<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended November 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: 0-14376
Oracle Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-2871189
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
</TABLE>
500 Oracle Parkway
Redwood City, California 94065
(Address of principal executive offices, including zip code)
(650) 506-7000
(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
Number of shares of registrant's common stock outstanding as of December 31,
1999: 2,821,529,550
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<PAGE>
ORACLE CORPORATION
Table of Contents
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at November 30, 1999 and
May 31, 1999.................................................. 3
Condensed Consolidated Statements of Operations for the three
months and six months ended November 30, 1999 and 1998........ 4
Condensed Consolidated Statements of Cash Flows for the six
months ended November 30, 1999 and 1998....................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 21
Item 4. Submission of Matters to a Vote of Security Holders........... 21
Item 6. Exhibits and Reports on Form 8-K.............................. 22
Signatures.................................................... 23
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ORACLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $1,317,149 $1,785,715
Short-term cash investments........................... 816,607 777,049
Trade receivables, net of allowance for doubtful
accounts of $210,989 and $217,096, respectively...... 1,768,914 2,238,204
Other receivables..................................... 171,262 240,792
Prepaid and refundable income taxes................... 229,288 299,670
Prepaid expenses and other current assets............. 96,636 105,844
---------- ----------
Total current assets............................... 4,399,856 5,447,274
---------- ----------
LONG-TERM CASH INVESTMENTS............................. 193,475 249,547
PROPERTY, net.......................................... 966,404 987,482
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $22,729 and $54,381, respectively..... 99,337 98,870
INTANGIBLE AND OTHER ASSETS............................ 717,157 476,481
---------- ----------
Total assets....................................... $6,376,229 $7,259,654
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term
debt................................................. $ 3,184 $ 3,638
Accounts payable...................................... 244,667 283,896
Income taxes payable.................................. 111,902 277,700
Accrued compensation and related benefits............. 512,500 693,525
Customer advances and unearned revenues............... 925,141 1,007,149
Value added tax and sales tax payable................. 54,979 128,774
Other accrued liabilities............................. 618,349 651,741
---------- ----------
Total current liabilities.......................... 2,470,722 3,046,423
---------- ----------
LONG-TERM DEBT......................................... 300,662 304,140
OTHER LONG-TERM LIABILITIES............................ 73,671 77,937
DEFERRED INCOME TAXES.................................. 130,618 135,887
STOCKHOLDERS' EQUITY................................... 3,400,556 3,695,267
---------- ----------
Total liabilities and stockholders' equity......... $6,376,229 $7,259,654
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Licenses and other............... $ 902,632 $ 767,428 $1,534,813 $1,349,893
Services......................... 1,419,251 1,288,516 2,771,587 2,455,162
---------- ---------- ---------- ----------
Total Revenues................ 2,321,883 2,055,944 4,306,400 3,805,055
---------- ---------- ---------- ----------
OPERATING EXPENSES
Sales and marketing.............. 631,433 591,754 1,169,859 1,101,830
Cost of services................. 753,170 779,847 1,509,920 1,459,137
Research and development......... 248,160 200,678 484,101 388,301
General and administrative....... 113,055 101,598 220,592 195,883
---------- ---------- ---------- ----------
Total Operating Expenses...... 1,745,818 1,673,877 3,384,472 3,145,151
---------- ---------- ---------- ----------
OPERATING INCOME.................. 576,065 382,067 921,928 659,904
Other income, net................ 15,450 28,654 33,797 50,819
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES..................... 591,515 410,721 955,725 710,723
Provision for income taxes....... 207,031 136,645 334,505 241,646
---------- ---------- ---------- ----------
NET INCOME........................ $ 384,484 $ 274,076 $ 621,220 $ 469,077
========== ========== ========== ==========
EARNINGS PER SHARE:
Basic............................ $ 0.13 $ 0.09 $ 0.22 $ 0.16
Diluted.......................... $ 0.13 $ 0.09 $ 0.21 $ 0.16
SHARES OUTSTANDING:
Basic............................ 2,858,890 2,891,520 2,859,906 2,905,102
Diluted.......................... 3,006,300 2,949,810 2,994,352 2,958,630
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $ 621,220 $ 469,077
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 154,166 151,459
Amortization of purchase price in excess of net
tangible assets acquired........................... 37,377 18,805
Provision for doubtful accounts..................... 40,217 56,696
Changes in assets and liabilities:
Decrease in trade receivables...................... 466,070 207,863
(Increase) decrease in prepaid and refundable
income taxes...................................... 73,091 (53,327)
Decrease in other receivables, prepaid expenses and
other current assets.............................. 3,635 27,703
Increase (decrease) in accounts payable............ (42,924) 56,010
Decrease in income taxes payable................... (166,924) (81,984)
Decrease in customer advances and unearned
revenues.......................................... (100,294) (81,960)
Decrease in accrued compensation and related
benefits.......................................... (192,466) (109,212)
Decrease in value added tax and sales tax payable.. (76,528) (62,897)
Increase (decrease) in other accrued liabilities... (32,881) 27,928
Increase (decrease) in other long-term
liabilities....................................... (4,427) 1,103
Decrease in deferred income taxes.................. (11,240) (887)
----------- ----------
Net cash provided by operating activities............ 768,092 626,377
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of cash investments........................ (780,326) (510,197)
Proceeds from maturities of cash investments........ 796,836 630,780
Capital expenditures................................ (124,460) (172,932)
Capitalization of computer software development
costs.............................................. (7,754) (14,924)
Increase in intangible and other assets............. (35,436) (78,008)
----------- ----------
Net cash used for investing activities............... (151,140) (145,281)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under notes payable and
long-term debt..................................... (4,235) 4,474
Proceeds from common stock issued................... 248,304 142,868
Repurchase of common stock.......................... (1,371,792) (560,866)
----------- ----------
Net cash used for financing activities............... (1,127,723) (413,524)
----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............... 42,205 7,496
----------- ----------
Net increase (decrease) in cash and cash
equivalents......................................... (468,566) 75,068
CASH AND CASH EQUIVALENTS
Beginning of period.................................. 1,785,715 1,273,681
----------- ----------
End of period........................................ $ 1,317,149 $1,348,749
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. However, the Company
believes that the disclosures are adequate to make the information presented
not misleading. These condensed consolidated financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1999.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments)
which are, in the opinion of management, necessary to state fairly the results
for the three and six month periods ended November 30, 1999. The results for
the three and six month periods ended November 30, 1999 are not necessarily
indicative of the results expected for the full fiscal year.
2. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed
on the basis of the weighted average number of common shares outstanding plus
the dilutive effect of outstanding stock options and the employee stock
purchase plan using the "treasury stock" method.
On January 18, 2000, the Company will effect a two-for-one stock split in the
form of a common stock dividend in the second quarter to stockholders of
record as of December 30, 1999. All per share data and numbers of common
shares, where appropriate, have been retroactively adjusted to reflect the
stock split.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
Nov 30, Nov 30, Nov 30, Nov 30,
(in thousands, except per share 1999 1998 1999 1998
data) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income........................ $ 384,484 $ 274,076 $ 621,220 $ 469,077
========== ========== ========== ==========
Weighted average shares
outstanding...................... 2,858,890 2,891,520 2,859,906 2,905,102
Dilutive effect of employee stock
options and employee stock
purchase plan.................... 147,410 58,290 134,446 53,528
---------- ---------- ---------- ----------
Diluted shares outstanding........ 3,006,300 2,949,810 2,994,352 2,958,630
========== ========== ========== ==========
Basic earnings per share.......... $ 0.13 $ 0.09 $ 0.22 $ 0.16
Diluted earnings per share........ $ 0.13 $ 0.09 $ 0.21 $ 0.16
</TABLE>
3. COMPREHENSIVE INCOME
Comprehensive income includes foreign currency translation gains and losses
and unrealized gains and losses on equity securities that have been previously
excluded from net income and reflected instead in stockholders' equity.
6
<PAGE>
The following table sets forth the calculation of comprehensive income on an
interim basis:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -----------------
Nov 30, Nov 30, Nov 30, Nov 30,
1999 1998 1999 1998
(in thousands) --------- --------- -------- --------
<S> <C> <C> <C> <C>
Net income............................. $ 384,484 $ 274,076 $621,220 $469,077
Foreign currency translation gains..... 22,364 17,685 51,539 6,739
Unrealized gains (losses) on equity
securities............................ 104,806 43 104,806 (19)
--------- --------- -------- --------
Total comprehensive income............. $ 511,654 $ 291,804 $777,565 $475,797
========= ========= ======== ========
</TABLE>
4. SUBSIDIARY STOCK TRANSACTIONS
In July 1999, Liberate Technologies, a partially owned subsidiary, issued and
sold 6,250,000 shares of Common Stock at approximately $16 per share in an
initial public offering. In connection with this offering, Liberate received
cash proceeds of $103,325,000, net of issuance costs of $9,175,000. The
Company's ownership interest in Liberate was reduced from 59.20% to 48.24%
following the offering. As a result of the offering, the Company recorded an
unrealized gain, net of tax, of $32,045,000 in stockholders' equity in the
first quarter of fiscal 2000. Effective July 1, 1999, the Company began to
account for its ownership interest in Liberate Technologies using the equity
method of accounting.
5. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
It requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met and
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. The Company is currently evaluating this statement, but does
not expect that it will have a material effect on the Company's financial
position or results of operations.
6. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," in fiscal 1999. SFAS No. 131 established standards
for reporting information about operating segments in the Company's financial
statements. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision maker is the Chief Executive Officer of the Company.
The Company is organized geographically and by line of business. The Company
has four major line of business operating segments: license, support,
education and consulting. While the Chief Executive Officer of the Company
evaluates results in a number of different ways, the line of business
management structure is the primary basis for which he assesses financial
performance and allocates resources.
The accounting policies of the line of business operating segments are the
same as those described in the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1999. The Company does not track assets by operating
segments. Consequently, it is not practical to show assets by operating
segments.
7
<PAGE>
The following table presents a summary of operating segments:
<TABLE>
<CAPTION>
Other
Distribution
License Support (4) Education Consulting Expenses (5) Total
(in thousands) ---------- ----------- --------- ---------- ------------ ----------
Three Months Ended
November 30, 1999
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from
unaffiliated
customers (1).......... $ 890,236 $ 720,603 $132,605 $ 578,439 $ -- $2,321,883
Distribution expenses
(2).................... 507,580 197,306 84,044 449,318 168,203 1,406,451
---------- ---------- -------- ---------- --------- ----------
Distribution margin
(3).................... $ 382,656 $ 523,297 $ 48,561 $ 129,121 $(168,203) $ 915,432
========== ========== ======== ========== ========= ==========
<CAPTION>
November 30, 1998
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from
unaffiliated
customers (1).......... $ 760,602 $ 565,693 $125,667 $ 603,982 $ -- $2,055,944
Distribution expenses
(2).................... 457,460 158,770 96,148 496,115 196,108 1,404,601
---------- ---------- -------- ---------- --------- ----------
Distribution margin
(3).................... $ 303,142 $ 406,923 $ 29,519 $ 107,867 $(196,108) $ 651,343
========== ========== ======== ========== ========= ==========
<CAPTION>
Other
Distribution
License Support (4) Education Consulting Expenses (5) Total
(in thousands) ---------- ----------- --------- ---------- ------------ ----------
Six Months Ended
November 30, 1999
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers
(1).................... $1,513,812 $1,387,656 $249,725 $1,155,207 $ -- $4,306,400
Distribution expenses
(2).................... 927,129 380,615 168,116 923,894 351,345 2,751,099
---------- ---------- -------- ---------- --------- ----------
Distribution margin
(3).................... $ 586,683 $1,007,041 $ 81,609 $ 231,313 $(351,345) $1,555,301
========== ========== ======== ========== ========= ==========
<CAPTION>
November 30, 1998
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers
(1).................... $1,335,951 $1,089,776 $237,636 $1,141,691 $ -- $3,805,054
Distribution expenses
(2).................... 866,867 297,186 186,997 923,379 342,979 2,617,408
---------- ---------- -------- ---------- --------- ----------
Distribution margin
(3).................... $ 469,084 $ 792,590 $ 50,639 $ 218,312 $(342,979) $1,187,646
========== ========== ======== ========== ========= ==========
</TABLE>
- --------
(1) Operating segment revenues differ from the external reporting
classification due to certain license products which are classified as
services revenues for management reporting purposes.
