<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark
One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
COMMISSION FILE NUMBER: 0-19058
----------------
PLATINUM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3509662
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 620-5000
----------------
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 [ ]
AS OF AUGUST 11, 1998, THERE WERE OUTSTANDING 85,796,685 SHARES OF COMMON
STOCK, PAR VALUE $.001, OF THE REGISTRANT.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Auditors' Review Report................................... 3
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997.................................................... 4
Consolidated Statements of Operations for the three months and six
months ended June 30, 1998 (unaudited) and 1997 (unaudited).......... 5
Consolidated Statements of Comprehensive Income for the three months
and six months ended June 30, 1998 (unaudited) and 1997 (unaudited).. 6
Consolidated Statements of Cash Flows for the six months ended June
30, 1998 (unaudited) and 1997 (unaudited)............................ 7
Notes to Consolidated Financial Statements............................ 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 10
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................... 20
Item 2. Changes in Securities and Use of Proceeds....................... 20
Item 4. Submission of Matters to a Vote of Security-Holders............. 20
Item 6. Exhibits and Reports on Form 8-K................................ 21
SIGNATURES................................................................ 22
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
PLATINUM technology, inc.:
We have reviewed the consolidated balance sheet of PLATINUM technology, inc.
and subsidiaries as of June 30, 1998, and the related consolidated statements
of operations and comprehensive income for the three and six month periods
ended June 30, 1998 and 1997 and cash flows for the six month periods ended
June 30, 1998 and 1997. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the supplemental consolidated balance sheet of PLATINUM technology,
inc. and subsidiaries as of December 31, 1997, and the related supplemental
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended (not presented herein); and in our report dated May 28,
1998, we expressed an unqualified opinion on those supplemental consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1997 is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
July 14, 1998
3
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
------ ----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $176,620 $233,024
Short-term investment securities......................... 124,221 79,699
Trade accounts receivable, net of allowances of $3,821
and $4,788.............................................. 212,873 227,964
Installment accounts receivable, net of allowances of
$667 and $878........................................... 28,946 30,043
Accrued interest and other current assets................ 55,696 37,090
Refundable income taxes.................................. 605 753
-------- --------
Total current assets................................. 598,961 608,573
-------- --------
Non-current investment securities.......................... 11,956 45,481
Property and equipment, net................................ 86,255 92,165
Purchased and developed software, net ..................... 138,476 117,213
Excess of cost over net assets acquired, net of accumulated
amortization of $21,720 and $15,975....................... 63,612 52,759
Non-current installment receivables, net of allowances of
$1,305 and $1,616......................................... 44,444 21,912
Other assets............................................... 37,611 34,804
-------- --------
Total assets......................................... $981,315 $972,907
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables............................. $ 20,470 $ 15,717
Income taxes payable..................................... 5,473 4,165
Accounts payable......................................... 19,365 23,294
Accrued commissions and bonuses.......................... 12,610 16,237
Accrued royalties........................................ 6,427 7,215
Accrued restructuring costs.............................. 7,119 7,391
Other accrued liabilities................................ 65,305 51,946
Current maturities of long-term obligations.............. 1,633 1,619
Deferred revenue......................................... 134,099 128,326
-------- --------
Total current liabilities............................ 272,501 255,910
-------- --------
Acquisition-related payables............................... 12,146 18,320
Deferred revenue........................................... 69,222 60,435
Deferred rent.............................................. 6,500 6,197
Accrued restructuring costs................................ 18,111 21,930
Long-term obligations, net of current maturities........... 268,414 267,239
-------- --------
Total liabilities.................................... 646,894 630,031
-------- --------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized
10,000 shares, issued and outstanding 1,768............. 18 --
Subscribed Class II preferred stock, $.01 par value;
1,768 shares subscribed in 1997......................... -- 18
Common stock, $.001 par value; authorized 180,000 shares,
issued and outstanding 84,094 and 80,239................ 84 80
Paid-in capital.......................................... 749,992 691,609
Accumulated deficit...................................... (410,899) (352,450)
Accumulated other comprehensive income:
Unrealized holding gains on marketable securities...... 1,659 8,466
Foreign currency translation adjustment................ (6,433) (4,847)
-------- --------
Total stockholders' equity........................... 334,421 342,876
-------- --------
Total liabilities and stockholders' equity........... $981,315 $972,907
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1997* 1998 1997*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software products.................... $113,408 $ 84,160 $204,861 $153,369
Maintenance.......................... 42,698 34,647 81,617 67,064
Professional services................ 61,329 45,375 116,675 84,939
-------- -------- -------- --------
Total revenues..................... 217,435 164,182 403,153 305,372
-------- -------- -------- --------
Costs and expenses:
Professional services................ 54,660 41,178 105,153 79,166
Product development and support...... 59,299 51,161 116,970 98,919
Sales and marketing.................. 73,834 58,437 134,814 117,593
General and administrative........... 16,510 24,420 32,813 37,797
Restructuring charges................ -- 56,063 -- 56,063
Merger costs......................... 39,965 -- 39,965 3,706
Acquired in-process technology....... 30,465 6,747 30,465 17,164
-------- -------- -------- --------
Total costs and expenses........... 274,733 238,006 460,180 410,408
-------- -------- -------- --------
Operating loss......................... (57,298) (73,824) (57,027) (105,036)
Other income, net...................... 4,628 6,162 10,019 9,187
-------- -------- -------- --------
Loss from continuing operations before
income taxes.......................... (52,670) (67,662) (47,008) (95,849)
Income taxes........................... 5,334 7,681 7,534 2,737
-------- -------- -------- --------
Net loss from continuing operations.... (58,004) (75,343) (54,542) (98,586)
-------- -------- -------- --------
Loss from discontinued operations, net
of tax benefit of
$901 and $831......................... -- (1,477) -- (1,278)
-------- -------- -------- --------
Net loss............................... $(58,004) $(76,820) $(54,542) $(99,864)
======== ======== ======== ========
Net loss per share--basic.............. $ (0.70) $ (0.99) $ (0.67) $ (1.30)
======== ======== ======== ========
Shares used in computing per share
amounts--basic........................ 82,331 77,404 81,642 77,003
======== ======== ======== ========
</TABLE>
- --------
* Results for the three and six months ended June 30, 1997 are restated for
acquisitions accounted for using the pooling-of-interests method.
See accompanying notes to consolidated financial statements.
5
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
1998 1997* 1998 1997*
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net loss............................... $(58,004) $(76,820) $(54,542) $ (99,864)
-------- -------- -------- ---------
Other comprehensive income (loss), net
of tax:
Foreign currency translation
adjustment.......................... (1,000) 422 (1,586) (2,116)
-------- -------- -------- ---------
Unrealized holding gains (losses) on
marketable securities:
Unrealized holding gains (losses)
arising during the period......... (6,388) 5,253 (292) 538
Less reclassification adjustment
for gains included in net loss.... (5,535) (4,980) (6,515) (6,960)
-------- -------- -------- ---------
Change in unrealized holding
gains (losses) for the period... (11,923) 273 (6,807) (6,422)
-------- -------- -------- ---------
Comprehensive loss..................... $(70,927) $(76,125) $(62,935) $(108,402)
======== ======== ======== =========
</TABLE>
- --------
* Results for the three and six months ended June 30, 1997 are restated for
acquisitions accounted for using the pooling-of-interests method.
See accompanying notes to consolidated financial statements.
6
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997*
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (54,542) $(99,864)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 39,638 29,054
Acquired in-process technology........................ 30,465 17,164
Write-off of fixed assets, capitalized software and
other intangible assets in conjunction with the
restructuring plan................................... -- 19,687
Unrealized net holding gains on marketable equity
securities........................................... (376) (5,050)
Realized net gain on sales of investment securities... (12,069) (3,596)
Noncash compensation.................................. -- 56
Sales of trading securities............................. 13,918 4,598
Changes in assets and liabilities, net of acquisitions:
Trade and installment receivables..................... (5,998) 27,944
Deferred income taxes................................. 5,204 (351)
Accrued interest and other current assets............. (18,597) (12,455)
Accounts payable and accrued liabilities.............. 12,382 24,865
Deferred revenue...................................... 13,532 9,548
Income taxes payable.................................. 1,337 (528)
Other................................................. (4,833) (6,963)
--------- --------
Net cash provided by operating activities........... 20,061 4,109
--------- --------
Cash flows from investing activities:
Purchases of investment securities...................... (151,690) (30,754)
Sales of available-for-sale securities.................. 4,508 8,079
Maturities of investment securities..................... 122,400 7,098
Purchases of property and equipment..................... (15,324) (15,291)
Purchased and developed software........................ (35,486) (30,897)
Payments for acquisitions............................... (22,562) (8,998)
Other assets............................................ (1,366) (2,685)
--------- --------
Net cash used in investing activities............... (99,520) (73,448)
--------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and Stock
Purchase Plan.......................................... 24,867 8,645
Payments on borrowings.................................. (1,427) (4,482)
--------- --------
Net cash provided by financing activities........... 23,440 4,163
--------- --------
Adjustment to conform fiscal years of pooled businesses... (385) 254
--------- --------
Net decrease in cash and cash equivalents................. (56,404) (64,922)
Cash and cash equivalents at the beginning of the period.. 233,024 178,661
--------- --------
Cash and cash equivalents at the end of the period........ $ 176,620 $113,739
========= ========
</TABLE>
- --------
* Cash flows for the six months ended June 30, 1997 are restated for
acquisitions accounted for using the pooling-of-interests method.
See accompanying notes to consolidated financial statements.
7
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
PLATINUM technology, inc. and its subsidiaries (collectively, the "Company" or
"PLATINUM") reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
presented. All such adjustments are of a normal recurring nature. All
intercompany accounts and transactions have been eliminated.
These unaudited interim consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 1997, included in the Company's
Annual Report on Form 10-K (the "Form 10-K") and the Company's audited
supplemental consolidated financial statements and notes thereto for the year
ended December 31, 1997, included in the Company's Current Report on Form 8-K
dated August 4, 1998 (the "Form 8-K"), each as filed with the Securities and
Exchange Commission. The Company filed the Form 8-K to include "Selected
Supplemental Consolidated Financial Data," "Supplemental Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Supplemental Consolidated Financial Statements of the Company, and related
notes and schedules thereto, for the periods, and as of the dates, covered by
the Form 10-K. This supplemental financial information has been restated to
give retroactive effect to the acquisitions of Mastering, Inc. ("Mastering"),
Learmonth and Burchett Management Systems Plc ("LBMS") and Logic Works, Inc.
("Logic Works"), each of which has been accounted for as a pooling of interests
(see "Note 3--Business Combinations" below). The Supplemental Consolidated
Financial Statements become the historical consolidated financial statements of
the Company upon the filing of this Quarterly Report on Form 10-Q.
Certain prior period costs and expenses have been reclassified to conform to
the current period presentation.
NOTE 2--EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of shares
outstanding and excludes the dilutive effect of common stock equivalents.
Diluted earnings per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of common stock equivalents.
Because the Company reported a net loss for the three and six month periods
ended June 30, 1998 and 1997, per share amounts have been presented under the
basic method only.
NOTE 3--BUSINESS COMBINATIONS
On April 21, 1998, the Company acquired all of the outstanding capital stock
of Mastering, Inc. ("Mastering"), a leading provider of information technology
training, in exchange for 6,497,094 shares of the Company's Common Stock, $.001
par value ("Common Stock"), which had a market value, based upon the closing
price of the Common Stock on the Nasdaq National Market ("Market Value"), of
approximately $168,100,000 on the date the acquisition was consummated. In
addition, the Company assumed stock options which converted into options to
purchase 2,193,219 shares of Common Stock.
On May 12, 1998, the Company acquired all of the outstanding capital stock of
Learmonth and Burchett Management Systems Plc ("LBMS"), a leading provider of
process management solutions, in exchange for 2,775,595 shares of the Company's
Common Stock, which had a Market Value of approximately $72,000,000 on the date
the acquisition was consummated. In addition, the Company exchanged options to
purchase 430,736 shares of Common Stock for outstanding LBMS stock options.
On May 28, 1998, the Company acquired all of the outstanding capital stock of
Logic Works, Inc. ("Logic Works"), a leading provider of data modeling tools,
in exchange for 7,424,447 shares of the Company's Common Stock, which had a
Market Value of approximately $197,200,000 on the date the acquisition was
8
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consummated. In addition, the Company assumed stock options which converted
into options to purchase 1,160,609 shares of Common Stock.
Each of the aforementioned transactions was accounted for as a pooling of
interests.
On June 12, 1998, the Company acquired all of the outstanding capital stock
of Geneva Software, Inc. ("Geneva Software"), a leading provider of network
management tools, in exchange for 920,615 shares of Common Stock, which had a
Market Value of approximately $22,200,000 at the time of the acquisition.
These shares of Common Stock were issued pursuant to the Company's
Registration Statement on Form S-1 (Registration No. 333-07783). This
acquisition was accounted for under the purchase method, and a significant
portion of the purchase price was charged to acquired in-process technology in
the second quarter of 1998. The pro forma operating results (as if Geneva
Software had been acquired at the beginning of each period presented) are not
material to the accompanying consolidated financial statements.
During the second quarter of 1998, the Company also acquired certain other
software businesses and product technologies, in transactions accounted for as
purchases, for an aggregate purchase price of approximately $20,000,000.
The Company incurred significant costs and expenses in connection with these
acquisitions, including investment banking and other professional fees,
employees' severance and various other expenses. Such expenses were recorded
as part of the purchase price in connection with the acquisitions accounted
for as purchases. For the acquisitions accounted for as poolings of interests,
these expenses were recorded as merger costs in the second quarter of 1998.
The following unaudited information reconciles total revenues and net loss
of PLATINUM as reported in the Form 10-K with the amounts presented in the
accompanying unaudited statements of operations for the six months ended June
30, 1997, as well as the separate results of operations for the six months
ended June 30, 1998 of Mastering, LBMS and Logic Works during the periods
preceding their acquisition. The 1998 results for Mastering and LBMS represent
the four months ended April 30, 1998. The 1998 results for Logic Works
represent the five months ended May 31, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------------- ------------------
NET
NET INCOME INCOME
REVENUES (LOSS) REVENUES (LOSS)
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
PLATINUM (1)...................... $252,061 $(104,202)
Mastering....................... $13,428 $(5,078) 18,704 380
LBMS............................ 5,981 (865) 12,086 3,098
Logic Works..................... 21,191 575 22,521 860
-------- ---------
Total......................... $305,372 $ (99,864)
======== =========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM as reported in the Form 10-K
without considering the effect of the pooling-of-interests transactions
consummated in 1998. All merger costs are reflected in the historical
results of PLATINUM.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
During the first six months of 1998, the Company consummated acquisitions of
Mastering, Inc. ("Mastering"), Learmonth and Burchett Management Systems Plc
("LBMS") and Logic Works, Inc. ("Logic Works"), each of which has been
accounted for using the pooling-of-interests method. As a result, the
Company's Consolidated Financial Statements included herein are presented as
if the Company and such acquired companies had been consolidated for all
periods presented. Information regarding the Company in this Management's
Discussion and Analysis of Financial Condition and Results of Operations gives
retroactive effect to these acquisitions. In addition, the Company has
consummated a number of acquisitions accounted for as purchases, in which
cases the acquired businesses have been included in the Company's results of
operations beginning with the effective dates of the acquisitions.
