<PAGE>
As filed with the Securities and Exchange Commission on April 15, 1996
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TOUCHSTONE SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3778226
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2124 MAIN STREET, 2ND FLOOR
HUNTINGTON BEACH, CALIFORNIA 92648
(Address of Principal Executive Office)(Zip Code)
1995 STOCK OPTION PLAN
1994 EMPLOYEE STOCK PURCHASE PLAN
1991 STOCK OPTION PLANS
(Full title of the plans)
RONALD R. MAAS
2124 MAIN STREET, 2ND FLOOR
HUNTINGTON BEACH, CALIFORNIA 92648
(Name and address of agent for service)
(714) 969-7746
(Telephone number, including area code, of agent for service)
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
===============================================================================================
<CAPTION>
Proposed Proposed
Title of Amount maximum maximum Amount of
securities to to be offering price aggregate registration
be registered registered per share (1) offering price (1) fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 700,301 $5.38 $3,767,619.38 $1,299.16
$.001 par value
===============================================================================================
</TABLE>
(1) Pursuant to Rule 457(a), estimated solely for the purpose of calculating
the registration fee.
================================================================================
<PAGE>
PART I
INFORMATION REQUIRED IN THE
SECTION 10(a) PROSPECTUS
The documents containing the information specified in Part I (plan
information and registrant information) will be sent or given to participants as
specified by Rule 428(b)(1). Such documents need not be filed with the
Securities and Exchange Commission either as part of this Registration Statement
or as prospectuses or prospectus supplements pursuant to Rule 424. These
documents and the documents incorporated by reference in this Registration
Statement pursuant to Item 3 of Part II of this form, taken together, constitute
a prospectus that meets the requirements of Section 10(a) of the Securities Act
of 1933.
2
<PAGE>
PART II
INFORMATION REQUIRED IN THE
REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.
The following documents previously filed by TouchStone Software
Corporation (the "Company") with the Commission are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995; and
2. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed under the
Securities Exchange Act of 1934.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities and Exchange Act of 1934 prior to the
filing of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters all securities then remaining unsold
shall be deemed to be incorporated by reference into the prospectus and to be a
part hereof from the date of filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws provide that the Company may indemnify its officers
and directors, employees and other agents in certain circumstances. As
described more fully in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, the Company and Larry W. Dingus, C.
Shannon Jenkins, Ronald R. Maas, Kenneth C. Welch III, Donald C. Watters, and
Sigmund Fidyke III have been named as defendants in two purported class and
derivative actions alleging violations of federal securities laws and various
state statutes sounding in fraud. In accordance with the Company's Bylaws and
California law, the Company has agreed to advance all expenses incurred
in defending such actions upon receipt from each of the individual defendants
of a written undertaking to repay the expenses advanced by the Company
for their respective accounts if it is determined ultimately that any of these
is not entitled to be indemnified by the Company. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to
officers, directors or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
II-1
<PAGE>
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
All of the 70,333 previously issued shares of Common Stock covered hereby
were issued and sold prior to the effective date of this Registration Statement
pursuant to one or more of the Company's employee stock ownership plans, without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemptions therefrom provided by Sections 3(a)(11)
and 4(2) of the Securities Act, and Regulation D promulgated by the Securities
and Exchange Commission under the Securities Act.
ITEM 8. EXHIBITS.
5.1 Opinion of Phillips & Haddan
10.1 TouchStone Software Corporation 1995 Stock Option Plan
10.2 TouchStone Software Corporation 1994 Employee Stock Purchase Plan*
10.3 TouchStone Software Corporation 1991 Stock Option Plans*
23.1 Consent of Deloitte & Touche L.L.P.
24.2 Consent of Phillips & Haddan (included in Exhibit 5.1).
_________________________
* Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995, as filed with the Securities and
Exchange Commission and incorporated herein by reference.
ITEM 9. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represents
a fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against pubic policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
THIS REGISTRATION STATEMENT ON FORM S-8 ALSO INCLUDES AN ADDITIONAL
PROSPECTUS PREPARED IN ACCORDANCE WITH THE REQUIREMENTS OF FORM S-3 WHICH IS
FILED HEREWITH FOLLOWING THE SIGNATURE PAGE HEREOF PURSUANT TO GENERAL
INSTRUCTION C TO FORM S-8.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Huntington Beach, State of California, on April 15,
1996.
TOUCHSTONE SOFTWARE CORPORATION
By: /s/ Ronald R. Maas
-----------------------------------------
Ronald R. Maas, Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated
Signatures Title Date
- ---------- ----- ----
/s/ Larry W. Dingus Chairman of the Board April 15, 1996
- ----------------------------
Larry W. Dingus
/s/ C. Shannon Jenkins Chief Executive Officer April 15, 1996
- ---------------------------- and Director
C. Shannon Jenkins
/s/Larry Jordan President and Chief April 15, 1996
- ---------------------------- Operating Officer
Larry Jordan
/s/Ronald R. Maas Executive Vice President April 15, 1996
- --------------------------- and Director
Ronald R. Maas (principal financial and
accounting officer)
- --------------------------- Director April , 1996
Kenneth C. Welch III
- --------------------------- Director April , 1996
Richard W. Brail
II-4
<PAGE>
PROSPECTUS
70,333 SHARES
TOUCHSTONE SOFTWARE CORPORATION
COMMON STOCK
________________
This Prospectus relates to an aggregate of 70,333 shares of the Common
Stock, $.001 par value (the "Common Stock"), of TouchStone Software Corporation,
a California corporation (the "Company"), all of which were issued and sold
without registration under the Securities Act of 1933, as amended (the
"Securities Act"), prior to the effective date of this Registration Statement
pursuant to one or more of the Company's employee stock ownership plans.
All of the shares covered by this Prospectus will be offered and sold by
the Selling Shareholders identified herein under "Selling Shareholders." The
Company will not receive any part of the proceeds from the sale of any of these
shares by the Selling Shareholders. See "Use of Proceeds."
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "TSSW." On March 29, 1996, the closing sale price of a share of the
Company's Common Stock on The Nasdaq National Market was $5.38. See "Market
Information and Related Matters."
SEE "RISK FACTORS" FOR CERTAIN INFORMATION WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Selling Shareholders have informed the Company that they intend to
sell the shares from time to time, for their own respective accounts, in
transactions that may take place as ordinary brokerage transactions in the over-
the-counter market, in private, individually negotiated transactions, or through
sales to one or more dealers who will purchase the shares as principals for
subsequent resale, at prevailing market prices or at such prices as may be
agreed upon. Although there are no current arrangements therefor, commissions
equal to or in excess of normal brokerage commissions may be paid by the Selling
Shareholders to brokerage firms in connection with such sales. See "Plan of
Distribution." Each Selling Shareholder will bear all expenses with respect to
the offering of shares by such Selling Shareholder, except that the Company will
pay the costs associated with registering the shares under the Act and preparing
this Prospectus.