(2) Certain functional areas managed by the lines of business in fiscal 1999
were, for management purposes, transferred to the corporate or development
organizations in fiscal 2000. As a result, line of business distribution
expenses for fiscal 2000 are not in all cases comparable to the
corresponding periods in fiscal 1999.
(3) The distribution margins reported reflect only the direct controllable
expenses of each line of business and do not represent the actual margins
for each operating segment since they do not contain an allocation for
marketing, general and administrative, corporate, development and other
expenses incurred in support of the line of business.
(4) Support includes update rights which, in certain sectors of the software
industry such as the "shrink wrap sector," would typically be classified
as license revenue.
(5) Other distribution expenses consist primarily of marketing, general and
administrative and other distribution expenses that are not directly
controlled by any particular line of business.
8
<PAGE>
Profit Reconciliation:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
-------------------- ----------------------
1999 1998 1999 1998
(in thousands) --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Total distribution margin for
reportable segments............ $ 915,432 $ 651,343 $1,555,301 $1,187,646
Corporate, development and other
expenses....................... (339,367) (269,276) (633,373) (527,742)
Other income, net............... 15,450 28,654 33,797 50,820
--------- --------- ---------- ----------
Income before provision for
income taxes............... $ 591,515 $ 410,721 $ 955,725 $ 710,724
========= ========= ========== ==========
</TABLE>
7. LITIGATION
Refer to Part II, Item 1 for a description of legal proceedings.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
In addition to historical information, this Quarterly Report contains forward-
looking statements. The forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors That May Affect Future Results
and Market Price of Stock." Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's opinions only
as of the date hereof. The Company undertakes no obligation to revise or
publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the SEC, including
the Annual Report on Form 10-K for the fiscal year ended May 31, 1999 and the
Quarterly Reports on Form 10-Q filed by the Company in fiscal 2000.
Results of Operations
Total revenues increased 13% (15% in local currency) in the second quarter and
first half of fiscal 2000 as compared to the corresponding periods in fiscal
1999. Domestic revenues increased 13% and 10%, while international revenues
increased 13% and 16% in the second quarter and first half of fiscal 2000,
respectively, as compared to the corresponding periods in fiscal 1999.
International revenues expressed in local currency increased by approximately
14% and 15% in the second quarter and first half of fiscal 2000, respectively,
as compared to the corresponding periods in fiscal 1999. Revenues from
international customers were approximately 52% of total revenues in the second
quarters of fiscal 2000 and 1999, and 52% and 50% of total revenues in the
first half of fiscal 2000 and 1999, respectively. Management expects that the
Company's international operations will continue to provide a significant
portion of total revenues. However, international revenues will be adversely
affected if the U.S. dollar continues to strengthen against certain major
international currencies.
REVENUES:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
Nov 30, Nov 30, Nov 30, Nov 30,
1999 Change 1998 1999 Change 1998
(in thousands) ---------- ------ ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Licenses and other...... $ 902,632 18% $ 767,428 $1,534,813 14% $1,349,893
Percentage of revenues.. 38.9% 37.3% 35.6% 35.5%
Services................ $1,419,251 10% $1,288,516 $2,771,587 13% $2,455,162
Percentage of revenues.. 61.1% 62.7% 64.4% 64.5%
---------- ---------- ---------- ----------
Total revenues........ $2,321,883 13% $2,055,944 $4,306,400 13% $3,805,055
========== ========== ========== ==========
</TABLE>
9
<PAGE>
Licenses and Other Revenues. License revenues represent fees earned for
granting customers licenses to use the Company's software products. License
and other revenues also include revenues from the Company's systems
integration business, documentation revenues and other miscellaneous revenues,
which constituted 3% of total license and other revenues in the second
quarters of fiscal 2000 and 1999, respectively, and 4% and 3% of total license
and other revenues in the first half of fiscal 2000 and 1999, respectively.
License revenues, excluding other revenues, grew 18% and 20% in the second
quarters of fiscal 2000 and 1999, respectively, and 14% and 16% in the first
half of fiscal 2000 and 1999, respectively. Database license revenues, which
include server and tools revenues, grew 15% and 20% in the second quarters of
fiscal 2000 and 1999, respectively, and 12% and 17% in the first half of
fiscal 2000 and 1999, respectively. Applications revenues grew 31% and 19% in
the second quarters of fiscal 2000 and 1999, respectively, and 22% and 10% in
the first half of fiscal 2000 and 1999, respectively. The license revenue
growth rate experienced in the second quarter and first half of fiscal 2000
was adversely affected by weaker demand in the Enterprise Resource Planning
("ERP") segment of the applications market, partially offset by strong growth
in the Customer Relationship Management ("CRM") segment of the applications
market. The overall license revenue growth rate in the first half of fiscal
2000 was also adversely affected by a sales force reorganization in the U.S.
which resulted in lower closure rates for large transactions in the first
quarter of fiscal 2000.
Services Revenues. Services revenues consist of support, consulting and
education services revenues which comprised 51%, 41% and 8% of total services
revenues, respectively, during the second quarter of fiscal 2000 and 50%, 42%
and 8%, respectively, during the first half of fiscal 2000. Support revenues
grew 27% and 32% in the second quarters of fiscal 2000 and 1999, respectively,
and 27% and 31% in the first half of fiscal 2000 and 1999, respectively.
Consulting services revenues declined 4% in the second quarter of fiscal 2000,
as compared to a 38% growth rate in the second quarter of fiscal 1999.
Consulting services revenues grew 1% and 45% in the first half of fiscal 2000
and 1999, respectively. Education services revenues grew 3% and 13% in the
second quarters of fiscal 2000 and 1999, respectively, and 3% and 17% in the
first half of fiscal 2000 and 1999, respectively. The decrease in the support
revenues growth rate is primarily attributed to the lower license revenue
growth rate experienced over the past four quarters. The support revenues
growth rate will continue to be affected by the overall license revenue growth
rates. The sharp decline in the consulting and education services revenue
growth rates experienced in the second quarter and first half of fiscal 2000
is primarily due to a decrease in the growth of demand for these services as a
result of the following; i) a slowdown in the ERP market due to the
deceleration of year 2000 projects, ii) a strategy to focus only on profitable
business, iii) a push towards a partner model, leveraging third party
consulting firms who provide consulting services to the Company's customers
and iv) a streamlining of education offerings. The consulting services revenue
growth rates are expected to also decline in the third quarter of fiscal 2000,
as compared to the prior year.
OPERATING EXPENSES:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- ----------------------------
Nov 30, Nov 30, Nov 30, Nov 30,
1999 Change 1998 1999 Change 1998
(in thousands) -------- ------ -------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing..... $631,433 7% $591,754 $1,169,859 6% $1,101,830
Percentage of revenues.. 27.2% 28.8% 27.2% 29.0%
Cost of services........ $753,170 (3%) $779,847 $1,509,920 3% $1,459,137
Percentage of revenues.. 32.4% 37.9% 35.1% 38.3%
Research and development
(1).................... $248,160 24% $200,678 $ 484,101 25% $ 388,301
Percentage of revenues.. 10.7% 9.8% 11.2% 10.2%
General and
administrative......... $113,055 11% $101,598 $ 220,592 13% $ 195,883
Percentage of revenues.. 4.9% 4.9% 5.1% 5.1%
</TABLE>
- --------
(1) Pursuant to SFAS No. 86, the Company capitalized software development
costs equal to 0.2% and 0.4% of total revenues during the second quarters
and first half of fiscal 2000 and 1999, respectively.
10
<PAGE>
International expenses were favorably affected in the second quarter and first
half of fiscal 2000 when compared to the prior year corresponding period due
to the strengthening of the U.S. dollar against certain major international
currencies. The net impact on operating margins however was unfavorable since
the negative effect on revenues was greater than the positive effect on the
expenses.
Sales and Marketing Expenses. The Company continues to place significant
emphasis, both domestically and internationally, on direct sales through its
own sales force. However, the Company also continues to market its products
through indirect channels. Sales and marketing expenses increased 7% and 12%
in the second quarters of fiscal 2000 and 1999, respectively, and 6% and 13%
in the second half of fiscal 2000 and 1999, respectively. Sales and marketing
expenses as a percentage of license revenues decreased in the second quarter
and first half of fiscal 2000, primarily related to increased license revenues
and the controls over headcount and headcount related expenditures. Included
in sales and marketing expenses is the amortization of capitalized software
development costs (see below).
Cost of Services. The cost of providing services consists largely of
consulting, education and support personnel expenses. As a percentage of
services revenues, cost of services was 53% and 61% in the second quarters of
fiscal 2000 and 1999, respectively, and 55% and 59% in the first half of
fiscal 2000 and 1999, respectively. The decrease in the cost of services as a
percentage of services revenues was due primarily to efficiencies and controls
over headcount and headcount related expenditures in the education and
consulting lines of business as the Company continues to focus on margin
improvement.
Research and Development Expenses. Research and development expenses for the
second quarters of fiscal 2000 and 1999 would have been 11% and 10% of total
revenues, respectively, without the capitalization of software development
costs in accordance with Statement of Financial Accounting Standards No. 86.
Before considering the impact of software capitalization, research and
development expenses increased 21% and 22% in the second quarter and first
half of fiscal 2000, respectively (24% and 25% after the adjustment for
software capitalization), as compared to 6% and 12% for the corresponding
periods in fiscal 1999. The higher expense growth rate in the second quarter
and first half of fiscal 2000 was due to planned increases in research and
development headcount in fiscal 2000. The Company capitalized $3,948,000 and
$7,783,000 of software development costs during the second quarters of fiscal
2000 and 1999, respectively, and $7,755,000 and $14,924,000 in the first six
months of fiscal 2000 and 1999, respectively. Amortization of capitalized
software development costs is charged to sales and marketing expenses and
totaled $3,803,000 and $7,749,000 in the second quarters of fiscal 2000 and
1999, respectively, and $7,288,000 and $15,070,000 in the corresponding six
month periods. The Company believes that research and development expenditures
are essential to maintaining its competitive position and expects these costs
to continue to constitute a significant percentage of revenues.
General and Administrative Expenses. General and administrative expenses as a
percentage of revenues were 5% in the second quarter and first half of fiscal
2000 and 1999, respectively.
OTHER INCOME, NET:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
Nov 30, Nov 30, Nov 30, Nov 30,
1999 Change 1998 1999 Change 1998
(in thousands) ------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Other income, net.............. $15,450 (46%) $28,654 $33,797 (33%) $50,819
Percentage of revenues......... 0.7% 1.4% 0.8% 1.3%
</TABLE>
Other income, net includes interest income and expense, foreign currency
exchange gains and losses, minority interest share in Oracle Corporation Japan
("Oracle Japan") as well as the minority interest share in income and losses
of partially owned subsidiaries. The decrease in other income in the second
quarter and first half of fiscal 2000 is primarily related to the Company's
minority interest share of losses in Liberate Technologies as well as the
minority interest in Oracle Japan. As discussed in footnote 4 in the Notes to
Condensed Consolidated Financial Statements, Liberate Technologies issued and
sold 6,250,000 shares of Common Stock in July 1999,
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<PAGE>
resulting in the Company's ownership interest being reduced to 48.24%
following the offering. As a result, effective July 1, 1999, the Company began
to account for its interest in Liberate Technologies using the equity method
of accounting.
PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
Nov 30, Nov 30, Nov 30, Nov 30,
1999 Change 1998 1999 Change 1998
(in thousand) -------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes... $207,031 52% $136,645 $334,505 38% $241,646
Percentage of revenues....... 8.9% 6.6% 7.8% 6.4%
</TABLE>
The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of tax credits, certain foreign sales
corporation income that is not taxed, state taxes, foreign income taxes
provided at rates greater than the federal statutory rate, as well as foreign
losses that could not be utilized. The effective tax rate was 35% in the
second quarter and first half of fiscal 2000 and 33% and 34% in the second
quarter and first half of fiscal 1999.
NET INCOME AND EARNINGS PER SHARE:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
Nov 30, Nov 30, Nov 30, Nov 30,
1999 Change 1998 1999 Change 1998
(in thousand, except per share data) -------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net income................... $384,484 40% $274,076 $621,220 32% $469,077
Percentage of revenues....... 16.6% 13.3% 14.4% 12.3%
Earnings per share:
Basic....................... $ 0.13 44% $ 0.09 $ 0.22 38% $ 0.16
Diluted..................... $ 0.13 44% $ 0.09 $ 0.21 31% $ 0.16
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES:
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
Nov 30, Nov 30,
1999 Change 1998
(in thousands) ----------- ------ ----------
<S> <C> <C> <C>
Working capital................................ $ 1,929,134 5% $1,835,407
Cash and cash investments...................... $ 2,327,231 13% $2,060,195
Cash provided by operating activities.......... $ 768,092 23% $ 626,377
Cash used for investing activities............. $ ( 151,140) 4% $ (145,281)
Cash used for financing activities............. $(1,127,723) 173% $ (413,524)
</TABLE>
Working capital increased in the first half of fiscal 2000 over the
corresponding period in fiscal 1999, due primarily to increased cash flow from
operations, which resulted in higher cash and cash investment levels.
The Company generated higher positive cash flows from operations in the first
half of fiscal 2000 over fiscal 1999, due primarily to improved profitability.
Cash used for investing activities increased in the first half of fiscal 2000
as compared to the corresponding prior year period due primarily to changes in
the levels and maturities of cash investments. In each period, the Company
made significant investments in capital expenditures and other assets. The
Company expects to continue to invest in capital and other assets to support
its growth.
Cash used for financing activities increased in the first half of fiscal 2000
as compared to the corresponding prior year period due primarily to the
repurchase of Common Stock for approximately $1,372,000,000 as compared to
$561,000,000 in the prior year period.
12
<PAGE>
Since July 1992, the Company's Board of Directors has approved the cumulative
repurchase of up to 548,000,000 shares of Common Stock on the open market to
reduce the dilutive effect of the Company's stock plans. Pursuant to this
repurchase program, the Company repurchased 38,351,000 shares of the Company's
Common Stock for approximately $791,906,000 in the second quarter of fiscal
2000. As of November 30, 1999, the Company has repurchased a total of
399,188,648 shares for approximately $3,790,519,000. The Company has primarily
used cash flows from operations to repurchase the Company's Common Stock and
to invest in working capital and other assets to support its growth.
During the third quarter of fiscal 1997, the Company issued $150,000,000 in
6.72% Senior Notes due in the year 2004 and $150,000,000 in 6.91% Senior Notes
due in the year 2007. The Senior Notes are unsecured general obligations of
the Company that rank on parity with all other unsecured and unsubordinated
indebtedness of the Company that may be outstanding. At November 30, 1999, the
Company also had other outstanding debt of approximately $3,846,000, primarily
in the form of other notes payable and capital leases.
The Company, as part of its authorized stock repurchase program, has sold put
warrants and purchased call options through private placements with
institutional investors. The transactions were exempt under Section 4(2) of
the Securities Act of 1933. The put warrants, if exercised, would entitle the
holder to sell one share of Common Stock to the Company at a specified price.
Similarly, the call options entitle the Company to buy, on a specified day,
one share of the Company's Common Stock at a specified price. As of November
30, 1999, the Company had a maximum potential obligation under the put
warrants to buy back 34,000,000 shares of its Common Stock for prices ranging
from $8.29 to $9.79 per share for an aggregate price of approximately
$323,302,000. The put warrants will expire at various dates through October
2000. As of November 30, 1999, the Company had the right to purchase under the
call options up to a maximum of 17,000,000 shares of its Common Stock at
prices ranging from $10.06 to $13.34 per share for an aggregate price of
approximately $216,280,000. The call options will expire at various dates
through October 2000. During the second quarter and first half of fiscal 2000,
the Company exercised call options for 8,220,000 and 23,136,000 shares,
respectively, at an average price of $9.19 and $8.73, respectively.
The Company anticipates that current cash balances, as well as anticipated
cash flows from operations, will be sufficient to meet its working capital and
capital expenditure needs at least through the next twelve months.
Factors That May Affect Future Results and Market Price of Stock
The Company operates in a rapidly changing environment that involves numerous
risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
Revenue Growth and Economic Conditions. The revenue growth and profitability
of the Company's business depends on the overall demand for computer software
and services, particularly in the product segments in which the Company
competes. Because the Company's sales are primarily to major corporate and
government customers, the Company's business also depends on general economic
and business conditions. A softening of demand for computer software caused by
a weakening of the economy may result in decreased revenues or lower growth
rates. In particular, one of the challenges the Company continues to face in
promoting future growth in license revenues will be to refocus its marketing
and sales efforts in the CRM and Internet procurement areas of its
applications business where the market is growing more rapidly than in the
Enterprise Resource Planning area. There can be no assurances that the Company
will be able to effectively promote future license revenue growth in its
applications business.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition" which superseded SOP No. 91-1. SOP No. 97-2 was effective for the
Company's fiscal year beginning June 1, 1998, as amended by SOP No. 98-4 and
SOP No. 98-9, and provides guidance on applying generally accepted accounting
principles for software revenue recognition transactions. Based on the
Company's interpretation of the requirements of SOP No. 97-2, as amended,
application of this statement did not and is not expected to have a material
impact on the Company's
13
<PAGE>
revenue. However, the accounting profession continues to review certain
provisions of SOP No. 97-2, with the objective of providing additional
guidance on implementing its provisions. Depending upon the outcome of these
reviews and the issuance of implementation guidelines and interpretations, the
Company may be required to change its revenue recognition policies and
business practices, and such changes could have a material adverse effect on
the Company's business, results of operations or financial position.
Competitive Environment. The computer software industry is an intensely
competitive industry with several large vendors that develop and market
databases, application development tools, business applications and business
intelligence products. Certain of these vendors have significantly greater
financial and technical resources than the Company. The introduction of new
competitive products into one or more of the Company's various markets, the
addition of new functionality into an existing competitive product or the
acquisition by one of the Company's competitors of a product could have a
material adverse effect on the Company's business, results of operations or
financial position. In addition, new distribution methods (e.g. electronic
channels) and opportunities presented by the Internet and electronic commerce
have removed many of the barriers to entry historically faced by small and
start-up companies in the software industry. The Company expects to face
increasing competition in the various markets in which it competes.
Hiring and Retention of Employees. The Company's continued growth and success
depend to a significant extent on the continued service of its senior
management and other key employees and the hiring of new qualified employees.
Competition for highly-skilled business, product development, technical and
other personnel is becoming more intense due to lower overall unemployment
rates, the boom in information technology spending and private companies that
can offer equity incentives that provide the potential of greater compensation
in connection with an initial public offering. Accordingly, the Company
expects to experience increased compensation costs that may not be offset
through either improved productivity or higher prices. There can be no
assurances that the Company will be successful in continuously recruiting new
personnel and in retaining existing personnel. In general, the Company does
not have long-term employment or non-competition agreements with its
employees. The loss of one or more key employees or the Company's inability to
attract additional qualified employees or retain other employees could have a
material adverse effect on the continued growth of the Company.
Pricing. Intense competition in the various markets in which the Company
competes may put pressure on the Company to reduce prices on certain products,
particularly in the markets where certain vendors offer deep discounts in an
effort to recapture or gain market share or to sell other software or hardware
products. Moreover, any broadly based changes to the Company's prices and
pricing policies could lead to a decline or delay in sales as the Company's
sales force and its customers adjust to the new pricing policies. The bundling
of software products for promotional purposes or as a long-term pricing
strategy or guarantees of product implementations by certain of the Company's
competitors could have the effect over time of significantly reducing the
prices that the Company can charge for its products. Changes in the customer's
use of the Company's products could also result in lower license revenues if
the Company's pricing model is not adapted to such usage. Shifts toward the
use of operating systems on which the Company experiences relatively greater
price competition could result in lower average license prices, thereby
reducing license revenues for the Company. Additionally, while the
distribution of applications through application service providers may provide
a new market for the Company's products, these new distribution methods could
also reduce the price paid for the Company's products or adversely affect
other sales of the Company's products. Any such price reductions and resulting
lower license revenues could have a material adverse effect on the Company's
business, results of operations or financial position if the Company cannot
offset these price reductions with a corresponding increase in sales volumes
or lower spending.
International Sales. A substantial portion of the Company's revenues is
derived from international sales and is therefore subject to the related
risks, including the general economic conditions in each country, the overlap
of different tax structures, the difficulty of managing an organization spread
over various countries, changes in regulatory requirements, compliance with a
variety of foreign laws and regulations, longer payment cycles and
volatilities of exchange rates in certain countries. There can be no
assurances that the Company will be able to
14
<PAGE>
successfully address each of these challenges in the near term. Other risks
associated with international operations include import and export licensing
requirements, trade restrictions and changes in tariff rates.
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Changes in the value of major foreign currencies
relative to the value of the U.S. dollar adversely affected revenues and
operating results in the second quarter of fiscal 2000, particularly in Europe
and Latin America, and will continue to do so throughout fiscal 2000 if the
U.S. dollar strengthens relative to foreign currencies.
Foreign currency transaction gains and losses are primarily related to
sublicense fee and other agreements between the Company and selling
distributors and subsidiaries. These gains and losses are charged against
earnings in the period incurred. The Company has reduced its transaction and
translation gains and losses associated with converting foreign currencies
into U.S. dollars by using forward foreign exchange contracts to hedge
transaction and translation exposures in major currencies. The Company finds
it impractical to hedge all foreign currencies in which it conducts business.
As a result, the Company will continue to experience foreign currency gains
and losses.
Year 2000. This section is a Year 2000 Readiness Disclosure pursuant to the
Year 2000 Information and Readiness Disclosure Act of 1998.
The Company established a program to address the impact of the year 2000 date
transition on its operations globally. In 1997, the Company established a year
2000 program office, and a Global Program Manager was appointed to coordinate
existing projects and to oversee management and execution of the Company's
plan to address year 2000. The year 2000 program is sponsored by the Chief
Financial Officer, the Senior Vice President, Global, IT/Data Center, and the
General Counsel of the Company. This executive steering committee regularly
reviews progress with the Global Program Manager. Status is reported regularly
to the Finance and Audit Committee of the Company's Board of Directors and the
Product Development Management Committee.
The Company currently knows of no significant year 2000-related failures
occurring in either its products or its internal systems as a result of the
date change from December 31, 1999 to January 1, 2000.
State of Year 2000 Readiness. The Company believes it adopted standard
industry practices in preparing its internal operations for the year 2000 date
change. The Company's year 2000 internal readiness program covered several
phases: taking inventory of hardware, software, and embedded systems;
assessing business and customer satisfaction risks associated with such
systems; creating action plans to address known risks; executing and
monitoring action plans; and contingency planning. Action plans generally
consist of assessing the year 2000 readiness of systems; repairing, replacing,
or retiring systems that were not year 2000 ready, or retaining low-risk
systems; and testing repaired or replaced systems. The readiness program
encompassed information technology hardware and software systems such as
communications systems, desktop PCs, and custom-built software programs, as
well as systems with embedded technology, such as power generators,
temperature controls, alarms, security systems, and elevators.
