<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
Commission File Number 0-23373
LANDMARK SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1221302
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8000 TOWERS CRESCENT DRIVE, VIENNA, VA 22182
(Address of principal executive offices) (Zip Code)
703-902-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-------- ---------
Number of shares outstanding of the issuer's classes of common stock as of April
30, 1999:
Class Number of Shares Outstanding
-------------------------------------- ----------------------------
Common Stock, par value $.01 per share 12,337,592
1
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LANDMARK SYSTEMS CORPORATION
QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 (unaudited) and March
31, 1998 (unaudited).................................................. 4
Condensed Consolidated Balance Sheets as of March 31,
1999(unaudited) and December 31, 1998................................. 5
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 (unaudited) and March
31, 1998 (unaudited)................................................... 6
Notes to Condensed Consolidated Financial Statements (unaudited)....... 7-9
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition................................................ 10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 15
Item 2. Changes in Securities and Use of Proceeds............................... 16
Item 3. Defaults Upon Senior Securities......................................... 16
Item 4. Submission of Matters to a Vote of Security Holders..................... 16
Item 5. Other Information....................................................... 16
Item 6. Exhibits and Reports on Form 8-K........................................ 16-17
SIGNATURES ........................................................................ 18
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed financial statements set forth below for the three-month
periods ended March 31, 1999 and 1998 are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations. Landmark
Systems Corporation believes that the disclosures made are adequate to make the
information presented not misleading. The results for the three-month period
ended March 31, 1999 are not necessarily indicative of the results for the
fiscal year.
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all necessary adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair presentation of
results for the periods presented. It is suggested that these financial
statements be read in conjunction with the latest audited consolidated financial
statements and notes thereto (included in the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998).
3
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LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues
License revenues $ 7,254,648 $ 3,565,287
Maintenance revenues 6,933,931 6,977,635
----------- ----------
Total revenues 14,188,579 10,542,922
Cost of revenues
Cost of license revenues 699,709 490,523
Cost of maintenance revenues 1,198,020 916,526
----------- ----------
Total cost of revenues 1,897,729 1,407,049
----------- ----------
Gross profit 12,290,850 9,135,873
----------- ----------
Operating expenses
Sales and marketing 4,523,865 3,473,607
Product research and development 4,162,631 3,599,519
General and administrative 1,441,868 1,139,640
----------- ----------
Total operating expenses 10,128,364 8,212,766
----------- ----------
Operating income 2,162,486 923,107
Interest and other income, net 579,111 439,830
----------- ----------
Income before taxes 2,741,597 1,362,937
Provision for income taxes 1,048,664 521,323
----------- ----------
Net income $ 1,692,933 $ 841,614
=========== ==========
Earnings per share
Basic $0.14 $0.07
Diluted $0.13 $0.07
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $27,420,135 $28,322,234
Accounts receivable, net of allowance for
doubtful accounts of $1,320,000 and
$1,323,000 9,427,276 10,902,168
Unbilled accounts receivable 7,938,271 5,728,250
Other current assets 2,393,228 2,498,564
----------- -----------
Total current assets 47,178,910 47,451,216
Unbilled accounts receivable - noncurrent 5,476,570 5,486,240
Fixed assets, net 4,566,661 4,121,290
Capitalized software costs, net 214,768 257,722
Intangible assets, net 5,582,500 616,000
Other assets 1,370,099 1,374,427
----------- -----------
Total assets $64,389,508 $59,306,895
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,244,307 $ 6,217,441
Deferred revenue 18,039,299 17,088,814
----------- -----------
Total current liabilities 23,283,606 23,306,255
Deferred revenue - noncurrent 8,115,248 7,710,350
Other liabilities 301,461 323,212
----------- -----------
Total liablities 31,700,315 31,339,817
----------- -----------
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000
Shares authorized, 12,237,536 and
11,782,585 issued and outstanding 122,375 117,826
Additional paid-in capital 29,933,995 26,692,818
Retained earnings 2,712,436 1,019,503
Accumulated other comprehensive income (loss) (79,613) 136,931
----------- -----------
Total stockholders' equity 32,689,193 27,967,078
----------- -----------
Total liabilities and stockholders' equity $64,389,508 $59,306,895
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
Cash flows from operating activities
<S> <C> <C>
Net income $ 1,692,933 $ 841,614
Adjustments to reconcile net income to net
cash flows from operations
Depreciation and amortization 865,502 705,713
Provision for deferred income taxes - (89,292)
Tax benefit for exercise of stock options 627,304 267,278
Sale of unbilled accounts receivable 2,960,292 -
Changes in working capital (3,215,589) 545,644
----------- -----------
Net cash provided by operating activities 2,930,442 2,270,957
----------- -----------
Cash flows from investing activities
Acquisition of distribution rights (4,000,000) -
Capital expenditures (844,419) (528,746)
----------- -----------
Net cash used in investing activities (4,844,419) (528,746)
----------- -----------
Cash flows from financing activities
Principle payments on loans - (130,724)
Proceeds from sale of common stock 1,228,422 515,010
----------- -----------
Net cash provided by financing activities 1,228,422 384,286
----------- -----------
Effect of exchange rate changes on cash (216,544) (209)
----------- -----------
Net (decrease) increase in cash and
cash equivalents (902,099) 2,126,288
Cash and cash equivalents, beginning of period 28,322,234 17,242,681
----------- -----------
Cash and cash equivalents, end of period $27,420,135 $19,368,969
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
LANDMARK SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements of Landmark Systems Corporation and its subsidiaries (collectively,
the "Company") reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
presented in conformity with generally accepted accounting principles for
interim financial information. Such adjustments are of a normal recurring
nature. Intercompany balances and transactions have been eliminated in
consolidation.
The results of the interim periods presented are not necessarily
indicative of the results for the year. The Company's interim financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the year ended December 31, 1998, as
filed with the Securities and Exchange Commission on Form 10-K.
Note 2 -- Software Revenue Recognition
Effective January 1, 1998, the Company adopted the provisions of Statement
of Position ("SOP") 97-2, "Software Revenue Recognition," which provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions. In December 1998, the American Institute of
Certified Public Accountants issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9
modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions exist. SOP 98-9 will be effective for the
Company's 2000 financial statements. The adoption of SOP 97-2 did not have a
material impact on the Company's consolidated financial statements. The Company
is evaluating the impact that SOP 98-9 will have on the Company's results of
operations.
Note 3 -- Earnings Per Share
The following reconciliation of the numerators and denominators is
provided for basic and diluted earnings per share for the three months ended
March 31, 1999 and 1998. Basic earnings per share is computed by dividing the
net income available to common stockholders by the weighted-average number of
common shares outstanding. Diluted earnings per share is computed by
additionally reflecting the potential dilution that could occur, using the
treasury stock method, if warrants and options to acquire common stock were
exercised and resulted in the issuance of common stock.
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
<S> <C> <C> <C>
For the three months ended March 31, 1999
Basic earnings per share $1,692,938 11,946,760 $0.14
=====
Effect of dilutive securities
Stock options and warrants - 1,024,367
---------- ----------
Diluted earnings per share $1,692,938 12,971,127 $0.13
========== ========== =====
For the three months ended March 31, 1998
Basic earnings per share $841,614 11,274,648 $0.07
=====
Effect of dilutive securities
Stock options and warrants - 994,450
-------- ----------
Diluted earnings per share $841,614 12,269,098 $0.07
======== ========== =====
</TABLE>
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<PAGE> 8
Note 4 -- Comprehensive Income
The Company's total comprehensive income is comprised of net income and other
comprehensive income, which consists of foreign currency translation
adjustments. Total comprehensive income for the three months ended March 31,
1999 and 1998 was $1,476,394 and $841,405, respectively.