RESULTS OF OPERATIONS
The following table sets forth the percentages that selected items in the
Consolidated Statements of Operations bear to total revenues.
<TABLE>
<CAPTION>
SIX
THREE MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------- -----------
1998 1997 1998 1997
------ ------ ---- ----
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Software products............................ 52% 51% 51% 50%
Maintenance.................................. 20 21 20 22
Professional services........................ 28 28 29 28
------ ------ --- ---
Total revenues............................. 100 100 100 100
------ ------ --- ---
Costs and expenses:
Professional services........................ 25 25 26 26
Product development and support.............. 27 31 29 32
Sales and marketing.......................... 34 36 33 39
General and administrative................... 8 15 8 12
Restructuring charges........................ -- 34 -- 18
Merger costs................................. 18 -- 10 1
Acquired in-process technology............... 14 4 8 6
------ ------ --- ---
Total costs and expenses................... 126 145 114 134
------ ------ --- ---
Operating loss................................. (26) (45) (14) (34)
Other income, net.............................. 2 4 2 3
------ ------ --- ---
Loss from continuing operations before income
taxes......................................... (24) (41) (12) (31)
Income taxes................................... 3 5 2 1
------ ------ --- ---
Net loss from continuing operations............ (27) (46) (14) (32)
------ ------ --- ---
Loss from discontinued operations, net of tax
benefit....................................... -- (1) -- (1)
------ ------ --- ---
Net loss....................................... (27)% (47)% (14)% (33)%
====== ====== === ===
</TABLE>
Revenues
The Company's revenues are derived from three sources: (1) license and
upgrade fees for licensing the Company's proprietary and other parties'
software products and providing additional processing capacity on already-
licensed products, (2) maintenance fees for maintaining, supporting and
providing updates and enhancements to software products, and (3) revenues from
the Company's professional services business. Total
10
<PAGE>
revenues for the second quarter of 1998 were $217,435,000, an increase of
$53,253,000, or 32%, as compared to $164,182,000 for the second quarter of
1997. Total revenues for the first six months of 1998 were $403,153,000, an
increase of $97,781,000, or 32%, as compared to $305,372,000 for the same
period in 1997. The Company's database management (principally products
relating to IBM's DB2 relational database management software), systems
management, application lifecycle, and data warehousing and decision support
business units experienced growth of 39%, 58%, 16% and 1%, respectively, in
total software products and maintenance revenues during the second quarter of
1998, as compared to the second quarter of 1997. For the first six months of
1998, as compared to the same period in 1997, the database management, systems
management and application lifecycle business units experienced growth of 53%,
54% and 9%, respectively, in total software products and maintenance revenues.
Total software products and maintenance revenues for the Company's data
warehousing and decision support business unit decreased by 8% for the first
six months of 1998, as compared to the same period in 1997. Revenues for this
business unit were higher in the first six months of 1997 because the Company
executed a data warehousing and decision support transaction for approximately
$6,000,000 in that period and did not execute a comparable transaction in the
first six months of 1998. Revenues from international customers, principally
in Western Europe, represented 28% of total revenues for the second quarter of
both 1998 and 1997 and 27% for the first six months of both 1998 and 1997.
The Company has a diversified customer base, with no single customer
representing greater than 10% of its total revenues generated in the second
quarter or first six months of either 1998 or 1997. The Company estimates that
sales to repeat customers represented over 90% of its revenues generated in
the second quarter and first six months of both 1998 and 1997.
The table below sets forth, for the periods indicated, the Company's primary
sources of revenues expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
SIX
THREE MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------- ----------
1998 1997 1998 1997
------ ------ ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software products:
Licenses................................ 33% 39% 34% 40%
Upgrades................................ 19 12 17 10
------ ------ --- ---
Total software products............... 52 51 51 50
------ ------ --- ---
Maintenance............................... 20 21 20 22
Professional services..................... 28 28 29 28
------ ------ --- ---
Total revenues........................ 100% 100% 100% 100%
====== ====== === ===
</TABLE>
Software Products. Software products revenues for the second quarter of 1998
were $113,408,000, an increase of $29,248,000, or 35%, as compared to
$84,160,000 for the second quarter of 1997. Software products revenues for the
first six months of 1998 were $204,861,000, an increase of $51,492,000, or
34%, as compared to $153,369,000 for the first six months of 1997. The
substantial majority of the increase in software products revenues in the
second quarter and first six months of 1998, as compared to the same periods
in 1997, resulted from increases in the volume of sales of existing products.
A smaller, but still significant, portion of the increase related to sales of
newly introduced products, while only a small percentage was attributable to
price increases. In the second quarter of 1998, the Company's database
management, systems management, application lifecycle, and data warehousing
and decision support business units represented 34%, 33%, 19% and 14%,
respectively, of total software products revenues. In the first six months of
1998, the Company's database management, systems management, application
lifecycle, and data warehousing and decision support business units
represented 38%, 29%, 19% and 14%, respectively, of total software products
revenues.
Maintenance. Maintenance revenues for the second quarter of 1998 were
$42,698,000, an increase of $8,051,000, or 23%, as compared to $34,647,000 for
the second quarter of 1997. Maintenance revenues for the
11
<PAGE>
first six months of 1998 were $81,617,000, an increase of $14,553,000, or 22%,
as compared to $67,064,000 for the same period in 1997. The increase in
maintenance revenues in the second quarter and first six months of 1998, as
compared to the same periods in 1997, was primarily attributable to the
expansion of the Company's installed customer base, from which maintenance
fees are derived. Because maintenance fees are implicit in certain new
software product licenses, the increase in software licensing transactions
also contributed to the increase in maintenance revenues. In the second
quarter of 1998, the Company's database management, systems management,
application lifecycle, and data warehousing and decision support business
units represented 37%, 23%, 21% and 19%, respectively, of total maintenance
revenues. In the first six months of 1998, the Company's database management,
systems management, application lifecycle, and data warehousing and decision
support business units represented 37%, 22%, 22% and 19%, respectively, of
total maintenance revenues.
Professional Services. Professional services revenues for the second quarter
of 1998 were $61,329,000, an increase of $15,954,000, or 35%, as compared to
$45,375,000 for the second quarter of 1997. Professional services revenues for
the first six months of 1998 were $116,675,000, an increase of $31,736,000, or
37%, as compared to $84,939,000 for the same period in 1997. The growth in
professional services revenues during the second quarter and first six months
of 1998 was primarily attributable to an increase in billable consultants, as
well as a higher ratio of billable hours to total hours worked ("utilization
rate"). To a lesser extent, increases in rates charged per billable hour and
revenues associated with recently acquired consulting businesses contributed
to this growth.
Costs and Expenses
Total expenses for the second quarter of 1998 were $274,733,000, an increase
of $36,727,000, or 15%, over total expenses of $238,006,000 for the second
quarter of 1997. Total expenses for the first six months of 1998 were
$460,180,000, an increase of $49,772,000, or 12%, as compared to $410,408,000
for the same period in 1997. Excluding restructuring charges, merger costs,
acquired in-process technology charges and the integration-related charges
discussed under "General and Administrative" below (collectively, "Special
Charges"), total expenses for the second quarter of 1998 of $204,303,000
represented an increase of $42,620,000, or 26%, as compared to $161,683,000
for the second quarter of 1997. Excluding Special Charges, total expenses for
the first six months of 1998 of $389,750,000 represented an increase of
$69,788,000, or 22%, as compared to $319,962,000 for the same prior-year
period. Total expenses, excluding Special Charges, represented 94% and 97% of
total revenues for the second quarter and first six months of 1998,
respectively, as compared to 98% and 105% for the same periods in 1997. As a
percentage of total revenues, total expenses, excluding Special Charges,
decreased in the second quarter and first six months of 1998 primarily due to
overall cost containment efforts and the savings realized by the restructuring
plan implemented in May 1997.
Professional Services. Costs of professional services for the second quarter
of 1998 were $54,660,000, an increase of $13,482,000, or 33%, as compared to
$41,178,000 for the second quarter of 1997. Costs of professional services for
the first six months of 1998 were $105,153,000, an increase of $25,987,000, or
33%, as compared to $79,166,000 for the first six months of 1997. The increase
in professional services expenses in the second quarter and first six months
of 1998, as compared to the same periods in 1997, was primarily attributable
to an increase in the number of consultants resulting from the Company's
continued hiring to support this business, as well as recent acquisitions.
Greater commission and bonus expenses associated with higher professional
services revenues during these periods also contributed to the increase.
Professional services expenses represented 89% and 90% of professional
services revenues for the second quarter and first six months of 1998,
respectively, as compared to 91% and 93% for the same periods in 1997. The
increased productivity of the consulting staff and improved utilization rates
resulted in the decrease in professional services expenses as a percentage of
professional services revenues during the second quarter and first six months
of 1998.
Product Development and Support. Product development and support expenses
for the second quarter of 1998 were $59,299,000, an increase of $8,138,000, or
16%, as compared to $51,161,000 for the second quarter of 1997. Product
development and support expenses for the first six months of 1998 were
$116,970,000, an
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increase of $18,051,000, or 18%, as compared to $98,919,000 for the same
period in 1997. The increase in these expenses during the second quarter and
first six months of 1998, as compared to the second quarter and first six
months of 1997, was primarily attributable to higher employee-related expenses
and system support costs associated with expanded product offerings and recent
acquisitions of businesses and technologies. Additionally, the Company
incurred higher bonus and royalty expenses related to greater revenues during
these periods. Product development and support expenses represented 27% and
29% of total revenues in the second quarter and first six months of 1998,
respectively, as compared to 31% and 32% for the same periods in 1997. During
the second quarter of 1997, the Company began consolidating certain product
development and support efforts to coincide with its product integration
focus. As a result of these consolidation initiatives and overall cost
containment efforts, the Company reduced product development and support
expenses as a percentage of total revenues during the second quarter and first
six months of 1998, as compared to the same periods in 1997.
For the second quarters of 1998 and 1997, the Company capitalized
$11,956,000 and $10,567,000, respectively, of software development costs net
of related amortization expense, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." For the first six months
of 1998 and 1997, the Company capitalized $22,449,000 and $19,044,000,
respectively, of software development costs net of related amortization
expense.
Sales and Marketing. Sales and marketing expenses for the second quarter of
1998 were $73,834,000, an increase of $15,397,000, or 26%, as compared to
$58,437,000 for the second quarter of 1997. Sales and marketing expenses for
the first six months of 1998 were $134,814,000, an increase of $17,221,000, or
15%, as compared to $117,593,000 for the first six months of 1997. The
increase in these expenses during the second quarter and first six months of
1998, as compared to the same prior-year periods, was primarily attributable
to costs associated with the significant expansion of the domestic and
international outside sales forces, as well as higher commission and bonus
expenses related to the increase in software products revenues. The increase
in sales and marketing expenses during the six months ended June 30, 1998 was
partially offset by a decrease in expenses related to marketing promotions and
advertising campaigns resulting from a change in the Company's marketing
strategy and timing of marketing initiatives. Sales and marketing expenses
represented 34% and 33% of total revenues in the second quarter and first six
months of 1998, respectively, as compared to 36% and 39% for the same periods
in 1997. The decrease in sales and marketing expenses as a percentage of total
revenues during the second quarter and first six months of 1998, as compared
to the same periods in 1997, was primarily attributable to overall cost
containment efforts. Additionally, the decrease in expenses related to
marketing promotions and advertising campaigns, as discussed above,
contributed to the decrease in sales and marketing expenses as a percentage of
total revenues during the first six months of 1998.
General and Administrative. General and administrative expenses for the
second quarter of 1998 were $16,510,000, a decrease of $7,910,000, or 32%, as
compared to $24,420,000 for the second quarter of 1997. General and
administrative expenses for the first six months of 1998 were $32,813,000, a
decrease of $4,984,000, or 13%, as compared to $37,797,000 for the first six
months in 1997. General and administrative charges decreased in the second
quarter and first six months of 1998 primarily because the Company recorded
total charges of $13,513,000 during the second quarter of 1997 for write-offs
of certain assets, as well as severance and other employee-related expenses,
related to the integration procedures discussed below. The Company did not
record any similar charges during the first six months of 1998. In conjunction
with the restructuring plan executed during the second quarter of 1997, the
Company also performed additional integration procedures related to past
acquisition activity. The Company evaluated the fair value of assets recorded
through prior acquisitions and identified certain trade receivables, prepaid
expenses and intangible assets which had no future value. The respective
balances of these assets were written off during the second quarter of 1997.
Additionally, the Company expensed severance and other employee benefits,
including guaranteed bonuses, for certain employees of acquired companies who
were terminated as a result of the integration efforts, but not specifically
as part of the restructuring plan. Excluding these integration-related
charges, general and administrative expenses for the second quarter and first
six months of 1997 were $10,907,000 and $24,284,000, respectively. General and
administrative expenses in the second quarter and first six months of 1998
increased 51% and 35%,
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respectively, over general and administrative expenses, excluding integration-
related charges, in the same prior-year periods. These increases were
attributable primarily to higher employee-related expenses resulting from
recent acquisitions. Additionally, in the second quarter and first six months
of 1998, the Company incurred higher legal expenses related to certain on-going
legal proceedings, as well as greater amortization expense of excess of cost
over net assets acquired and greater amortization expense of intangible assets
relating to the Company's convertible debt offering executed in December 1997
(see "--Liquidity and Capital Resources").
General and administrative expenses represented 8% of total revenues for both
the second quarter and first six months of 1998, as compared to 15% and 12% for
the second quarter and first six months of 1997, respectively. Excluding the
integration-related charges, general and administrative expenses represented 7%
and 8% of total revenues in the second quarter and first six months of 1997,
respectively.