As part of the above year 2000 program, the Company addressed certain third-
party vendors. Certain third-party services or products are critical to the
continued day-to-day operation of the Company, including telecommunications
services, electric power and other utilities, and shipping services. If such a
vendor suffers a business interruption from the year 2000 date change, it
could cause the Company to also suffer a business interruption. The Company
has asked vendors to certify the year 2000 readiness of the products and
services they supply, as well as their own internal compliance programs. If
the Company determines that a vendor's product will not be compliant, or that
the cost of a compliant solution is excessive, alternative solutions are
developed. In addition, the Company monitors the year 2000 compliance status
of third-party hardware and software products and will implement any required
year 2000 patches or updates that those vendors issue in the future.
The Company substantially completed year 2000 readiness preparations as of the
end of June 1999. Extensive testing continued throughout 1999. The status of
the Company's readiness efforts, as described above, is as follows:
inventory--complete; risk assessment--complete; readiness assessment of
systems--complete; repair or replacement--complete; testing--complete;
contingency planning--complete.
15
<PAGE>
Costs of Addressing Year 2000 Issues. The Company is continually upgrading and
improving its information technology systems and facilities, and the costs of
addressing year 2000 issues were integrated into the budgets for each line of
business, and systems and facilities upgrade activities. The Company therefore
cannot provide any estimate as to costs, it has incurred in addressing year
2000 issues above and beyond those costs associated with its upgrade program.
In addition, the Company's development of contingency plans in preparation for
the year 2000 date change has had no material impact on its results of
operations or financial position.
Risks Associated with Year 2000 Issues. A significant amount of the demand the
Company has experienced in recent years for applications software may have
been generated by customers replacing and upgrading applications in order to
accommodate the year 2000 date change. Thus, the software industry and the
Company may experience a significant deceleration from the strong annual
growth rates historically experienced in the applications software marketplace
and a decline in sales of its products generally.
The Company has designed and tested the most current versions of its products
to be year 2000 compliant. Further, the Company's Applications division has
successfully completed the Information Technology Association of America's
year 2000 certification program. There can be no assurances, however, that the
Company's current products do not contain undetected year 2000 defects. The
most reasonably likely worst case scenarios caused by such a defect would
include the partial failure of a widely-sold Company product that is of
mission-critical importance to the Company's customers. Such a scenario could
expose the Company to litigation that could have a material adverse impact on
the Company. Some commentators have stated that a significant amount of
litigation will arise out of year 2000 compliance issues. However, because of
the unprecedented nature of such litigation, it is uncertain to what extent
the Company could be affected by it.
Contingency Planning. The Company developed a Customer Service Continuity
Program ("CSC Program") to enable it to continue providing customer support
during late 1999 and early 2000 in the event of an increase in calls to
customer support from customers seeking Year 2000 product information,
information on migrating from older, non-compliant products to compliant
products, or assistance in handling other Year 2000 issues, or in the event
that the Company experienced Year 2000-related failures. As part of the CSC
Program, the Company's regional divisions created Millennium Operating Regimes
("MOR") to identify and assess possible Year 2000 risk scenarios that may
impact the Company, and to develop operating procedures for the period from
October 1999 through March 2000. Each MOR has adopted risk reduction measures
where possible, and if an identified risk could not be reduced to an
acceptable level, the MOR developed a contingency plan. The majority of the
identified risks related to items that are outside the Company's control, such
as power, external communication networks, and supply chains.
New Products. The markets for the Company's products are characterized by
rapid technological advances in hardware and software development, evolving
standards in computer hardware and software technology and frequent new
product introductions and enhancements. Product introductions and short
product life cycles necessitate high levels of expenditures for research and
development. To maintain its competitive position, the Company must enhance
and improve existing products and continue to introduce new products and new
versions of existing products that keep pace with technological developments,
satisfy increasingly sophisticated customer requirements and achieve market
acceptance. The Company's inability to port to or run on new or increasingly
popular operating systems, or the Company's failure to successfully enhance
and improve its products in a timely manner, and position and/or price its
products, could have a material adverse effect on the Company's business,
results of operations or financial position.
Significant undetected errors or delays in new products or new versions of a
product, especially in the area of CRM, may affect market acceptance of the
Company's products and could have a material adverse effect on the Company's
business, results of operations or financial position. If the Company were to
experience delays in the commercialization and introduction of new or enhanced
products, if customers were to experience significant problems with the
implementation and installation of products, or if customers were dissatisfied
with product functionality or performance, this could have a material adverse
effect on the Company's business, results of operations or financial position.
16
<PAGE>
There can be no assurance that the Company's new products will achieve
significant market acceptance or will generate significant revenue. Additional
products that the Company plans to directly or indirectly market in the future
are in various stages of development.
Uneven Patterns of Quarterly Operating Results. The Company's revenues in
general, and its license revenues in particular, are relatively difficult to
forecast and vary from quarter to quarter due to various factors, including
the (i) relatively long sales cycles for the Company's products, (ii) size and
timing of individual license transactions, the closing of which tend to be
delayed by customers until the end of a fiscal quarter as a negotiating
tactic, (iii) introduction of new products or product enhancements by the
Company or its competitors, (iv) potential for delay or deferral of customer
implementations of the Company's software, (v) changes in customer budgets,
(vi) seasonality of technology purchases and other general economic
conditions, and (vii) changes in the pricing policies of the Company or its
competitors. Accordingly, the Company's quarterly results are difficult to
predict until the end of the quarter, and delays in product delivery or
closing of sales near the end of a quarter have historically caused and could
cause quarterly revenues and net income to fall significantly short of
anticipated levels.
The Company's license revenues in any quarter are substantially dependent on
orders booked and shipped in that quarter. Because the Company's operating
expenses are based on anticipated revenue levels and because a high percentage
of the Company's expenses are relatively fixed, a delay in the recognition of
revenue from even a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
cause net income to fall significantly short of anticipated levels.
Management of Growth. The Company has a history of rapid growth. However, the
Company has experienced slowing growth rates in a number of areas, including
consulting and education services. The Company's future operating results will
depend on management's ability to manage growth, continuously hire and retain
significant numbers of qualified employees, accurately forecast revenues and
control expenses. A decline in the growth rate of revenues without a
corresponding and timely slowdown in expense growth could have a material
adverse effect on the Company's business, results of operations or financial
position.
Sales Force Restructuring and Vertical Markets. The Company historically has
relied heavily on its direct sales force. For the past several years, the
Company has restructured or made other adjustments to its sales force at least
once a year. These changes have generally resulted in a temporarily lack of
focus and reduced productivity by the Company's sales force that may have
affected revenues in a quarter. There can be no assurances that the Company
will not continue to restructure its sales force or that the related
transition issues associated with restructuring the sales force will not
recur.
Future Acquisitions. As part of its business strategy, the Company has made
and expects to continue to make acquisitions of, or significant investments
in, businesses that offer complementary products, services and technologies.
Any acquisitions or investments will be accompanied by the risks commonly
encountered in acquisitions of businesses. Such risks include, among other
things, the possibility that the Company pays much more than the acquired
company or assets are worth, the difficulty of assimilating the operations and
personnel of the acquired businesses, the potential product liability
associated with the sale of the acquired company's products (including without
limitation year 2000 claims), the potential disruption of the Company's
ongoing business, the distraction of management from the Company's business,
the inability of management to maximize the financial and strategic position
of the Company, the maintenance of uniform standards, controls, procedures and
policies and the impairment of relationships with employees and clients as a
result of any integration of new management personnel. These factors could
have a material adverse effect on the Company's business, results of
operations or financial position, particularly in the case of a larger
acquisition. Consideration paid for future acquisitions, if any, could be in
the form of cash, stock, rights to purchase stock or a combination thereof.
Dilution to existing stockholders and to earnings per share may result in
connection with any such future acquisitions.
17
<PAGE>
Relative Product Profitability. Certain of the Company's revenues are derived
from products which, as a percentage of revenues, currently require a higher
level of development, distribution and support expenditures compared to
certain of its other products. To the extent that revenues generated from such
products become a greater percentage of the Company's total revenues, the
Company's operating margins may be adversely affected, unless the expenses
associated with such products decline as a percentage of revenues.
Long-term Investment Cycle. Developing and localizing software is expensive
and the investment in product development often involves a long payback cycle.
The Company's plans for its fiscal year ending May 31, 2000 include
significant investments in software research and development and related
product opportunities from which significant revenues are not anticipated for
several years.
Uncertainty of Emerging Areas. Despite tremendous growth in emerging areas
such as the Internet, on-line services and electronic commerce, the impact on
the Company of this growth is uncertain. There can be no assurance that the
Company will be able to provide a product offering that will satisfy new
customer demands in these areas. In addition, standards for network protocols,
as well as other industry adopted and de facto standards for the Internet, are
evolving rapidly. There can be no assurance that standards chosen by the
Company will position its products to compete effectively for business
opportunities as they arise on the Internet and other emerging areas.
New Business Areas. The Company has in recent years expanded its technology
into a number of new business areas to foster long-term growth, including
Internet/electronic commerce, interactive media, on-line business services and
Internet computing. These areas are relatively new to the Company's product
development and sales and marketing personnel. There is no assurance that the
Company will compete effectively or will generate significant revenues in
these new areas. The success of Internet computing and, in particular, the
Company's current Internet computing software products is difficult to predict
because Internet computing represents a method of computing that is new to the
entire computer industry. The successful introduction of Internet computing to
the market will depend in large measure on (i) the lower cost of ownership of
Internet computing relative to client/server architecture, (ii) the ease of
use and administration relative to client/server architecture, and (iii) how
hardware and software vendors choose to compete in this market. There can be
no assurances that sufficient numbers of vendors will undertake this
commitment, that the market will accept Internet computing or that Internet
computing will generate significant revenues for the Company. See "New
Products."
Enforcement of the Company's Intellectual Property Rights. The Company relies
on a combination of copyright, patent, trademark, trade secrets,
confidentiality procedures and contractual procedures to protect its
intellectual property rights. Despite the Company's efforts to protect its
intellectual property rights, it may be possible for unauthorized third
parties to copy certain portions of the Company's products or to reverse
engineer or obtain and use technology or other information that the Company
regards as proprietary. There can also be no assurances that the Company's
intellectual property rights would survive a legal challenge to their validity
or provide significant protection for the Company. In addition, the laws of
certain countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. Accordingly, there can be no
assurance that the Company will be able to protect its proprietary technology
against unauthorized third party copying or use, which could adversely affect
the Company's competitive position.
Possibility of Infringement Claims. The Company from time to time receives
notices from third parties claiming infringement by the Company's products of
third party patent and other intellectual property rights. The Company expects
that software products will increasingly be subject to such claims as the
number of products and competitors in the Company's industry segments grow and
the functionality of products overlaps. In addition, the Company expects to
receive more patent infringement claims as companies increasingly seek to
patent their software, especially in light of recent developments in the law
that extend the ability to patent software. Regardless of its merit,
responding to any such claim could be time-consuming, result in costly
litigation and require the Company to enter into royalty and licensing
agreements which may not be offered or available on terms acceptable to the
Company. If a successful claim is made against the Company and the
18
<PAGE>
Company fails to develop or license a substitute technology, the Company's
business, results of operations or financial position could be materially
adversely affected.
Possible Volatility of Stock Price. The market price of the Company's Common
Stock has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors such as the announcement of new products or product
enhancements by the Company or its competitors, technological innovation by
the Company or its competitors, quarterly variations in the Company's or its
competitors' results of operations, changes in prices of the Company's or its
competitors' products and services, changes in revenue and revenue growth
rates for the Company as a whole or for specific geographic areas, business
units, products or product categories, changes in earnings estimates by market
analysts, speculation in the press or analyst community and general market
conditions or market conditions specific to particular industries. The stock
prices for many companies in the technology sector have experienced wide
fluctuations which often have been unrelated to their operating performance.