Note 5 -- Segment Reporting
The Company classifies its operations into one industry segment, software
development and related services. The Company categorizes its products and
services into two groups: mainframe and client/server. The Company's revenues by
product group consist of the following:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Mainframe $11,190,024 $ 9,152,811
Client/server 2,998,555 1,390,111
----------- -----------
Total revenues $14,188,579 $10,542,922
=========== ===========
</TABLE>
The Company sells its products outside the United States through its
subsidiaries and international distributors. Revenues from international
distributors are presented net of royalties retained by the distributors. The
Company's revenues by country or geographic region are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
United States $9,861,832 $7,042,741
Germany 1,001,448 725,074
United Kingdom 968,125 570,135
The Netherlands 671,964 385,532
Other European countries 367,805 403,690
Japan 349,150 466,342
Australia 370,410 278,127
Rest of world 597,845 671,281
----------- -----------
Total revenues $14,188,579 $10,542,922
=========== ===========
</TABLE>
The Company's long-lived assets, which consist of fixed assets, capitalized
software and intangible assets, by country or geographic region are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---- ----
<S> <C> <C>
United States $10,085,410 $4,461,934
Europe 212,489 181,174
Australia and Southeast Asia 66,030 61,539
----------- -----------
Total long-lived assets $10,363,929 $4,704,647
=========== ===========
</TABLE>
8
<PAGE> 9
Note 6 - Acquisition of Distribution Rights
In January 1999, the Company signed an agreement to acquire certain rights
and related assets from Software Products Ltd. ("Software Products"), a former
international distributor of the Company's products. Under terms of the
agreement governing the distribution relationship, Software Products held
exclusive rights to market certain of the Company's products in the United
Kingdom. As a result of the 1999 agreement, the Company gained direct access to
its mainframe customers in the United Kingdom. As consideration for the
acquisition of these rights, the Company paid Software Products $4,000,000 in
cash. As further consideration, the Company issued to Software Products 91,586
shares of Company common stock, with a fair value of $850,000 and subject to
certain resale restrictions and registration rights. Additionally, the Company
granted Software Products a warrant to purchase 150,000 shares of the Company's
common stock at the then fair market value of $10 per share, which vested upon
issuance and expires in January 2009. The fair value of the warrant was
$540,000. The Company recorded the acquisition of the customer base as an
intangible asset representing the cash payment and the fair value of the stock
and warrant issued and will amortize the intangible asset over a five-year
period.
Note 7 - Subsequent Events
In April 1999, the Company established a subsidiary, Landmark Systems
Singapore Pte Ltd. to act as a distributor of the Company's products in
Singapore. In May 1999, the Company established a subsidiary, Landmark Systems
France, SarL, to act as a distributor of the Company's client/server products in
France. Additionally in May 1999, the Company established a subsidiary, Landmark
Systems Nordic, AB, to act as a distributor of the Company's products in the
Scandinavian countries.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
The following table sets forth the Company's Condensed Consolidated
Statements of Operations expressed as percentages of total revenues for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
Revenues
<S> <C> <C>
License revenues 51.1% 33.8%
Maintenance revenues 48.9 66.2
------ ------
Total revenues 100.0 100.0
Cost of revenues
Cost of license revenues 4.9 4.6
Cost of maintenance revenues 8.5 8.7
------ ------
Total cost of revenues 13.4 13.3
------ ------
Gross profit 86.6 86.7
------ ------
Operating expenses
Sales and marketing 31.9 33.0
Product research and development 29.3 34.1
General and administrative 10.2 10.8
------ ------
Total operating expenses 71.4 77.9
Operating income 15.2 8.8
Net interest and other income 4.1 4.1
------ ------
Income before income taxes 19.3 12.9
Provision for income taxes (7.4) (4.9)
------ ------
Net income 11.9% 8.0%
====== ======
</TABLE>
Total revenues. Total revenues increased 34.6% from $10.5 million for the
three months ended March 31, 1998, to $14.2 million for the three months ended
March 31, 1999. Revenues for the first three months of 1999 from mainframe
products and services were $11.2 million, an increase of 22.3% from the same
period in the prior year; revenues for the first three months of 1999 from
client/server products and services were $3.0 million, an increase of 115.7%
from the same period in the prior year. The increase in revenues from mainframe
products and services was primarily due to the increase in the number of
conversions of existing customers to new or modified license agreements,
typically containing extended maintenance terms with preferential pricing. The
increase in client/server revenues was primarily due to increase product
acceptance of the client/server products. As license revenues increased 103.5%
while maintenance revenues remained constant during the three months ended March
31, 1999 as compared to the prior year period, license revenues represented a
greater proportion of the Company's total revenues compared to the prior year
period.
License revenues. License revenues increased 103.5% from $3.6 million for
the three months ended March 31, 1998, to $7.3 million for the three months
ended March 31, 1999. The increase in license revenue is due to an increase in
sales to new customers and conversions of existing customers to new or modified
license agreements. Based upon the nature and volume of license transactions and
sales activities currently in process, management believes these trends will
continue throughout 1999.
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<PAGE> 11
Maintenance revenues. Maintenance revenues remained constant at
$7.0 million for the three months ended March 31, 1999 and 1998. Maintenance
revenues were favorably impacted by the volume of prior year's license sales and
the effects of increases in the Company's maintenance prices, offset by an
increase in conversions of license agreements, which include a higher discount
on maintenance fees. Maintenance renewals have historically been approximately
90%, and management believes future maintenance renewal rates will continue at
this level.
Total cost of revenues. Total cost of revenues during the three months
ended 1999 and 1998 were $1.9 million and $1.4 million, respectively,
representing 13.4% and 13.3% of total revenues. Based upon current customer
service activities and the expected amounts of amortization of capitalized
software costs and intangible assets, management believes the total cost of
revenues will continue to be approximately 12% to 14% of total revenues
throughout 1999, excluding the impact that acquisitions, if any, may have
on cost of revenues.
Cost of license revenues. Cost of license revenues includes amortization
of capitalized software costs, amortization of international distribution
rights, product royalties, materials and packaging expenses. Costs of license
revenues were $0.7 and $0.5 million for the three months ended March 31, 1999
and 1998, respectively, representing 9.6% and 13.8% of license revenues in such
periods. The increase in cost of license revenues from 1998 to 1999 is primarily
due to the amortization of intangible assets acquired in January 1999 from the
Company's former distributor in the United Kingdom.
Cost of maintenance revenues. Cost of maintenance revenues consists of
personnel and related costs for customer support, training and consulting
services. Costs of service revenues were $1.2 million and $0.9 million for the
three months ended March 31, 1999 and 1998, respectively, representing 17.3% and
13.1% of service revenues in such periods. The increase in costs from 1998 to
1999 is a result of increased personnel in professional services for
client/server and additional support personnel in the United Kingdom subsidiary.
Sales and marketing. Sales and marketing includes personnel and related
costs for the Company's direct sales organization, marketing staff and
promotional expenses. Sales and marketing expenses were $4.5 million and $3.5
million for the three months ended March 31, 1999 and 1998, respectively,
representing 31.9% and 33.0% of total revenues in such periods. The increase in
sales and marketing expenses is primarily due to an increase in personnel in the
direct sales organization in the United Kingdom, an increase in marketing and
promotional expenses, and an increase in commission expenses to the Company's
direct sales forces as a result of increased sales.
Product research and development. Product research and development
includes personnel and related costs for the Company's development staff.
Product research and development expenses were $4.2 million and $3.6 million for
the three months ended March 31, 1999 and 1998, respectively, representing 29.3%
and 34.1% of total revenues in such periods. The increase in product research
and development expenses from 1998 to 1999 reflects increased investments in
both mainframe and client/server products.
General and administrative. General and administrative includes salaries
and related costs of administration, finance and management personnel, as well
as legal and accounting fees. General and administrative expenses were $1.4
million and $1.1 million for the three months ended March 31, 1999 and 1998,
respectively, representing 10.2% and 10.8% of total revenues in such periods.
The increase in general and administrative expenses from 1998 to 1999 is due to
an increase in personnel in the Company's information systems department and
costs associated with the relocation of the Company's headquarters which will be
completed in June 1999.
Net interest and other income. Net interest and other income includes
interest recorded on installment receivables, interest income earned by the
Company on its excess cash balances, interest expense incurred on term and
revolving credit facilities, and exchange gains (losses) incurred by the Company
on foreign exchange transactions. Net interest and other income totaled $0.6
million and $0.4 million for the three months ended March 31, 1999 and 1998,
respectively. The increase from 1998 to 1999 reflects higher levels of interest
income earned by the Company on its cash balances and lower levels of interest
expense following repayment of the outstanding balance on the Company's debt
obligations during 1998.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had cash and cash equivalents of $27.4
million and working capital of $23.9 million. During the three months ended
March 31, 1999, net cash provided by operating and financing activities were
$2.9 million and $1.2 million, respectively, while net cash used in investing
activities was $4.8 million. The Company invests its cash, which includes the
$12.0 million proceeds from the Company's initial public offering in November
1997, in a money market fund. The Company had no debt as of March 31, 1999,
other than normal trade payables and accrued liabilities. Stockholders' equity
at March 31, 1999 was $32.7 million.
In March 1999, the Company obtained a revolving line of credit in the
amount of $10.0 million. The line of credit, which was granted on an unsecured
basis, has a floating interest rate of LIBOR plus 1.35% and expires June 30,
2000. No advances have been made on the line of credit.
The Company continues to finance its growth through funds generated from
operations. For the three months ended March 31, 1999, cash flow from operations
was $2.9 million. Beginning in December 1998 and continuing in 1999, the Company
has sold unbilled accounts receivable, on a non-recourse basis, to augment its
operating cash flows. In March 1999, the Company sold $3.0 million of unbilled
accounts receivable. The sale of the unbilled receivables resulted in an
immaterial gain for the Company. In the future, the Company may sell additional
unbilled accounts receivable from time to time depending on the Company's cash
flow requirements and whether the terms are financially favorable for the
Company.