Certain of the Selling Shareholders may be deemed "affiliates" of the
Company as defined under the Securities Act, and therefore such Selling
Shareholders, and any intermediaries through whom their shares are sold, may be
deemed "underwriters" within the meaning of the Securities Act, of the shares to
be sold by them in connection with this offering. Consequently, any profits
realized or commissions received by any of them may be deemed underwriting
compensation. See "Plan of Distribution."
The date of this Prospectus is April 15, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street N.W., Washington, D.C. 20549, and at its Regional Offices located
at Room 3190, Kluczynski Federal Building, 230 South Dearborn Street, Chicago,
Illinois 60604 and Room 1400, 75 Park Place, New York, New York 10007. Copies
of such material can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street N.W., Washington, D.C. 20549, at the Commission's
prescribed rates.
The Company has filed with the Commission a registration statement on Form
S-8 (together with any amendments thereto, the "Registration Statement") under
the Act, with respect to the shares of the Common Stock to be sold pursuant to
this Prospectus. This Prospectus, which has been prepared in accordance with
Part I of Form S-3 and filed as a part of the Registration Statement pursuant to
General Instruction C to Form S-8, does not contain all the information set
forth in the Registration Statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission. Such additional
information may be obtained at the principal offices of the Commission in
Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission are incorporated herein by reference:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995; and
2. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed under
the Securities Exchange Act of 1934.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities and Exchange Act of 1934 prior to the
filing of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters all securities then remaining unsold
shall be deemed to be incorporated by reference into the prospectus and to be a
part hereof from the date of filing of such documents.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the documents referred to above which have been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into the information
incorporated herein by reference. Requests should be addressed to: Corporate
Secretary, TouchStone Software Corporation, 2124 Main Street, 2nd Floor,
Huntington Beach, California 92648; telephone: (714) 969-7746.
2
<PAGE>
THE COMPANY
TouchStone Software Corporation (the "Company") is a leading developer
and publisher of utility software used to set up, maintain, and manage
personal computers. The Company's CHECKIT family of products,
including WINCHECKIT and CHECKIT DIAGNOSTIC KIT, identifies
and assist in the resolution of system conflicts, facilitates the
installation of upgrades and accessories, and substantially reduces the time
and costs typically associated with diagnosing personal computer problems.
The Company's WINCHECKIT product for Windows-based personal
computers was listed as the top selling utility software product on Ingram
Micro, Inc.'s ("Ingram Micro") May, June and July 1995 Retail Products Best
Seller Lists, and the Company's SETUP ADVISOR product was listed as the next
best selling utility software product on the July 1995 list.
WINCHECKIT was also awarded a WINDOWS MAGAZINE 1995 WIN Award and a
Top 100 ranking in the June 1995 issue of HOME PC MAGAZINE. In October 1995,
the Company released WINCHECKIT 4.0, TouchStone's latest version of
its award-winning Windows problem solver. WINCHECKIT 4.0 provides a
suite of diagnostic tools, normally found in separate programs, that have
been designed to work in both Windows 95 and Windows 3.1 environments.
In November 1995, TouchStone released PC-CILLIN 95. Designed for use
with Windows 95 and Internet, PC-CILLIN 95 provides complete protection from
new virus sources and increasingly sophisticated types of viruses. It
automatically adjusts protection levels based on the level of the threat,
provides one-button virus pattern updates, and intelligently scans for
viruses when needed. In addition, a powerful Clean Wizard automatically
removes viruses step-by-step, without harming system files. In July 1995 the
Company released WIN'95 ADVISOR, a utility software product that permits
users to analyze their personal computer's compatibility with Microsoft
Corporation's ("Microsoft's") operating system, Windows 95, which was
released by Microsoft on August 24, 1995. WIN'95 ADVISOR was awarded a
Windows Magazine 1995 WIN 100 Award. The Company's FASTMOVE! product,
introduced in March 1995, enables users of multiple personal computers to
transfer and synchronize data files between personal computers, while
simultaneously scanning for viruses.
The Company markets its products domestically primarily through software
distributors, including Ingram Micro, Merisel Americas, Inc. ("Merisel") and
Tech Data Corporation ("Tech Data"), for resale through the retail channel.
The Company's primary sales and marketing efforts in 1995 were directed at
increasing demand for products at the retail sales level and increasing the
number of mall stores, club stores, and warehouse stores that carry the
Company's products. Such efforts have included using outside representatives
to present the Company's products to retail store employees, and using
point-of-sale and other in-store displays in such retail stores as CompUSA,
Sam's Club, Micro Center, Egghead Software, Computer City, Fry's Electronics,
Office Depot, Best Buy and PriceCostco. The Company estimates that in the
number of retail stores which carry the Company's products increased from
approximately 1,700 in 1993 to approximately 7,100 in 1995.
Organized in 1982, the Company is a California corporation whose principal
executive offices are located at 2124 Main Street, Huntington Beach, California
92648, and its telephone number is (714) 969-7746.
3
<PAGE>
RISK FACTORS
The shares of Common Stock offered hereby involve a substantial degree of
risk and only persons who are financially able to sustain the loss of their
total investment should consider purchasing such shares. Prospective purchasers
should carefully review this Prospectus and each of the documents incorporated
herein by reference, and consider the following risk factors prior to purchasing
the shares of Common Stock offered hereby.
PRODUCT CONCENTRATION AND LIFE CYCLES; TECHNOLOGICAL CHANGE AND NEW PRODUCT
DEVELOPMENT.
During 1995, approximately 51% of the Company's operating revenues were
attributable to sales of WINCHECKIT which is designed for users of
Microsoft's Windows operating system. The Company anticipates that new
versions of WINCHECKIT, PC-CILLIN 95, and the recently introduced
CHECKIT DIAGNOSTIC KIT products will account for a substantial
portion of the Company's revenues during the current year. A decline in the
demand for these products, whether as a result of competition or other
factors, could have a material adverse effect on the Company's results of
operations and financial condition. In addition, the markets for the
Company's products are characterized by rapidly changing technology, short
product life cycles, extensive competition, eroding profit margins, frequent
new product introductions, and evolving industry standards. To meet these
challenges, the Company invests significant time and resources developing new
products and researching and testing their market acceptance. The length of
time required to develop the Company's products typically ranges from six to
18 months. In the past, the Company has experienced delays in the
introduction of new products. The Company depends on the successful
development of new products, including adaptions to new platforms, to replace
revenues from products introduced in prior years which have begun to decline.
The Company also depends on upgrades of existing products to lengthen the
life cycle of, and increase the revenue attributable to, such products. If
the Company does not accurately anticipate and successfully adapt its
products to emerging personal computer platforms, environments and
technologies, or new products are not introduced when planned or do not
achieve anticipated revenues, the Company's operating results could be
materially adversely affected. There can be no assurance that the Company
will be able to introduce new products on schedule or that such new products
will achieve market acceptance.