Such fluctuations may adversely affect the market price of the Company's
Common Stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Disclosures About Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company places its investments with high credit quality issuers and, by
policy, limits the amount of credit exposure to any one issuer. As stated in
its policy, the Company is averse to principal loss and seeks to preserve its
invested funds by limiting default risk, market risk, and reinvestment risk.
The Company mitigates default risk by investing in only high credit quality
securities that it believes to be low risk and by positioning its portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The table below presents the principal amount, related weighted average
interest rates and maturities for the Company's investment portfolio. Short-
term and long-term investments are all in fixed rate instruments. The
principal amount approximates fair value at November 30, 1999.
Table of Investment Securities:
<TABLE>
<CAPTION>
Principal Average
Amount Interest Rate
(in thousands) ---------- -------------
<S> <C> <C>
Cash and cash equivalents......................... $1,317,149 4.87%
Short-term investments (0-1 years)................ $ 816,607 5.73%
Long-term investments (1-2 years)................. $ 193,475 5.63%
----------
Total cash and investment securities.............. $2,327,231
==========
</TABLE>
Foreign Currency Risk. The Company transacts business in various foreign
currencies and the Company has established a foreign currency hedging program,
utilizing foreign currency forward exchange contracts (forward contracts) to
hedge certain foreign currency transaction exposures. Under this program,
increases or decreases in the Company's foreign currency transactions are
offset by gains and losses on the forward contracts, so as to mitigate the
possibility of foreign currency transaction gains and losses. The Company does
not use forward contracts for trading purposes. All outstanding forward
contracts at the end of a period are marked-to-market with unrealized gains
and losses included in other income and thus are recognized in income in
advance of the actual foreign currency cash flows. As these forward contracts
mature, the realized gains and losses are recorded and are included in net
income as a component of other income. The Company's ultimate realized gain or
loss with respect to currency fluctuations will depend on the currency
exchange rates and other factors in effect as the contracts mature. The
unrealized gain on the outstanding forward contracts at November 30, 1999 was
immaterial to the Company's consolidated financial statements.
19
<PAGE>
The Company also hedges net assets of certain of its international
subsidiaries. The net gains on equity hedges are recorded as a component of
accumulated foreign currency translation adjustments in stockholders' equity.
The Company's outstanding forward contracts and equity hedges as of November
30, 1999 are presented in the tables below. The tables present the notional
amounts (at contract exchange rates) and the weighted average contractual
foreign currency exchange rates. Notional weighted average exchange rates are
quoted using market conventions where the currency is expressed in currency
units per U.S. dollar, except for Australia, Ireland, New Zealand and the UK.
All of these forward contracts and equity hedges mature in ninety days or less
as of November 30, 1999.
Table of Forward Contracts:
<TABLE>
<CAPTION>
Notional
Notional Weighted Average
Functional Currency Amount Exchange Rate
------------------- ------------ ----------------
<S> <C> <C>
Australian Dollars........................... $ 18,808,119 0.63
Canadian Dollar.............................. 55,618,871 1.47
Danish Krone................................. 10,565,560 7.27
Euro......................................... 66,081,540 1.05
Irish Punt................................... 2,345,239 1.30
Japanese Yen................................. 9,293,615 103.06
New Zealand Dollar........................... 10,625,680 0.51
Norwegian Krone.............................. 7,466,227 8.01
Singapore Dollar............................. 18,420,099 1.66
Swedish Krona................................ 45,306,672 8.39
Swiss Franc.................................. 18,156,942 1.55
Thai Baht.................................... 9,704,969 38.64
UK Pound..................................... 141,703,590 1.61
------------
Total.................................... $414,097,123
============
Table of Equity Hedges:
<CAPTION>
Notional
Notional Weighted Average
Functional Currency Amount Exchange Rate
------------------- ------------ ----------------
<S> <C> <C>
Japanese Yen................................. $ 45,231,450 103.91
Singapore Dollar............................. 17,002,744 1.68
Swedish Krona................................ 4,866,180 8.22
UK Pound..................................... 4,832,010 1.61
------------
Total.................................... $ 71,932,384
============
</TABLE>
Equity Price Risk. The Company, as part of its authorized stock repurchase
program, has sold put warrants and purchased call options through private
placements with institutional investors. The transactions were exempt under
Section 4(2) of the Securities Act of 1933. The put warrants, if exercised,
would entitle the holder to sell one share of Common Stock to the Company at a
specified price. Similarly, the call options entitle the Company to buy, on a
specified day, one share of the Company's Common Stock at a specified price.
As of November 30, 1999, the Company had a maximum potential obligation under
the put warrants to buy back 34,000,000 shares of its Common Stock for prices
ranging from $8.29 to $9.79 per share for an aggregate price of approximately
$323,302,000. The put warrants will expire at various dates through October
2000. As of November 30, 1999, the Company had the right to purchase under the
call options up to a maximum of 17,000,000 shares of its Common Stock at
prices ranging from $10.06 to $13.34 per share for an aggregate price of
approximately $216,280,000. The call options will expire at various dates
through October 2000. During the second quarter and first half of fiscal 2000,
the Company exercised call options for 8,220,000 and 23,136,000 shares,
respectively, at an average price of $9.19 and $8.73, respectively.
20
<PAGE>
The table below presents the shares, the weighted average strike prices, the
contract amount and the estimated fair value of the put warrants and call
options at November 30, 1999.
<TABLE>
<CAPTION>
Estimated
Maturity Fair Value
(in thousands, except stock prices) -------- ----------
<S> <C> <C>
Put Warrants:
Shares............................................... 34,000
Weighted average stock price......................... $ 9.51
Contract amount...................................... $323,302 $ 232
Call Options:
Shares............................................... 17,000
Weighted average stock price......................... $ 12.72
Contract amount...................................... $216,280 $365,606
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Shareholder class actions were filed in the Superior Court of the State of
California, County of San Mateo against the Company and its Chief Financial
Officer and Chief Operating Officer on and after December 18, 1997. The class
actions are brought on behalf of purchasers of the stock of the Company during
the period April 29, 1997 through December 9, 1997. Plaintiffs allege that the
defendants made false and misleading statements about the Company's actual and
expected financial performance, while selling Company stock, in violation of
state securities laws. Plaintiffs further allege that the individual
defendants sold Company stock while in possession of material non-public
information. The Company believes that it has meritorious defenses to these
actions and intends to vigorously defend them. A nearly identical class action
filed against the same defendants in the United States District Court for the
Central District of California on December 7, 1998 was voluntarily dismissed
by the plaintiffs by court order dated July 30, 1999.
A related shareholder derivative lawsuit was filed in the Superior Court of
the State of California, County of San Mateo on November 17, 1998. The
derivative suit was brought by Company stockholders, allegedly on behalf of
the Company, against certain of the Company's officers and directors. The
derivative plaintiffs allege that these officers and directors breached their
fiduciary duties to the Company by making or causing to be made alleged
misstatements about the Company's revenue, growth, and financial status while
certain officers and directors sold Company stock and by allowing the Company
to be sued in the shareholder class actions. The derivative plaintiffs seek
compensatory and other damages, disgorgement of compensation received and
temporary and permanent injunctions requiring the defendants to relinquish
their directorships. On January 15, 1999, the Court entered a stipulation and
order staying the action until further notice.
The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management
does not believe that the outcome of any of these legal matters will have a
material adverse effect on the Company's consolidated results of operations or
consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
On October 18, 1999, the Company held its Annual Meeting of Stockholders. At
the meeting, the stockholders elected as directors Lawrence J. Ellison (with
2,502,570,800 affirmative votes, and 15,125,634 votes withheld), Raymond J.
Lane (with 2,502,796,850 affirmative votes, and 14,899,584 votes withheld),
Jeffrey O. Henley (with 2,502,736,706 affirmative votes, and 14,959,728 votes
withheld), Donald L. Lucas (with 2,502,260,384 affirmative votes, and
15,436,050 votes withheld), Michael J. Boskin (with 2,502,530,514 affirmative
votes, and 15,165,920 votes withheld), Jack F. Kemp (with 2,504,753,836
affirmative votes, and 12,942,598 votes withheld), Jeffrey Berg (with
2,505,858,390 affirmative votes, and 11,838,044 votes withheld), Richard A.
McGinn (with 2,438,426,016 affirmative votes, and 79,270,418 votes withheld)
and Kay Koplovitz (with 2,505,774,438 affirmative votes, and 11,921,996 votes
withheld).
21
<PAGE>
In addition, the stockholders approved the adoption of the Company's Fiscal
Year 2000 Executive Bonus Plan (with 2,405,830,264 affirmative votes,
96,361,650 negative votes, 15,470,068 votes withheld and 34,452 broker non-
votes).
The stockholders also approved an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of the Company's
Common Stock from 2,000,000,000 to 4,000,000,000 (with 2,408,745,676
affirmative votes, 99,297,788 negative votes, 9,610,120 votes withheld and
42,850 broker non-votes).
The stockholders also approved an amendment to the Company's 1991 Long-Term
Equity Incentive Plan increasing the number of shares of the Company's Common
Stock reserved for issuance thereunder by 140,000,000 shares (with
1,781,523,536 affirmative votes, 722,818,488 negative votes, 13,319,204 votes
withheld and 35,206 broker non-votes).
The stockholders also ratified the appointment of Arthur Andersen LLP, as the
Company's independent public accountants for the current fiscal year (with
2,506,049,176 affirmative votes, 4,450,110 negative votes and 7,197,148 votes
withheld).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<C> <S>
3.1(i) Restated Certificate of Incorporation of the Company, as filed with
the Delaware Secretary of State on January 11, 2000.
10.11 The 1991 Long-Term Equity Incentive Plan, as amended through October
18, 1999.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Oracle
Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORACLE CORPORATION
Dated: January 14, 2000 By: /s/ JEFFREY O. HENLEY
---------------------------------------
Jeffrey O. Henley
Executive Vice President and Chief
Financial Officer
Dated: January 14, 2000 By: /s/ JENNIFER MINTON
---------------------------------------
Jennifer Minton
Vice President and Corporate
Controller
23
<PAGE>
EXHIBIT 3.1(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
ORACLE CORPORATION
Oracle Corporation, a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Oracle Corporation. The corporation was
originally incorporated under the name Oracle Systems Corporation and the
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of Delaware on October 29, 1986.
2. The Certificate of Incorporation of said corporation, as theretofore
amended or supplemented, is hereby restated and integrated to read in full as
follows:
Article 1
---------
The name of the Corporation is Oracle Corporation.
Article 2
---------
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at that address is The Corporation
Trust Company.
Article 3
---------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
Article 4
---------
A. The total number of shares of stock of all classes which the
Corporation has the authority to issue is 4,001,000,000, consisting of
4,000,000,000 shares of Common Stock with a par value of $0.01 per share (the
"Common Stock"), and 1,000,000 shares of Preferred Stock with a par value of
$0.01 per share (the "Preferred Stock").
The Board of Directors is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance of
the shares of Preferred Stock in one or more series, to establish from time to
time the number of shares to be included in each such series, to
-1-
<PAGE>
fix the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof, and to
increase or decrease the number of shares of any such series (but not below the
number of shares of such series then outstanding).
B. The designation and amount of the initial series of Preferred Stock
and the powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall
----------------------
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 200,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
--------
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any other stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount (if any) per share (rounded to the
nearest cent), subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in shares of
Common Stock of the Corporation or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
-2-
<PAGE>
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends due pursuant to paragraph (A) of this Section shall
begin to accrue and be cumulative on outstanding shares of Series A Preferred
Stock from the Quarterly Dividend Payment Date next preceding the date of issue
of such shares, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
-------------
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of the Series A Preferred Stock shall entitle the holder thereof to
1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
-3-
<PAGE>
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (as to dividends and upon dissolution, liquidation or winding up) to the
Series A Preferred Stock.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, or in
any Certificate of Designations creating a series of Preferred Stock or any
similar stock or as otherwise required by law.