The Company's investing activities primarily include expenditures for
fixed assets in support of the Company's product development activities and
infrastructure, and for capitalized software development costs. During the three
months ended March 31, 1999, the Company invested $0.8 million, respectively, in
fixed assets, consisting primarily of computer equipment to expand and upgrade
the Company's development activities.
Additionally, in January 1999, the Company signed an agreement to acquire
certain rights and related assets from Software Products Ltd. ("Software
Products"), a former international distributor of the Company's products. As a
result of the agreement, the Company regained direct access to its mainframe
customers in the United Kingdom. As consideration for the acquisition of these
rights, the Company paid Software Products $4.0 million in cash. As further
consideration, the Company issued to Software Products 91,586 shares of Company
common stock, with a fair value of $850,000 and subject to certain resale
restrictions and registration rights. Additionally, the Company granted Software
Products a warrant to purchase 150,000 shares of the Company's common stock at
the then fair market value of $10 per share, which vested upon issuance and
expires in January 2009. The Company recorded the acquisition of the customer
base as an intangible asset representing the cash payment and the fair value of
the stock and warrant issued. The Company will amortize the intangible asset
into cost of license revenues over five years. Management believes the
transaction will be accretive in 1999.
The Company believes that cash and cash equivalents at March 31, 1999,
cash flow generated from operations and the line of credit will provide
sufficient liquidity to meet its needs for at least the next twelve months. To
the extent the Company makes acquisitions of other companies, products or
technologies, the Company may use working capital, sell or issue additional
equity or debt securities or use credit facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position (SOP) 98-9, "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions." SOP
98-9 modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions exist. SOP 98-9 will be effective for the
Company's 2000 financial statements. Management is assessing the impact that SOP
98-9 will have on the Company's results of operations.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 became
effective January 1, 1999. The adoption of SOP 98-1 did not have a
material impact on the Company's results of operations or financial condition.
12
<PAGE> 13
YEAR 2000 COMPLIANCE
The Company has conducted periodic evaluations of its computer systems and
products in an effort to determine the actions, if any, necessary to make them
Year 2000 compliant. The term "Year 2000 compliant" (or similar terms) generally
means that information technology hardware and software are able to correctly
interpret and manipulate dates up to and through the year 2000, without
interruption as the result of the change to this date.
These evaluations have involved both testing the Company's computer
systems and requesting certifications from its vendors. The Company has received
vendor certification that all of its business critical information technology
systems, including internal communication systems, accounting and finance
systems, customer service systems and sales and marketing tracking systems, are
Year 2000 compliant. Based upon its evaluation, the Company has determined that
approximately eighty percent of its information technology systems are Year 2000
compliant, but has also found that certain non-business critical software
applications may not be compliant. The Company is engaged in upgrading,
replacing and testing these applications, and this process is expected to be
completed during the third quarter of 1999.
The Company also recognizes that there are risks with respect to embedded
systems that are not necessarily a part of the Company's information technology
systems but contain microprocessor chips, which may not function properly with
the change of date to the year 2000. The majority of the embedded systems on
which the Company relies in its day-to-day operations are owned and managed by
the lessors of the buildings in which the Company's offices are located, or by
agents of such lessors. During the second quarter of 1999, the Company will move
its headquarters to a new facility, presently under final construction and
containing new mechanical systems, in Reston, Virginia. The Company believes
that the new mechanical systems will be Year 2000 compliant, based on its
building construction manager's experience with other such systems, and certain
representations made by the manufacturers of such systems. The Company intends
to seek certificates from these manufacturers that their systems are Year 2000
compliant. Additionally, the Company is installing a new telephone switch in the
new facility, and a Year 2000 compliancy certificate has been received from the
switch's manufacturer.
Because the Company believes that its information technology and embedded
systems will be substantially Year 2000 compliant in advance of the year 2000
date change, the Company currently has no contingency plan to address
non-compliance. The Company expects that, as it completes testing of information
technology and embedded systems, it will develop contingency plans if it
determines that any business critical systems will not be Year 2000 compliant.
Disruptions with respect to the computer systems of vendors or customers,
which are outside the control of the Company, could impair the ability of the
Company to obtain services from or conduct business with its customers. The
Company believes that its primary exposure is with respect to public utilities
and telecommunications service providers. The Company is in the process of
sending letters to these providers requesting written certification of Year 2000
compliance. Disruptions of the Company's utilities or telecommunications systems
could have a material adverse effect upon the Company's financial condition and
results of operations. The Company believes that no other providers are material
to its business. Disruptions of customers' computer systems could interfere with
payments to the Company by such customers, and therefore with the Company's
ability to make timely payments on its accounts, and could otherwise cause
disruptions to the Company's operations. None of the Company's customers,
however, is individually material to the Company's business and the Company does
not presently intend to seek certifications from its customers that their
internal computer systems are Year 2000 compliant.
With respect to the products sold by the Company, the Company has
determined that, with certain exceptions described below, to the extent that
underlying hardware platforms, operating systems applications and databases will
accommodate the year 2000 date change, the Company's performance management
software products are Year 2000 compliant. The Company is specifically aware
that CICS Version 2, Release 1.2, an operating system developed and marketed by
the IBM Corporation is not presently Year 2000 compliant, according to IBM, and
that the Company's The Monitor for CICS/MVS Version 8.3 product, since it
operates with such non-compliant IBM product, is therefore also non-compliant.
The Company has been communicating this non-compliancy situation to its
customers by written, oral and electronic (e-mail and the Company's web site)
communications since 1997.
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<PAGE> 14
The expected reduced sales of this product are not expected to have a material
adverse effect on the Company's results of operations or financial condition.
The other exceptions to the Company's general condition of Year 2000
product compliance are: (1) some Company product customers may be operating
older, non-compliant versions of certain of the Company's products, and also may
not be active participants in product maintenance programs that periodically
provide in the normal course of business (at no additional charge beyond the
on-going costs of program participation) newer product versions or product
modifications that address Year 2000 non-compliancy issues and specifically make
such products Year 2000 compliant (the "Older Product Scenario"); and (2) the
Company recently discovered that its NaviGraph product, version 1.3 requires a
product addition to make it Year 2000 compliant (the "NaviGraph Scenario").
With respect to the Older Product Scenario, the majority (on an absolute
basis) of the Company's products were made Year 2000 compliant during 1997.
Certain other Company products, specifically The Monitor for DB Control, The
Monitor for MQ Series and NaviPlex products, were made Year 2000 compliant
during 1998. Additionally, those customers on active product maintenance
programs (and approximately 90% of the Company's customers participate in such
programs) receive regular product upgrades or modifications that include
software that addresses Year 2000 compliancy issues. The Company encourages all
its customers to participate in active maintenance programs. The Company has
been communicating this Older Product Scenario issue to customers through
written, oral and electronic (e-mail and the Company's web site) communications
and will continue to do so past the Year 2000 date change.
With respect to the NaviGraph Scenario, the product addition required to
make this product Year 2000 compliant was made generally available to all
NaviGraph customers participating in active maintenance programs during late
April 1999. The Company had previously communicated to its customers and to
third parties, beginning in 1997, that NaviGraph 1.3 was Year 2000 compliant. Of
the approximately 46 domestic NaviGraph 1.3 customers, 41 of such customers
participate in the maintenance program for the product, and 4 of the remaining 5
customers no longer use the product. Of the approximately 142 international
NaviGraph customers (version 1.3 and prior versions, which prior versions have
consistently been described by the Company as not Year 2000 compliant) 113 of
such customers participate in the maintenance program for the products. The
Company does not know how many of those international NaviGraph product
customers not participating in an active maintenance program are no longer using
the product. Accordingly, the large majority of domestic NaviGraph 1.3 and
international NaviGraph 1.3 (and previous version) customers who have elected to
participate in active maintenance programs are, or will be made, Year 2000
compliant with respect to such products in the normal course of business,
assuming they accept and implement such normal product maintenance.
Additionally, NaviGraph 2.0, which is Year 2000 compliant, is targeted to be
released in June 1999, and will be made available to NaviGraph 1.3 customers
that are on, or wish to join, active maintenance programs. The Company intends
to contact all NaviGraph 1.3 product customers to alert them that Year 2000
compliancy issues may be present and to inform them of their options.
Notwithstanding its efforts to attempt to ensure that its products are
Year 2000 compliant, the Company may experience future uncertainties and
problems relating to the year 2000 date change issue, including but not limited
to possible technical problems and/or customer claims. The Company intends to
conduct a further cycle of tests for its mainframe products, and is also aware
that certain of its customers have been and will be conducting additional Year
2000 Company product compliancy tests, and it is possible that additional
Company product Year 2000 compliancy issues could be discovered in the future,
including during the course of such tests.