DEPENDENCE ON MICROSOFT
The Company's success is highly dependent on the continued widespread use
of Microsoft's Windows operating system for personal computers. Although the
Windows operating system is currently used by many personal computer users,
other companies, including International Business Machines Corporation, have
developed or are developing other operating systems which compete and will
compete with Microsoft's Windows. In the event that any of these alternative
operating systems become widely accepted in the personal computer marketplace,
demand for the Company's Windows-based products could adversely be affected,
thereby affecting the Company's operating results. On August 24, 1995,
Microsoft introduced a new operating system, Windows 95. In anticipation of
this introduction, the Company released WIN'95 ADVISOR, a new addition to its
CHECKIT product line, designed to assist personal computer users in
determining whether their personal computers are compatible with Windows 95. A
lack of market acceptance to date of Windows 95 for personal computer upgrades
has limited sales of WIN'95 ADVISOR, leading to price reductions and returns of
unsold copies, which had an adverse effect on the Company's operating results
for the year ended December 31, 1995.
In addition, the Company's strategy of developing products based on the
Windows, Windows 95, and Windows NT operating systems, and releasing these
products immediately prior to or at the time of Microsoft's release of new and
upgraded Windows, Windows 95, and Windows NT products, is substantially
dependent on
4
<PAGE>
its ability to gain pre-release access to, and to develop expertise
in, current and future versions of Windows, Windows 95, and Windows NT. There
can be no assurance as to the ability of the Company to provide products
compatible with future Windows or Windows 95 releases on a timely basis without
the cooperation of Microsoft.
VARIABILITY OF OPERATING RESULTS; SEASONALITY
The Company's quarterly operating results may fluctuate significantly due
to a variety of factors, including changes in the Company's product and customer
mix, the number and timing of new product introductions by the Company or its
competitors, pricing pressures, general economic conditions, and other factors.
Products are generally shipped as orders are received and, accordingly, the
Company has historically operated with relatively little backlog. As a result,
quarterly revenue will depend on the volume and timing of orders received during
a particular quarter, both of which are difficult to forecast. In addition, the
Company will continue to incur product development, marketing, and promotional
expenses based upon management's expectations as to future sales. Since many of
these expenses are committed in advance, the Company generally is unable to
adjust spending in a timely manner to compensate for any unexpected shortfall in
sales. If operating revenues do not meet the Company's expectations in any
given quarter, operating results may be adversely affected. There can be no
assurance that the Company will be profitable in any particular quarter.
In addition, the software industry has seasonal elements. In recent years
the software industry has experienced decreased demand for software products in
the second and third quarters. These seasonal elements, together with the other
factors which impact quarterly results, can cause revenues and net income to
vary. The Company's business may be affected by these seasonal elements in the
future.
DEPENDENCE ON DISTRIBUTION CHANNELS
The Company markets its products domestically through software
distributors for resale to the retail sales channel. In 1994, one major
customer, Ingram Micro Inc., accounted for approximately 59% of product sales.
In 1995, Ingram Micro and Tech Data accounted for approximately 58% and 17% of
product sales, respectively. The loss of, or reduction in orders from either of
these distributors, but from Ingram particularly, could have a material adverse
effect on the Company's revenues and profitability. The Company depends upon
the continued viability and financial stability of these resellers and,
indirectly, on the personal computer industry. The Company's reseller customers
generally offer products of several different companies, including products
which compete with those of the Company. Accordingly, there is a risk that
these resellers may give higher priority to products of other suppliers and
reduce their efforts to sell the Company's products. In addition, any special
distribution arrangements and product pricing arrangements that the Company may
implement in one or more distribution channels for strategic purposes could
adversely affect gross profit margins for its products.
The distribution channels through which consumer software products are
sold have been characterized by rapid change, including consolidations and
financial difficulties of certain distributors and retailers and the emergence
of new retailers such as general mass merchandisers. In addition, there are an
increasing number of companies competing for access to these channels.
Retailers of the Company's products typically have a limited amount of shelf
space and promotional resources, and there is intense competition for high
quality and adequate levels of shelf space and promotional support from the
retailers. To the extent that the number of software products available in the
marketplace increases, this competition for shelf space may also increase.
Since utility software typically constitutes a relatively small percentage of a
retailer's sales volume, there can be no assurance that retailers will continue
to purchase the Company's products or provide the Company's products with high
quality and adequate levels of shelf space and promotional support.
5
<PAGE>
COMPETITION
The utility software industry is intensely competitive. Consumer demand
for particular software products may be adversely affected by the increasing
number of competitive products. The Company is aware of other companies which
have developed or are in the process of developing products which may compete in
whole or in part with the Company's products, including Microsoft, Symantec,
DiagSoft, Inc., CyberMedia, Quarterdeck, and others. In addition, there exist a
number of large, well-capitalized software development firms that could, should
they choose to do so, provide utility software in direct competition with the
Company, as well as a number of large companies which may be in the process of
developing products which compete, in whole or in part, with the Company's
products. Each of these firms and certain of the Company's existing competitors
have substantially greater financial, technical and marketing resources than the
Company. Moreover, there are no proprietary barriers to entry that could keep
competitors from developing and selling competing products in the Company's
markets. There is no assurance that the Company will be able to successfully
compete with such concerns. Increased competition may result in loss of shelf
space and reduction in consumer demand, or sell-through of the Company's
products, any of which could have a material adverse effect on the Company's
operating results.
In addition, the Company may face increasing pricing pressures from
current and future competitors and, accordingly, there can be no assurance that
competitive pressures will not require the Company to reduce its prices. In
particular, over time, the average selling prices for the Company's products may
decline as the market for these products would negatively affect gross margins
and would require the Company to increase unit sales in order to maintain
historic levels of sales. In addition, to the extent that Microsoft or other
companies incorporate applications comparable, or perceived as comparable, to
those offered by the Company into Windows 95, Windows NT, or other products (or
separately offer such products), sales of the Company's products could be
materially adversely affected, and there can be no assurance that any such
action by Microsoft or others would not render the Company's Windows 95 or
Windows NT-based products noncompetitive or obsolete. There can be no assurance
that such competitors will not develop products that are superior to the
Company's products or that achieve greater market acceptance.
RISK OF PRODUCT RETURNS
Sales are recorded at the time products are shipped. However, the
Company's operations are subject to substantial risk of product returns from
distributors and retailers, either through the exercise by the Company's
customers of contractual return rights or as a result of the Company's policy of
assisting customers in balancing and updating inventories. Although the Company
attempts to monitor and manage the volume of its sales to its customers, large
shipments in anticipation of demand which is subsequently unrealized can lead to
overstocking by the distributors and substantial product returns. Furthermore,
the risk of product returns may increase if the demand for the Company's
products declines. Although the Company maintains allowances for projected
returns, based upon historical experience, there can be no assurance that actual
levels of returns will not significantly exceed amounts anticipated by the
Company.