-4-
<PAGE>
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A Preferred Stock shall be entitled
to receive, prior and in preference to any distribution of any assets of the
Corporation to the holders of Common Stock, the amount of $1,000.00 per share
for each share of Series A Preferred Stock then held by them. Thereafter, the
holders of shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 1,000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock plus an amount equal to any accrued and
unpaid dividends. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) If the assets of the Corporation legally available for
distribution to the holders of shares of Series A Preferred Stock upon
liquidation, dissolution or winding up of the Corporation are insufficient to
pay the full preferential amount set forth in the first sentence of paragraph
(A) above, then the entire assets of the Corporation legally available for
distribution to the holders of Series A Preferred Stock shall be distributed
among such holders in proportion to the shares of Series A Preferred Stock then
held by them.
(C) The foregoing rights upon liquidation, dissolution or winding
up provided to the holders of Series A Preferred Stock shall be subject to the
rights of the holders of any other series of Preferred Stock (or any other
stock) ranking prior and superior to the Series A Preferred Stock upon
liquidation, dissolution or winding up.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred
-5-
<PAGE>
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
-------------
not be redeemable.
Article 5
---------
The stockholders of the Corporation shall have the power to adopt, amend or
repeal Bylaws. The Board of Directors of the Corporation shall also have the
power to adopt, amend or repeal Bylaws of the Corporation, except Bylaws adopted
by the shareholders that specify that they cannot be amended or repealed by the
Board of Directors.
Article 6
---------
Election of Directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
Article 7
---------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit.
If the Delaware General Corporation Law is hereafter amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article 7 by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
3. This Restated Certificate of Incorporation was duly adopted by the
Board of Directors of the Corporation, without a vote of the
stockholders, in accordance
-6-
<PAGE>
with the provisions of Section 245 of the General Corporation Law of
the State of Delaware.
4. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the
Corporation's Certificate of Incorporation as theretofore amended or
supplemented, and that there is no discrepancy between those
provisions and the provisions of this Restated Certificate of
Incorporation.
IN WITNESS WHEREOF, Oracle Corporation has caused this Certificate to be
signed and attested by its duly authorized officers this 10th day of January,
2000.
/s/ Daniel Cooperman
---------------------------
Daniel Cooperman
Senior Vice President,
General Counsel & Secretary
ATTEST:
/s/ Thomas Theodores
- -----------------------
Thomas Theodores
Vice President, Legal,
Deputy General Counsel
and Assistant Secretary
-7-
<PAGE>
EXHIBIT 10.11
ORACLE CORPORATION
1991 LONG-TERM EQUITY INCENTIVE PLAN
As Amended
1. PURPOSE. This 1991 Long-Term Equity Incentive Plan ("Plan") is established
as a compensatory plan to enable Oracle Corporation (the "Company") to provide
an incentive to eligible employees, officers, independent consultants, directors
who are also employees or consultants, and advisers whose present and potential
contributions are important to the continued success of the Company, to afford
such persons an opportunity to acquire a proprietary interest in the Company,
and to enable the Company to continue to enlist and retain in its employ the
best available talent for the successful conduct of its business. It is intended
that this purpose will be effected through the granting of (a) stock options,
(b) stock purchase rights, (c) stock appreciation rights, and (d) long-term
performance awards.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Affiliate" means any corporation that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time, and the applicable laws of any other country or jurisdiction
where Options are granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Committee or Committees referred to in Section 5
of the Plan. If at any time no Committee shall be in office, then the functions
of the Committee specified in the Plan shall be exercised by the Board.
(f) "Common Stock" means the Common Stock, $.01 par value per share, of the
Company.
(g) "Company" means Oracle Corporation, a corporation organized under the
laws of the state of Delaware, or any successor corporation.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Disability" means a disability, whether temporary or permanent, partial
or total, within the meaning of Section 22(e)(3) of the Code, as determined by
the Committee.
1
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(j) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) the last reported sale price of the Common Stock of the Company
on the Nasdaq National Market or, if no such reported sale takes place on
any such day, the average of the closing bid and asked prices, or
(ii) if such Common Stock shall then be listed on a national
securities exchange, the last reported sale price or, if no such reported
sale takes place on any such day, the average of the closing bid and asked
prices on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or
(iii) if such Common Stock shall not be quoted on such National Market
nor listed or admitted to trading on a national securities exchange, then
the average of the closing bid and asked prices, as reported by The Wall
Street Journal for the over-the-counter market, or
(iv) if none of the foregoing is applicable, then the Fair Market
Value of a share of Common Stock shall be determined in good faith by the
Board of Directors of the Company in its discretion.
(k) "Insider" means an executive officer or director of the Company or any
other person whose transactions in Common Stock are subject to Section 16(b) of
the Exchange Act.
(l) "Long-Term Performance Award" means an award under Section 9 below. A
Long-Term Performance Award shall permit the recipient to receive a stock bonus
(as determined by the Committee) upon satisfaction of such performance factors
as are set out in the recipient's individual grant. Long-term Performance Awards
will be based upon the achievement of Company, Subsidiary and/or individual
performance factors or upon such other criteria as the Committee may deem
appropriate.
(m) "Named Executive" means any individual who, on the last day of the
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four highest compensated officers of the
Company (other than the chief executive officer). Such officer status shall be
determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(n) "Option" means any option to purchase shares of Common Stock granted
pursuant to Section 6 below.
(o) "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, at the time of the granting of
an award under the Plan, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(p) "Plan" means this 1991 Long-Term Equity Incentive Plan, as hereinafter
amended from time to time.
(q) "Restricted Stock" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 8 below.
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(r) "Right" means and includes Stock Appreciation Rights and Stock Purchase
Rights granted pursuant to the Plan.
(s) "Stock Appreciation Right" means an award made pursuant to Section 7
below, which right permits the recipient to receive cash equal to the difference
between the Fair Market Value of Common Stock on the date of grant of the Option
and the Fair Market Value of Common Stock on the date of exercise of the Stock
Appreciation Right.
(t) "Stock Purchase Right" means an award made pursuant to Section 8 below,
which right permits the recipient to purchase Common Stock pursuant to a
restricted stock purchase agreement entered into between the Company and the
Participant.
(u) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
3. ELIGIBILITY. Awards may be granted to employees, officers, directors who are
also employees or consultants, independent consultants and advisers of the
Company or any Parent, Subsidiary or Affiliate of the Company (provided such
consultants, and advisers render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction) (collectively,
the "Participants"). ISOs (hereinafter defined in Section 6 hereof may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. A
Participant may be granted more than one award under this Plan. The Company,
from time to time, also may assume outstanding options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (i) granting an Option under this Plan in replacement of
the option assumed by the Company, or (ii) treating the assumed option as if it
had been granted under this Plan if the terms of such assumed option could be
applied to an Option granted under this Plan. Such assumption shall be
permissible if the holder of the assumed option would have been eligible to be
granted an Option under this Plan if the other company had applied the rules of
this Plan to such grant. Options and SARs on no more than 10,125,000 shares of
Common Stock may be granted to any individual in any year under this Plan.
Notwithstanding the other terms of this Plan, options granted under the
Datalogix International Inc. Amended and Restated 1992 Incentive Stock Plan and
1986 Key Employees' Stock Option Plan (collectively, the "Datalogix Plans")
shall be assumed by the Corporation under this Plan pursuant to the Agreement
and Plan of Merger dated as of September 24, 1996, as amended October 8, 1996,
and, with respect to such assumed options, this Plan shall include the terms and
conditions contained in the Datalogix Plans as applicable only to such options.
To the extent any provision of this Plan could be deemed to provide an
additional benefit to the holders of such options within the meaning of Section
424(a) of the Code, such provision shall not apply to such option holder, and to
the extent any term contained in the applicable Datalogix Plan directly
conflicts with the terms of this Plan, the terms of the applicable Datalogix
Plan shall govern.
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Notwithstanding the other terms of this Plan, options granted by Treasury
Services Corporation (collectively, the "TSC Options") shall be assumed by the
Corporation under this Plan pursuant to the Agreement and Plan of Reorganization
dated as of July 30, 1997, and, with respect to the TSC Options, this Plan shall
include the terms and conditions of such TSC Options as applicable only to such
options. To the extent any provision of this Plan could be deemed to provide an
additional benefit to the holders of the TSC Options within the meaning of
Section 424(a) of the Code, such provision shall not apply to such option
holder, and to the extent any term contained in the applicable TSC Option
directly conflicts with the terms of this Plan, the terms of the applicable TSC
Option shall govern.
4. STOCK SUBJECT TO THE PLAN. Subject to Section 11 and 12, the total number of
shares of Common Stock reserved and available for distribution pursuant to the
Plan shall be 353,125,000 shares (the "Shares"). Subject to Sections 11 and 12,
if any shares of Common Stock that have been subject to issuance upon exercise
of an Option cease to be subject to such Option, or if any shares of Restricted
Stock or other shares that are subject to any Right, Option or Long-Term
Performance Award granted hereunder are forfeited or repurchased or any such
award otherwise terminates without a payment being made to the Participant in
the form of Common Stock, such shares shall again be available for distribution
in connection with future awards or Option grants under the Plan.
5. ADMINISTRATION.
(a) Procedure. The Plan shall be administered by (i) the Board if the Board
may administer the Plan in compliance with Rule 16b-3 promulgated under the
Exchange Act and Section 162(m) of the Code (to the extent such section of the
Code applies, to qualify grants of Options to Named Executives as performance-
based compensation), or (ii) one or more Committees designated by the Board to
administer the Plan, as follows (A) with respect to Insiders and Named
Executives, by one or more Committees constituted in such a manner as to permit
grants under the Plan to Insiders to comply with Rule 16b-3, to qualify grants
to Named Executives as performance-based compensation under Section 162(m) of
the Code, and otherwise so as to satisfy the Applicable Laws, and (B) with
respect to Participants who are neither Insiders nor Named Executives, by one or
more Committees constituted in such a manner as to satisfy the Applicable Laws.
Once appointed, the Committee shall continue to serve until otherwise directed
by the Board. From time to time, the Board may change the size of the Committee,
appoint additional members thereof, remove members (with or without cause),
appoint new members in substitution therefore, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted, as applicable, by Rule 16b-3 of the Exchange
Act, Rule 162(m) of the Code and the Applicable Laws. As used herein, except in
Section 18 and 20, reference to the Board shall mean such Board or the
Committee, whichever is then acting with respect to the Plan.
(b) Authority. Subject to the general purposes, terms, and conditions of the
Plan, and to the direction of the Board, the Committee, if there be one or more,
shall have full power to implement and carry out the Plan including, but not
limited to, the following:
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(i) to select the employees, officers, consultants, directors and
advisers of the Company and/or its Subsidiaries to whom Options, Rights and
Long-Term Performance Awards, or any combination thereof, may from time to
time be granted hereunder;
(ii) to determine whether and to what extent Options, Rights and Long-
Term Performance Awards, or any combination thereof, are granted hereunder;
(iii) to determine the number of shares of Common Stock to be covered
by each such award granted hereunder;
(iv) to approve forms of agreement, or other forms for communicating
to Participants that they have been granted an award under the Plan, for use
under the Plan;
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding the
Option or other award and/or the shares of Common Stock relating thereto,
based in each case on such factors as the Committee shall determine, in its
sole discretion);
(vi) to determine whether and under what circumstances an Option may
be settled in cash or Restricted Stock under Section 6(h) instead of Common
Stock;
(vii) to determine the form of payment that will be acceptable
consideration for exercise of an Option, Right or Long-Term Performance
Award granted under the Plan;
(viii) to determine whether; or to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the
election of the Participant (including providing for and determining the
amount (if any) of any deemed earnings on any deferred amount during any
deferral period);
(ix) to reduce the exercise price of any Option or Right; and
(x) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such
Rights.