Restructuring Charges. During the second quarter of 1997, the Company
executed a restructuring plan to consolidate its sales, marketing, business
development and product development operations to achieve cost efficiencies
through the elimination of redundant functions. These redundancies resulted
primarily from businesses acquired over the previous three years. The Company
also realigned its business units and inside sales force to redirect focus on
its strongest product lines and better integrate the efforts of certain product
development teams. As part of the plan, the Company reduced its worldwide work
force by approximately 10%, eliminating approximately 400 positions, primarily
in the areas of product development and support, marketing and inside sales
and, to a lesser extent, professional services and administration.
The Company recorded a one-time charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: $24,032,000 for facility-related costs,
including a reserve for estimated lease obligations associated with the closing
of office facilities; $3,510,000 for write-offs of excess equipment, furniture
and fixtures; $19,413,000 for write-offs of capitalized software costs and
other intangible assets related to the termination of development efforts for
certain discontinued products, as well as penalties for the cancellation of
distributorship agreements for such products; and $10,364,000 for severance and
other employee-related costs of the terminated staff.
During the first six months of 1997, LBMS recorded a restructuring benefit of
$1,256,000 related to sublease rental activity. This benefit was offset against
the Company's restructuring charge discussed above.
As of June 30, 1998, the Company had $25,230,000 of accrued restructuring
costs recorded. The Company anticipates that approximately $5,000,000 of these
costs will be paid out during the second half of 1998. The Company estimates
that annual restructuring payments will be approximately $3,300,000 to
$4,000,000 for the years 1999 through 2002 and approximately $1,500,000 for the
year 2003. The Company expects to pay out approximately $300,000 annually in
the years 2004 through 2014.
Merger Costs. The Company incurred merger costs during the second quarter and
first six months of 1998 of $39,965,000. The Company did not incur merger costs
during the second quarter of 1997. Merger costs incurred during the first six
months of 1997 were $3,706,000. Merger costs relate to acquisitions accounted
for as poolings of interests and include investment banking and other
professional fees, employee severance payments, costs of closing excess office
facilities and various other expenses. The Company from time to time engages
in, and is currently engaged in, discussions relating to acquisitions that may
be material in size and/or scope and may involve issuances by the Company of a
significant number of shares of Common Stock. The Company continues to pursue
merger and acquisition opportunities, because it believes that acquisitions are
an essential part of the Company's strategy to compete effectively in its
rapidly evolving marketplace. The Company expects to incur merger costs in
connection with future acquisitions accounted for as poolings of interests.
These costs will be expensed in the periods in which the transactions are
consummated. See "--Recent Developments" below.
Acquired In-Process Technology. Acquired in-process technology costs were
$30,465,000 and $6,747,000 for the second quarter of 1998 and 1997,
respectively. Acquired in-process technology costs were $30,465,000
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and $17,164,000 for the first six months of 1998 and 1997, respectively.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies accounted for under the purchase method. In
these cases, portions of the purchase prices were allocated to acquired in-
process technology. The Company expects to continue to incur charges for
acquired in-process technology in connection with future acquisitions, which
will reduce operating and net income for the periods in which the acquisitions
are consummated.
Operating Loss
The Company incurred an operating loss of $57,298,000 and $57,027,000 in the
second quarter and first six months of 1998, respectively, as compared to an
operating loss of $73,824,000 and $105,036,000 in the same prior-year periods.
The Company had operating margins of (26)% and (14)% in the second quarter and
first six months of 1998, respectively, as compared to operating margins of
(45)% and (34)% for the same periods in 1997. Excluding Special Charges, the
Company had operating income of $13,132,000 and $13,403,000 for the second
quarter and first six months of 1998, respectively, as compared to operating
income of $2,499,000 and an operating loss of $14,590,000 for the second
quarter and first six months of 1997, respectively. Excluding Special Charges,
the Company had operating margins of 6% and 3% for the second quarter and
first six months of 1998, respectively, as compared to operating margins of 2%
and (5)% for the same periods in 1997. The Company's overall focus on cost
containment efforts and the savings realized from the restructuring plan
contributed to the improved operating margins in the second quarter and first
six months of 1998. Because acquisitions remain an integral part of the
Company's growth strategy, the Company expects to continue to incur merger
costs and acquired in-process technology charges (as well as expenses related
to the integration of acquired businesses) in future periods, which could
materially adversely affect operating results in the periods in which such
acquisitions are consummated and in subsequent periods. See "--Recent
Developments" below.
Other Income, Net
Other income for the second quarter of 1998 was $4,628,000, a decrease of
$1,534,000, or 25%, as compared to $6,162,000 for the second quarter of 1997.
Other income for the first six months of 1998 was $10,019,000, an increase of
$832,000, or 9%, as compared to $9,187,000 for the first six months of 1997.
The decrease in other income during the second quarter of 1998, as compared to
the second quarter of 1997, was primarily attributable to an increase in
interest expense resulting from the Company's issuance of convertible
subordinated notes in December 1997 (see "--Liquidity and Capital Resources"),
as well as a decrease in realized gains on sales of investment securities.
This decrease was partially offset by an increase in interest income due to
higher cash and investment balances during the second quarter of 1998, as
compared to the same period in 1997, as well as an increase in unrealized
holding gains on trading securities. The increase in other income during the
first six months of 1998, as compared to the first six months of 1997, was
primarily attributable to an increase in realized gains on sales of investment
securities, which were principally executed during the first quarter of 1998,
and an increase in interest income. This increase was partially offset by a
decrease in unrealized holding gains on trading securities, as well as the
increase in interest expense discussed above. Because unrealized holding gains
and losses for trading securities are reflected in pre-tax earnings,
fluctuations in the market value of these securities are continuously recorded
as additions to or deductions from other income until the securities are sold.
When these securities are ultimately sold, the Company reclassifies the
respective unrealized holding gains to realized gains.
Income Taxes
The Company's effective tax rate for the second quarter and the first six
months of 1998, excluding the Federal tax effect of Special Charges, was 30%
and 32%, respectively. This compares to an effective tax rate of 30% and 43%
for the same periods in 1997, exclusive of Special Charges. For the second
quarter of 1998, the Company reported income tax expense of $5,334,000, on a
pre-tax loss of $52,670,000, as compared to income tax expense of $7,681,000,
on a pre-tax loss of $67,662,000, for the second quarter of 1997. The Company
reported income tax expense of $7,534,000, on a pre-tax loss of $47,008,000
for the first six months of 1998, as
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compared to income tax expense of $2,737,000, on a pre-tax loss of
$95,849,000, for the first six months of 1997. For the second quarter and
first six months of 1997, the Company's total income tax expense included an
additional $5,070,000 to reduce the deferred tax asset balance as of June 30,
1997.
Net Loss
For the reasons discussed above, the Company incurred a net loss of
$58,004,000 in the second quarter of 1998, compared to a net loss of
$76,820,000 incurred in the second quarter of 1997. The Company incurred a net
loss of $54,542,000 for the first six months of 1998, compared to a net loss
of $99,864,000 incurred during the first six months of 1997. During the second
quarter and first six months of 1998, the Company incurred merger costs and
acquired in-process technology charges, as well as expenses related to the
integration of acquired businesses, which contributed significantly to the net
loss experienced by the Company. The Company also incurred Special Charges
during the second quarter and first six months of 1997, which had a
significant impact on the Company's net losses for these periods. See "--
Operating Loss" above for further discussion.
RECENT DEVELOPMENTS
On August 13, 1998, the Company entered into an agreement and plan of
merger, pursuant to which the Company has agreed to acquire MEMCO Software,
Ltd., a corporation organized under the laws of Israel ("MEMCO"). MEMCO is a
leading provider of information security software. Under the terms of this
acquisition, MEMCO will become a wholly-owned subsidiary of the Company. As of
August 10, 1998, the Company held 1,085,907 ordinary shares of MEMCO
(approximately 6% of the outstanding ordinary shares of MEMCO).
The Company has agreed to exchange approximately 13,700,000 shares of Common
Stock for all of the outstanding MEMCO ordinary shares (other than ordinary
shares owned by the Company), at a rate of 0.836 of a share of Common Stock
for each MEMCO ordinary share. In addition, the Company has agreed to assume
MEMCO stock options, which will convert into options to purchase approximately
3,050,000 shares of Common Stock. This acquisition, which is expected to be
consummated in the first quarter of 1999, is subject to the filing of a
registration statement with the Securities and Exchange Commission, approval
of the shareholders of MEMCO and customary legal and regulatory conditions.
This acquisition is expected to be accounted for as a pooling of interests.
Costs incurred in connection with this transaction will be expensed in the
quarter in which the acquisition is consummated.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company held approximately $312,797,000 of cash,
cash equivalents and investments, as compared to $358,204,000 as of December
31, 1997.
For the six months ended June 30, 1998, cash and cash equivalents decreased
$56,404,000 from $233,024,000 at the beginning of the period to $176,620,000
at the end of the period. This decrease was primarily attributable to cash
used in investing activities of $99,520,000. The principal components of
investing activities were purchases of investments, net of maturities, of
$29,290,000, purchased and developed software costs of $35,486,000 and
payments for acquisitions of $22,562,000. The cash used in investing
activities was partially offset by cash provided by financing and operating
activities of $23,440,000 and $20,061,000, respectively. Cash flows from
operating activities for the first six months of 1998 included proceeds from
sales of trading securities of $13,918,000. For the first six months of 1997,
cash and cash equivalents decreased $64,922,000, from $178,661,000 at the
beginning of the period to $113,739,000 at the end of the period. Cash used in
investing activities of $73,448,000 was partially offset by cash provided by
operating activities and financing activities of $4,109,000 and $4,163,000,
respectively.
In recent years, the Company's sources of liquidity have primarily been
funds from capital markets and the sales of installment receivables. The
Company believes the funding available to it from these sources, as well as
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cash flows from operations, will be sufficient to satisfy its working capital
and debt service requirements for the foreseeable future. The Company's
capital requirements are primarily dependent on management's business plan
regarding the levels and timing of investments in existing and newly-acquired
businesses and technologies. These plans and the related capital requirements
may change based upon various factors, such as the Company's strategic
opportunities, developments in the Company's markets, the timing of closing
and integrating acquisitions and the conditions of financial markets.
The Company had trade and installment accounts receivable, net of
allowances, of $286,263,000 and $279,919,000 at June 30, 1998 and December 31,
1997, respectively. The Company sells software products and services to
customers in diversified industries and geographic regions and, therefore, has
no significant concentration of credit risk. Historically, a substantial
amount of the Company's revenues have been recorded in the third month of any
given quarter, with a concentration of such revenues in the last week of the
third month. This trend results in a high balance of accounts receivable
relative to reported revenues at the end of any quarterly reporting period.
The Company sells a significant portion of its installment receivables to
third parties. Installment receivables represent amounts collectible on long-
term financing arrangements and include fees for product licenses, upgrades
and maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years, with
interest payable on the license and upgrade portions only. The Company's
installment receivables are recorded net of unamortized discounts and deferred
maintenance fees. When these receivables are sold, the Company reduces the
gross installment receivable balance. Additionally, the Company reclassifies
the deferred maintenance, which was previously reflected as a reduction of the
related installment receivable balance, to an obligation. The deferred
maintenance is recognized into income ratably over the term of the maintenance
agreement.
The Company has continued to execute an increasingly greater number and
higher dollar value of sales transactions having long-term financing
arrangements, primarily attributable to sales of product bundles and
integrated product suites. Consequently, the Company's volume of installment
receivable sales has continued to increase since 1995. The Company receives
proceeds equal to the entire installment receivable balance sold to a third
party finance company, net of an amount representing the interest to be earned
by the finance company. The finance company collects customer remittances over
the term of the agreement. Proceeds from the sale of installment receivables
were approximately $125,000,000 and $90,000,000 for the first six months of
1998 and 1997, respectively. The proceeds received in the first six months of
1998 related to transactions for which a substantial portion of the associated
revenues were recognized in the first six months of 1998 and prior periods,
while the remaining portion related to deferred maintenance and services
revenues. However, the Company also recognized deferred maintenance and
services revenues in the first six months of 1998 for which the Company had
previously received proceeds from sales of the related installment
receivables.
There were no accounts receivable sold with recourse during the first six
months of 1998 or 1997, and as of June 30, 1998, there were no remaining
potential recourse obligations for accounts receivable sold with recourse. The
Company has an agreement with a third party that provides for potential
recourse obligations in the form of a loss pool based on the performance of
the related accounts receivable portfolio. Under the terms of that agreement,
potential recourse obligations at June 30, 1998 were approximately
$17,017,000. Based on the credit ratings of the underlying obligors to the
accounts receivable and the performance history of the accounts receivable
portfolio, the Company has assessed the exposure related to these recourse
obligations and determined the potential liability to be minimal.
The Company had long-term acquisition-related payables of $12,146,000 and
$18,320,000 and other long-term obligations of $268,414,000 and $267,239,000
as of June 30, 1998 and December 31, 1997, respectively. The convertible
subordinated notes issued by the Company in November 1996 and December 1997
constituted the majority of the balances in long-term obligations at June 30,
1998 and December 31, 1997. The Company completed an offering of convertible
subordinated notes due December 15, 2002 in December 1997 (the "1997 Notes").
The 1997 Notes bear interest at 6.25% annually, and the holders of the 1997
Notes have the option to convert them into shares of Common Stock, at any time
prior to maturity, at a conversion price of $36.05 per
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share. The Company received proceeds, net of issuance costs, of $144,967,000
from the offering of the 1997 Notes. The Company completed an offering of
convertible subordinated notes due November 15, 2001 in November 1996 (the
"1996 Notes"). The 1996 Notes bear interest at 6.75% annually, and the holders
of the 1996 Notes have the option to convert them into shares of Common Stock,
at any time prior to maturity, at a conversion price of $13.95 per share. The
Company received proceeds, net of issuance costs, of $110,783,000 from the
offering of the 1996 Notes. The Company currently has total debt service
obligations of approximately $35,000,000 for 1998, consisting primarily of
obligations to pay interest on the 1996 Notes and the 1997 Notes, as well as
acquisition-related payables. Based on current outstanding indebtedness, the
Company estimates its debt service requirements to be approximately
$36,000,000, $18,000,000, $132,000,000 and $160,000,000 for 1999, 2000, 2001
and 2002, respectively, which amounts include the outstanding principal
balance of the 1996 Notes in 2001 and the outstanding principal balance of the
1997 Notes in 2002.
The Company currently has an unsecured bank line of credit of $55,000,000,
under which borrowings bear interest at rates ranging from approximately LIBOR
plus 1% to the bank's prime rate. As of August 11, 1998, the Company had no
outstanding borrowings under this line of credit, but had aggregate letters of
credit outstanding for approximately $3,728,000, with expiration dates ranging
from December 1998 to September 1999. These letters of credit reduce the
balance available under this line of credit. Under the credit agreement, the
Company has agreed: (i) to maintain a ratio of current assets to current
liabilities of at least 1.0 to 1.0; (ii) to maintain a tangible net worth of
not less than $100,000,000; and (iii) to maintain a ratio of total liabilities
to tangible net worth of not more than 1.0 to 1.0. Additionally, the Company
has a line of credit with a Japanese bank for approximately $1,700,000 (based
upon current exchange rates), under which borrowings bear interest at a rate
of 2.125%. As of August 11, 1998, the Company had outstanding borrowings of
approximately $1,505,000 under this line of credit.