Prior to the third quarter of 1995, the Company based reserves on
historical experience, and returns were within the estimated reserve range.
In the third and fourth quarters of 1995, due to unanticipated slow
sell-through of WIN'95 ADVISOR, the Company granted price protections and
recorded additional reserves based on revised estimates of retail
sell-through of that product. Certain of the Company's products are known or
become anticipated. The Company accrues for such rebates when such price
declines are known or become anticipated. The Company's results of
operations for the year ended December 31, 1995 were adversely affected by
actual and anticipated product returns of unsold reseller inventories of
WIN'95 ADVISOR, which was released in July 1995, and WINCHECKIT 2.0,
which required the booking of additional reserves for price protection
rebates, and product returns, of approximately $1.1 million and $2 million in
the third and fourth
6
<PAGE>
quarters of 1995, respectively. The sell-through rate
of WIN'95 ADVISOR at the retail level dropped substantially in the fourth
quarter of 1995, in spite of price reductions implemented in October and
November 1995.
Management believes that market acceptance of Windows 95 for upgrades
has not materialized to the extent expected by most industry analysts, which
negatively affected sales of WIN'95 ADVISOR at the extent expected by most
industry analysts, which negatively affected sales of WIN'95 ADVISOR at the
retail level. Additionally, management believes that confusion in the
marketplace by personal computer users as to whether or not to upgrade their
operating system to Windows 95 also led to a reduction in sales of
WINCHECKIT 2.0 at the retail level. This confusion plus increased
competition in the utility software market-place has also led to lower sales
than expected for the first part of 1996. These factors, combined with legal
expense incurred with respect to the lawsuits described below under
"Litigation" are expected to adversely affect profitability in the first
quarter of 1996.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards its software as proprietary and relies primarily on a
combination of copyright, trademark and trade secret laws, employee
confidentiality and nondisclosure agreements and third-party nondisclosure
agreements, and other methods of protection common in the industry. Despite
these precautions, it may be possible for an unauthorized third party to copy or
reverse-engineer certain portions of the Company's products or to obtain and use
information that the Company regards as proprietary.
Under existing law, software products have been difficult to patent, and
copyright laws offer limited protection. The Company has filed and received
federal trademark registrations for the Company's stylized logo and
"CHECKIT", "FASTMOVE!", "WINCHECKIT", "ROADTECH", "SETUP
ADVISOR" AND WIN'95 ADVISOR". Although the Company may file copyright
applications with respect to programs developed for the Company's software
products, there can be no assurance that any such copyrights will provide
meaningful protection to the Company or that the Company will be able to
afford the expense of any litigation which might be necessary to enforce its
rights. However, the Company believes that trademark and copyright
protection are less significant to the Company's success than factors such as
knowledge, ability, and experience of the Company's personnel, research and
development, brand name recognition, and product loyalty. The Company
licenses its products primarily under "shrink wrap" license agreements that
are not signed by licensees and, therefore, may be unenforceable under the
laws of certain jurisdictions. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as do the laws of the United States.
MANAGEMENT OF GROWTH; UNCERTAINTY OF FUTURE ACQUISITIONS
The Company's business has grown rapidly during the past two years and
such growth has placed and, if sustained, will continue to place significant
demands on the Company's management and resources. It is likely that the
Company will be required to hire and train additional technical, marketing and
administrative personnel, implement additional operating and financial controls,
install additional reporting and management information systems for order
processing, system monitoring, customer service and financial reporting, and
otherwise improve coordination between design, development, duplication and
packaging, marketing, sales and finance functions. The Company's future
operating results will depend on management's ability to manage future growth,
and there can be no assurance that efforts to manage future growth will be
successful.
The success of the Company in accelerating its growth through strategic
acquisitions will depend upon the Company's ability to identify and acquire
complementary businesses, products or technologies. There can be no assurance
that the Company will be able to locate appropriate candidates that can be
acquired, outright or pursuant to product or technology licenses or other
arrangements, on favorable terms, if at all, or that acquired operations or
products will be integrated efficiently or prove profitable. The completion of
acquisitions may require sizable amounts of capital and is likely to involve the
diversion of management's attention from other
7
<PAGE>
business concerns. Moreover, unexpected problems encountered in connection
with any such acquisition could have a material adverse effect on the
Company. The Company could be forced to alter its strategy in the future if
appropriate candidates prove unavailable or too costly.
LITIGATION
On January 26, 1996, a purported class and derivative action entitled
DARRIN J. CARAMONTA V. LARRY W. DINGUS, ET AL. AND TOUCHSTONE SOFTWARE
CORPORATION, was filed in the United States District Court for the Central
District of California, in which Mr. Caramonta, on behalf of himself and all
others who purchased the Company's Common Stock between May 2, 1995 and December
21, 1995, alleges that the Company, and Larry W. Dingus, C. Shannon Jenkins,
Ronald Maas, Kenneth Welch III, Donald C. Watters, and Sigmund Fidyke III,
violated Section 10(b) and Rule 10b-5 promulgated under the Securities Exchange
Act of 1934, as amended, and various state statutes sounding in fraud, by
reporting earnings for the first three quarters of 1995 that allegedly were
knowingly inflated due to inadequate reserves for product returns, in part, in
order to assist the Company and the individual defendants in selling Common
Stock at an inflated price in the Company's August 25, 1995 public offering.
The derivative claims essentially assert that the allegations sounding in fraud
constituted a breach of the individual defendants' fiduciary duties. The
Company and each of the individual defendants have denied all allegations made
against them in the lawsuit. On March 11, 1996, the Company and the individual
defendants filed a motion to dismiss the lawsuit for failure to state a claim.
On March 13, 1996, a second purported class and derivative action entitled
JACK BODNER AND PAUL L. FRABER V. LARRY W. DINGUS, ET AL. AND TOUCHSTONE
SOFTWARE CORPORATION, was filed in the same court. This complaint essentially
repeats the allegations in the CARAMONTA lawsuit but also adds claims for an
alleged violation of Section 11 of the Securities Act of 1933, as amended,
against the Company and certain of the individual defendants, and against the
two managing underwriters of the Company's August 25, 1995 public offering,
Cruttenden Roth, Inc. and Punk, Ziegel & Knoell. The Company and the individual
defendants deny the allegations, and intend to move to dismiss this lawsuit as
well.
On February 28, 1996, a Complaint for Breach of Contract and Breach of the
Implied Covenant of Good Faith and Fair Dealing was filed by Personal Training
Systems in the Superior Court of California, County of San Mateo, in which the
plaintiff alleges that the Company broke a contract to purchase from plaintiff
specified quantities of a product produced and marketed by plaintiff, asserting
a claim for damages of not less than $185,000. The Company denies liability and
intends to defend the lawsuit vigorously.