The Committee shall have the authority to construe and interpret the Plan,
to prescribe, amend and rescind rules and regulations relating to the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan, and any such interpretation shall be final and binding on all
persons having an interest in any award under this Plan.
In addition to such other rights of indemnification as they may have as
directors, members of the Committee shall be indemnified by the Company against
any reasonable expenses, including attorneys' fees actually and necessarily
incurred, or in connection with any appeal thereof, to which they or any of them
may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereon, (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding that such
director
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is liable for negligence or misconduct in the performance of his or her
duties; provided that within 60 days after institution of any such action, suit
or proceeding a director shall in writing offer the Company the opportunity, at
its own expense, to handle the defense of the same.
6. STOCK OPTIONS. The Committee, in its discretion, may grant Options to
eligible Participants and shall determine whether such Options shall be
Incentive Stock Options ("ISOs") within the meaning of the Code or Nonqualified
Stock Options ("NQSOs"). Each Option shall be evidenced by a written Option
agreement or other form of notice which shall expressly identify the Option as
an ISO or as NQSO, and be in such form and contain such provisions as the
Committee shall from time to time deem appropriate. Without limiting the
foregoing, the Committee may, at any time, or from time to time, authorize the
Company, with the consent of the respective recipients, to issue new Options
including Options in exchange for the surrender and cancellation of any or all
outstanding Options or Rights.
The Committee shall determine the number of Shares subject to the Option,
the exercise price of the Option, the period during which the Option may be
exercised, and all other terms and conditions of the Option, subject to the
following:
(a) Form of Option Grant. Each Option granted under this Plan shall be
evidenced by a written Stock Option Grant (the "Grant") in such form (which need
not be the same for each Participant) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
(b) Date of Grant. The date of grant of an Option shall be the date on which
the Committee makes the determination to grant such Option unless otherwise
specified by the Committee. The Grant representing the Option will be delivered
to Participant with a copy of this Plan within a reasonable time after the
granting of the Option.
(c) Exercise Price. The exercise price of an Option shall be determined by
the Committee on the date the Option is granted; such price may be less than the
Fair Market Value of the Common Stock on the date the Option is granted,
provided that (i) the exercise price of an NQSO granted to a person other than
an employee shall be not less than 100% of the Fair Market Value of the Shares
on the date the Option is granted; (ii) the exercise price of any ISO granted to
a person owning more than 10% of the total combined voting power of all classes
of stock of the Company or any Parent or Subsidiary of the Company ("Ten
Percent Stockholder") shall not be less than 110% of the Fair Market Value of
the Shares on the date the Option is granted; and (iii) the exercise price of
any ISO granted to an employee who is not a 10% shareholder must not be less
than 100% of the fair market value on the date the Option is granted.
(d) Exercise Period. Options shall be exercisable within the times or upon
the events determined by the Committee as set forth in the Grant; provided,
however; that no Option shall be exercisable after the expiration of ten (10)
years from the date the Option is granted; and provided further that (i) no ISO
granted to a Ten Percent Stockholder shall be exercisable after the expiration
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of five (5) years from the date the Option is granted, (ii) no Option granted to
a resident of the United Kingdom shall be exercisable after the expiration of
seven years minus one day from the date it is granted, (iii) no Option granted
to a resident of the Netherlands shall be exercisable after the expiration of
five years from the date it is granted, and (iv) no Option granted to a resident
of Belgium shall be exercisable before the expiration of one year from the date
it is granted or after the expiration of six years from the date it is granted.
The Committee also may provide for the exercise of options either as to an
increased percentage of shares per year or as to all remaining shares, if the
Participant with the approval of the Company, shall retire.
(e) Limitations on ISOs. The aggregate Fair Market Value (determined as of
the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares with respect to which ISOs are exercisable for the first
time by a Participant during any calendar year exceeds $100,000, the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
shall be ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in that calendar year shall be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the effective date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
(f) Options Non-Transferable. Options granted under this Plan, and any
interest therein, shall not be transferable or assignable by the Participant,
and may not be made subject to execution, attachment or similar process,
otherwise than by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the Participant only by the Participant;
provided, however; that NQSOs held by a Participant may be transferred to such
family members, trusts and charitable institutions as the Committee, in its sole
discretion, shall approve at the time of the grant of such Option.
(g) Assumed Options. In the event the Company assumes an option granted by
another company, the terms and conditions of such option shall remain unchanged
(except the exercise price and the number and nature of Shares issuable upon
exercise, which will be adjusted appropriately pursuant to Section 424(a) of the
Code). In the event the Company elects to grant a new option rather than
assuming an existing option (as specified in Section 3), such new option may be
granted with a similarly adjusted exercise price.
(h) Buyout Provisions. The Committee may at any time offer to buy out for
a payment in cash or Common Stock (including Restricted Stock), an Option
previously granted, based on such terms and conditions as the Committee shall
establish and communicate to the Participant at the time that such offer is
made.
(i) Notice. Options may be exercised only by delivery to the Company or
its representative of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to information,
if any, as may be required by the Company to comply with the Applicable
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Laws, together with payment in full of the exercise price for the number of
Shares being purchased.
(j) Payment. Payment for Shares purchased upon exercise of an Option may
be made in cash (by check) or; where approved by the Committee in its sole
discretion at the time of grant and where permitted by law: (i) by cancellation
of indebtedness of the Company to the Participant; (ii) by surrender of Shares
of Common Stock having a Fair Market Value equal to the applicable exercise
price of the Options, that have been owned by the Participant for more than six
(6) months (and which have been paid for within the meaning of the Securities
and Exchange Commission (the "SEC") Rule 144 of the 33 Act and, if such Shares
were purchased from the Company by use of a promissory note, such note has been
fully paid with respect to such Shares), or were obtained by the Participant in
the open public market; (iii) where approved by the Committee in its discretion,
by tender of a full recourse promissory note having such terms as may be
approved by the Committee and bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the Code, provided that the
portion of the exercise price equal to the par value of the Shares, if any, must
be paid in cash or other legal consideration and provided further that
Participants who are not employees or directors of the Company shall not be
entitled to purchase Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares; (iv) by waiver of compensation due
or accrued to the Participant for services rendered; (v) provided that a public
market for the Company's stock exists, through a "same day sale" commitment from
the Participant and a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD Dealer") whereby Participant irrevocably elects
to exercise the Option and to sell a portion of the Shares so purchased to pay
for the exercise price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the Company;
(vi) provided that a public market for the Company's stock exists, through a
"margin" commitment from the Participant and an NASD Dealer whereby the
Participant irrevocably elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as security for a loan from
the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; or (vii) by any combination of the foregoing.
(k) Limitations on Exercise. Notwithstanding the exercise periods set
forth in the Grant, exercise of an Option shall always be subject to the
following:
(i) If the Participant ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason except death
or disability, the Participant's Options may be exercised to the extent (and
only to the extent) that they would have been exercisable upon the date of
termination of the Participant's employment, within three (3) months after
the date of termination (or such shorter time period as may be specified in
the Grant), but in any event no later than the expiration date of the
Option.
(ii) If the Participant's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of the
Disability of the Participant, or if the Participant dies within three (3)
months of his termination of employment, the
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Participant's Options may be exercised to the extent (and only to the
extent) that they would have been exercisable by the Participant on the date
of termination of Participant's employment, by the Participant (or the
Participant's legal representative) within twelve (12) months after the date
of termination of the Participant's employment (or such shorter time period
as may be specified in the Grant), but in any event no later than the
expiration date of the Options.
(iii) If the Participant's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of the death of
the Participant, the Participant's Options may be exercised to the extent
(and only to the extent) that they would have been exercisable by the
Participant on the first vesting date occurring after such death as may be
specified in the Grant (the "Option Vesting Date") and on the next
subsequent Option Vesting Date, by the Participant's legal representative
within twelve (12) months after the date of the Participant's death (or such
shorter period as may be specified in the Grant), but in any event no later
than the expiration date of the Options.
(iv) The Committee shall have discretion to determine whether
Participant has ceased to be employed by the Company or any Parent,
Subsidiary or Affiliate of the Company and the effective date on which such
employment terminated or whether such Participant is on an authorized leave
of absence or absence for military or governmental service.
(v) In the case of a Participant who is a director, consultant, or
adviser, the Committee will have the discretion to determine whether the
Participant is "employed by the Company or any Parent, Subsidiary or
Affiliate of the Company" pursuant to the foregoing Sections.
(vi) The Committee may specify a reasonable minimum number of Shares
that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent the Participant from exercising the full
number of Shares as to which the Option is then exercisable.
(vii) An Option shall not be exercisable unless such exercise is in
compliance with the Applicable Laws as they are in effect on the date of
exercise. The Company shall be under no obligation to register the Shares
with the SEC or to effect compliance with the registration, qualification or
listing requirements of any state securities laws, stock exchange or
national market system, and the Company shall have no liability for any
inability or failure to do so.
(l) Modification, Extension and Renewal of Options. The Committee shall have
the power to modify, extend or renew outstanding Options and to authorize the
grant of new Options in substitution therefore, provided that any such action
may not, without the written consent of the Participant, impair any rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee shall have the power to reduce the exercise price of
outstanding Options without the consent of Participants by a written notice to
the Participants affected; provided, however; that the exercise price per Share
may not be reduced below the minimum exercise price that would
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be permitted under Section 6(c) of this Plan for Options granted on the date the
action is taken to reduce the exercise price.
(m) Belgian Optionees. Notwithstanding anything to the contrary herein,
Options granted to residents of Belgium shall conform to the following: such
Options may not be exercisable after termination of such Participant's
employment with the Company, whether by death, disability or otherwise; shares
purchased pursuant to such Options shall not be resalable earlier than two years
after the date of exercise of such Options for such shares, and such shares
shall be held during such period at a registered Company office; no Belgium
employee may acquire more than 20% of the shares of the Company pursuant to such
Options; and no Belgium employee shall pay more than 25% of such employee's last
normal annual salary nor BF 500,000 per year for the exercise of such Options.
7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be granted only in
connection with an Option, either concurrently with the grant of the Option or
at any time thereafter during the term of the Option. The following provisions
apply to such Stock Appreciation Rights.
(a) Grant of Stock Appreciation Right. The Stock Appreciation Right shall
entitle the Participant to exercise the Rights by surrendering to the Company an
unexercised portion of the underlying Option as to which the Participant has a
right to exercise. The Participant shall receive in exchange from the Company an
amount equal to the excess of (x) the Full Market Value on the date of exercise
of the Common Stock covered by the surrendered portion of the underlying Option
over (y) the exercise price of the Common Stock covered by the surrendered
portion of the underlying Option. Notwithstanding the foregoing, the Committee
may place limits on the amount that may be paid upon exercise of a Stock
Appreciation Right; provided, however; that such limit shall not restrict the
exercisability of the underlying Option. In the event that a Stock Appreciation
Right is granted that relates to an ISO, such Right shall contain such
additional or different terms as may be necessary under applicable regulations
to preserve treatment of the ISO as such under Section 422 of the Code.
(b) Forfeiture of Option. When a Stock Appreciation Right is exercised, the
underlying Option, to the extent surrendered, shall no longer be exercisable and
shall be deemed canceled.
(c) Expiration of Stock Appreciation Right. A Stock Appreciation Right shall
be exercisable only when and to the extent that the underlying Option is
exercisable and shall expire no later than the date on which the underlying
Option expires.
(d) Exercise of Stock Appreciation Right. A Stock Appreciation Right may be
exercised only at a time when the full Market Value of the Common Stock covered
by the underlying Option exceeds the exercise price of the Common Stock covered
by the underlying Option. Notwithstanding the foregoing, with respect to
Insiders, in no event may a Stock Appreciation Right be exercisable within the
first six months of the grant of such Stock Appreciation Right; provided,
however, that this limitation shall not apply in the event that death or
Disability of the Participant occurs prior to the expiration of the six-month
period.