The Company anticipates that virtually all of its customers and potential
customers will be required to evaluate their information technology systems with
respect to the year 2000 date change and that some of its customers and
potential customers may incur material costs in connection with this evaluation
and any necessary repairs and replacements. Customers and potential customers
may be required to devote material portions of their information technology
budgets to such evaluations, repairs and replacements, which could materially
reduce their other information technology purchases in 1999, including their
purchases of the Company's products, particularly as the year 2000 date change
draws closer. The Company does not have any information as to the degree to
which this issue will affect its customers or potential customers.
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<PAGE> 15
The Company has incurred approximately $0.1 million, $0.1 million and
$0.2 million in the three months ended March 31, 1999 and the years ended
December 31, 1998 and 1997, respectively, for Year 2000 remediation activites.
The Company currently expects to incur approximately $0.1 million during the
remainder of 1999 for Year 2000 remediation activities. There can be no
assurance that the actions taken by the Company with respect to its internal
information technology systems, embedded systems or its products will eliminate
the numerous and varied risks associated with the year 2000 date change.
Further, there can be no assurance that the Company will not be adversely
affected by any year 2000 related difficulties encountered by vendors or
customers or by any downturn in information technology purchases or in the
economy in general as the year 2000 date change draws nearer, or after such date
change. Additionally, the effects of any actual Year 2000 non-compliance problem
directly or indirectly experienced by the Company could be exacerbated by the
fact that the Company normally experiences its largest quarterly sales for a
given calendar year in the fourth quarter of each year, and invoices and
receives payment for such sales in the first quarter of the following calendar
year. Accordingly, should a Year 2000 non-compliance problem or problems affect
the Company's customers, the potential impact on the Company's operations could
be greater than if the Company received these payments at the time of sale or
some time other than the calendar quarter immediately after the date switch from
1999 to 2000. Any of these risks could have a material adverse effect on the
Company's financial condition and results of operations.
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE LITIGATION REFORM ACT OF 1995
Some of the statements in this Form 10-Q are "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995 and are related
to anticipated future operating results. Specifically, the following may be
impeded by events that have not been presently anticipated: the sale of unbilled
accounts receivable, the Company's ability to make its acquisitions accretive,
the Company's ability to sell or issue equity or debt securities or to enter
into credit facilities on acceptable terms and the Company's ability to increase
license revenues, maintain the level of maintenance renewal rates and limit
total cost of sales. Forward-looking statements are based on management's
current expectations and assumptions, which may be affected by a number of
factors, including, without limitation, competitive product introductions, price
competition, the Company's ability to consummate license transactions as
anticipated, any failure or delay in the Company's ability to develop and
introduce new products, seasonal factors affecting the Company's sales, the
Company's ability to attract and retain qualified technical, sales, managerial
and other key personnel, the Company's ability to manage expenses effectively,
the recent introduction of the Euro currency, the "Year 2000" software and
systems issue, and other factors detailed herein and in the Company's other
filings with the Securities and Exchange Commission, including the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Therefore,
there can be no assurance that actual future results will not differ materially
from anticipated results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has subsidiaries in the United Kingdom, Germany, France, The
Netherlands, Sweden, Spain, Australia, Hong Kong and Singapore that act as
distributors of its products. Additionally, the Company uses third party
distributors to market and distribute its products in other international
regions. Transactions conducted by the subsidiaries are typically denominated in
the local country currency, while royalty payments from the distributors are
typically denominated in U.S. dollars. As a result, the Company is primarily
exposed to foreign exchange rate fluctuations as the financial results of its
subsidiaries are translated into U.S. dollars in consolidation. As exchange
rates vary, these results, when translated, may vary from expectations and
impact overall expected profitability. However, through and as of March 31,
1999, the Company's exposure was not material to the overall financial
statements taken as a whole. The Company has not entered into any foreign
currency hedging transactions with respect to its foreign currency market risk.
The Company does not have any financial instruments subject to material market
risk, except as discussed above.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None
15
<PAGE> 16
Item 2. Changes in Securities and Use of Proceeds
(c) In January 1999, the Company issued 91,586 unregistered shares of
Company common stock to Software Products Ltd. as partial
consideration for the acquisition of certain distribution rights. A
description of such transaction can be found in Part I, Item 2 -
"Management's Discussion and Analysis of Results of Operations and
Financial Condition - Liquidity and Capital Resources" contained
herein.
No underwriter was involved in the foregoing transaction. The
issuance was deemed exempt from registration under the Securities
Act in reliance on Section 4(2) of the Securities Act.
(d) The net proceeds to the Company from the initial public offering
(SEC File No. 333-35629 effective November 18, 1997) were
approximately $12 million and have been deposited by the Company in
a money market fund investing solely in short-term U.S. government
obligations.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders was held on May 11, 1999 at
the Company's headquarters, 8000 Towers Crescent Drive, Vienna,
Virginia.
1. PROPOSAL ONE - Election of directors
Nominees: For Withheld
---------- -----------
Patrick H. McGettigan 10,740,318 8,500
Katherine K. Clark 10,740,318 8,500
Ralph E. Alexander 10,740,318 8,500
Jeffrey H. Bergman 10,740,318 8,500
T. Eugene Blanchard 10,740,318 8,500
Patrick W. Gross 10,740,318 8,500
Sudhakar V. Shenoy 10,740,318 8,500
2. PROPOSAL TWO - Approval of an amendment to the 1994 Stock
Incentive Plan to increase by 1,500,000 the number of shares
authorized for issuance thereunder
For 8,519,564
Against 969,754
Abstain 14,058
3. PROPOSAL THREE - Ratification of selection of
PricewaterhouseCoopers LLP as independent accountants
For 10,745,474
Against 2,255
Abstain 1,088
Item 5. Other Information
None
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended.)
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended.)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen certificate of Common Stock (incorporated by
reference to Exhibit 4.2 forming a part of the Company's
registration statement on Form S-1 (File No. 333-35629) filed
with the Securities and Exchange Commission under the
Securities Act of 1933, as amended.)
10.1 Employment agreement between the Company and Ralph E.
Alexander dated April 9, 1997 (incorporated by reference to
Exhibit 10.1 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended.)
10.2 1989 Stock Incentive Plan (incorporated by reference to
Exhibit 10.2 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended.)
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<PAGE> 17
10.3 1991 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.3 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended.)
10.4 1992 Executive Stock Incentive Plan (incorporated by reference
to Exhibit 10.4 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended.)
10.5 1994 Stock Incentive Plan, as amended.
10.6 1996 Advisory Board and directors Stock Incentive Plan
(incorporated by reference to Exhibit 10.6 forming a part of
the Company's registration statement on Form S-1 (File No.
333-35629) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended.)
10.7 1998 Employee Stock Purchase Plan, as amended.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the first
quarter of 1999.
17
<PAGE> 18
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.
<TABLE>
<CAPTION>
LANDMARK SYSTEMS CORPORATION
<S> <C> <C>
Date: May 17, 1999 By: /s/ Ralph E. Alexander
-------------------------------
Ralph E. Alexander
President and Chief Operating Officer (Duly
Authorized Officer)
Date: May 17, 1999 By: /s/ Frederick S. Rolandi, III
-------------------------------
Frederick S. Rolandi, III
Vice President and Chief Financial Officer
(Chief Accounting Officer)
</TABLE>
18
<PAGE> 1
EXHIBIT 10.5
LANDMARK SYSTEMS CORPORATION
1994 STOCK INCENTIVE PLAN
1. PURPOSE.
The purpose of this Stock Incentive Plan (this "Plan") is to offer to
those employees who contribute materially to the successful operation of
LANDMARK SYSTEMS CORPORATION (the "Company") additional incentive and
encouragement to remain in the service of the Company by increasing their
personal participation in the Company through stock ownership. This Plan
provides a means whereby these individuals may acquire shares of the Company's
Common Stock pursuant to Qualified Options, Nonqualified Options, Restricted
Stock Awards and Stock Bonuses.
2. DEFINITIONS.
A. "Board" means the Board of Directors of the Company.
B. "Bonus Stock" means the shares of Common Stock issued to a Grantee
pursuant to a Stock Bonus.
C. "Code" means the Internal Revenue Code of 1986, as amended.
D. "Common Stock" means the common stock of the Company, $.01 par
value per share.
E. "Conditions" means the conditions attached to a Restricted Stock
Award pursuant to Section 7.B which if not met will result in the repurchase of
Restricted Stock at the price paid by the Grantee for such Restricted Stock as
provided in Section 7.E.
F. "Employee" means any employee of the Company or of any Parent or
Subsidiary, including an employee who serves as an officer or director of the
Company or of a Parent or Subsidiary.
G. "Fair Market Value" means the most recent determination of the fair
market value of each share of Common Stock made in accordance with Section 9.
H. "Grantee" includes both Optionees and recipients of Restricted
Stock Awards and Stock Bonuses.