8
<PAGE>
THE SELLING SHAREHOLDERS
An aggregate of 70,333 shares of the Company's Common Stock are being
offered pursuant to this Prospectus by the persons whose names appear below (the
"Selling Shareholders"). The following table sets forth the name and address of
each Selling Shareholder, the number of shares of Common Stock beneficially
owned by each Selling Shareholder prior to the offering to be made by this
Prospectus (all of which were issued without registration under the Securities
Act prior to the filing of the Registration Statement), the maximum number of
shares to be offered hereby for the account of each Selling Shareholder, and the
number and percentage of the outstanding shares of Common Stock to be
beneficially owned by each Selling Shareholder after completion of this
offering, assuming all shares offered hereby are in fact sold. Except as
indicated in a footnote to the table, none of the Selling Shareholders (nor any
of its directors, officers, partners or affiliates) holds any position or
relationship with the Company.
<TABLE>
<CAPTION>
SHARES OWNED
BEFORE OFFERING* SHARES SHARES OWNED
-------------------- OFFERED BY AFTER
NAME & ADDRESS NO. % PROSPECTUS OFFERING*
- --------------- --------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Michael Miller 24,933 0.34% 2,500 22,433
9682 Bickley Drive
Huntington Beach, CA 92646
Raymond Norberte 46,000 0.62% 11,000 35,000
26445 Sicilia
Laguna Hills, CA 92653
E. W. Baumgardner 188,501 2.56% 36,833 151,668
587 Fern Canyon Drive
Palm Springs, CA 92264
William Coffin 78,666 1.07% 20,000 58,666
Communications Group
15300 Ventura Blvd., Suite 303
Sherman Oaks, CA 91403
</TABLE>
______________________________
* In calculating percentage ownership, all shares of Common Stock which
a named shareholder has the right to acquire within 60 days of the
date hereof are deemed to be outstanding for the purpose of computing
the ownership by such shareholder, but are not deemed to be
outstanding for the purpose of computing the percentage of Common
Stock owned by any other shareholder. On March 1, 1996, an aggregate
of 7,356,951 shares of the Company's Common Stock were issued and
outstanding.
9
<PAGE>
PLAN OF DISTRIBUTION
All of the shares of Common Stock offered hereby will be sold by the
Selling Shareholders identified above, for their own respective accounts, and
the Company will not receive any proceeds from the sale of any of such shares.
The Selling Shareholders have informed the Company that they intend to sell the
70,333 shares of Common Stock offered hereby from time to time for their own
respective accounts, in transactions that may take place as ordinary brokerage
transactions in the over-the-counter market, in private, individually negotiated
transactions, or through sales to one or more dealers who purchase the shares as
principals for subsequent resale, at prevailing market prices or at such prices
as may be agreed upon. Although there are no current arrangements therefor,
commissions equal to or in excess of normal brokerage commissions may be paid to
brokerage firms in connection with such sales. Each Selling Stockholder will
bear all expenses with respect to the offering of shares by him, except that the
Company will pay the costs associated with registering the shares under the Act
and preparing this Prospectus. Certain of the Selling Shareholders may be
deemed "affiliates" of the Company as defined under the Securities Act, and
therefore such Selling Shareholders, and any intermediaries through whom their
shares are sold, may be deemed "underwriters" within the meaning of the
Securities Act of the shares to be sold by them in connection with this
offering. Consequently, any profits realized or commissions received by any of
them may be deemed underwriting compensation.
MARKET INFORMATION AND RELATED MATTERS
The Company's Common Stock began trading on The Nasdaq National Market on
August 25, 1995, under the symbol "TSSW," having previously been traded on The
Nasdaq Stock Market since May 19, 1995. The following table sets forth the high
and low closing bid prices for a share of Common Stock, as reported by the
National Quotation Bureau for periods prior to May 19, 1995, and as reported by
Nasdaq for periods since May 19, 1995. Bid quotations represent high and low
prices quoted between dealers, do not include commissions, mark-ups or mark-
downs, and for these reasons and the limited and sporadic trading volumes which
from time to time have been experienced, may not represent actual transactions.
HIGH LOW
---------------
1994
First Quarter .625 .250
Second Quarter .375 .125
Third Quarter .40 .250
Fourth Quarter 1.56 .312
1995
First Quarter 1.50 .75
Second Quarter 5.88 1.06
Third Quarter 16.38 5.00
Fourth Quarter 10.00 3.00
1996
First Quarter 6.25 3.00
On March 29, 1996, the closing sale price for a share of the Common Stock
on The Nasdaq National Market was $5.38. As of March 29, 1995, there were
approximately 3,334 holders of record of the Company's Common Stock.
The stock markets have experienced extreme price and volume fluctuations
during certain periods. These broad market fluctuations, and other factors, may
adversely affect the market price of the Company's Common Stock. Any shortfall
in revenue or earnings from levels expected by securities analysts could have an
immediate and significant adverse effect on the trading price of the Company's
Common Stock in any given
10
<PAGE>
period. Additionally, the Company may not learn of such shortfalls until
late in the fiscal quarter, which could result in an even more immediate and
adverse effect on the trading price of the Company's stock. Finally, the
Company participates in a highly dynamic industry, which often results in
significant volatility of the Company's common stock price.
The Company has not paid cash dividends on its common stock since its
inception. The Company intends to employ all available funds for the
development of its business, and, accordingly, does not intend to declare or pay
any cash dividends in the foreseeable future. Additionally, the Company's line
of credit prohibits the payment of dividends without prior approval of the bank.
EXPERTS
The financial statements and schedules of the Company as of December 31,
1995 and 1994 and for each of the two years in the period ended December 31,
1995, which are included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, are incorporated herein by reference in
reliance upon the report of Deloitte & Touche LLP, independent auditors, which
is also incorporated by reference herein, given upon their authority as experts
in auditing and accounting.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation and Bylaws permit the Company to
indemnify its officers and directors to the fullest extent permitted by
California law. This is intended to eliminate the personal liability of a
director for monetary damages in an action brought by or in the right of the
Company for breach of a director's duties to the Company or its shareholders
except for liability for acts or omissions that involve intentional misconduct
or knowing and culpable violation of law, for acts or omissions that a director
believes to be contrary the best interests of the Company or its shareholders or
that involve the absence of good faith on the part of the director, for any
transaction from which a director derived an improper personal benefit, for acts
or omissions that show a reckless disregard for the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a director's
duties, of a risk of serious injury to the Company or its shareholders, for acts
or omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's duty to the Company or its shareholders, with
respect to certain contracts in which a director has a material financial
interest and for approval of certain improper distributions to shareholders or
certain loans or guarantees. This provision does not limit or eliminate the
rights of the Company or any shareholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the Articles of Incorporation or the indemnification