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(e) Form of Payment. The Company's obligation arising upon the exercise of
a Stock Appreciation Right may be paid currently or on a deferred basis with
such interest or earnings equivalent as may be determined by the Committee, and
may be paid in Common Stock or in cash, or in any combination of Common Stock
and cash, as the Committee, in its sole discretion, may determine. Shares of
Common Stock issued upon the exercise of a Stock Appreciation Right shall be
valued at the Fair Market Value of the Common Stock as of the date of exercise.
(f) Compliance With Section 16(b). A person who is subject to Section
16(b) of the Exchange Act may only make an election to receive cash in full or
partial settlement of the Stock Appreciation Right or exercise a Stock
Appreciation Right during such time or times as are permitted by Rule 16b-3 or
any successor provision.
8. STOCK PURCHASE RIGHTS.
(a) Rights to Purchase. Stock Purchase Rights to purchase Restricted Stock
may be issued either alone, in addition to, or in tandem with other awards
granted under the Plan. After the Committee determines that it will offer Stock
Purchase Rights under the Plan, it shall advise the offeree in writing of the
terms, conditions and restrictions related to the offer, including the number of
shares of Common Stock that such person shall be entitled to purchase, the price
to be paid, and the time within which such person must accept such offer, which
shall in no event exceed 60 days from the date the Stock Purchase Right was
granted. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement (the "Purchase Agreement") in the form determined by the Committee.
(b) Repurchase Option. Unless the Committee determines otherwise, the
Purchase Agreement shall grant the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or Disability). The purchase price for
Shares repurchased pursuant to the Purchase Agreement shall be the original
price paid by the purchaser and may be paid by cancellation of any indebtedness
of the purchaser to the Company. The repurchase option shall lapse at such rate
as the Committee may determine.
(c) Other Provisions. The Purchase Agreement shall contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Committee in its sole discretion. The provisions of Purchase
Agreements need not be the same with respect to each purchaser.
9. LONG-TERM PERFORMANCE AWARDS.
(a) Administration. Long-Term Performance Awards are stock bonus awards
that may be granted either alone or in addition to other awards granted under
the Plan. Such awards shall be granted for no cash consideration. The Committee
shall determine the nature, length and starting date of any performance period
(the "Performance Period") for each Long-Term Performance Award, and shall
determine the performance factors to be used in the determination of a Long-Term
Performance Award and the extent to which such Long-Term Performance Awards have
been earned. Long-Term Performance Awards may vary from Participant to
Participant and between groups of Participants and shall be based upon
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the achievement of Company, Parent, Subsidiary or Affiliate, or upon such
individual performance factors or upon such other criteria as the Committee may
deem appropriate. Performance Periods may overlap and Participants may
participate simultaneously with respect to Long-Term Performance Awards that are
subject to different Performance Periods and different performance factors and
criteria. Long-Term Performance Awards shall be confirmed by, and be subject to
the terms of, a Long-Term Performance Award agreement. The terms of such awards
need not be the same with respect to each Participant.
At the beginning of each Performance Period, the Committee shall determine
for each Long-Term Performance Award subject to such Performance Period, the
number of shares of Common Stock to be awarded to the Participant at the end of
the Performance Period if and to the extent that the relevant measures of
performance for such Long-Term Performance Award are met. Such number of shares
of Common Stock may be fixed or may vary in accordance with such performance or
other criteria as maybe determined by the Committee.
(b) Adjustment of Awards. The Committee may adjust the performance factors
applicable to the Long-Term Performance Awards to take into account changes in
law, accounting and tax rules and to make such adjustments as the Committee
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances in order to
avoid windfalls or hardships.
(c) Termination. Unless otherwise provided in the applicable Long-Term
Performance Award agreement, if a Participant terminates his or her employment
or his or her consultancy during a Performance Period because of death or
Disability, the Committee may provide for an earlier payment in settlement of
such award in such amount and under such terms and conditions as the Committee
deems appropriate.
Except as otherwise provided in the applicable Long-Term Performance Award
agreement, if a Participant terminates employment or his or her consultancy
during a Performance Period for any other reason, then such a Participant shall
not be entitled to any payment with respect to the Long-Term Performance Award
subject to such Performance Period, unless the Committee shall otherwise
determine.
(d) Form of payment. The earned portion of a Long-Term Performance Award may
be paid currently or on a deferred basis with such interest or earnings
equivalent as may be determined by the Committee. Payment shall be made in the
form of cash, whole shares of Common Stock, including Restricted Stock, or a
combination thereof, either in a lump sum payment or in installments, all as the
Committee shall determine. If and to the extent the full amount of a Long-Term
Performance Award in not paid in Common Stock, then the shares of Common Stock
representing the portion of the value of the Long-Term Performance Award not
paid in Common Stock shall again become available for award under the Plan.
10. WITHHOLDING TAXES.
(a) Withholding Generally. Whenever; under the Plan, Shares are to be issued
in satisfaction of Options, Rights or Long-Term Performance Awards granted
hereunder, the
12
<PAGE>
Company shall have the right to require the recipient to remit to the Company an
amount sufficient to satisfy federal, state, or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
Shares. Whenever, under the Plan, payments are to be made in cash, such payment
shall be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
(b) Stock Withholding. When a Participant incurs tax liability in connection
with the exercise or vesting of any Option, Right or Long-Term Performance
Award, which tax liability is subject to tax withholding under applicable tax
laws, and the Participant is obligated to pay the Company an amount required to
be withheld under applicable tax laws, the Participant may satisfy the
withholding tax obligation by electing to have the Company withhold from the
Shares to be issued that number of Shares having a Fair Market Value equal to
the amount required to be withheld, determined on the date that the amount of
tax to be withheld is to be determined (the "Tax Date"); provided however that
the Company shall not allow withholding of Shares upon exercise or vesting of
any Option, Right or Long-Term Performance Award in an amount which exceeds the
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes. Any surrender by an Insider of previously owned Shares
to satisfy tax withholding obligations arising upon exercise of an Option must
comply with the applicable provisions of Rule 16b-3.
All elections by a Participant to have Shares withheld for this purpose shall be
made in writing in a form acceptable to the Committee and shall be subject to
the following restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
(ii) once made, the election shall be irrevocable as to the particular
Shares as to which the election is made; and
(iii) all elections shall be subject to the consent or disapproval of the
Committee.
In the event the election to have shares withheld is made by a Participant
who is an Insider and the Tax Date is deferred until six months after exercise
of the Option under Section 83(b) of the Code, the Participant shall receive the
full number of Shares with respect to which the exercise occurs, but such
Participant shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
11. ADJUSTMENT OF SHARES. In the event that the number of outstanding shares of
Common Stock of the Company is changed by a stock dividend, stock split, reverse
stock split, combination, reclassification or similar change in the capital
structure of the Company without consideration, the number of Shares available
under this Plan and the number of Shares deliverable in connection with any
Option, Right or Long-Term Performance Award, and the exercise price per share
of such Options shall be proportionately adjusted, subject to any required
action by the Board or stockholders of the Company and compliance with the
Applicable Laws; provided, however, that no certificate or scrip representing
fractional shares shall be issued and any resulting fractions of a share shall
be ignored.
13
<PAGE>
12. ASSUMPTION OF OPTIONS BY SUCCESSORS.
(a) Assumption. In the event of a dissolution or liquidation of the Company,
a merger in which the Company is not the surviving corporation (other than a
merger with a wholly owned subsidiary or where there is no substantial change in
the stockholders of the Company and the obligations of the Company under this
Plan are assumed by the successor corporation), the sale of substantially all of
the assets of the Company, or, any other transaction which qualifies as a
"corporate transaction" under Section 425(a) of the Code wherein the
stockholders of the Company give up all of their equity interest in the Company
(except for the acquisition of all or substantially all of the outstanding
shares of the Company), any or all outstanding Options and Rights,
notwithstanding any contrary terms of the Plan, shall accelerate and become
exercisable in full prior to and shall expire on the consummation of such
dissolution, liquidation, merger or sale of assets at such times and on such
conditions as the Committee shall determine unless the successor corporation
assumes the outstanding obligations or substitutes substantially equivalent
Options or Rights. Any Option or Right held by a Participant whose employment
with the successor corporation is terminated by such corporation without cause,
within twelve (12) months after consummation of the merger, consolidation or
sale of assets, shall accelerate and become immediately and fully exercisable
upon such termination.
(b) Acceleration Upon Unfriendly Takeover. Notwithstanding anything in
Section 12(a) hereof to the contrary, if fifty percent (50%) or more of the
outstanding voting securities of the Company becomes beneficially owned (as
defined in Rule 13d-3 promulgated by the SEC) by a person (as defined in Section
2(2) of the Securities Act and in Section 13(d)(3) of the Exchange Act) in a
transaction or series of transactions expressly disapproved by the Board, then
all outstanding Options or Rights under this Plan shall become immediately
exercisable with no further act or action required by the Committee.
13. EMPLOYMENT RELATIONSHIP. Nothing in the Plan or any award made thereunder
shall interfere with or limit in any way the right of the Company or of any
Parent, Subsidiary or Affiliate to terminate any recipient's employment or
consulting relationship at any time, with or without cause, nor confer upon any
Participant any right to continue in the employ or service of the Company or any
Parent, Subsidiary or Affiliate.
14. GENERAL RESTRICTION. Each award shall be subject to the requirement that,
if, at any time, the Committee shall determine, in its discretion, that the
listing, registration, or qualification of the shares subject to such award upon
any securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, such award or the issue or purchase of
Shares thereunder, such award may not be exercised in whole or in part unless
such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board.
15. RIGHTS AS A STOCKHOLDER. The holder of an Option, Right or Long-Term
Performance Award shall have no rights as a stockholder with respect to any
Shares covered by the Option, Right or Long-Term Performance Award until the
date of exercise.
14
<PAGE>
Once an Option, Right or Long-Term Performance Award is exercised by the holder
thereof, the Participant shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her holding is entered upon
the records of the duly authorized transfer agent of the Company. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
16. NONASSIGNABILITY OF AWARDS. Except as otherwise provided in Section 6(f)
hereof, no awards made hereunder shall be assignable or transferable by the
recipient except by will or by the laws of descent and distribution and as
otherwise consistent with the specific Plan provisions relating thereto. During
the life of the recipient, an Option, Right or Long-Term Performance Award shall
be exercisable only by him or her.
17. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board,
the submission of the Plan to the stockholders of the Company for approval, nor
any provisions of the Plans shall be construed as creating any limitations on
the power of the Board to adopt such additional compensation arrangements as it
may deem desirable, including without limitation, the granting of Options
otherwise than under the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
18. ADOPTION AND STOCKHOLDER APPROVAL. This Plan shall become effective on the
date that it is adopted by the Board of the Company. This Plan shall be approved
by the stockholders of the Company, in any manner permitted by applicable
corporate law, within twelve months before or after the date this Plan is
adopted by the Board. Upon the effective date of the Plan, the Board may grant
awards pursuant to this Plan; provided that, in the event that stockholder
approval is not obtained within the time period provided herein, all awards
granted hereunder shall terminate.
19. TERM OF PLAN. Awards may be granted pursuant to this Plan from time to time
within a period of ten (10) years from the date on which this Plan is adopted by
the Board.
20. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or
amend this Plan in any respect including (but not limited to) amendment of any
form of grant, exercise agreement or instrument to be executed pursuant to this
Plan; provided, however, that the Board shall not, without the approval of the
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act
or Rule 16b-3 (or its successor) promulgated thereunder. In any case, no
amendment of this Plan may adversely affect any then outstanding award or any
unexercised portions thereof, without the written consent of the Participant.
15
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<PAGE>
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<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
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<SECURITIES> 816,607
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14,093
0
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