 days after the date of such notice, provided the
Company has failed to cure the cause specified in the notice.
(b) After the date of any such termination, the Executive shall be
entitled to the base salary due the Executive through the day on which such
termination becomes effective, unless such termination was for cause, in which
case the Executive 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 6(a).
(c) For purposes of this Section 9, "cause" shall mean a material
---------
failure by the Company to perform its obligations under this Agreement.
10. Suspension. In the event the Company has reasonable cause to believe
----------
that there exists cause for termination of this Agreement as defined in Section
-------
6, immediately upon written notice to the Executive, the Company may but shall
- -
not be obligated to suspend the Executive, with pay, for a period
-4-
<PAGE>
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 from thereafter exercising its rights to terminate
this Agreement in accordance with its terms.
11. Non-Competition and Non-Solicitation.
------------------------------------
(a) Non-Competition. The Executive agrees that, during the Executive's
---------------
employment hereunder, and for a period of two (2) months after the later of (i)
the effective date of termination of this Agreement, (ii) the date on which the
Executive's period of compensated severance hereunder expires or (iii) the date
of entry by a court of competent jurisdiction of a final judgment enforcing this
covenant, the Executive will not, in any geographic area where the Company
engages in its Business (as defined below) or maintains sales or service
representatives or employees:
(A) compete with the Company, or any subsidiary or affiliate of the
Company;
(B) interfere with or disrupt, or attempt to interfere with or
disrupt, the relationship, contractual or otherwise, between the Company, or any
subsidiary or affiliate of the Company, and any customer, supplier or employee
of the Company, or any such subsidiary or affiliate;
(b) Non-Solicitation. The Executive agrees that, during the Executive's
----------------
employment hereunder, and for a period of two (2) years after the later of (i)
the effective date of termination of this Agreement, (ii) the date on which the
Executive's period of compensated severance hereunder expires or (iii) the date
of entry by a court of competent jurisdiction of a final judgment enforcing this
covenant, the Executive will not directly solicit any current employee of the
Company to accept employment elsewhere.
(c) The following terms, as used in this Section 11 shall have the
----------
meanings set forth below:
(A) The Company's "Business" means the development and sale of
--------
software products intended specifically to facilitate the connection and
integration of multiple application software programs to achieve the sharing of
data and cooperative processing among those programs or the provision of
services related to such software products.
(B) The term "compete" means to engage in competition, directly or
-------
indirectly, individually or through a family member or other person acting on
the Executive's behalf, as an employee, officer, director, proprietor, partner
or stockholder or other security holder (other than of a corporation listed on a
national securities exchange or the securities of which are regularly traded in
the over-the-counter market, provided that the Executive at no time owns in
excess of 5% of the outstanding securities of such corporation entitled to vote
for the election of directors) of any firm, corporation or entity of any nature
whatsoever.
(C) The term "affiliate" means any person, firm or corporation,
---------
directly or indirectly through one or more intermediaries, controlling,
controlled by or under common control with the Company.
-5-
<PAGE>
(d) The Executive further acknowledges that this Section 11 is an
----------
independent covenant within this Agreement, and that this covenant shall survive
any termination of Agreement and shall be treated as an independent covenant for
the purposes of enforcement. With respect to this covenant, the Executive
hereby acknowledges receipt of Ten Dollars ($10.00) and other good and valuable
consideration stated herein including the consideration of the Executive's
continued employment by the Company.
(e) The Executive shall, during the term of this Agreement and
thereafter, notify any prospective employer of the terms and conditions of this
Agreement regarding confidentiality, non-disclosure and non-competition.
12. Confidentiality and Non-Disclosure.
----------------------------------
(a) The Executive shall hold in strict confidence and shall not, either
during the term of this Agreement or after the termination hereof, disclose,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Company or is engaged in a business similar to that of the Company, any trade
secrets or other proprietary or confidential information of the Company or any
subsidiary or affiliate (as defined in Section 11) of the Company obtained by
----------
the Executive from or through the Executive's employment hereunder. The
Executive hereby acknowledges and agrees that all proprietary information
referred to in this Section 12 shall be deemed trade secrets of the Company and
----------
of its subsidiaries and affiliates, as defined in Section 11, and that the
----------
Executive shall take such steps, undertake such actions and refrain from taking
such other actions, as mandated by the provisions hereof and by the provisions
of the Virginia Uniform Trade Secret Act. Executive further acknowledges that
the Company's products and titles consist of copyrighted material, and Executive
shall exercise the Executive's best efforts to prevent the use of such
copyrighted material by any person or entity which has not prior thereto been
authorized to use such information by the Company.