agreements, the Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
11
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
5.1 Opinion of Phillips & Haddan
10.1 TouchStone Software Corporation 1995 Stock Option Plan
10.2 TouchStone Software Corporation 1994 Employee Stock
Purchase Plan*
10.3 TouchStone Software Corporation 1991 Stock Option Plans*
23.1 Consent of Deloitte & Touche L.L.P.
24.2 Consent of Phillips & Haddan (included in Exhibit 5.1).
__________________________________
* Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995, as filed with the Securities and Exchange
Commission and incorporated herein by reference.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD]
April 10, 1996
TouchStone Software Corporation
2124 Main Street, 2nd Floor
Huntington Beach, California 92648
Ladies and Gentlemen:
In connection with the pending Registration Statement on Form S-8 (the
"Registration Statement") filed by TouchStone Software Corporation, a
California corporation (the "Company"), with the Securities and Exchange
Commission for the purpose of registering for sale under the Securities Act
of 1933, as amended (the "Act"), an aggregate of 700,301 shares of the
Company's Common Stock, you have requested our opinion as to certain legal
matters regarding the issuance of the shares. Of the 700,301 shares of the
Company's Common Stock, 70,333 shares were previously issued without
registration under the Act in connection with one or more of the Company's
employee stock ownership plans, and the balance of 629,968 shares are
issuable upon exercise of stock options and stock purchase warrants granted
under the Company's 1994 Employee Stock Purchase Plan and the 1995 Stock
Option Plan.
For purposes of rendering this opinion, we have examined such documents
as we have deemed advisable or necessary, including, among other things, the
Company's Articles of Incorporation and Bylaws, the Company's 1991 Stock
Option Plan, the 1994 Employee Stock Purchase Plan, the 1995 Stock Option
Plan, resolutions adopted by the Company's Board of Directors authorizing the
adoption of each of the employee stock ownership plans, the grant of options
and warrants thereunder, and the issuance and sale of shares of the Company's
Common Stock in connection therewith, and oral and written representations
from officers of the Company. In rendering this opinion, we have also made
such other investigations and reviewed such other corporate and official
records, agreements, certificates, approvals and other documents, and have
reviewed such matters of law, as we have deemed necessary or appropriate for
purposes of this opinion.
On the basis of such examination and inquiries, and relying thereon, we
are of the opinion that (i) the 70,333 shares of the Company's Common Stock
covered by the Registration Statement were duly and validly issued and are
fully paid and nonassessable under the laws of the State of California, and
(ii) the 629,968 shares of the Company's Common Stock issuable on the terms
and subject to the conditions set forth in the respective employee stock
ownership
<PAGE>
plans, when issued and paid for as provided therein, will be duly authorized,
validly issued, fully paid and non-assessable under the laws of the State of
California.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement.
Very truly yours,
PHILLIPS & HADDAN
By: /s/ James M. Phillips, Jr.
------------------------------
James M. Phillips, Jr.
<PAGE>
EXHIBIT 10.1
TOUCHSTONE SOFTWARE CORPORATION
1995 STOCK OPTION PLAN
1. PURPOSE. The Plan is intended to provide incentive to key employees
and directors of, and key consultants, vendors, customers, and others
expected to provide significant services to, the Corporation, to encourage
proprietary interest in the Corporation, to encourage such key employees to
remain in the employ of the Corporation and its Subsidiaries, to attract new
employees with outstanding qualifications, and to afford additional incentive
to consultants, vendors, customers, and others to increase their efforts in
providing significant services to the Corporation.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the committee, if any, appointed by the
Board in accordance with Section 4 of the Plan.
(d) "Common Stock" shall mean the Common Stock, par value $.001 per
share, of the Corporation.
(e) "Corporation" shall mean TouchStone Software Corporation, a
California corporation.
(f) "Disability" shall mean the condition of an Employee who is
unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months.
(g) "Employee" shall mean an individual who is employed (within the
meaning of Code Section 3401 and the regulations thereunder) by the
Corporation or a Subsidiary.
(h) "Exercise Price" shall mean the price per Share of Common
Stock, determined by the Board or the Committee, at which an Option may
exercised.
(i) "Fair Market Value" shall mean the value of one (1) Share of
Common Stock, determined as follows:
(1) If the Shares are traded on an exchange, the price at
which Shares traded at the close of business on the date of valuation;
(2) If the Shares are traded over-the-counter on the NASDAQ
System, the closing price if one is available, or the mean between the
bid and asked prices on said System at the close of business on the date
of valuation; and
(3) If neither (1) nor (2) applies, the fair market value as
determined by the Board or the Committee in good faith. Such determination
shall be conclusive and binding on all persons.
(j) "Incentive Stock Option" shall mean an option described in
Section 422A(b) of the Code.
(k) "Nonstatutory Stock Option" shall mean an option not described
in Section 422(b), 422A(b), 423(b) or 424(b) of the Code.
(l) "Option" shall mean any stock granted pursuant to the Plan.
1
<PAGE>
(m) "Optionee" shall mean an employee who has received an Option.
(n) "Plan" shall mean the TouchStone Software Corporation 1995
Stock Option Plan, as it may be amended from time to time.
(o) "Purchase Price" shall mean the Exercise Price times the number
of Shares with respect to which an Option is exercised.
(p) "Retirement" shall mean the voluntary termination of employment
by an Employee upon the attainment of age sixty-five (65) and the completion
of not less than twenty (20) years of service with the Corporation or a
Subsidiary.
(q) "Share" shall mean one (1) share of Common Stock, adjusted in
accordance with Section 10 of the Plan (if applicable).
(r) "Subsidiary" shall mean any corporation at least fifty percent
(50%) of the total combined voting power of which is owned by the Corporation
or by another Subsidiary.
3. EFFECTIVE DATE. The Plan was adopted by the Board on October 18,
1995, which shall be the effective date of the Plan.
4. ADMINISTRATION. The Plan shall be administered by the Board, or by
a committee appointed by the Board which shall consist of not less than three
(3) members. The Board shall appoint one of the members of the Committee, if
there be one, as Chairman of the Committee. If a Committee has been
appointed, the Committee shall hold meetings at such times and places as it
may determine. Acts of a majority of the Committee at which a quorum is
present, or acts reduced to or approved in writing by a majority of the
members of the Committee, shall be the valid acts of the Committee. The
Board, or the Committee if there be one, shall from time to time at its
discretion select the Employees, directors and consultants who are to be
granted Options, determine the number of Shares to be granted to each
Optionee and designate such Options such as Incentive Stock Options or
Non-statutory Stock Options, except that no Incentive Stock Option may be
granted to a non-Employee director or a non-Employee consultant.
Notwithstanding the foregoing, no Incentive Stock Options may be granted
under the Plan unless and until the Plan has been approved by the
Corporation's shareholders. A member of the Board or a Committee member shall
in no event participate in any determination relating to Options held by or
to be granted to such Board or Committee member. The interpretation and
construction by the Board, or by the Committee if there be one, of any
provision of the Plan or of any Option granted thereunder shall be final. No
member of the Board or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option
granted thereunder.
5. PARTICIPATION.
(a) ELIGIBILITY. The Optionees shall be such persons as the
Committee may select from among the following classes of persons, subject to
the terms and conditions of (b) below:
(1) Employees of the Corporation or of a Subsidiary (who may
be officers, whether or not they are directors);
(2) Directors of the Corporation or of a Subsidiary; and
(3) Consultants, vendors, customers, and others expected to
provide significant services to the Corporation or a Subsidiary.