I. "Nonqualified Option" means a stock option granted under to this
Plan which is not intended to qualify as an incentive stock option under
Section 422 of the Code.
<PAGE> 2
J. "Option" includes both Nonqualified Options and Qualified Options.
K. "Option Shares" mean the shares of Common Stock purchased by a
Grantee upon exercise of an Option.
L. "Optionee" means an Employee to whom an Option has been granted.
M. "Parent" means a parent corporation of the Company within the
meaning of Section 425(e) of the Code.
N. "Qualified Option" means a stock option granted under this Plan
which qualifies as an incentive stock option under Section 422 of the Code.
O. "Restricted Stock" means the shares of Common Stock issued to a
Grantee pursuant to a Restricted Stock Award.
P. "Restricted Stock Award" means the grant under this Plan, at a
price determined by the Board, of Common Stock which is nontransferable and
subject to substantial risk of being repurchased at the price paid for such
Common Stock until the Conditions have been met.
Q. "Stock Bonus" means the grant under this Plan of Common Stock as a
bonus for services rendered by an Employee.
R. "Subsidiary" means a subsidiary corporation of the Company within
the meaning of Section 425(f) of the Code.
S. "Terminating Event" means (i) the consummation of a merger or
consolidation of the Company into or with another corporation under
circumstances in which the Company is not the surviving corporation (other than
circumstances involving a mere change in the identity, form or place of
organization of the Company); (ii) the consummation of a sale of more than 50%
of the Company's outstanding stock to persons who are not shareholders of the
Company on the date of grant of the Option, Restricted Stock Award or Stock
Bonus; or (iii) the liquidation or dissolution of the Company.
3. ADMINISTRATION OF THE PLAN.
This Plan will be administered by the Board, which will have the right
to delegate any and all of its powers under this Plan to a committee of members
of the Board comprised of no fewer than three members (the "Committee"). If the
Board appoints a Committee to administer this Plan, in whole or in part, the
Committee's determination will not be subject to approval by the Board, and to
the extent of such delegation, references in this Plan to the Board shall be
deemed to refer to the Committee. The
2
<PAGE> 3
Committee, however, shall report to the Board periodically concerning its
administration of the Plan.
The Board will have the authority and discretion to adopt and revise
such rules and regulations as it deems necessary for the administration of this
Plan and to determine, consistent with the provisions of this Plan, the
Employees to be granted Options, Restricted Stock Awards and Stock Bonuses, the
times at which Options, Restricted Stock Awards and Stock Bonuses will be
granted, the option price of the shares subject to each Option and the price at
which a Restricted Stock Award is made, the number of shares subject to each
Option, Restricted Stock Award and Stock Bonus, the vesting schedule of
Options, the method of payment for shares acquired upon the exercise of
Options, the expiration dates of the Options, and the Conditions attached to
each Restricted Stock Award. In addition, the Board will have the authority, in
connection with any Option, Restricted Stock Award or Stock Bonus granted or to
be granted to any Employee, to eliminate, restrict, expand or otherwise modify,
in such manner as the Board, in its discretion, deems appropriate, the call
rights granted under Section 10 of this Plan and the transfer restrictions set
forth in Section 11 of this Plan, provided that any modification of such rights
are set forth in a written agreement signed by the Company and such Employee.
The Board's actions, including any interpretation or construction of any
provisions of this Plan and any Option, Restricted Stock Award and Stock Bonus,
shall be final, conclusive and binding. No member of the Board shall be liable
for any action or determination made in good faith.
4. ELIGIBILITY.
All Employees will be eligible to receive Options, Restricted Stock
Awards and Stock Bonuses. An Employee may be granted more than one Option,
Restricted Stock Award or Stock Bonus.
5. SHARES OF STOCK SUBJECT TO THE PLAN.
The number of shares which may be issued pursuant to this Plan shall
not exceed 4,500,000 shares of Common Stock, subject to a proportionate
adjustment to account for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from any stock split (whether
by subdivision or consolidation of shares) or any payment of a share dividend
(but only on the Common Stock). Any or all of such shares may be issued under
Qualified Options. Such shares may be authorized and unissued shares or shares
previously acquired by the Company and held in its treasury. Any shares subject
to an Option which expires for any reason or is terminated unexercised as to
such shares, and any Restricted Stock, Bonus Stock and Option Shares which are
repurchased by the Company, may again be subject to an Option, Restricted Stock
Award or Stock Bonus under this Plan.
3
<PAGE> 4
6. TERMS AND CONDITIONS OF OPTIONS.
A. Option Agreement. Each Option shall be evidenced by a written
agreement between the Company and the Optionee (an "Option Agreement"), which
sets forth (i) the number of shares subject to the Option; (ii) the exercise
price, vesting schedule and expiration date of the Option; (iii) the method of
payment on exercise of the Option; (iv) whether the Option is a Qualified
Option or Nonqualified Option; and (v) such additional provisions, not
inconsistent with this Plan, as the Board may prescribe.
B. Grant of Options. No Option may be granted after the expiration of
ten years from the date this Plan is adopted.
C. Exercise of Options. Optionees may exercise at any time or from
time to time all or any portion of a vested Option. An Option shall be
exercisable only to the extent it is vested. Options will vest either
immediately or periodically over a period not exceeding ten years as set forth
in the Option Agreement. Vesting of all or any portion of an Option may be
accelerated at the discretion of the Board.
To the extent that the aggregate Fair Market Value of the Common Stock
with respect to which options qualifying as incentive stock options under
Section 422 of the Code are exercisable by the Grantee for the first time
during any calendar year (under all stock option plans of the Company, its
Parents and Subsidiaries) exceeds $100,000, such Options are not incentive
stock options. For the purposes of this paragraph, the Fair Market Value of the
Common Stock shall be determined as of the time the option with respect to such
Common Stock is granted. This paragraph shall be applied by taking options into
account in the order in which they were granted.
An Optionee shall exercise an Option by delivering to the Secretary of
the Company a written notice signed by the Optionee which states the Optionee's
election to exercise the Option and the number of shares of Common Stock the
Optionee elects to purchase. The Optionee's notice shall be accompanied by
payment of the exercise price. Payment may be (i) in cash, (ii) by exchange of
Common Stock having an aggregate Fair Market Value equal to the cash exercise
price, or (iii) partly in cash and partly by exchange of Common Stock.
The Optionee's right to pay the exercise price by exchange of Common
Stock is subject to the following limitations:
(a) the Common Stock being exchanged must have been held by the
Optionee for more than one month, and
(b) if the Common Stock being exchanged was acquired upon the
Optionee's exercise of a Qualified Option, the Common Stock must have been held
by the Optionee at least one year, and the Qualified Option must have been
granted at least two years, before the date the Optionee exchanges the Common
Stock.
4
<PAGE> 5
As soon as practicable following payment of the exercise price, the
Company will deliver to the Optionee a certificate representing the Option
Shares, provided that the Optionee has made appropriate arrangements with the
Company for any federal, state or local taxes required to be withheld. An
Optionee shall not have any of the rights and privileges of a shareholder of
the Company in respect of any of the Option Shares until the Company has
delivered the certificate.
D. Exercise Price. The exercise price of each Qualified Option shall
be at least equal to the Fair Market Value of the Common Stock on the date the
Qualified Option is granted. In the case of a Qualified Option granted to a
person who owns, immediately after the grant of such Qualified Option, stock
possessing more than 10% of the total combined voting power of the Company, or
of its Parent or Subsidiary, the exercise price of the Qualified Option shall
be at least 110% of the Fair Market Value of the Common Stock on the date the
Qualified Option is granted.
The exercise price of each Nonqualified Option shall be at least equal
to 85% of the Fair Market Value of the Common Stock on the date the
Nonqualified Option is granted. In the case of a Nonqualified Option granted to
a person who owns, immediately after the grant of such Nonqualified Option,
stock possessing more than 10% of the total combined voting power of the
Company, or its Parent or Subsidiary, the exercise price of the Nonqualified
Option shall be at least 110% of the Fair Market Value of the Common Stock on
the date such Nonqualified Option is granted.
The exercise price of any Option shall not be less than the par value
of the Common Stock.
E. Expiration of Options. Each Option shall expire on the date set
forth in the Option Agreement, provided that (i) each Option shall expire not
later than ten years after the date it is granted, and (ii) each Qualified
Option granted to any person who owns stock possessing more than 10% of the
total combined voting power of the Company, or of its Parent or Subsidiary,
shall expire not later than five years after the date it is granted.
Notwithstanding the foregoing, if an Optionee's employment with the Company is
terminated for any reason before the expiration date set forth in the Option
Agreement, the Option granted under the Option Agreement shall terminate on the
date the Optionee's employment is terminated; provided, however, that the
portion of the Option which is vested as of the date of such termination of
employment shall be exercisable for a period of sixty days thereafter (or, if
employment is terminated due to the Optionee's death or disability, for a
period ending no later than (i) the six-month anniversary of the date of
termination or (ii) sixty days following the appointment of a personal
representative for the Optionee's estate).