FOREIGN CURRENCY EXCHANGE RATES
To date, fluctuations in foreign currency exchange rates have not had a
material effect on the Company's results of operations or liquidity. However,
the Company closely monitors its foreign operations and net asset position to
ascertain the need for hedging foreign currency exchange risk. Since 1997, the
only exposure related to foreign currency exchange for which the Company has
considered hedging appropriate has been related to short-term intercompany
balances. These non-functional currency balances are hedged by purchases and
sales of forward exchange contracts to reduce this exchange rate exposure. At
June 30, 1998, the Company held an aggregate of approximately $21,300,000 in
notional amount of forward exchange contracts. As the Company's operations
expand in international regions outside Western Europe, where the Company's
international operations are currently concentrated, the Company may
increasingly hedge foreign currency exchange risk.
YEAR 2000 CONSIDERATIONS
The Company has completed the implementation of an enterprise-wide financial
accounting system that is Year 2000 compliant. Further, the Company has
evaluated its internal software and computer systems and believes its costs
associated with addressing, and risk of operational disruption from internal
software or systems failures relating to, Year 2000 issues will be immaterial.
However, various payroll and employee benefit-related services are provided by
third parties. Based upon information provided by these parties, the Company
believes that certain of them are not yet fully Year 2000 compliant, but that
all of them will be Year 2000 compliant by the end of the first quarter of
1999. If any of these parties fail to become Year 2000 compliant, the Company
believes that alternatives (which may include internal company resources) are
readily available.
Additionally, the Company has developed and is implementing a strategy for
analysis of Year 2000 compliance with respect to services, building systems
and equipment at the locations at which it operates. All of the Company's
properties are leased, and the operations of, and services for, these
locations are controlled and provided by third parties. All of the Company's
landlords are being contacted regarding the status of Year 2000 compliance and
contingency planning for each property and associated costs which could affect
the Company. The Company believes this strategy will allow it to identify any
problem sites and implement any necessary contingency planning well in advance
of the arrival of the Year 2000.
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The Company believes that some of its customers may allocate a substantial
portion of their 1998 and 1999 IT budgets to products and services addressing
the Year 2000 problem. The Company is unable to determine whether this trend
will negatively impact sales of its traditional product offerings, but
believes that it has lead, and may continue to lead, to increased sales of its
Year 2000 products and services.
All of the software products that the Company currently sells or maintains
are Year 2000 compliant. However, certain of the Company's customers who have
discontinued maintenance may be running old product versions that are not Year
2000 compliant. Because the Company's products are typically used in high
volume information systems that are critical to customers' operations,
business interruptions, loss or corruption of data or other major problems
resulting from a failure of a product to process Year 2000 data correctly
could have significant adverse consequences to customers. Although the Company
believes that its software license agreements provide it with substantial
protection against liability, the Company cannot currently predict whether or
to what extent any legal claims will be brought against the Company, or
whether the Company will otherwise be adversely affected, as a result of any
such adverse consequences to its customers.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company is required to adopt the disclosures of SFAS No. 131 beginning with
its December 31, 1998 annual financial statements. This statement establishes
standards for the way companies are to report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company is currently
evaluating the impact of this standard on its financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company is
required to adopt the provisions of SFAS No. 133 beginning with its March 31,
2000 interim financial statements. This statement provides a comprehensive
standard for the recognition and measurement of derivatives and hedging
activities. The Company is currently evaluating the impact of this standard on
its financial statements.
SAFE HARBOR PROVISION
This Form 10-Q contains certain "forward-looking statements" (as defined in
Section 21E of the Securities Exchange Act of 1934) that reflect the Company's
expectations regarding its future growth, results of operations, performance
and business prospects and opportunities. Words such as "anticipates,"
"believes," "plans," "expects," "estimates" and similar expressions have been
used to identify these forward-looking statements, but are not the exclusive
means of identifying these statements. These statements reflect the Company's
current beliefs and are based on information currently available to the
Company. Accordingly, these statements are subject to known and unknown risks,
uncertainties and other factors that could cause the Company's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks,
uncertainties and other factors include the Company's ability to develop and
market existing and acquired products for the IT infrastructure market; the
Company's ability to successfully integrate its acquired products, services
and businesses and continue its acquisition strategy; risks relating to the
Year 2000 challenge; the Company's ability to adjust to changes in technology,
customer preferences, enhanced competition and new competitors in the IT
infrastructure and professional services markets; currency exchange rate
fluctuations, collection of receivables, compliance with foreign laws and
other risks inherent in conducting international business; risks associated
with conducting a consulting services business; general economic and business
conditions, which may reduce or delay customers' purchases of the Company's
products and services; charges and costs related to acquisitions; and the
Company's ability to protect its proprietary software rights from infringement
or misappropriation, to maintain or enhance its relationships with relational
database vendors, and to attract and retain key employees. The Company is not
obligated to update or revise these forward-looking statements to reflect new
events or circumstances or otherwise.
19
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Computer Associates' International, Inc., and L'Agence pour la Protection
des Programmes V. La Societe Faster, S.A.R.L. (Commercial Court of Bobigny,
Paris, France). Altai, Inc. ("Altai"), a wholly-owned subsidiary of the
Company, is involved in a suit in France which concerns copyright infringement
claims identical to those on which Altai previously prevailed against Computer
Associates International, Inc. ("CAI") in the United States. The French
appellate court granted Altai's request that the U.S. appellate court's
copyright ruling should bind the Commercial Court of Bobigny as a matter of
law. In January 1995, the French appellate court issued a decision rejecting
CAI's claim of copyright infringement. CAI's subsequent appeal in the French
appellate court is still pending. In May 1998, the U.S. Supreme Court denied
Altai's petition for certiorari on motions that the U.S. court decisions are
binding with respect to the French case. Therefore, CAI's appeal in the French
appellate court is proceeding. Oral arguments were completed in June 1998, and
a decision of the French appellate court is expected to be issued in September
1998. See the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On June 30, 1998, the Company acquired all of the outstanding capital stock
of ICON Computing, Inc. ("ICON") from the shareholders of ICON, in exchange
for 142,570 shares of Common Stock. The shares of Common Stock were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933 and Regulation D thereunder. There were no underwriters
or other distributors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) The Annual Meeting of Stockholders of the Company was held on May 19,
1998.
(c) 1. The Company's stockholders voted as follows to elect two Class II
directors to the Company's Board of Directors:
<TABLE>
<CAPTION>
AUTHORITY BROKER
DIRECTORS FOR WITHHELD NON-VOTES
--------- ---------- --------- ---------
<S> <C> <C> <C>
Arthur P. Frigo........................... 53,640,808 745,606 --
Gian Fulgoni.............................. 51,426,423 2,959,990 --
</TABLE>
2. The Company's stockholders voted as follows to approve an amendment to the
PLATINUM technology, inc. Employee Incentive Compensation Plan to increase the
number of shares of Common Stock reserved and available for distribution
pursuant to awards from 8,600,000 to 13,600,000 shares:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C>
23,443,561 16,533,750 83,860 14,325,241
</TABLE>
3. The Company's stockholders voted as follows to ratify the appointment of
KPMG Peat Marwick LLP as independent auditors of the Company's consolidated
financial statements for the fiscal year ending December 31, 1998:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C>
52,585,716 583,285 25,790 1,191,622
</TABLE>
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<C> <S>
Exhibit 10.1 Sublease Agreement, dated as of June 16, 1998, between APL
Land Transport Services, Inc. and the Company.
Exhibit 10.2 PLATINUM technology, inc. Employee Incentive Compensation
Plan, as amended, incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8,
Registration No. 333-57307.
Exhibit 10.3 PLATINUM technology, inc. Broad-Based Stock Option Plan
(the "Broad-Based Plan").
Exhibit 10.4 Form of Stock Option Agreement under the Broad-Based Plan.
Exhibit 15 Acknowledgment of Independent Certified Public Accountants
Regarding Independent Auditors' Review Report.
Exhibit 27 Financial Data Schedule.
</TABLE>
B. REPORTS ON FORM 8-K:
The Company filed a Current Report on Form 8-K dated April 16, 1998 to
report the Company's issuance of a press release announcing its results of
operations for the first quarter of 1998 (Items 5 and 7 of Form 8-K).
The Company filed a Current Report on Form 8-K dated April 21, 1998 (as
amended by a Form 8-K/A filed May 6, 1998) to report the Company's
consummation of its acquisition of Mastering, Inc. and the Company's issuance
of a press release relating thereto (Items 2, 5 and 7 of Form 8-K).
The Company filed a Current Report on Form 8-K dated May 28, 1998 to report
the Company's consummation of its acquisition of Logic Works, Inc. and the
Company's issuance of a press release relating thereto (Items 2, 8, and 7 of
Form 8-K).
21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Platinum technology, inc.
/s/ Andrew J. Filipowski
Date: August 14, 1998 By: _________________________________
Andrew J. Filipowski
President, Chief Executive Officer
(principal executive officer) and
Chairman of the Board of Directors
/s/ Michael P. Cullinane
Date: August 14, 1998 By: _________________________________
Michael P. Cullinane
Executive Vice President, Chief
Financial
Officer (principal financial and
accounting
officer) and Treasurer
22
<PAGE>
Exhibit 10.1
Page 1
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is executed as of June 16th, 1998, by
and between APL LAND TRANSPORT SERVICES, INC., a Tennessee corporation
("Sublandlord") and PLATINUM TECHNOLOGY, INC., a Delaware corporation (the
"Subtenant").
WITNESSETH:
-----------
WHEREAS, Sublandlord is the tenant of the premises demised under a certain
Office Lease dated March 29, 1993, by and between Sublandlord, as tenant, and
LaSalle National Trust, N.A. as Trustee under Trust Agreement dated July 15,
1984 and known as Trust No. 108702, as landlord, which lease is hereinafter
referred to as the "Base Lease." The term "Landlord" as used herein shall mean
the successors and assigns of the original landlord under the Base Lease.
WHEREAS, Sublandlord has agreed with Subtenant to sublease to Subtenant a
certain portion of the premises occupied by Sublandlord under the terms of the
Base Lease, upon the terms and conditions herein provided.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Premises. Sublandlord hereby leases to Subtenant a portion of
those certain premises leased to Sublandlord under the Base Lease (the
"Subleased Premises") consisting of approximately Twenty One Thousand Five
Hundred Seventy Five (21,575) rentable square feet as described and shown on
Exhibit A attached hereto, which Subleased Premises are located on the fourth
(4th) floor of the building commonly known as 1901 South Meyers Road, Oakbrook
Terrace, Illinois (the "Building"). Said designation of the size of the
Subleased Premises shall be determinative between the parties.
2. Term of Sublease. The term of the Sublease shall commence on the
latter of (i) the full execution of this Sublease or (ii) Landlord's delivery of
its consent to this Sublease or the waiver of its right to consent to the same,
by affirmative act or lapse of time, (the "Commencement Date") and shall
terminate on November 14, 1999, unless sooner terminated as provided herein.
3. Rental. (a) As rental for the use of the Subleased Premises,
Subtenant shall pay Monthly Gross Rent to Sublandlord of Twenty One Thousand
Five Hundred Seventy Five and No/100 Dollars ($21,575.00) ($12.00 per rentable
square foot per annum). Such rental shall be payable in advance on the
Commencement Date and on the first day of each month during the term hereof.
Such rental shall be prorated for
<PAGE>
Page 2
partial months within the term hereof.
(b) All rentals shall be payable to Sublandlord and shall be delivered to
Sublandlord c/o APL Limited, 6060 Primacy Parkway, Suite 300, Memphis, TN 38119,
Attention: Shelley Carroll or at such location as Sublandlord may from time
to time designate in writing.
(c) All charges, costs and sums required to be paid by Subtenant hereunder
shall be deemed to be rent. Subtenant's covenant to pay rent shall be
independent of any other covenant in this Sublease. Rent shall be paid without
any set-off or deduction whatsoever, except as specifically set forth herein.
(d) As security for the performance of its obligations under this Sublease,
Subtenant, upon its execution of this Sublease has paid to Sublandlord a
security deposit (the "Security Deposit") in the amount of Thirty Two Thousand
Three Hundred Sixty Two and 50/00 Dollars ($32,362.50). The Security Deposit may
be applied by Sublandlord to cure any default of Subtenant beyond applicable
notice and cure periods and upon notice by Sublandlord of such application,
Subtenant shall replenish the Security Deposit in full by promptly paying to
Sublandlord the amount so applied. Within forty five (45) days after the
Expiration Date, Sublandlord shall return to Subtenant the balance, if any, of
the Security Deposit. The Security Deposit shall not be deemed an advance
payment of Rent or measure of damages for any default by Subtenant under this
Sublease, nor shall it be a bar or defense to any action that Sublandlord may at
any time commence against Subtenant. Sublandlord shall not be required to
segregate the Security Deposit from its general funds. Subtenant shall not be
entitled to any interest payment on the Security Deposit.
4. Use of Subleased Premises. (a) Subtenant shall use the Subleased
Premises for general office purposes or as otherwise permitted by the Base
Lease.
(b) Subtenant shall be conclusively deemed to have accepted the Subleased
Premises in the condition existing on the date Subtenant first takes possession
thereof and to have waived all claims relating to the condition of the Subleased
Premises. No agreement of Sublandlord to alter, remodel, decorate, clean or
improve the Subleased Premises or the Building and no representation regarding
the condition of the Subleased Premises has been made by or on behalf of
Sublandlord to Subtenant, except as specifically stated in this Sublease.
Notwithstanding the foregoing to the contrary, as of the end of the term hereof
and provided Subtenant is not in default hereunder beyond applicable cure
periods, Sublandlord shall assign and transfer to Subtenant, as if by bill of
sale, all furniture located in the Subleased Premises as of the date of this
Sublease, together with the racks, wiring and audio visual equipment located in
the phone room in the Subleased Premises, provided Subtenant shall have the use
of said furniture during the term hereof if Subtenant is not in default
hereunder beyond applicable cure periods. Subtenant shall accept the foregoing
in an "as is", "where is" physical condition, without any representation or
warranty on the part of Sublandlord, except for Sublandlord's representation of
its ownership of the same. The
<PAGE>
maintenance and repair obligations set forth in paragraph 5 below shall apply to
the foregoing furniture and equipment.