(b) The Executive further hereby agrees and acknowledges that any
disclosure of any proprietary information prohibited herein, or any breach of
the provisions of Sections 4 or 11 of this Agreement, may result in irreparable
---------- --
injury and damage to the Company which will not be adequately compensable in
monetary damages, that the Company will have no adequate remedy at law therefor,
and that the Company may obtain such preliminary, temporary or permanent
mandatory or restraining injunctions, orders or decrees as may be necessary to
protect the Company against, or on account of, any breach by the Executive of
the provisions contained in Sections 4, 11 or 12.
---------- -- --
(c) The Executive further agrees that, upon termination of this
Agreement, whether voluntary or involuntary or with or without cause, the
Executive shall notify any new employer, partner, associate or any other firm or
corporation with whom the Executive shall become associated in any capacity
whatsoever of the provisions of this Section 12, and that the Company may give
----------
such notice to such firm, corporation or other person.
13. Assignment and Disclosure of Inventions.
---------------------------------------
(a) From and after the date the Executive first became employed with the
Company, the Executive hereby agrees to promptly disclose in confidence to the
Company all inventions,
-6-
<PAGE>
improvements, designs, original works of authorship, formulas, processes,
compositions of matter, computer software programs, databases, mask works, and
trade secrets ("Inventions"), whether or not patentable, copyrightable or
----------
protectible as trade secrets, that are made or conceived or first reduced to
practice or created by the Executive, either alone or jointly with others,
during the period of the Executive's employment, whether or not in the course of
the Executive's employment.
(b) The Executive hereby acknowledges that copyrightable works prepared
by the Executive within the scope of the Executive's employment are "works for
hire" under the Copyright Act and that the Company will be considered the author
thereof. The Executive hereby agrees that all Inventions that (a) are developed
using equipment, supplies, facilities or trade secrets of the Company, (b)
result from work performed by the Executive for the Company or (c) relate to the
Company's business or current or anticipated research and development, will be
the sole and exclusive property of the Company and are hereby assigned by the
Executive to the Company.
14. Severability. The Company and the Executive recognize that the laws and
------------
public policies of the Commonwealth of Virginia are subject to varying
interpretations and change. It is the intention of the Company and of the
Executive that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of the Commonwealth of
Virginia, but that the unenforceability (to the modification to conform to such
laws or public policies) of any provision or provisions hereof shall not render
unenforceable, or impair, the remainder of this Agreement. Accordingly, if any
provisions of this Agreement shall be determined to be invalid or unenforceable,
either in whole or in part, this Agreement shall be deemed amended to delete or
modify, as necessary, the offending provision or provisions and to alter the
balance of this Agreement in order to render it valid and enforceable.
15. Assignment. Neither the rights nor obligations under this Agreement may
----------
be assigned by either party, in whole or in part, by operation of law or
otherwise, except that it shall be binding upon and inure to the benefit of any
successor of the Company and its subsidiaries and affiliates, whether by merger,
reorganization or otherwise, or any purchaser of all or substantially all of the
assets of the Company.
16. Notices. Any notice expressly provided for under this Agreement shall
-------
be in writing, shall be given either manually or by mail and shall be deemed
sufficiently given when actually received by the party to be notified or when
mailed, if mailed by certified or registered mail, postage prepaid, addressed to
such party at their addresses as set forth below. Either party may, by notice
to the other party, given in the manner provided for herein, change their
address for receiving such notices.
(a) If to the Company, to:
Template Software, Inc.
45365 Vintage Park Plaza, Suite 100
Dulles, Virginia 20166
Attn: Chief Executive Officer
with a copy to:
-7-
<PAGE>
Cooley Godward LLP
2002 Edmund Halley Drive, Suite 300
Reston, Virginia 20191
Attn: Joseph W. Conroy, Esquire
(b) If to the Executive, to
_____________________________
_____________________________
_____________________________
17. Governing Law. This Agreement shall be executed, construed and
-------------
performed in accordance with the laws of the Commonwealth of Virginia without
reference to conflict of laws principles.