F. Non-Transferability of Options. Options may not be transferred by
the Optionee otherwise than by will or the laws of descent and distribution,
and each Option shall be exercisable during the Optionee's lifetime only by the
Optionee. Upon any attempt to transfer an Option or any interest therein
contrary to the provisions of this Plan, or to
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<PAGE> 6
subject the Option or any interest therein to execution, attachment or similar
process, the Option shall immediately terminate and become null and void.
G. Adjustment Provisions. Subject to any required action by the
shareholders of the Company, the Board will make a proportionate adjustment in
the number of shares of Common Stock covered by each outstanding Option and the
exercise price per share to account for any increase or decrease in the number
of issued shares of Common Stock of the Company resulting from a stock split
(whether by subdivision or consolidation of shares) or any payment of a share
dividend (but only on the Common Stock).
In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be Common Stock within the meaning of this Plan.
H. Terminating Event. Notwithstanding the vesting schedule set forth
in any Option Agreement, the unvested portions of all Options shall vest, and
such Options shall be exercisable in full, immediately prior to the occurrence
of a Terminating Event. All Options shall terminate immediately following the
occurrence of a Terminating Event. The Company will provide each Grantee with
at least fifteen days advance notice of the occurrence of a Terminating Event.
I. Notice of Disposition of Shares. The Optionee shall give written
notice to the Company of his intent to make any disposition of the shares
acquired upon exercise of a Qualified Option if such disposition occurs within
two years after the date the Qualified Option was granted or within one year
after the date the Qualified Option was exercised. The Optionee shall be
required to make appropriate arrangements with the Company for satisfaction of
any federal, state or local taxes the Company is required to withhold as a
result of such disposition.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
A. Restricted Stock Award Agreement. Each Restricted Stock Award shall
be evidenced by a written agreement between the Company and the recipient of
the Restricted Stock Award (a "Restricted Stock Award Agreement"), which sets
forth (i) the number of shares awarded to the recipient, (ii) the price the
recipient is required to pay for such shares, (iii) the Conditions applicable
to such Restricted Stock Award, and (iv) such additional provisions, not
inconsistent with this Plan, as the Board may prescribe.
B. Conditions. The Board may impose such Conditions on any Restricted
Stock as it may deem advisable, including Conditions based on the continuing
performance of services as an Employee and the achievement of individual, group
and/or Company performance objectives. The Board may require the recipient of a
Restricted Stock
6
<PAGE> 7
Award to enter into an escrow agreement providing that the certificates
representing Restricted Stock will remain in the physical custody of an escrow
agent, which may be the Company, until all Conditions have been met. Each
certificate representing Restricted Stock will bear a legend making appropriate
reference to the Conditions imposed.
C. Purchase Price. The Board may set the price at which Restricted
Stock may be purchased at any amount which is not less than 85% of the Fair
Market Value of the Common Stock on the date of the Restricted Stock Award. In
the case of a Restricted Stock Award to a person who owns, immediately after
the award, stock possessing more than 10% of the total combined voting power of
the Company, or of its Parent or Subsidiary, the purchase price of the
Restricted Stock shall be at least 100% of the Fair Market Value of the Common
Stock on the date of the Restricted Stock Award.
The purchase price of the Restricted Stock shall not be less than the
par value of the Common Stock.
D. Terminating Event. Unless otherwise provided in the Restricted
Stock Award Agreement, all Conditions imposed on Restricted Stock will lapse
immediately prior to the occurrence of a Terminating Event.
E. Repurchase of Restricted Stock. If any of the Conditions set forth
in a Restricted Stock Award Agreement shall not have been met within the
prescribed period, or upon the occurrence of an event which makes it impossible
for one or more of the Conditions to be met, all Restricted Stock subject to
any such Conditions shall be repurchased by the Company at the price paid by
the holder for such Restricted Stock. The closing of any repurchase of
Restricted Stock shall take place at a mutually convenient time at the
Company's headquarters within forty-five days after the date the Condition
fails. At the closing, the holder shall surrender his stock certificates and
the Company shall pay to the holder in cash the repurchase price of the
Restricted Stock.
F. Rights as Shareholder. Subject to the provisions of this Section 7,
the holder shall have all rights of a shareholder with respect to the
Restricted Stock, including the right to vote the shares and receive
distributions.
G. Section 83 Election. The holder of a Restricted Stock Award may
make an election under Section 83(b) of the Code, within thirty days of the
date the Restricted Stock Award is granted, if the holder wishes to include in
income for the taxable year in which the grant of the Restricted Stock Award
occurs, the difference between the Fair Market Value of the Common Stock
granted pursuant to a Restricted Stock Award and the price the holder was
required to pay for such Common Stock. If the holder intends to make such
election, a copy of the completed election form required to be filed with the
Internal Revenue Service shall be provided to the Company and shall be attached
to the Restricted Stock Award Agreement as an exhibit.
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<PAGE> 8
H. Payment of Withholding Tax. The holder of a Restricted Stock Award
shall be responsible for the payment of all federal and state income taxes and
Social Security (FICA) taxes required to be withheld and paid with respect to a
Restricted Stock Award. At the Company's option, the Company may (i) withhold
the appropriate amount from the holder's regular compensation and from any
dividends paid on Restricted Stock, or (ii) require the holder to pay the
amount of the withholding tax to the Company and treat the holder's timely
payment of such amount to the Company as an additional Condition.
I. Adjustment Provisions. Subject to any required action by the
shareholders of the Company, the Board will make a proportionate adjustment in
the number of shares of Restricted Stock covered by each Restricted Stock Award
to account for any increase or decrease in the number of issued shares of
Common Stock of the Company resulting from a stock split (whether by
subdivision or consolidation of shares) or the payment of a share dividend (but
only on the Common Stock).
8. STOCK BONUSES.
Each Stock Bonus shall be evidenced by a written agreement between the
Company and the recipient of the Stock Bonus (a "Stock Bonus Agreement"), which
sets forth (i) the number of shares awarded to the recipient, and (ii) such
additional provisions, not inconsistent with this Plan, as the Board may
prescribe. The recipient of a Stock Bonus shall be responsible for the payment
of all federal and state income taxes and Social Security (FICA) taxes required
to be withheld and paid with respect to a Stock Bonus. At the Company's option,
the Company may withhold the appropriate amount from the recipient's regular
compensation and from any dividends paid on Bonus Stock, or require the
recipient to pay the amount of the withholding tax to the Company.
9. VALUATION OF COMMON STOCK.
The Fair Market Value of each share of Common Stock will be determined
by the Board as of the end of each fiscal year of the Company and, in the
Board's discretion, at any other time during any fiscal year. In its
discretion, the Board may retain an independent appraiser to assist it in the
determination of the Fair Market Value of the Common Stock. The Board's
determination of the Fair Market Value of the Common Stock shall be final,
binding and conclusive.
10. REPURCHASE OF SHARES.
A. Call Right. The Company shall have the right to repurchase at their
Fair Market Value, at any time following the termination of the Grantee's
employment with the Company for any reason (including retirement, death or
disability), all or any portion of the Option Shares, Restricted Stock or Bonus
Stock then held by the Grantee. The Company shall exercise this call right by
providing written notice to the Grantee stating the number of shares the
Company desires to repurchase. If the Company is required
8
<PAGE> 9
under Section 7.E to repurchase Restricted Stock as a result of the termination
of the Grantee's employment, the provisions of Section 7.E shall govern the
repurchase of such Restricted Stock.
B. Payment Terms. The closing of any repurchase of shares pursuant to
this Section shall take place at a mutually convenient time at the Company's
headquarters within forty-five days after the date of the Company's notice. At
the closing, the Grantee shall surrender his stock certificates and the Company
shall pay to the Grantee in cash the repurchase price of such shares.
Notwithstanding the foregoing, if the sum of:
(i) the number of Option Shares, shares of Restricted Stock
and Bonus Stock, and other shares of Common Stock, which
the Company has elected or becomes obligated to repurchase
from all employees of the Company (and of any Parent or
Subsidiary) under this Plan, any other plan, or other
agreements with Employees, during the twelve month period
immediately preceding the date of the Company's notice
invoking its call right, and
(ii) the number of shares the Company elects to repurchase from
the Grantee under its call right,
exceeds 2% of the sum of:
(a) the number of issued and outstanding shares of
Common Stock of the Company as of the date of the
Company's notice, and
(b) the number of shares under item (i) above which
the Company has repurchased prior to that date,
then the Company shall have the right to pay the repurchase price to the Grantee
over a period of three years in twelve equal quarterly installments of principal
beginning on the date of the closing. The Company's obligation to pay the
repurchase price to the Grantee shall be evidenced by a promissory note made by
the Company which contains such terms and provisions as are customary and
reasonable. The Company shall pay interest on the unpaid principal balance of
the promissory note at the rate of 9% per annum or the "applicable federal rate"
applied to installment purchases pursuant to Section 483 of the Code, whichever
is less.