(c) Subtenant shall make arrangements directly with the telephone company for
telephone service to the Subleased Premises. Subtenant shall promptly pay and be
solely responsible for the entire cost of all such service. Subtenant shall also
pay upon Sublandlord's demand the reasonable cost of removing any special
equipment installed by Subtenant in the Subleased Premises upon expiration of
the term of the Sublease or the termination of this Sublease, provided no such
removal shall be required if the term hereof shall end on November 14, 1999, and
such removal is not required pursuant to the terms of the Base Lease. Subtenant
shall make all necessary arrangements with the utility company serving the
Building for electricity to be used in the Subleased Premises, and Subtenant
shall pay all charges with respect thereto before the same shall be due.
Subtenant shall make no alterations or additions to the wiring installation,
electric equipment or appliances without the prior written consent of
Sublandlord in each instance. Subtenant acknowledges that the electrical feeder
or riser capacity serving the Subleased Premises on the Commencement Date is
adequate to serve its use of the same. Subtenant covenants and agrees that at
all times its use of electric current shall never exceed the capacity of the
feeders to the Building or the risers or wiring installation.
(d) Subtenant shall be entitled to possession of the Subleased Premises upon
the Commencement Date. In the event of the failure of Sublandlord to deliver
possession of the Subleased Premises upon the Commencement Date, neither
Sublandlord nor its agents shall be liable for any damages caused thereby, nor
shall this Sublease thereby become void or voidable, nor shall the term of this
Sublease be in any way extended but in such event said term shall begin when
Sublandlord does deliver possession of the Subleased Premises, and the Subtenant
shall not be liable for any monthly gross rent until the time that Sublandlord
delivers such possession. Notwithstanding anything contained herein to the
contrary, Subtenant may terminate this Sublease in the event the Commencement
Date shall not occur by August 1, 1998, provided Subtenant must deliver notice
of such termination to Sublandlord on or before the fifth (5th) day following
said date.
5. Maintenance and Repairs. (a) Subtenant shall, at Subtenant's
sole cost and expense and to the extent required of the tenant under the Base
Lease, keep the Subleased Premises in good repair and condition, and shall
perform all obligations of Sublandlord under the Base Lease with respect
thereto.
(b) Upon the termination of this Sublease, Subtenant shall deliver possession
of the Subleased Premises to Sublandlord in good order, condition and repair,
and otherwise as required by, and subject to, the provisions of the Base Lease.
(c) Subtenant shall not, without the prior written consent of Sublandlord,
make or cause to be made any alterations, improvements, additions, installations
or decorations in or to the Subleased Premises. Sublandlord may require as a
condition
<PAGE>
Page 4
of granting such consent that, before commencement of any such work or delivery
of any materials into the Subleased Premises or the Building, Subtenant shall
furnish to Sublandlord and Landlord for approval architectural plans and
specifications, names and addresses of all contractors, contracts, necessary
permits and licenses, certificates of insurance and instruments of
indemnification against any and all claims, costs, expenses, damages and
liabilities which may arise in connection with such work, all in such form and
amount as may be reasonably satisfactory to Sublandlord and Landlord. Subtenant
agrees to hold Sublandlord, Landlord and their respective agents and employees
forever harmless against all claims and liabilities of every kind, nature and
description which may arise out of or in any way be connected with such work.
All such work shall be done only by contractors or mechanics reasonably approved
by Sublandlord and Landlord (which approval may be withheld in Sublandlord's and
Landlord's reasonable discretion) and at such time and in such manner as
Sublandlord and Landlord may from time to time reasonably designate. Subtenant
shall pay the cost of all such work and the cost of decorating the Subleased
Premises and the Building occasioned thereby. Upon completion of such work,
Subtenant shall furnish Sublandlord with contractor's affidavits and full and
final waivers of lien and receipted bills covering all labor and materials
expended and used in connection therewith. All such work shall be in accordance
with the Base Lease, applicable legal, governmental and quasi-governmental
requirements, ordinances and rules (including the Board of Fire Underwriters),
and all requirements of applicable insurance companies. All such work shall be
done in a good and workmanlike manner, with the use of good grades of materials
and in conformity with so-called building standards. Sublandlord and Landlord
may, at their option supervise, at Subtenant's cost (as provided in the Base
Lease) construction operations in connection with such work; provided, however,
that such supervision or right to supervise by Sublandlord shall not constitute
any warranty by Sublandlord to Subtenant of the adequacy of the design,
workmanship or quality of such work or materials for Subtenant's intended use or
impose any liability upon Sublandlord or Landlord in connection with the
performance of such work. All alterations, improvements, additions and
installations to or on the Subleased Premises shall become part of the Subleased
Premises at the time of their installation and, at the election of Sublandlord
or Landlord, shall remain in the Subleased Premises at the expiration or
termination of this Sublease, or termination of Subtenant's right of possession
of the Subleased Premises, without compensation or credit to Subtenant.
Subtenant shall not pledge, mortgage, hypothecate or in any way create a
security interest in and to any of the alterations and improvements provided for
herein to any creditor or third party without the prior written consent of
Sublandlord and Landlord.
6. Assignment. Subtenant shall not sublease, assign, mortgage,
pledge, hypothecate or otherwise transfer or permit the transfer of this
Sublease or the interest of Subtenant in this Sublease, in whole or in part, by
operation of law or otherwise.
7. Concerning the Base Lease. (a) It is understood and agreed that
the interest of Sublandlord hereunder and in the Subleased Premises hereby
demised is solely as tenant under the Base Lease, and that this Sublease and
Subtenant's rights and Sublandlord's obligations hereunder are subject to and
subordinate to the Base
<PAGE>
Page 5
Lease, including the termination provisions thereof.
(b) There are hereby reserved unto Sublandlord all rights reserved to the
Landlord under the Base Lease.
(c) Sublandlord shall have the benefit of all covenants and undertakings of
the Landlord under the Base Lease insofar as they apply to the Subleased
Premises, including the right to enforce such covenants and undertakings, by
litigation or otherwise, but the sole obligation of Sublandlord hereunder with
respect thereto shall be to give notice to the Landlord under the Base Lease of
any non-performance thereof when Sublandlord hereunder shall receive written
notice thereof from Subtenant hereunder, and to demand performance of same.
Subtenant shall promptly deliver to Sublandlord copies of all notices received
by Subtenant from Landlord with reference to the Subleased Premises. In the
event of a default by Landlord under the Base Lease which adversely affects
Subtenant's rights under this Sublease and/or its use and occupancy of the
Subleased Premises, then Subtenant may upon Sublandlord's consent (which consent
shall not be unreasonably withheld) pursue legal remedies against Landlord under
the Base Lease, at Subtenant's sole cost and expense, and Sublandlord hereby
consents to Subtenant's pursuit of such remedy and assigns to Subtenant its
rights to pursue same.
(d) As to the Subleased Premises, Subtenant hereby covenants and agrees to be
bound by and to perform every term, provision, covenant and condition, expressed
or implied, imposed upon Sublandlord by the Base Lease, except as otherwise
expressly provided herein or with reference to rentals which are to be paid
directly by Subtenant to Sublandlord, and except as otherwise expressly provided
pursuant to the other provisions of this Sublease, provided the same are more
restrictive than the applicable provisions in the Base Lease. All such
obligations so assumed by Subtenant hereunder shall be for the benefit of, and
shall be enforceable by, Sublandlord or Landlord or both. Subtenant agrees not
to take any action in violation of the terms and conditions of the Base Lease,
and Subtenant hereby agrees to indemnify, defend and hold Sublandlord harmless
from and against any and all claims, expenses, damages and liabilities
(including attorneys' fees and costs) to which Sublandlord may be subject by
reason of Subtenant's failure to comply with any of the terms and conditions of
the Base Lease, as to the Subleased Premises. Sublandlord agrees not to take any
action in violation of the terms and conditions of the Base Lease.
(e) Notwithstanding anything to the contrary in this Sublease, all of the
Subtenant's rights hereunder shall be subject to prior or subsequent termination
of the Base Lease, pursuant to any provisions thereof, or otherwise.
(f) Sublandlord agrees not to enter into any amendment, modification,
supplement or other termination agreement which will materially adversely
increase Subtenant's obligations or materially adversely decrease Subtenant's
rights under this Sublease or the Base Lease. Sublandlord represents and
warrants that it is not in default (beyond applicable cure periods) of its
obligations under the Base Lease.
<PAGE>
Page 6
Further, Sublandlord agrees to perform its obligations under the Base Lease so
as to avoid a default (beyond applicable cure periods) thereunder. Sublandlord
shall not do anything or suffer or knowingly permit anything to be done which
results in a default (beyond applicable cure periods) under the Base Lease or
permit the Base to be cancelled or terminated.
In the event Sublandlord shall default in the performance of any monetary
obligations under the Base Lease which will have a material adverse affect upon
Subtenant, and Sublandlord shall fail to cure said default within thirty (30)
days following written notice from Subtenant with respect thereto, Subtenant
shall be permitted to cure such default by tendering performance directly to
Landlord and Sublandlord shall pay to Subtenant all costs and expenses incurred
by Subtenant with respect to the same, provided Subtenant is not in default
hereunder.
8. Indemnity, Exoneration. (a) Subtenant shall defend, hold
harmless and indemnify Sublandlord at all times against any loss, damage, costs
or expenses by reason of any accident, injury (including death), loss or damage
occurring on or about the Subleased Premises or resulting from any act or thing
done or omitted to be done on or about the Subleased Premises by Subtenant or
Subtenant's agents, employees, invitees and/or contractors.
(b) Except with respect to the negligence of Sublandlord or its agents,
contractors or employees, neither Sublandlord, nor its agents, partners,
employees or contractors shall be liable for any accident, injury (including
death), loss or damage resulting to any person or property sustained by
Subtenant or Subtenant's agents, employees, contractors or invitees, or any
occupant of the Building or anyone claiming by or through them and resulting
from any defect in the Building or the Subleased Premises, or in any equipment
or appurtenance in the same, or resulting from any accident or occurrence in or
about the Building or the Subleased Premises, or resulting directly or
indirectly from any acts of negligence of any tenant or other occupant of
Building, or of any person or entity whatsoever. All property of Subtenant or
Subtenant's agents, employees, contractors and invitees, or of any occupant or
user of the Subleased Premises shall be at the risk of Subtenant or such other
person or entity only, and Sublandlord shall not be liable for any damage
thereto except with respect to the negligence of Sublandlord or its agents,
contractors or employees.
9. Default by Subtenant. In the event of the breach by Subtenant of any of
the terms, provisions, covenants, conditions or agreements of this Sublease
Agreement, or of the Base Lease, Sublandlord shall have all the rights of the
Landlord under the Base Lease and Subtenant shall be subject to all provisions
thereof respecting the Tenant under the Base Lease.
10. Notices. All notices required or permitted to be given hereunder shall be
in writing and shall be deemed given and delivered, whether or not received,
when personally delivered by the other party or its designated agent or courier
service, or, if sent by mail, when deposited in the United States Mail, postage
prepaid and properly
<PAGE>
Page 7
addressed, certified mail, return receipt requested, at the following addresses:
(i) To Sublandlord: Ann Hasse, Esq., APL Land Transport Services, Inc., 1111
Broadway, Oakland, California 94607 and to Paul R. Diamond, Holleb & Coff, 55
East Monroe Street, Suite 3900, Chicago, Illinois 60603 or such other addresses
as Sublandlord shall designate by written notice to Subtenant; and (ii) To
Subtenant: at the address of the Subleased Premises and at 1815 S. Meyers Road,
Oak Brook Terrace, Illinois 60181, Attention: Legal Department, or such other
address as Subtenant shall designate by written notice to Sublandlord.
11. Condition Precedent. This Sublease, and the rights and obligations of
all parties hereto, are subject to the condition precedent of the consent of
such Landlord to the making of this Sublease Agreement.
12. Holding Over. In the event Subtenant shall retain possession of the
Subleased Premises, or any portion thereof, after the expiration or termination
of this Sublease, Subtenant shall defend, indemnify and hold harmless Sublessor
with respect to any holdover claims made by the Landlord under the Base Lease
and any costs incurred by Sublandlord with respect thereto.
13. Real Estate Brokers. Subtenant and Sublandlord represent that they have
not dealt with any real estate brokers, sales persons, or finders in connection
with this Sublease other than Trammell Crow Company and LaSalle Partners and no
other persons initiated or participated in the negotiation of this Sublease, or
showed the Subleased Premises to Subtenant. Any party breaching said
representation shall indemnify, defend and hold harmless the nonbreaching party
from and against any and all liabilities and claims for commissions and fees
arising out of a breach of the foregoing representation.
14. Late Charges. Notwithstanding anything contained in the Base Lease to
the contrary, all delinquent payments due from Subtenant to Sublandlord (i)
shall bear interest at twelve percent (12%) per annum or the maximum rate
permitted by law, and (ii) Subtenant shall pay a flat late charge of five
percent (5%) of the delinquent rent.
15. Sublandlord's Right to Perform Subtenant's Duties. Notwithstanding
anything contained in the Base Lease, if Subtenant fails to timely perform any
of its duties under this Sublease, Sublandlord shall have the right (but not the
obligation), to perform such duty on behalf and at the expense of Subtenant
without further prior notice to Subtenant, and all sums expended or expenses
incurred by Sublandlord in performing such duty shall be deemed to be rent under
this Sublease and shall be due and payable upon demand by Sublandlord, together
with an administration charge of fifteen percent (15%) of the amounts so
expended.
16. Recording. Neither Sublandlord nor Subtenant shall record this
Sublease; provided, however if Sublandlord requests, the parties shall execute
and acknowledge a short form of sublease for recording purposes which shall be
recorded at Sublandlord's expense.
<PAGE>
Page 8
17. Joint Effort. The preparation of this Sublease has been a joint
effort of the parties hereto and the resulting document shall not, solely as a
matter of judicial construction, be construed more severely against one of the
parties than the other.