18. Headings. The section headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
19. Entire Agreement; Amendments. This Agreement constitutes and embodies
----------------------------
the entire agreement between the parties in connection with the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings in connection with such subject matter. No covenant or condition
not expressed in this Agreement shall affect or be effective to interpret,
change or restrict this Agreement. In the event of a conflict or inconsistency
between the terms of this Agreement and the Company's policies regarding
employees, the terms of this Agreement shall supersede the conflicting or
inconsistent Company policies. No change, termination or attempted waiver of
any of the provisions of this Agreement shall be binding unless in writing
signed by the Executive and on behalf of the Company by an officer thereunto
duly authorized by the Company's Board of Directors. No modification, waiver,
termination, rescission, discharge or cancellation of this Agreement shall
affect the right of any party to enforce any other provision or to exercise any
right or remedy in the event of any other default.
[SIGNATURE PAGE FOLLOWS]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TEMPLATE SOFTWARE, INC.
By: /s/ Joseph M. Fox
------------------------------------
Joseph M. Fox
Chief Executive Officer
EXECUTIVE:
/s/ Benjamin J. Martindale II
------------------------------------------
Benjamin J. Martindale, II
-9-
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
--------------------
Vice President and Chief Technology Officer
-------------------------------------------
THIS EMPLOYMENT AGREEMENT, is made and entered into as of the 1st day of
October, 1999, by and between TEMPLATE SOFTWARE, INC., a Virginia corporation
(the "Company") and David L. Kiker (the "Executive").
RECITALS
--------
A. The Company desires to retain Executive to provide the services
hereinafter set forth.
B. Executive is willing to provide such services to the Company on the
terms and conditions hereinafter set forth.
AGREEMENT
---------
In consideration of the promises and the terms and conditions set forth in
this Agreement, the parties agree as follows:
1. Employment and Term. The Company agrees to employ the Employee and the
-------------------
Employee agrees to work for the company, effective as of the date hereof,
subject to the terms and conditions below. This Agreement shall be for a term
of twelve (12) months after the date hereof, provided, that the term of this
Agreement shall automatically extend for one additional month at the end of each
month during the term hereof unless either party provides thirty (30) days prior
written notice to the other of its desire not to automatically extend the term
of this Agreement.
2. Compensation; Benefits. Subject to the terms and conditions of this
----------------------
Agreement, the Company shall pay to the Executive a base salary as set forth on
Schedule A, attached hereto and made a part hereof, payable in accordance with
- ----------
the Company's regular payroll policies. In addition to this base salary, the
Executive shall be entitled to the benefits and bonuses described on Schedule A,
----------
subject to the terms and conditions described therein. In addition, the
Executive shall be entitled to receive such other benefits including, but not
limited to, vacation, holidays and sick leave, as the Company generally provides
to its employees holding similar positions as that of the Executive.
Notwithstanding the foregoing, the Company reserves the right to adopt, amend or
discontinue any employee benefit plan or policy in accordance with then-
applicable law.
3. Duties. The Executive shall initially be employed as Vice President and
------
Chief Technology Officer. The Executive shall diligently and conscientiously
devote the Executive's full time, attention and best efforts to discharge the
duties assigned to the Executive by the Company. The Executive shall perform
such duties as may be assigned to the Executive from time to time by the
Company.
4. Right to Contract; Conflict of Interest. The Executive hereby represents
---------------------------------------
and warrants to the Company that (i) the Executive has full right and authority
to enter into this Agreement and to perform
-1-
<PAGE>
the Executive's obligations hereunder and (ii) the execution and delivery of
this Agreement by the Executive and the performance of the Executive's
obligations hereunder will not conflict with or breach any agreement, order or
decree to which the Executive is a party or by which the Executive is bound.
During the term of this Agreement, the Executive shall not directly or
indirectly consult, advise, be retained or employed by, or in any manner perform
any service with any other business or entity engaged in a competing business in
the Enterprise Integration Application market to that of the Company without
first obtaining consent in writing from the Company.
5. Transfer by Company. If at any time during the term of this Agreement,
-------------------
the Company transfers the Executive to another location, the Company will
reimburse the Executive for all reasonable moving expenses incurred as a result
of such transfer. In the event that the Executive terminates this Agreement
without cause pursuant to Section 9 hereof within one year after any such
---------
transfer, the Executive shall refund to the Company all amounts paid to the
Executive by the Company as moving expenses (including temporary housing and
incidental expenses) pursuant to this Section 5. The Executive agrees that any
---------
amounts owing to the Company under this Section 5 may be deducted from any
---------
salary, bonuses or other amounts owed to the Executive by the Company,
consistent with applicable law.