For purposes of this Plan, an Optionee who is a director or a
consultant, vendor, customer, or other provider of significant services to the
Corporation or a Subsidiary shall be deemed to be an Employee, and service as
a director, consultant, vendor, customer, or other provider of significant
services to the Corporation or a Subsidiary shall be deemed to be employment,
except that no Incentive Stock Option may be granted to a non-
2
<PAGE>
Employee director or non-Employee consultant, vendor, customer, or other
provider of significant services to the Corporation or a Subsidiary, and
except that no Nonstatutory Stock Option may be granted to a non-Employee
director or non-Employee consultant, vendor, customer, or other provider of
significant services to the Corporation or a Subsidiary other than upon a
vote of a majority of disinterested directors finding that the value of the
services rendered or to be rendered to the Corporation or a Subsidiary by
such non-Employee director or non-Employee consultant, vendor, customer, or
other provider of services is at least equal to the value of the option or
options granted.
(b) TEN-PERCENT SHAREHOLDERS. An Employee who owns more than ten
percent (10%) of the total combined voting power of all classes of
outstanding stock of the Corporation, its parent or any of its Subsidiaries
shall not be eligible to receive an Option unless (i) the Exercise Price of
the Shares subject to such Option is at least one hundred ten percent (110%)
of the Fair Market Value of such Shares on the date of grant and (ii) such
Option by its terms is not exercisable after the expiration of five (5) years
from the date of grant.
(c) STOCK OWNERSHIP. For purposes of (b) above, in determining
stock ownership an Employee shall be considered as owning the stock owned,
directly or indirectly, by or for his brothers, sisters, spouses, ancestors
and lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries.
Stock with respect to which such Employee holds an Option shall not be
counted.
(d) OUTSTANDING STOCK. For purposes of (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately
after the grant of the Option to the Optionee. "Outstanding stock" shall not
include shares authorized for issue under outstanding Options held by the
Optionee or by any other person.
6. STOCK. The stock subject to Options granted under the Plan shall be
Shares of the Corporation's authorized but unissued or reacquired Common
Stock. The aggregate number of Shares which may be issued upon exercise of
Options under the Plan shall not exceed 300,000 shares. The number of Shares
subject to Options outstanding at any time shall not exceed the number of
Shares remaining available for issuance under the Plan. In the event that any
outstanding Option for any reason expires or is terminated, the Shares
allocable to the unexercised portion of such Option may again be made subject
to any Option. The limitations established by this Section 6 shall be subject
to adjustment in the manner provided in Section 10 hereof upon the occurrence
of an event specified therein.
7. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENTS. Options shall be evidenced by written
stock option agreements in such form as the Committee shall from time to time
determine. Such agreements shall comply with and be subject to the terms and
conditions set forth below.
(b) NUMBER OF SHARES. Each Option shall state the number of Shares
to which it pertains and shall provide for the adjustment thereof in
accordance with the provisions of Section 10 hereof.
(c) EXERCISE PRICE. Each Option shall state the Exercise Price.
The Exercise Price in the case of any Incentive Stock Option shall not be
less than the Fair Market Value on the date of grant and, in the case of any
Option granted to an Optionee described in Section 5(b) hereof, shall not be
less than one hundred ten percent (110%) of the Fair Market Value on the date
of grant. The Exercise Price in the case of any Nonstatutory Stock Option
shall not be less than 85% of the Fair Market Value on the date of grant.
(d) MEDIUM AND TIME OF PAYMENT. The Purchase Price shall be
payable in full in United States dollars upon the exercise of the Option;
PROVIDED, HOWEVER, that if the applicable Option Agreement so provides the
Purchase Price may be paid (i) by the surrender of Shares in good form for
transfer, owned by the person exercising the Option and having a Fair Market
Value on the date of exercise equal to the Purchase Price, or in any
combination of cash and Shares, as long as the sum of the cash so paid and
the Fair Market Value of the Shares so surrendered equal the Purchase Price,
(ii) by cancellation of indebtedness owned by the Corporation to the
Optionee, (iii) with a full recourse promissory note executed by the
Optionee, or (iv) any combination of the
3
<PAGE>
foregoing. The interest rate and other terms and conditions of such note
shall be determined by the Committee. The Committee may require that the
Optionee pledge his or her Shares to the Corporation for the purpose of
securing the payment of such note. In no event shall the stock certificate(s)
representing such Shares by released to the Optionee until such note shall
be been paid in full. In the event the Corporation determines that it is
required to withhold state or Federal income tax as a result of the exercise
of an Option, as a condition to the exercise thereof, an Employee may be
required to make arrangements satisfactory to the Corporation to enable it to
satisfy such withholding requirements.
(e) TERM AND NONTRANSFERABILITY OF OPTIONS. Each Option shall
state the time or times which all or part thereof becomes exercisable. No
Option shall be exercisable after the expiration of ten (10) years from the
date it was granted, and no Option granted to an Optionee described in
Section 5(b) hereof shall be exercisable after the expiration of five (5)
years from the date it was granted. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee and shall not be assignable
or transferable. In the event of the Optionee's death, the Option shall not
be transferable. In the event of the Optionee's death, the Option shall not
be transferable by the Optionee other than by will or the laws of descent
and distribution.
(f) TERMINATION OF EMPLOYMENT, EXCEPT BY DEATH, DISABILITY OR
RETIREMENT. If an Optionee ceases to be an Employee for any reason other than
his or her death, Disability or Retirement, such Optionee shall have the
right, subject to the restrictions of (e) above, to exercise the Option at
any time within three (3) months after termination of employment, but only to
the extent that, at the date of termination of employment, the Optionee's
right to exercise such Option had accrued pursuant to the terms of the
applicable option agreement and had not previously been exercised; PROVIDED,
HOWEVER, that if the Optionee was terminated for cause (as defined in the
applicable option agreement) any Option not exercised in full prior to such
termination shall be canceled. For this purpose, the employment relationship
shall be treated as continuing intact while the Optionee is on military
leave, sick leave or other bona fide leave of absence (to be determined in
the sole discretion of the Committee). The foregoing notwithstanding, in the
case of an Incentive Stock Option, employment shall not be deemed to continue
beyond the ninetieth (90th) day after the Optionee's reemployment rights are
guaranteed by statute or by contract.
(g) DEATH OF OPTIONEE. If an Optionee dies while an Employee, or
after ceasing to be an Employee but during the period while he or she could
have exercised the Option under this Section 7, and has not fully exercised
the Option, then the Option may be exercised in full, subject to the
restrictions of (e) above, at any time within twelve (12) months after the
Optionee's death, by the executors or administrators of his or her estate or
by any person or persons who have acquired the Option directly from the
Optionee by bequest or inheritance, but only to the extent that, at the date
of death, the Optionee's right to exercise such Option had accrued and had
not been forfeited pursuant to the terms of the applicable Option Agreement
and had not previously been exercised.