11. TRANSFER RESTRICTIONS.
A. General. Without the prior written consent of the Company, which
consent may be withheld in its sole discretion, a Grantee may not sell, assign
or otherwise transfer any Option Shares, Restricted Stock or Bonus Stock to any
person or entity other than
9
<PAGE> 10
the Company, another shareholder of the Company or another Grantee who is an
Employee. Further, Restricted Stock may not be sold to any person or entity
other than to the Company until all Conditions have been met. With regard to
any Option Shares, Restricted Stock and Bonus Stock which the Grantee proposes
to sell, assign or otherwise transfer to another shareholder of the Company or
another Grantee who is an Employee (a "Permitted Transferee"), the Company
shall have a right of first refusal (the "Right of First Refusal") to purchase
such shares in the manner set forth below:
(1) Upon receiving an offer to purchase or otherwise acquire
any Option Shares, Restricted Stock or Bonus Stock, a Grantee shall require the
Permitted Transferee to submit a written offer with respect to such shares
stating his name and accompanied by a deposit in the form of a certified or
cashier's check in an amount equal to not less than 10% of the proposed
purchase price (a "Bona Fide Offer"). The Grantee then shall transmit a copy of
the Bona Fide Offer to the Company. The Company shall have thirty days
following receipt of the Bona Fide Offer in which to purchase all, but not less
than all, of the shares referred to in the Bona Fide Offer at the price stated
in the Bona Fide Offer. In its discretion, the Company may either pay the
entire purchase price for the shares in cash or on the terms stated in the Bona
Fide Offer. If the Company fails to tender the full cash purchase price (or to
match such other terms as are stated in the Bona Fide Offer) for such shares
against the proper endorsement and delivery of the certificate(s) evidencing
the shares within such thirty day period, the Right of First Refusal shall
expire with respect to that particular Bona Fide Offer, but shall remain in
full force and effect with respect to all material modifications of the Bona
Fide Offer and all future offers.
(2) Any offered shares which are not purchased by the Company
as provided in (1) above may be sold to the Permitted Transferee named in the
Bona Fide Offer, but not at a lower price, or upon more favorable terms to the
Permitted Transferee, than the price and terms set forth in the Bona Fide
Offer. Title to the offered shares shall pass not later than ninety days after
the expiration of the thirty day period referred to in (1) above. The Permitted
Transferee shall take such shares subject to the same rights and restrictions
regarding transferability and repurchase as would have applied to him had he
acquired such shares upon exercise of an Option granted to him under this Plan
or upon issuance to him of Restricted Stock or Bonus Stock under this Plan. If
the Grantee desires to sell such shares to the Permitted Transferee at a lower
price, or upon terms more favorable to the Permitted Transferee, than the price
and terms stated in the Bona Fide Offer, the Grantee shall, before he can sell
to the Permitted Transferee, again offer the shares in accordance with the
procedure set forth in this Section.
B. Transfer Restrictions Imposed by the 1933 Act.
(1) Notwithstanding any other provision of this Plan, any
Option Agreement, any Restricted Stock Award Agreement or any Stock Bonus
Agreement, no transfer for value of any Option Shares, Restricted Stock or
Bonus Stock shall be valid
10
<PAGE> 11
unless (i) there is an effective registration statement under the Securities
Act of 1933 (the "1933 Act") covering the stock; (ii) the holder has furnished
an opinion of counsel satisfactory to the Company that such registration is not
required; or (iii) the holder has furnished a "no-action" letter from the staff
of the Securities and Exchange Commission satisfactory to the Company that such
registration is not required.
(2) There shall be imprinted on the face of each certificate
for such shares a legend stating that the transferability of such shares is
restricted, and the following legend shall be imprinted on the back of each
such certificate:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE (1) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR
APPLICABLE STATE LAWS, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SUCH ACT OR
LAWS OR AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL TO THE
COMPANY) SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED OR A "NO ACTION" LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT REQUIRED,
AND (2) ARE SUBJECT TO, AND ARE TRANSFERABLE ONLY UPON
COMPLIANCE WITH, CERTAIN TRANSFER AND OTHER RESTRICTIONS
CONTAINED IN AN AGREEMENT BETWEEN LANDMARK SYSTEMS CORPORATION
AND THE HOLDER OF THIS CERTIFICATE, A COPY OF WHICH IS ON FILE
AT THE OFFICE OF THE COMPANY."
(3) Optionees and holders of Restricted Stock Awards and Stock
Bonuses may acquire stock only for their own account and not with a view to, or
for resale in connection with, any distribution thereof within the meaning of
the 1933 Act, and may dispose of such stock only in a manner consistent with
the provisions of this Section. The Company may require Optionees and holders
of Restricted Stock Awards and Stock Bonuses to execute and be bound by an
"Investment Letter" representing such investment intent.
12. LAPSE OF REPURCHASE RIGHTS AND TRANSFER RESTRICTIONS.
Notwithstanding anything to the contrary in this Plan, the repurchase
rights set forth in Section 10 and the transfer restrictions set forth in
Section 11(A) shall lapse under the earlier to occur of (i) the effective date
of a registration statement filed with the Securities and Exchange Commission
under the 1933 Act covering securities of the Company whether or not such
shares are covered, or (ii) the date on which a class of securities of the
Company is registered under Section 12 of the Securities Exchange Act of 1934.
11
<PAGE> 12
13. INDEMNIFICATION OF BOARD.
In addition to such other rights as they may have as directors, the
members of the Board (in their capacity as such and also as members of the
Committee) shall be indemnified by the Company against the reasonable expenses
(including attorneys' fees) incurred in connection with the defense of any
action, suit or proceeding, and in connection with any appeal therein, to which
they or any of them may be a party by reason of any action or failure to act in
connection with this Plan, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be finally adjudged in such action, suit or proceeding that the Board
member is liable for willful misconduct or gross negligence in the performance
of his duties or that the Board member knowingly violated criminal law;
provided that within 60 days after institution of any such action, suit, or
proceeding (or within 30 days after service upon such member of legal process
in such case, if later) the Board member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
14. TERMINATION AND AMENDMENT OF THE PLAN.
Unless sooner terminated as provided herein, this Plan shall remain in
effect through September 27, 2004. The Board may terminate this Plan at any
time or modify or amend it as it deems advisable and may from time to time
suspend, discontinue or abandon this Plan, except that (i) the number of shares
available under this Plan shall not be increased (except as provided in Section
5) and the class of eligible employees shall not be modified without
shareholder approval, and (ii) no such action by the Board shall adversely
affect any right or obligation with respect to any grant previously made unless
the written consent of the affected Grantee is obtained.
15. MISCELLANEOUS.
The provisions of this Plan shall be binding upon, and inure to the
benefit of, all successors of any Grantee, including, without limitation, his
estate and the executors, administrators or trustees thereof, his heirs and
legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Grantee.
Nothing contained in this Plan or in any Option Agreement, Restricted
Stock Award Agreement or Stock Bonus Agreement shall confer upon any Employee
the right to continued employment or shall interfere in any way with the right
to terminate the employment of such Employee at any time, with or without
cause.
Except as expressly provided in this Plan, Grantees shall have no
rights by reason of any subdivision or consolidation of shares of stock
of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock
12
<PAGE> 13
of any class; the dissolution or liquidation of the Company; the merger
or consolidation of the Company with or into any other corporation; the sale or
other transfer of assets or stock of the Company; or any issue by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class.
The grant of an Option, Restricted Stock Award or Stock Bonus pursuant
to this Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, or to merge or consolidate, or to dissolve or liquidate,
or to sell or transfer all or any part of its business or assets.
All Grantees, including those who have exercised their Options, shall
be furnished at least annually financial statements and management's discussion
and analysis of the financial condition and results of operations of the
Company. Such information shall be subject to any agreements regarding the
confidentiality of proprietary information between the Company and any Grantee;
however, each Grantee shall be permitted to remove and copy such information
and review and discuss such information with an attorney or other financial
adviser for the legitimate personal investment planning of such Grantee.
16. APPROVAL OF PLAN.
This Plan was adopted by resolution of the Board on September 27,
1994, as amended by the Board July 23,1996, as further amended by the Board
July 22, 1997, and as approved by the shareholders on August 26, 1997. This
Plan was further amended by the Board February 9, 1999 and approved by the
shareholders May 11, 1999.