6. Termination by the Company.
--------------------------
(a) 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 base 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 6 months salary and bonus prorated
for 6 months. The bonus paid will be for 6 months, paid monthly at a monthly
rate, and calculated by taking the bonus earned for the prior twelve months,
based on the quarterly achievements of the most recent 4 reporting quarters of
the Company. Thus, should termination occur in late February, then the "bonus
year" would be the calendar year of the preceding year. Should termination
occur in late May, then the bonuses for the 2nd, 3rd, and 4th quarter of the
preceding year and the bonus for the 1st quarter of the same year constitute the
"prior twelve" months or stated in the prior paragraph. Benefits (insurance,
etc.) that are in force prior to termination will continue to be carried by the
Company for 6 months or until the Executive begins full time employment with
another organization, whichever occurs first.
(b) For purposes of this Section 6 and Section 8, "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; (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; (iv) conviction of, or a plea or nolo contendere by, the Executive
with respect to any crime consisting of a felony; (v) violation by the Executive
of the Company's material policies as set forth in the Company's personnel
handbook, if one has been adopted, or announced by Company management from time
to time, which violation remains uncured thirty (30) days after written notice
to the Executive by the Company regarding such violation has been provided; (vi)
violation of the Company's drug and alcohol policy as set forth in the Company's
-2-
<PAGE>
personnel handbook, if one has been adopted, or announced by Company management
from time to time; or (vii) the performance by the Executive of any act or
omission demonstrating an intentional or reckless disregard of the interests of
the Company.
7. Termination by Death or Disability of the Executive.
---------------------------------------------------
(a) 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 base
salary and other compensation due the Executive through the day on which the
Executive's death shall have occurred.
(b) If the Executive is unable to perform the Executive's duties
hereunder due to mental, physical or other disability for a period of 90
consecutive business days, as determined by the Company, or for 90 business 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. The Company
shall pay to the Executive compensation equal to 6 months salary and bonus
prorated for 6 months. The bonus paid will be for 6 months, paid monthly at a
monthly rate, and calculated by taking the bonus earned for the prior twelve
months, based on the quarterly achievements of the most recent 4 reporting
quarters of the Company. Thus, should termination occur in late February, then
the "bonus year" would be the calendar year of the preceding year. Should
termination occur in late May, then the bonuses for the 2/nd/, 3/rd/, and 4/th/
quarter of the preceding year and the bonus for the 1st quarter of the same year
constitute the "prior twelve" months or stated in the prior paragraph. Benefits
(insurance, etc.) that are in force prior to termination will continue to be
carried by the Company for 6 months or until the Executive begins full time
employment with another organization, whichever occurs first.
8. Change of Control of the Company and Termination. In the event of a
-------------------------------------------------
Change of Control (as defined below) of the Company, then following
stockholder approval of such Change of Control, all unexercisable
Incentive and Non-Qualified Stock Options granted to the Executive prior
to such date will become immediately exercisable in full. The Company and
the Executive will promptly enter into amendments to the appropriate
stock option agreements governing the Executive's previously-granted
stock options to reflect these agreements.
For purposes of this Section 8, a Change of Control shall mean any of the
---------
following:
(a) the merger or consolidation of the Company with or into another
unaffiliated entity, or the merger of another unaffiliated entity into the
company or any subsidiary thereof with the effect that immediately after such
transaction the stockholders of the Company immediately prior to such
transaction hold less than fifty percent (50%) of the total voting power of
all securities generally entitled to vote in the election of directors,
managers or trustees of the entity surviving such merger or consolidation;
-3-
<PAGE>
(b) the sale, lease or other transfer of all or substantially all of
the Company's assets to an unaffiliated person or group (as such term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or
the sale or transfer of more than fifty-one percent (51%) of the Company's
then outstanding voting stock (other than in a restructuring transaction
which results in the continuation of the Company's business by an affiliated
entity) to such persons or group; or
(c) the adoption by the stockholders of the Company of a plan relating
to the liquidation or dissolution of the Company.