18. Rights of Sublandlord. Notwithstanding anything in this Sublease to the
contrary, in no event shall Subtenant be obligated to pay sums coming due and
payable under the Base Lease or otherwise. Sublandlord agrees that it will pay
all sums due and payable under the Base Lease as and when the same become due
and payable. Sublandlord represents and warrants to Subtenant that neither
Landlord nor Sublandlord is in default under the Prime Lease nor any other
agreement relating to the Sublease Premises, that no event has occurred which,
with the passage of time or the giving of notice or both, would constitute such
a default. In addition, Sublandlord further represents and warrants to Subtenant
that neither Sublandlord nor any agent or affiliate of Sublandlord nor any agent
of Sublandlord has received any notice of zoning, building, fire, health,
safety, environmental or other violations of law which have not heretofore been
entirely corrected. Notwithstanding anything to the contrary contained in this
Sublease, Subtenant may, without the consent of Sublandlord and without
application of any right of recapture, assign its interest in the Sublease or
sublet a portion of the premises to an "affiliate" of Subtenant, provided
Subtenant is permitted to do so and complies with the terms of the Base Lease.
For purposes of this Sublease, an "affiliate" of Subtenant shall mean any entity
which (i) owns all or a majority of the ownership interest of Subtenant either
directly or indirectly through other subsidiaries or is owned or controlled by
the same person or entity which owns Subtenant or which controls Subtenant, or
(ii) which results from a merger or consolidation with Subtenant. Additionally,
this Sublease shall contain no provision restricting in any manner a change of
control or a change in shareholders, directors, management or organization of
Subtenant or any subsidiary or affiliate of Subtenant or any parent or to the
issuance, sale, purchase or disposition of shares of Subtenant or any subsidiary
or affiliate of Subtenant, provided, however, nothing contained herein shall be
construed to limit Landlord's rights under the Base Lease.
19. Calculation of Time. Unless specifically stated otherwise, any
reference herein to a specific period of days shall be interpreted as a
reference to calendar days; provided, however, that if such period would
otherwise end on a Saturday, Sunday or generally recognized holiday, then the
period shall be deemed to end on the following day.
20. Partial Invalidity. If any term, covenant or condition of this
Sublease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Sublease or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable shall not be
affected thereby and each term, covenant or condition of this Sublease shall be
valid and be enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease
<PAGE>
Page 9
Agreement the day and year first above written.
Sublandlord: Subtenant:
APL LAND TRANSPORT SERVICES, INC. PLATINUM TECHNOLOGY, INC.
By: Michael Gedney By: R. W. Powell
------------------------- ---------------------------
-------------------------
Its: M.D. Central Region Its: V.P. Real Estate
------------------------- -------------------------
<PAGE>
EXHIBIT 10.3
PLATINUM technology, inc.
BROAD-BASED STOCK OPTION PLAN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I Page
- --------- ----
<S> <C>
ESTABLISHMENT..................................................... 1
1.1 Purpose................................................ 1
ARTICLE II
- ----------
DEFINITIONS....................................................... 1
2.1 "Affiliate"............................................ 1
2.2 "Agreement"............................................ 1
2.3 "Beneficiary".......................................... 1
2.4 "Board of Directors" or "Board"........................ 2
2.5 "Cause"................................................ 2
2.6 "Change in Control" and "Change in Control Price"...... 2
2.7 "Code" or "Internal Revenue Code"...................... 2
2.8 "Commission"........................................... 2
2.9 "Committee"............................................ 2
2.10 "Common Stock"......................................... 2
2.11 "Company".............................................. 2
2.12 "Covered Employee"..................................... 3
2.13 "Disability"........................................... 3
2.14 "Effective Date"....................................... 3
2.15 "Exchange Act"......................................... 3
2.16 "Fair Market Value".................................... 3
2.17 "Grant Date"........................................... 3
2.18 "NASDAQ"............................................... 3
2.19 "Option Period"........................................ 3
2.20 "Option Price"......................................... 3
2.21 "Participant".......................................... 3
2.22 "Performance Option"................................... 4
2.23 "Plan"................................................. 4
2.24 "Representative"....................................... 4
2.25 "Retirement"........................................... 4
2.26 "Rule 16b-3"........................................... 4
2.27 "Securities Act"....................................... 4
2.28 "Stock Option" or "Option"............................. 4
2.29 "Termination of Employment"............................ 4
ARTICLE III
- -----------
ADMINISTRATION.................................................... 5
3.1 Committee Structure and Authority...................... 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE IV
- ----------
STOCK SUBJECT TO PLAN............................................. 7
4.1 Number of Shares....................................... 7
4.2 Release of Shares...................................... 7
4.3 Restrictions on Shares................................. 8
4.4 Stockholder Rights..................................... 8
4.5 Best Efforts To Register............................... 8
4.6 Anti-Dilution.......................................... 9
ARTICLE V
- ---------
ELIGIBILITY....................................................... 9
5.1 Eligibility............................................ 9
5.2 Per-Person Option Limitations.......................... 9
ARTICLE VI
- ----------
STOCK OPTIONS..................................................... 10
6.1 General................................................ 10
6.2 Grant and Exercise..................................... 10
6.3 Terms and Conditions................................... 10
6.4 Termination by Reason of Death......................... 12
6.5 Termination by Reason of Disability.................... 12
6.6 Other Termination...................................... 12
6.7 Cashing Out of Option.................................. 12
ARTICLE VII
- -----------
PERFORMANCE OPTIONS............................................... 13
7.1 Performance Options.................................... 13
ARTICLE VIII
- ------------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN............ 14
8.1 Limited Transfer During Offering....................... 14
8.2 Committee Discretion................................... 15
8.3 No Company Obligation.................................. 15
ARTICLE IX
- ----------
CHANGE IN CONTROL PROVISIONS...................................... 15
9.1 Impact of Event........................................ 15
9.2 Definition of Change in Control........................ 16
9.3 Change in Control Price................................ 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE X
MISCELLANEOUS................................................................. 17
10.1 Amendments and Termination......................................... 17
10.2 Stand-Alone, Additional, Tandem, and Substitute Options............ 17
10.3 Form and Timing of Payment Under Options; Deferrals................ 18
10.4 Status of Options Under Code Section 162(m)........................ 18
10.5 Unfunded Status of Plan; Limits on Transferability................. 18
10.6 General Provisions................................................. 18
10.7 Mitigation of Excise Tax........................................... 20
10.8 Rights with Respect to Continuance of Employment................... 20
10.9 Options in Substitution for Options Granted by Other Corporations.. 20
10.10 Procedure for Adoption............................................. 21
10.11 Procedure for Withdrawal........................................... 21
10.12 Delay.............................................................. 21
10.13 Headings........................................................... 21
10.14 Severability....................................................... 21
10.15 Successors and Assigns............................................. 21
10.16 Entire Agreement................................................... 22
</TABLE>
<PAGE>
PLATINUM technology, inc. BROAD-BASED STOCK OPTION PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose.
-------
The PLATINUM technology, inc. Broad-Based Stock Option Plan ("Plan") is
hereby established by PLATINUM technology, inc. ("Company"). The purpose of the
Plan is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in the Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. The Plan is intended to qualify certain compensation awarded under the
Plan for tax deductibility under Section 162(m) of the Code (as defined herein)
to the extent deemed appropriate by the Committee (as defined herein). The Plan
is adopted effective as of June 15, 1998.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.2 "Agreement" means, individually or collectively, any agreement entered
into pursuant to the Plan pursuant to which an Option is granted to a
Participant.
2.3 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Options are transferred if and to
the extent permitted hereunder. If, upon a Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
1
<PAGE>
2.4 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.5 "Cause" shall mean, for purposes of whether and when a Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or failure to
act deemed to constitute cause under the Company's established practices,
policies or guidelines applicable to the Participant or (b) the Participant's
act or act of omission which constitutes gross misconduct with respect to the
Company or an Affiliate in any material respect, including, without limitation,
an act or act of omission of a criminal nature, the result of which is
detrimental to the interests of the Company or an Affiliate, or conduct, or the
omission of conduct, which constitutes a material breach of a duty the
Participant owes to the Company or an Affiliate.
2.6 "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 9.2 and 9.3, respectively.
2.7 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.8 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.9 "Committee" means the Compensation Committee of the Board or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that the Committee shall consist solely of two or more
directors, each of whom is a "Non-Employee Director" as defined in Rule 16b-3
under the Exchange Act and each of whom is also an "outside director" under
Section 162(m) of the Code.
2.10 "Common Stock" means the shares of the regular voting Common Stock,
$.001 par value, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
2.11 "Company" means PLATINUM technology, inc., a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities the securities of the Company shall be exchanged; and any assignee of
or successor to substantially all of the assets of the Company.
2
<PAGE>
2.12 "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.13 "Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or incurred
while participating in a criminal offense. The determination of Disability shall
be made by the Committee. The determination of Disability for purposes of this
Plan shall not be construed to be an admission of disability for any other
purpose.
2.14 "Effective Date" means June 15, 1998.
2.15 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.16 "Fair Market Value" means the fair market value of Common Stock as
determined by the Committee or under procedures established by the Committee.
Unless otherwise determined by the Committee, the Fair Market Value per share of
Common Stock as of any given date shall be the closing sale price per share
reported on a consolidated basis for stock listed on the principal stock
exchange or market on which Common Stock is traded on the date as of which such
value is being determined or, if there is no sale on that date, then on the last
previous day on which a sale was reported.
2.17 "Grant Date" means the date as of which an Option is granted pursuant
to the Plan.
2.18 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq National
Market.
2.19 "Option Period" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.20 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).
2.21 "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Option has been granted by the Committee under the
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, the Participant's parents, spouse or descendants, or a custodian
under a uniform gifts
3
<PAGE>
to minors act or similar statute for the benefit of the Participant's
descendants, to the extent permitted by the Committee. Notwithstanding the
foregoing, the term "Termination of Employment" shall mean the Termination of
Employment of the person to whom the Option was originally granted.
2.22 "Performance Option" means an Option, granted to a Participant under
Section 7.1 hereof, to purchase shares of Common Stock based upon performance
criteria specified by the Committee.
2.23 "Plan" means the PLATINUM technology, inc. Broad-Based Stock Option
Plan, as herein set forth and as may be amended from time to time.
2.24 "Representative" means (a) the person or entity acting as the executor
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred; provided that
only one of the foregoing shall be the Representative at any point in time as
determined under applicable law and recognized by the Committee.
2.25 "Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.26 "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
2.27 "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
2.28 "Stock Option" or "Option" means a right, granted to a Participant
under Section 6.1 hereof, to purchase Common Stock at a specified price during
specified time periods.
2.29 "Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement,
4
<PAGE>
or severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the Company
or its Affiliates. With respect to any person who is not an employee with
respect to the Company or a subsidiary of the Company, the Agreement shall
establish what act or event shall constitute a Termination of Employment for
purposes of the Plan. A transfer of employment from the Company to an Affiliate,
or from an Affiliate to the Company, will not be a Termination of Employment,
unless expressly determined by the Committee. A Termination of Employment shall
occur for an employee who is employed by an Affiliate if the Affiliate shall
cease to be an Affiliate, and the Participant shall not immediately thereafter
become an employee of the Company or an Affiliate.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee. A majority of the Committee shall constitute a quorum at any
meeting thereof (including by telephone conference) and the acts of a majority
of the members present, or acts approved in writing by a majority of the entire
Committee without a meeting, shall be the acts of the Committee for purposes of
this Plan. The Committee may authorize any one or more of its members or an
officer of the Company to execute and deliver documents on behalf of the
Committee. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the authority
to remove, replace or fill any vacancy of any member of the Committee upon
notice to the Committee and the affected member. Any member of the Committee may
resign upon notice to the Board. The Committee may allocate among one or more of
its members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select those persons to whom Options may be granted from time
to time;
(b) to determine whether and to what extent Options are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered
by each Option granted hereunder;
5
<PAGE>
(d) to determine the terms and conditions of any Option granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration, forfeiture or waiver regarding any Option, any shares of
Common Stock relating thereto, any performance criteria and the
satisfaction of each criteria);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Option, subject to the limitations of Section 10.1;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Option shall be
deferred;
(g) to determine under what circumstances an Option may be settled in
cash or Common Stock;
(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable to
the Plan, Options and the issuance of shares of Common Stock under the Plan
and to require of a Participant that appropriate action be taken with
respect to such requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Options;
(l) to interpret and make final determinations with respect to the
remaining number of shares of Common Stock available under this Plan;
(m) to require, as a condition of the exercise of an Option or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any Federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect a Participant has
incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
6
<PAGE>
(q) to determine whether an Option is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Option exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Options granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Option, may be made at the time of the grant of the Option or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Company and
Participants. No determination shall be subject to de novo review if challenged
in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Options under the Plan shall be Ten Million (10,000,000) shares of
Common Stock authorized for issuance. Such shares may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. If any shares of Common Stock that are subject to
any Option cease to be subject to an Option or are forfeited, if any Option
otherwise terminates without issuance of shares of Common Stock being made to
the Participant, or if any shares (whether or not restricted) of Common Stock
are received by the Company in connection with the exercise of an Option,
including the satisfaction of tax withholding, such shares, in the discretion of
the Committee, may again be available for distribution in connection with
Options under the Plan.
7
<PAGE>
4.3 Restrictions on Shares. Shares of Common Stock issued in conjunction
with an Option shall be subject to the terms and conditions specified herein and
to such other terms, conditions and restrictions as the Committee in its
discretion may determine or provide in an Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
or NASDAQ (or other public market) on which the Common Stock may then be listed
(or regularly traded), (ii) the completion of any registration or qualification
of such shares under Federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of an
Option. The Company may cause any certificate for any share of Common Stock to
be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common Stock as provided in this Plan or as
the Committee may otherwise require. The Committee may require any person
exercising an Option to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
the shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder as
to shares of Common Stock subject to an Option until, after proper exercise of
the Option or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued or transferred.
Upon exercise of the Option or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the Participant will not be treated
as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued or transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts To Register. The Company will register under the
Securities Act the Common Stock delivered or deliverable pursuant to Options on
Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon as the Committee, in its sole
discretion, shall deem such registration appropriate. The Company will use its
best efforts to cause the registration statement to become effective and will
file such supplements and amendments to the registration statement as may be
necessary to keep the registration statement in effect until the earliest of (a)
one year following the expiration of the Option Period of the last Option
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Participants have disposed of all shares
delivered pursuant to any Option.
8
<PAGE>
4.6 Anti-Dilution. In the event of any Company stock dividend, stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company stock
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee shall adjust or substitute, as the case may
be, the number of shares of Common Stock available for Options under the Plan,
the number of shares of Common Stock covered by outstanding Options, the
exercise price per share of outstanding Options, and performance conditions and
any other characteristics or terms of the Options as the Committee shall deem
necessary or appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that the Committee may limit any such
adjustment so as to maintain the deductibility of the Options under Section
162(m) and that any fractional shares resulting from such adjustment shall be
eliminated by rounding to the next lower whole number of shares with appropriate
payment for such fractional shares as shall reasonably be determined by the
Committee.