(h) DISABILITY OF OPTIONEE. If an Optionee ceases to be an
Employee by reason of Disability, such Optionee shall have the right, subject
to the restrictions of (f) above, to exercise the Option at any time within
twelve (12) months after termination of employment, but only to the extent
that, at the date of termination of employment, the Optionee's right to
exercise such Option had accrued pursuant to the terms of the applicable
Option Agreement and had not previously been exercised.
(i) RETIREMENT OF OPTIONEE. If an Optionee ceases to be an
Employee by reason of Retirement, such Optionee shall have the right, subject
to the restrictions of (e) above, to exercise the Option at any time within
three (3) months after termination of employment, but only to the extent
that, at the date of termination of employment, the Optionee's right to
exercise such Option had accrued pursuant to the terms of the applicable
Option Agreement and had not previously been exercised.
(j) RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 10 hereof.
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(k) MODIFICATION, EXTENSION AND RENEWAL OF OPTION. Within the
limitations of the Plan, the Committee may modify, extend or renew
outstanding Options or accept the cancellation of outstanding Options (to the
extent not previously exercised) for the granting of new Options in
substitution therefor. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, alter or impair any rights
or obligations under any Option previously granted.
(l) OTHER PROVISIONS. The stock option agreements authorized under
the Plan may contain such other provisions not inconsistent with the terms of
the Plan (including, without limitation, restrictions upon the exercise of
the Option) as the Committee shall deem advisable.
8. LIMITATION ON VALUE OF EXERCISABLE SHARES. In the case of Incentive
Stock Options granted hereunder, the aggregate Fair Market Value (determined
as of the date of the grant thereof) of the Shares with respect to which
Incentive Stock Options become exercisable by any employee of the Company for
the first time during any calendar year (under this Plan and all other plans
maintained by the Corporation, its parent or its Subsidiaries) shall not
exceed $100,000.
9. TERM OF PLAN. Options may be granted pursuant to the Plan until the
expiration of ten (10) years from the effective date of the Plan.
10. RECAPITALIZATION. Subject to any required action of shareholders,
the number of Shares covered by the Plan as provided in Section 6 hereof, the
number of Shares covered by each outstanding Option and the Exercise Price
thereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or consolidation of
Shares or the payment of a stock dividend (but only of Common Stock) or any
other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Corporation. Subject to any required action
by stockholders, if the Corporation is the surviving corporation in any
merger or consolidation, each outstanding Option shall pertain and apply to
the securities to which a holder of the number of Shares subject to the
Option would have been entitled. In the event of a merger or consolidation in
which the Corporation is not the surviving corporation, the date of
exercisability of each outstanding Option shall be accelerated to a date
prior to such merger or consolidation, unless the agreement of merger or
consolidation provides for the assumption of the Option by the successor to
the Corporation. To the extent that the foregoing adjustments relate to
securities of the Corporation, such adjustments shall be made by the
Committee, whose determination shall be conclusive and binding on all
persons. Except as expressly provided in this Section 10, the Optionee shall
have no rights by reason of subdivision or consolidation of shares of stock
of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or Exercise Price of Shares subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power to the Corporation to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of
its business assets.
11. SECURITIES LAW REQUIREMENTS.
(a) LEGALITY OF ISSUANCE. The issuance of any Shares upon the
exercise of any Option and the grant of any Option shall be contingent upon
the following:
(1) the Corporation and the Optionee shall have taken all
actions required to register the Shares under the Securities Act of 1933, as
amended (the "Act"), and to qualify the Option and the Shares under any and
all applicable state securities or "blue sky" laws or regulations, or to
perfect an exemption from the respective registration and qualification
requirements thereof;
(2) any applicable listing requirement of any stock exchange
on which the Common Stock is listed shall have been satisfied; and
(3) any other applicable provision of state of Federal law
shall have been satisfied.
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(b) RESTRICTIONS ON TRANSFER. Regardless of whether the offering
and sale of Shares under the plan has been registered under the Act or has
been registered or qualified under the securities laws of any state, the
Corporation may impose restrictions on the sale, pledge or other transfer of
such Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Corporation and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with
the provisions of the Act, the securities laws of any state or any other law.
In the event that the sale of Shares under the Plan is not registered under
the Act but an exemption is available which required an investment
representation or other representation, each Optionee shall be required to
represent that such Shares are being acquired for investment, and not with a
view to the sale or distribution thereof, and to make such other
representations as are deemed necessary or appropriate by the Corporation and
its counsel. Any determination by the Corporation and its counsel in
connection with any of the matters set forth in this Section 11 shall be
conclusive and binding on all persons. Stock certificates evidencing Shares
acquired under the Plan pursuant to an unregistered transaction shall bear
the following restrictive legend and such other restrictive legends as are
required or deemed advisable under the provisions of any applicable law.
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF SUCH SECURITIES
WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS
TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION
IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT."
(c) REGISTRATION OR QUALIFICATION OF SECURITIES. The Corporation
may, but shall not be obligated to register or qualify the issuance of
Options and/or the sale of Shares under the Act or any other applicable law.
The Corporation shall not be obligated to take any affirmative action in
order to cause the issuance of Options or the sale of Shares under the plan
to comply with any law.
(d) EXCHANGE OF CERTIFICATES. If, in the opinion of the
Corporation and its counsel, any legend placed on a stock certificate
representing shares sold under the Plan is no longer required, the holder of
such certificate shall be entitled to exchange such certificate for a
certificate representing the same number of Shares but lacking such legend.
12. AMENDMENT OF THE PLAN. The Board may from time to time, with
respect to any Shares at the time not subject to Options, suspend or
discontinue the plan or revise or amend it in any respect whatsoever except
that, without the approval of the Corporation's stockholders, no such
revision or amendment shall:
(a) Increase the number of Shares subject to the Plan;
(b) Change the designation in Section 5 hereof with respect to the
classes of persons eligible to receive Options; or
(c) Amend this Section 12 to defeat its purpose.
13. APPLICATION OF FUNDS. The proceeds received by the Corporation
from the sale of Common Stock pursuant to the exercise of an Option will be
used for general corporate purposes.
14. EXECUTION. To record the adoption of the Plan in the form set
forth above by the Board effective as of October 18, 1995, the Corporation
has caused this Plan to be executed in the name and on behalf of the
Corporation where provided below by an officer of the Corporation thereunto
duly authorized.
TOUCHSTONE SOFTWARE CORPORATION
By:
----------------------------------------
, President
By:
----------------------------------------
, Secretary
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Touchstone Software Corporation on Form S-8 of our report dated March 13,
appearing in the Annual Report on Form 10-KSB of Touchstone Software
Corporation for the year ended December 31, 1995.
Deloitte & Touche LLP
Costa Mesa, California
April 12, 1996