9. Termination by the Executive.
----------------------------
(a) 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 less than 14 days after, the date of
the notice. If such termination is with cause, it shall become effective on the
30 days after the date of such notice, provided the Company has failed to cure
the cause specified in the notice.
(b) After the date of any such termination, the Executive shall be
entitled to the base salary due the Executive through the day on which such
termination becomes effective plus base salary for any accumulated vacation,
unless such termination was for cause, in which case the Executive 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 6(a).
(c) For purposes of this Section 9, "cause" shall mean a material
---------
failure the Company to perform its obligations under this Agreement.
10. Suspension. In the event the Company has reasonable cause to believe
----------
that there exists cause for termination of this Agreement as defined in Section
-------
6, 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 from thereafter exercising its rights to terminate this Agreement in
accordance with its terms.
11. Non-Competition and Non-Solicitation.
------------------------------------
Not applicable.
12. Confidentiality and Non-Disclosure.
----------------------------------
(a) The Executive shall hold in strict confidence and shall not, either
during the term of this Agreement or after the termination hereof, disclose,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Company or is engaged in a business similar to that of the Company, any trade
secrets or other proprietary or confidential information of the Company obtained
by the Executive from or through the Executive's employment hereunder. The
Executive hereby acknowledges and agrees that all proprietary
-4-
<PAGE>
information referred to in this Section 12 shall be deemed trade secrets of the
----------
Company and-that the Executive shall take such steps, undertake such
actions and refrain from taking such other actions, as mandated by the
provisions hereof and by the provisions of the Virginia Uniform Trade Secret
Act. Executive further acknowledges that the Company's products and titles
consist of copyrighted material, and Executive shall exercise the Executive's
best efforts to prevent the use of such copyrighted material by any person or
entity which has not prior thereto been authorized to use such information by
the Company.
(b) The Executive further hereby agrees and acknowledges that any
disclosure of any proprietary information prohibited herein, or any breach of
the provisions of Sections 4 of this Agreement, may result in irreparable injury
----------
and damage to the Company which will not be adequately compensable in monetary
damages, that the Company will have no adequate remedy at law therefor, and that
the Company may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect the
Company against, or on account of, any breach by the Executive of the provisions
contained in Sections 4 or 12.
---------- --
(c) The Executive further agrees that, upon termination of this
Agreement, whether voluntary or involuntary or with or without cause, the
Executive shall notify any new employer, partner, associate or any other firm or
corporation with whom the Executive shall become associated in any capacity
whatsoever of the provisions of this Section 12, and that the Company may give
----------
such notice to-such firm, corporation or other person.
13. Assignment and Disclosure of Inventions.
---------------------------------------
(a) From and after the date the Executive first became employed with the
Company, the Executive hereby agrees to promptly disclose in confidence to the
Company all inventions, improvements, designs, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works, and trade secrets ("Inventions"), whether or not
----------
patentable, copyrightable or protectible as trade secrets, that are made or
conceived or first reduced to practice or created by the Executive, either alone
or jointly with others, during the period of the Executive's employment, insofar
as such developments (a) relate to the actual or anticipated business or
research and development of Template Software as stated in the Company's
Business Plan and (b) are suggested by or result from any task assigned to me
for or on behalf of Template Software.
(b) The Executive hereby acknowledges that copyrightable works prepared
by the Executive within the scope of the Executive's employment are "works for
hire" under the Copyright Act and that the Company will be considered the author
thereof. The Executive hereby agrees that all Inventions that (a) are developed
using equipment, supplies, facilities or trade secrets of the Company, (b)
result from work performed by the Executive for the Company or (c) relate to the
Company's business or current or anticipated research and development as stated
in the Company's Business Plan, will be the sole and exclusive property of the
Company and are hereby assigned by the Executive to the Company.
14. Severability. The Company and the Executive recognize that the laws and
------------
public policies of the Commonwealth of Virginia are subject to varying
interpretations and change. It is the intention of the Company and of the
Executive that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of the Commonwealth of
Virginia, but that the
-5-
<PAGE>
unenforceability (to the modification to conform to such laws or public
policies) of any provision or provisions hereof shall not render unenforceable,
or impair, the remainder of this Agreement. Accordingly, if any provisions of
this Agreement shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete or modify, as
necessary, the offending provision or provisions and to alter the balance of
this Agreement in order to render it valid and enforceable.