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Options shall be those
persons who are directors, officers, employees and consultants of the Company or
any subsidiary of the Company, who shall be in a position, in the opinion of the
Committee, to make contributions to the growth, management, protection and
success of the Company and its subsidiaries. Of those persons described in the
preceding sentence, the Committee may, from time to time, select persons to be
granted Options and shall determine the terms and conditions with respect
thereto. In making any such selection and in determining the terms and
conditions of the Option, the Committee may give consideration to the person's
functions and responsibilities, the person's contributions to the Company and
its subsidiaries, the value of the individual's service to the Company and its
subsidiaries and such other factors deemed relevant by the Committee. The
Committee may designate in writing any person who is not eligible to participate
in the Plan if such person would otherwise be eligible to participate in this
Plan (and members of the Committee are expressly excluded from participation in
the Plan).
5.2 Per-Person Option Limitations. In each fiscal year during any part of
which the Plan is in effect, a Participant may not be granted Options relating
to more than One Million (1,000,000) shares of Common Stock, subject to
adjustment as provided in Section 4.6, under each of Article VI and Section
7.1(b).
9
<PAGE>
ARTICLE VI
----------
STOCK OPTIONS
-------------
6.1 General. The Committee shall have authority to grant Stock Options
under the Plan at any time or from time to time. Stock Options granted hereunder
are not intended to be, and are not designated as, "incentive stock options"
within the meaning of Section 422 of the Code. Stock Options granted hereunder
shall be taxable pursuant to Section 83 of the Code. An Option shall entitle the
Participant to receive shares of Common Stock upon exercise of such Option,
subject to the Participant's satisfaction in full of any conditions,
restrictions or limitations imposed in accordance with the Plan or an Agreement
(the terms and provisions of which may differ from other Agreements), including,
without limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant.
6.3 Terms and Conditions. Stock Options shall be subject to such terms and
conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option shall be
fixed by the Committee; provided that no Stock Option shall be exercisable
more than ten (10) years after the date the Stock Option is granted.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Committee; provided,
however, that the Option Price per share shall be not less than the Fair
Market Value per share on the date the Option is granted.
(c) Exercisability. Subject to Section 9.1, Stock Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that any
Stock Option is exercisable only in installments, the Committee may at any
time waive such installment exercise provisions, in whole or in part. In
addition, the Committee may at any time accelerate the exercisability of
any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Article VI,
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Such notice shall be accompanied by payment in full of the
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purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the Committee, payment in full or in
part may also be made (i) by delivering Common Stock already owned by the
Participant having a total Fair Market Value on the date of such delivery
equal to the Option Price; (ii) by the execution and delivery of a note or
other evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee and permitted in accordance with Section
6.3(e); (iii) by authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Option having a
total Fair Market Value on the date of delivery equal to the Option Price;
(iv) by the delivery of cash or the extension of credit by a broker-dealer
to whom the Participant has submitted a notice of exercise or otherwise
indicated an intent to exercise an Option (in accordance with Part 220,
Chapter II, Title 12 of the Code of Federal Regulations, so-called
"cashless" exercise); or (v) by any combination of the foregoing. No shares
of Common Stock shall be issued until full payment therefor, as determined
by the Committee, has been made. A Participant shall have all of the rights
of a stockholder of the Company holding the class of Common Stock that is
subject to such Stock Option (including, if applicable, the right to vote
the shares and the right to receive dividends), when the Participant has
given written notice of exercise, has paid in full for such shares and such
shares have been recorded on the Company's official stockholder records as
having been issued or transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Agreement and the discretion of the Committee, the
Company may at the request of the Participant:
(i) lend to the Participant an amount equal to such portion of
the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a
third-party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except that
no extension of credit or guarantee shall obligate the Company for an
amount to exceed the lesser of the aggregate Fair Market Value per share of
the Common Stock on the date of exercise, less the par value of the shares
of Common Stock to be purchased upon the exercise of the Option, or the
amount permitted under applicable laws or the regulations and rules of the
Federal Reserve Board and any other governmental agency having
jurisdiction.
(f) Non-transferability of Options. Except as otherwise provided in an
Agreement or determined by the Committee, no Stock Option or interest
therein shall be transferable by the Participant other than by will or by
the laws of
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descent and distribution, and all Stock Options shall be exercisable during
the Participant's lifetime only by the Participant.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of ninety
(90) days following the date of the appointment of a Representative (or such
other period or no period as the Committee may specify) or until the expiration
of the Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of ninety (90) days (or such other period or no
period as the Committee may specify) immediately following the date of such
Termination of Employment or until the expiration of the Option Period,
whichever period is shorter, and the Participant's death at any time following
such Termination of Employment due to Disability shall not affect the foregoing.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death or Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the ninety (90) day period commencing with the date of such
Termination of Employment or until the expiration of the Option Period. Unless
otherwise provided in an Agreement or determined by the Committee, if the
Participant incurs a Termination of Employment which is either (a) voluntary on
the part of the Participant (and is not due to Retirement) or (b) with Cause,
the Option shall terminate immediately. The death or Disability of a Participant
after a Termination of Employment otherwise provided herein shall not extend the
time permitted to exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of any Stock Option
with respect to which Option at least six months have elapsed since the Grant
Date (provided that such limitation shall not apply to an Option granted to a
Participant who has subsequently died) to be exercised by paying the Participant
an amount, in cash or Common Stock, equal to the excess of the Fair Market Value
of the Common Stock that is subject to the Option over the Option Price times
the number of shares of Common Stock subject to the Option on the effective date
of such cash-out.
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ARTICLE VII
-----------
PERFORMANCE OPTIONS
-------------------
7.1 Performance Options.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Option, and its timing, may be subject
to performance conditions specified by the Committee. The Committee may use
business criteria and other measures of performance it deems appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce or increase the amounts payable under any Option subject to
performance conditions, except as limited under Sections 7.1(b) and 7.1(c)
hereof in the case of a Performance Option intended to qualify under Code
Section 162(m).
(b) Performance Options Granted to Designated Covered Employees. If
the Committee determines that a Performance Option to be granted to a
person the Committee regards as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code Section
162(m), the grant and/or settlement of such Performance Option shall be
contingent upon achievement of preestablished performance goals and other
terms set forth in this Section 7.1(b).
(i) Performance Goals Generally. The performance goals for such
Performance Options shall consist of one or more business criteria and
a targeted level or levels of performance with respect to such
criteria, as specified by the Committee consistent with this Section
7.1(b). Performance goals shall be objective and shall otherwise meet
the requirements of Code Section 162(m), including the requirement
that the level or levels of performance targeted by the Committee
result in the performance goals being "substantially uncertain." The
Committee may determine that more than one performance goal must be
achieved as a condition to settlement of such Performance Options.
Performance goals may differ for Performance Options granted to any
one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for
specified subsidiaries or business units of the Company (except with
respect to the total stockholder return and earnings per share
criteria), shall be used exclusively by the Committee in establishing
performance goals for such Performance Options: (1) total stockholder
return; (2) such total stockholder return as compared to total return
(on a comparable basis) of a publicly available index such as, but not
limited to, the Standard & Poor's 500, the Nasdaq Stock Market-U.S.
Index or the H&Q Software Sector Index; (3) net income; (4) pre-tax
earnings; (5) EBITDA; (6) pre-
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tax operating earnings after interest expense and before bonuses,
service fees, and extraordinary or special items; (7) operating
margin; (8) earnings per share; (9) return on equity; (10) return on
capital; (11) return on investment; (12) operating income, excluding
the effect of charges for acquired in-process technology and before
payment of executive bonuses; (13) earnings per share, excluding the
effect of charges for acquired in-process technology and before
payment of executive bonuses; (14) working capital; and (15) total
revenues.
(iii) Performance Period: Timing For Establishing Performance
Goals. Achievement of performance goals in respect of such Performance
Options shall be measured over such periods as may be specified by the
Committee. Performance goals shall be established on or before the
dates that are required or permitted for "performance-based
compensation" under Code Section 162(m).
(iv) Settlement of Performance Options; Other Terms. Settlement
of Performance Options may be in cash or Common Stock, other Options,
or other property, in the discretion of the Committee. The Committee
may, in its discretion, reduce the amount of a settlement otherwise to
be made in connection with such Performance Options, but may not
exercise discretion to increase any such amount payable in respect of
a Performance Option subject to this Section 7.1(b). The Committee
shall specify the circumstances in which such Performance Options
shall be forfeited or paid in the event of a Termination of Employment
or a Change in Control prior to the end of a performance period or
settlement of Performance Options, and other terms relating to such
Performance Options.
(c) Written Determinations. All determinations by the Committee as to
the establishment of performance goals and the potential Performance
Options related to such performance goals and as to the achievement of
performance goals relating to such Options shall be made in writing in the
case of any Option intended to qualify under Code Section 162(m). The
Committee may not delegate any responsibility relating to such Performance
Option.
ARTICLE VIII
------------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
------------------------------------------------------
8.1 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of any Option.
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8.2 Committee Discretion. The Committee may in its sole discretion include
in any Agreement an obligation that the Company purchase a Participant's shares
of Common Stock received upon the exercise of an Option (including the purchase
of any unexercised Options which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company, upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article VIII shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock under this Article VIII, whereupon the
assignee of such right shall have all the rights, duties and obligations of the
Company with respect to purchase of the shares of Common Stock.
8.3 No Company Obligation. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Common Stock or an Option, and such holder shall
have no right to be advised of, any material information regarding the Company
or any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Option or the Company's purchase of Common Stock or an Option
from such holder in accordance with the terms hereof.
ARTICLE IX
----------
CHANGE IN CONTROL PROVISIONS
----------------------------
9.1 Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, unless otherwise provided in an Agreement, in the event of a
Change in Control (as defined in Section 9.2):
(a) Any Stock Options outstanding as of the date such Change in
Control and not then exercisable shall become fully exercisable to the full
extent of the original grant;
(b) The performance goals and other conditions with respect to any
outstanding Performance Option shall be deemed to have been satisfied in
full, and such Option shall be fully distributable, if and to the extent
provided by the Committee in the Agreement relating to such Option or
otherwise, notwithstanding that the Option may not be fully deductible to
the Company under Section 162(m) of the Code.
(c) Notwithstanding any other provision of the Plan, unless the
Committee shall provide otherwise in an Agreement, a Participant shall have
the right, whether or not the Option is fully exercisable or may be
otherwise realized by the Participant, by giving notice during the 60-day
period from and after a Change in Control to the Company, to elect to
surrender all or part of
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the Option to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the "Change in Control
Price" (as defined in Section 9.3) per share of Common Stock on the date of
such election shall exceed the amount which the Participant must pay to
exercise the Option per share of Common Stock under the Option (the
"Spread") multiplied by the number of shares of Common Stock granted under
the Option as to which the right granted under this Section 9.1 shall have
been exercised.
9.2 Definition of Change in Control. For purposes of this Plan, a "Change
in Control" shall be deemed to have occurred if (a) any corporation, person or
other entity (other than the Company, a majority-owned subsidiary of the Company
or any of its subsidiaries, or an employee benefit plan (or related trust)
sponsored or maintained by the Company), including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of stock representing more than the greater of (i) twenty-five
percent (25%) of the combined voting power of the Company's then outstanding
securities or (ii) the percentage of the combined voting power of the Company's
then outstanding securities which equals (A) ten percent (10%) plus (B) the
percentage of the combined voting power of the Company's outstanding securities
held by such corporation, person or entity on the Effective Date; (b)(i) the
stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a majority-
owned subsidiary of the Company, or to sell or otherwise dispose of all or
substantially all of the Company's assets, and (ii) the persons who were the
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board of Directors of the Company
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a proxy
or consent solicitation contest or any action taken to avoid such a contest)
during such 24-month period by or upon the recommendation of persons who were
members of the Board of Directors of the Company immediately prior to such 24-
month period and who constituted a majority of the Board of Directors of the
Company at the time of such election, cease to constitute a majority of the
Board.
9.3 Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (a) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which such
shares are listed or on NASDAQ during the 60-day period prior to and including
the date of a Change in Control or (b) if the Change in Control is the result of
a tender or exchange offer, merger, consolidation, liquidation or sale of all or
substantially all of the assets of the Company (in each case a "Corporate
Transaction"), the highest price per share of Common Stock paid in such
Corporate Transaction. To the extent that the consideration paid in any such
Corporate Transaction consists all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash consideration
shall be determined in the sole discretion of the Committee.
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ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 Amendments and Termination. The Board may amend, alter or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under a Stock Option
theretofore granted without the Participant's consent.
The Committee may amend the Plan at any time provided that (a) no amendment
shall impair the rights of any Participant under any Option theretofore granted
without the Participant's consent, and (b) any amendment shall be subject to the
approval or rejection of the Board.
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent or reduce an Option Price.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Options which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
shall be available, including the substitution of Common Stock having a Fair
Market Value equal to the cash otherwise payable hereunder for the right which
caused the transaction to be ineligible for pooling of interest accounting.
10.2 Stand-Alone, Additional, Tandem, and Substitute Options. Options
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Option or any award granted under another plan of the Company,
any subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional, tandem, and substitute or exchange
Options may be granted at any time. If an Option is granted in substitution or
exchange for another Option or award, the Committee shall require the surrender
of such other Option or award in consideration for the grant of the new Option.
In addition, Options may be granted in lieu of cash compensation, including in
lieu of cash amounts payable under other plans of the Company or any subsidiary,
in which the Fair Market Value of Common Stock subject to the Option is
equivalent in value to the cash compensation, or in which the exercise price of
the Option is equal to the Fair Market Value of the underlying Common Stock
minus the value of the cash compensation surrendered.
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10.3 Form and Timing of Payment Under Options; Deferrals. Subject to the
terms of the Plan and any applicable Agreement, payments to be made by the
Company or an Affiliate upon the exercise of an Option or settlement of an
Option may be made in such forms as the Committee shall determine, including,
without limitation, cash, Common Stock, other Options or other property, and may
be made in a single payment or transfer, in installments, or on a deferred
basis. The settlement of any Option may be accelerated, and cash paid in lieu of
Common Stock in connection with such settlement, in the discretion of the
Committee or upon occurrence of one or more specified events (in addition to a
Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 10.1 of the Plan) or permitted at the election of
the Participant. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the granting or crediting of dividend equivalents in respect of installment
or deferred payments denominated in Common Stock.
10.4 Status of Options Under Code Section 162(m). It is the intent of the
Company that Options granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any Agreement relating to such
an Option does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
10.5 Unfunded Status of Plan; Limits on Transferability. It is intended
that the Plan be an "unfunded" plan for incentive and deferred compensation. The
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or make payments;
provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. Unless otherwise provided in this Plan or in an Agreement,
no Option shall be subject to the claims of Participant's creditors and no
Option may be transferred, assigned, alienated or encumbered in any way other
than by will or the laws of descent and distribution or to a Representative upon
the death of the Participant.
10.6 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to an Option to represent to and agree with
the Company in writing that such person is acquiring the shares without a
view to the distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
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(b) No Additional Obligation. Nothing contained in the Plan shall
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Option, the Participant shall pay
to the Company (or other entity identified by the Committee), or make
arrangements satisfactory to the Company or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order for the Company or an Affiliate to obtain a
current deduction. Unless otherwise determined by the Committee,
withholding obligations may be settled with Common Stock, including Common
Stock that is part of the Option that gives rise to the withholding
requirement, provided that any applicable requirements under Section 16 of
the Exchange Act are satisfied. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements, and the Company
and its Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.
(d) Representation. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(e) Controlling Law. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Illinois (other than its law respecting choice of law)
except to the extent the General Corporation Law of the State of Delaware
would be mandatorily applicable. The Plan shall be construed to comply with
all applicable law and to avoid liability to the Company, an Affiliate or a
Participant, including, without limitation, liability under Section 16(b)
of the Exchange Act.
(f) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
(g) Fail Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3. To the extent any transaction under
the Plan or action by the Committee fails to so comply, it shall be deemed
null and
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void, to the extent permitted by law and deemed advisable by the Committee.
The Committee may authorize the repurchase of any Option or shares of
Common Stock resulting from any Option in order to prevent a person from
incurring or potentially incurring liability under Section 16(b) of the
Exchange Act.
10.7 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 10.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or payments under this
Plan is to apply shall be made by the Committee in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Committee in making such determination and providing the necessary information
for this purpose. The foregoing provisions of this Section 10.7 shall apply with
respect to any person only if, after reduction for any applicable Federal excise
tax imposed by Section 4999 of the Code and Federal income tax imposed by the
Code, the Total Payments accruing to such person would be less than the amount
of the Total Payments as reduced, if applicable, under the foregoing provisions
of the Plan and after reduction for only Federal income taxes.
10.8 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual's becoming a Participant in this Plan.
10.9 Options in Substitution for Options Granted by Other Corporations.
Options (including cash in respect of fractional shares) may be granted under
the Plan from time to time in substitution for awards held by employees,
directors or service providers of other corporations who are about to become
officers, directors or employees of the Company or an Affiliate as the result of
a merger or consolidation of the employing corporation with the Company or an
Affiliate, or the acquisition by the Company or an Affiliate of the assets of
the employing corporation, or the
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acquisition by the Company or Affiliate of the stock of the employing
corporation, as the result of which it becomes a designated employer under the
Plan. The terms and conditions of the Options so granted may vary from the terms
and conditions set forth in this Plan at the time of such grant as the majority
of the members of the Committee may deem appropriate to conform, in whole or in
part, to the provisions of the awards in substitution for which they are
granted.
10.10 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
10.11 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such Affiliate, with the consent
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.
10.12 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, whichever is shorter. The Company shall have the right to suspend or
delay any time period described in the Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company.
10.13 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
10.14 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
10.15 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
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10.16 Entire Agreement. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
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EXHIBIT 10.4
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of ________,
199_ (the "Grant Date"), is entered into between PLATINUM technology,
inc., a ________ corporation (the "Company"), and _______________ (the
"Participant").
WHEREAS, the Company desires to afford the Participant an opportunity to
purchase shares of the Company's stock ("Shares") as provided in this Agreement,
effective as of the Grant Date; and
WHEREAS, the Company has adopted The PLATINUM technology, inc. Broad-Based
Stock Option Plan (the "Plan") and desires that the options granted to the
Participant be governed by the terms and conditions of the Plan; and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth in this Agreement and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Definitions.
-----------
For purposes of this Agreement, the definitions of terms contained in the
Plan are hereby incorporated by reference, except to the extent that any term is
specifically defined in this Agreement.
2. Grant of Option, Option Price and Term.
--------------------------------------
(a) Grant. Subject to the terms and conditions of the Plan and this
Agreement, the Company hereby grants to the Participant, as a matter of separate
agreement and not in lieu of salary or any other compensation for services, the
right and option ("Option") to purchase ___________ Shares of the Company
("Option Shares").
(b) Option Price. For each of the Option Shares purchased, the Participant
shall pay to the Company _________ Dollars ($_____) (the "Option Price").
Accordingly, the aggregate Option Price to purchase all of the Option Shares
granted hereunder is ______________________ Dollars ($_________) (the "Aggregate
Option Price").
(c) No Fractional Shares. The Company shall not be required to issue any
fractional Shares hereunder.
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(d) Option Term. The term of the Options granted hereunder shall be a
period of ________ (__) years from the Grant Date (the "Option Period"). The
termination of the Option Period shall result in the termination and
cancellation of such Options. In no event shall an Option be exercisable at any
time after the expiration of the Option Period.
3. Vesting.
Option Shares shall vest hereunder in accordance with the following
schedule:
[Specify vesting schedule]
4. Termination of Employment.
[Specify the consequences of employment termination if different from Plan]
5. Repurchase of Options and Shares.
[Specify puts and calls]
6. Manner of Exercise.
(a) Exercisability. Options shall be exercisable upon their vesting in
accordance with Section 3 above. Except as otherwise provided in this Agreement
or in the Plan, the Options granted hereunder shall be exercisable during the
Participant's lifetime only by the Participant (or his or her Representative),
and after the Participant's death only by a Representative.
(b) Method of Exercise. The Option may only be exercised by the delivery
to the Company of a properly completed written notice, in form satisfactory to
the Committee, which notice shall specify the number of Option Shares to be
purchased and the Aggregate Option Price for such Option Shares, together with
payment in full of such Aggregate Option Price. No Shares will be issued until
full payment therefor has been made. Payment shall only be made:
[Specify payment methods if different from Plan]
The Options granted hereunder shall not be validly exercised unless there has
been compliance with all the preceding provisions of this Section 6, and, for
all purposes of this Agreement, the date of the exercise of an Option shall be
the date upon which there is compliance with all such requirements.
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7. Payment of Withholding Taxes.
If as a result of this Agreement or otherwise, the Company is obligated to
withhold an amount on account of any tax imposed in connection with the exercise
of an Option, the Participant shall be required to pay such amount to the
Company, as provided in the Plan.
8. Requirements of Law.
The Company shall not be required to sell or issue any Option Shares under
an Option if such issuance shall constitute a violation of any provision of any
law or regulation of any governmental authority.
9. Plan.
The Participant hereby acknowledges receipt of a copy of the Plan. Except
to the extent in contravention of the terms of this Agreement, the Options
granted hereunder are granted pursuant to the Plan, as in effect on the date
hereof, and are subject to all the terms and conditions of the Plan, as the same
may be amended from time to time. The interpretation and construction by the
Committee of the Plan, this Agreement, the Options granted hereunder, and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan, shall be final and binding upon the Participant to the
extent not inconsistent with the terms of this Agreement and the Plan. Until the
Options granted hereunder shall have expired, terminated or been exercised in
full, the Company shall, upon written request therefor, send a copy of the Plan,
in its then current form, to the Participant or any other person or entity then
entitled to exercise such Options.
10. No Shareholder Rights.
Until the Options granted hereunder have been duly exercised to purchase
the Option Shares and such Option Shares have been officially recorded as issued
on the Company's official records, no person will be entitled to vote or receive
distributions or will be deemed for any purpose a shareholder, and adjustments
for distributions or otherwise will be made only if the record date therefor is
subsequent to the date such Option Shares are recorded and after the date of
exercise and without duplication of any adjustment.
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<PAGE>
11. No Employment Rights.
No provision of this Agreement or of the Options granted hereunder shall
give the Participant any right to continue in the employ of the Company or any
of its Affiliates, create any inference as to the length or term of employment
of the Participant, affect the right of the Company or its Affiliates to
terminate the employment of the Participant, with or without Cause, or give the
Participant any right to participate in any employee welfare or benefit plan or
other program (other than the Plan) of the Company or any of its Affiliates.
12. No Disclosure Rights.
The Company shall have no duty or obligation to affirmatively disclose to
the Participant or a Representative, and the Participant or a Representative
shall have no right to be advised of, any material information regarding the
Company or an Affiliate at any time prior to, upon or in connection with the
exercise of an Option or the Company's purchase of Option Shares in accordance
with the terms of this Agreement.
13. Investment Representation and Agreement.
(a) Restrictions on Transfers. Except as otherwise provided in the Plan,
the Participant represents and warrants that the grant of Options hereunder has
been, and any Shares to be issued in satisfaction of such grant will be,
acquired by the Participant solely for the Participant's own account for
investment and not with a view to or for sale in connection with any
distribution thereof. Except for such transfers as permitted under the Plan, the
Participant agrees that the Participant will not, directly or indirectly, offer,
transfer, sell, pledge, convey, gift, assign, encumber, alienate, hypothecate or
otherwise dispose of all or any Shares (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of all or any of the Shares), except in
compliance with the Securities Act and the rules and regulations of the
Commission thereunder, and in compliance with applicable state securities or
"blue sky" laws[, and where such laws authorize a sale or transfer of
Participant's Shares, the Participant shall, except for such transfers as
permitted under the Plan, prior to initiating any sale or transfer to any third
party, make such offer to the Company, which shall have ten (10) business days
to purchase the Participant's Shares at the price offered Participant in an
arm's length transaction offered by a third party, and only if the Company has
not so acquired the Shares may the Participant effect a transfer or sale of such
Shares to a third party - Applicable?].
(b) Other Representations. If prior to the issuance of any Option Shares
upon the exercise of an Option, in the opinion of counsel for the Company, a
particular representation by the Participant is required under the Securities
Act or any other applicable federal or state law, or any regulation or rule of
any governmental agency, the Company may require the Participant to make such
investment representations and such other representations as the Company
4
<PAGE>
reasonably may determine to be necessary which representations shall be
evidenced in an agreement in such form as the Company may specify.
14. Nontransferability.
Except for certain transfers specifically authorized under the terms of the
Plan, the Options granted hereunder or any interest in such Options may not be
sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred
in any manner other than by will or the laws of descent and distribution.
Notwithstanding any other Section of this Agreement, any such attempted sale,
assignment, conveyance, gift, pledge, hypothecation or transfer shall be null
and void and shall nullify such Option immediately.
15. Changes in Company's Capital or Organizational Structure.
The existence of the Option shall not affect in any way the right or
authority of the Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any class of interests in the Company or affecting the Option
Shares or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other act or proceeding, whether of a similar character or otherwise; provided,
however, following any such change, the price and number of Options shall
equitably be adjusted to reflect the value of such Options prior to such
changes.
16. Governing Law.
This Agreement and the Options hereunder will be governed by, and construed
and enforced in accordance with, the laws of the State of _________ (other than
its laws respecting choice of law) except to the extent Federal law would be
applicable.
17. Entire Agreement.
This Agreement, together with the Plan, constitute the entire obligation of
the parties hereto with respect to the subject matter of this Agreement and
shall supersede any prior expressions of intent or understanding with respect to
such subject matter.
5
<PAGE>
18. Amendment.
Any amendment to this Agreement shall be in writing and signed on behalf of
the Company, and if required hereunder, by the Participant.
19. Waiver; Cumulative Rights.
The failure or delay of either party hereto to require performance by the
other party of any provision hereof shall not affect its right to require
performance of such provision unless and until such performance has been waived
in writing. Each and every right hereunder is cumulative and may be exercised in
part or in whole from time to time.
20. Counterparts.
This Agreement may be signed in two (2) counterparts, each of which shall
be an original, but both of which shall constitute but one and the same
instrument.
21. Notices.
Any notice which either party hereto may be required or permitted to give
the other shall be in writing and may be given to the Company in any manner
provided in its charter, and to the Participant at his last known address as
shown on the Company's payroll records, or to such other address as the
Participant, by notice to the Company, may designate in writing from time to
time.
22. Headings, Gender and Number.
The headings contained in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement. Common
nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter,
singular and plural, as the context so requires.
23. Severability.
If any provision of this Agreement shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not effect
any other provision hereof, and this Agreement shall be construed as if such
invalid or unenforceable provision were omitted.
6
<PAGE>
24. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon each
successor and assign of the Company. All obligations imposed upon the
Participant or a Representative, and all rights granted to the Company
hereunder, shall be binding upon the Participant's or the Representative's
heirs, legal representatives and successors.
25. Tax Consequences.
The Participant agrees to undertake to determine and be responsible for any
and all tax consequences to himself with respect to the Option granted hereunder
and the Option Shares relating thereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set his hand, all as of the day and year first above written.
PLATINUM technology, inc., a ________ corporation
By: _______________________________________
PARTICIPANT:
By: _______________________________________
7
<PAGE>
EXHIBIT 15
ACKNOWLEDGMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
REGARDING INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
PLATINUM technology, inc.:
With respect to the registration statements on Form S-8 and Form S-3 of PLATINUM
technology, inc., we acknowledge our awareness of the use therein of our report
dated July 14, 1998 related to our reviews of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
July 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 176,620 233,024
<SECURITIES> 136,177 125,180
<RECEIVABLES> 216,694 232,752
<ALLOWANCES> 3,821 4,788
<INVENTORY> 0 0
<CURRENT-ASSETS> 598,961 608,573
<PP&E> 153,777 153,335
<DEPRECIATION> 67,522 61,170
<TOTAL-ASSETS> 981,315 972,907
<CURRENT-LIABILITIES> 272,501 255,910
<BONDS> 0 0
0 0
18 18
<COMMON> 84 80
<OTHER-SE> 334,319 342,778
<TOTAL-LIABILITY-AND-EQUITY> 981,315 972,907
<SALES> 0 0
<TOTAL-REVENUES> 403,153 305,372
<CGS> 0 0
<TOTAL-COSTS> 460,180 410,408
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 817 502
<INTEREST-EXPENSE> 9,315 4,341
<INCOME-PRETAX> (47,008) (95,849)
<INCOME-TAX> 7,534 2,737
<INCOME-CONTINUING> (54,542) (98,586)
<DISCONTINUED> 0 (1,278)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (54,542) (99,864)
<EPS-PRIMARY> (0.67) (1.30)
<EPS-DILUTED> (0.67) (1.30)
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