15. Assignment. Neither the rights nor obligations under this Agreement may
----------
be assigned by either party, in whole or in part, by operation of law or
otherwise, except that it shall be binding upon and inure to the benefit of any
successor of the Company and its subsidiaries and affiliates, whether by merger,
reorganization or otherwise, or any purchaser of all or substantially all of the
assets of the Company.
16. Notices. Any notice expressly provided for under this Agreement shall
-------
be in writing, shall be given either manually or by mail and shall be deemed
sufficiently given when actually received by the party to be notified or when
mailed, if mailed by certified or registered mail, postage prepaid, addressed to
such party at their addresses as set forth below. Either party may, by notice
to the other party, given in the manner provided for herein, change their
address for receiving such notices.
(a) If to the Company, to:
Template Software, Inc.
45365 Vintage Park Plaza, Suite 100
Dulles, Virginia 20166
Attn: Chief Executive Officer
with a copy to:
Cooley Godward LLP
2002 Edmund Halley Drive, Suite 300
Reston, Virginia 20191
Attn: Joseph W. Conroy, Esquire
(b) If to the Executive, to
David Kiker
-----------
20485 McGees Ferry Way
----------------------
Sterling, VA 20165
-------------------
17. Governing Law. This Agreement shall be executed, construed and
-------------
performed in accordance with the laws of the Commonwealth of Virginia without
reference to conflict of laws principles.
18. Headings. The section headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
-6-
<PAGE>
19. Entire Agreement; Amendments. This Agreement constitutes and embodies
----------------------------
the entire agreement between the parties in connection with the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings in connection with such subject matter, including the agreement
regarding Confidential Information and Intellectual Property of November 25,
1985. No covenant or condition not expressed in this Agreement shall affect or
be effective to interpret, change or restrict this Agreement. In the event of a
conflict or inconsistency between the terms of this Agreement and the Company's
policies regarding employees, the terms of this Agreement shall supersede the
conflicting or inconsistent Company policies. No change, termination or
attempted waiver of any of the provisions of this Agreement shall be binding
unless in writing signed by the Executive and on behalf of the Company by an
officer thereunto duly authorized by the Company's Board of Directors. No
modification, waiver, termination, rescission, discharge or cancellation of this
Agreement shall affect the right of any party to enforce any other provision or
to exercise any right or remedy in the event of any other default.
[SIGNATURE PAGE FOLLOWS]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TEMPLATE SOFTWARE, INC.
By: /s/ Joseph M. Fox
--------------------------------
Joseph M. Fox
Chief Executive Officer
EXECUTIVE:
/s/ David L. Kiker
-------------------------------------
David L. Kiker
-8-
<TABLE> <S> <C>
<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 September 30, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,527
<SECURITIES> 4,346
<RECEIVABLES> 10,498
<ALLOWANCES> 1,083
<INVENTORY> 189
<CURRENT-ASSETS> 22,211
<PP&E> 7,660
<DEPRECIATION> 2,525
<TOTAL-ASSETS> 40,604
<CURRENT-LIABILITIES> 6,896
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 31,995
<TOTAL-LIABILITY-AND-EQUITY> 40,604
<SALES> 0
<TOTAL-REVENUES> 31,369
<CGS> 0
<TOTAL-COSTS> 22,640
<OTHER-EXPENSES> 16,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (231)
<INCOME-PRETAX> (7,911)
<INCOME-TAX> (2,000)
<INCOME-CONTINUING> (5,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,911)
<EPS-BASIC> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
<TABLE> <S> <C>
<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 September 30, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,932
<SECURITIES> 10,166
<RECEIVABLES> 12,487
<ALLOWANCES> 564
<INVENTORY> 461
<CURRENT-ASSETS> 26,695
<PP&E> 7,021
<DEPRECIATION> 1,651
<TOTAL-ASSETS> 47,438
<CURRENT-LIABILITIES> 7,530
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 38,830
<TOTAL-LIABILITY-AND-EQUITY> 47,438
<SALES> 0
<TOTAL-REVENUES> 28,665
<CGS> 0
<TOTAL-COSTS> 15,829
<OTHER-EXPENSES> 12,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (560)
<INCOME-PRETAX> 1,207
<INCOME-TAX> 557
<INCOME-CONTINUING> 650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.11
</TABLE>