13
<PAGE> 1
Exhibit 10.7
LANDMARK SYSTEMS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE OF PLAN
The purpose of the Landmark Systems Corporation 1998 Employee Stock Purchase
Plan is to provide a method for employees of Landmark Systems Corporation and
its subsidiaries to acquire a proprietary interest in Landmark Systems
Corporation through the purchase of common stock of Landmark Systems
Corporation. The Landmark Systems Corporation 1998 Employee Stock Purchase Plan
is intended to comply with the terms of Section 423 of the Internal Revenue Code
of 1986, as amended.
2. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms shall have
the following meanings:
2.1 "Board" means the Board of Directors of the Corporation.
2.2 "Cash Compensation" means the amounts paid to an Eligible
Employee in cash for the performance of services, including cash
payments of overtime, commissions, incentive compensation, and
bonuses, before deduction of salary reduction contributions from
the Eligible Employee's cash compensation pursuant to elections
under a plan subject to Section 125 or 401(k) of the Code.
2.3 "Code" means the Internal Revenue Code of 1986, as amended,
or any successor law. A reference to a particular section of the
Code shall include a reference to any regulations issued under
the section and to the corresponding section of any successor
law.
2.4 "Commission" means the Securities and Exchange Commission or
any successor agency.
2.5 "Committee" means, if applicable, the committee established
by the Board pursuant to Section 3 to be responsible for the
general administration of the Plan.
2.6 "Common Stock" means shares of the voting common stock, par
value $0.01 per share, of the Corporation.
2.7 "Corporation" means Landmark Systems Corporation, a Virginia
corporation, or any successor thereto.
<PAGE> 2
2.8 "Eligible Employee" means any employee of the Corporation or
of any Subsidiary who meets the eligibility requirements of
Section 4, whether or not such person is a U.S. citizen.
2.9 "Enrollment Form" means the form filed with the Corporation
authorizing payroll deductions pursuant to Section 6.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.11 "Fair Market Value" means the lesser of (a) the closing
price of the Common Stock reported on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") in the
national market on the business day before the Offering
Commencement Date, or (b) the closing price of the Common Stock
reported on NASDAQ in the national market on the business day
before the Offering Termination Date, provided that if there
should be no sales of Common Stock reported on any such date, the
Fair Market Value shall be deemed equal to the closing price as
reported by NASDAQ for the last preceding date on which sales of
Common Stock were reported. In the event that the Common Stock is
listed upon an established stock exchange or exchanges, "Fair
Market Value" means the closing price of Common Stock on the
exchange that trades the largest volume of Common Stock on such
date.
2.12 "Investment Date" means the date on which shares of Common
Stock are acquired. If the Common Stock is acquired from the
Corporation, the "Investment Date" shall be the last business day
of each Purchase Period during which shares of Common Stock are
traded. If the Common Stock is purchased in the over-the-counter
market or in a private transaction, the "Investment Date" shall
be the date on which Common Stock is purchased.
2.13 "Offering Commencement Date" means the first day of each
calendar quarter.
2.14 "Offering Termination Date" means the last day of each
calendar quarter.
2.15 "Participating Employee" means each Eligible Employee who
elects to participate in the Plan by filing an Enrollment Form
pursuant to Section 6.
2.16 "Payroll Deduction Account" means the account established
for a Participating Employee to hold payroll deductions pursuant
to Section 6.
2.17 "Plan" means the Landmark Systems Corporation 1998 Employee
Stock Purchase Plan, as it may be amended and restated from time
to time.
2.18 "Purchase Period" means a calendar quarter.
2.19 "Purchase Price" means the price for each share of Common
Stock, which shall be 85 percent of the Fair Market Value of such
Common Stock.
<PAGE> 3
2.20 "Subsidiary" means any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with
the Corporation if, as of an Investment Date, each of the
corporations other than the last corporation in the unbroken
chain owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain. The Board shall determine whether a
Subsidiary may adopt the Plan for the benefit of its employees.
3. ADMINISTRATION OF THE PLAN
3.1 Administration of Plan. The Plan shall be administered by the
Board or by a committee appointed by the Board, which shall be
composed of at least three (3) individuals.
3.2 Authority of Board or Committee. The Board or, if applicable,
the Committee shall have full power and authority to:
(i) determine whether Common Stock shall be purchased from the
Corporation or by purchases in the open market or in private
transactions;
(ii) interpret and construe the Plan and adopt such rules and
regulations it shall deem necessary and advisable to implement
and administer the Plan; and
(iii) designate persons to carry out its responsibilities,
subject to such limitations, restrictions and conditions as it
may prescribe, provided that the Board or Committee may not
delegate its authority if such delegation would cause the Plan
not to comply with the requirements of Rule 16b-3 under the
Exchange Act or any successor rule of the Commission.
The foregoing determinations shall be made in accordance with the
Board's or Committee's best business judgment as to the best
interests of the Corporation and its stockholders and in
accordance with the purposes of the Plan.
3.3 Determinations of Committee. A majority of the Committee
shall constitute a quorum at any meeting of the Committee, and
all determinations of the Committee shall be made by a majority
of its members. Any action which the Committee shall take through
a written instrument signed by all of its members shall be as
effective as though it had been taken at a meeting duly called
and held. The Committee shall report all actions taken by it to
the Board.
3.4 Delegation. The Board or Committee may delegate such
non-discretionary administrative duties under the Plan to one or
more agents as it shall deem necessary and advisable.
3.5 Effect of Board or Committee Determination. No member of the
Board or Committee shall be personally liable for any action or
determination made in good faith with respect to the Plan or to
any settlement of any dispute between a Participating
<PAGE> 4
Employee and the Corporation. Any decision made or action taken
by the Committee or the Board with respect to the administration
or interpretation of the Plan shall be conclusive and binding
upon all persons.
4. ELIGIBILITY
All employees of the Corporation and its Subsidiaries are eligible to
participate in the Plan, except employees whose customary employment is twenty
hours or less per week or who are employed for not more than five months in a
calendar year. Each Eligible Employee may become a participant as of the first
day of any calendar quarter by authorizing payroll deductions as provided in
Section 6.
No director of the Corporation or of any Subsidiary who is not an employee shall
be eligible to participate in the Plan. Independent contractors of the
Corporation or any Subsidiary are not eligible to participate in the Plan.
5. SHARES SUBJECT TO PLAN
Subject to adjustment as provided in Section 14, the aggregate number of shares
of Common Stock which may be issued and purchased under the Plan shall not
exceed 1,000,000 shares of Common Stock. Shares needed to satisfy the needs of
the Plan may be acquired from the Corporation or by purchase at the expense of
the Corporation on the open market or in private transactions.
6. ELECTION TO PARTICIPATE
Each Eligible Employee may become a Participating Employee effective on the
first day of any calendar quarter coincident with or following the date such
individual becomes an Eligible Employee by filing with the Board or Committee an
Enrollment Form authorizing specified regular payroll deductions from such
Eligible Employee's Cash Compensation. Such regular payroll deductions shall be
subject to a minimum deduction of $25 per payroll period and a maximum deduction
of 10 percent of Cash Compensation. All regular payroll deductions shall be
credited to the Payroll Deduction Account that the Corporation has established
in the name of the Participating Employee.
A Participating Employee may at any time withdraw from the Plan and cease to be
a Participating Employee. An employee who has ceased to be a Participating
Employee may not again become a Participating Employee until the first day of
the next calendar quarter. A Participating Employee may, effective as of the
first day of the following calendar quarter, increase or decrease the amount of
such Participating Employee's payroll deductions by filing a new Enrollment
Form.
Enrollment Forms must be filed with the Corporation not less than fourteen days
before the beginning of a calendar quarter to be effective for that calendar
quarter unless a shorter period of time is prescribed by the Board or Committee.
An Enrollment Form not filed within the prescribed filing period shall be
effective the first day of the calendar quarter following the
<PAGE> 5
calendar quarter when it would otherwise become effective. An Enrollment Form,
once filed, shall remain in effect for all subsequent payroll periods, unless
the Participating Employee withdraws from the Plan or amends his or her
Enrollment Form to increase or decrease the Employee's payroll deductions.
7. PURCHASE FROM PAYROLL DEDUCTION ACCOUNT
Each Participating Employee having eligible funds in such Participating
Employee's Payroll Deduction Account on an Investment Date shall be deemed,
without any further action, to have purchased the number of whole shares which
the eligible funds in such Participating Employee's Payroll Deduction Account
could purchase at the Purchase Price. Any portion of the Participating
Employee's Payroll Deduction Account that is not applied to the purchase of
shares of Common Stock shall be held for the purchase of shares on the next
Investment Date, unless the Participant has withdrawn from the Plan. In such
event, any funds credited to the Participating Employee's Payroll Deduction
Account shall be returned, without interest.
8. STOCK PURCHASES
Shares of Common Stock shall be acquired for Participating Employees as of each
Investment Date either from the Corporation or, if directed by the Board or
Committee, by purchases on the open market or in private transactions using the
payroll deduction amounts held by the Corporation for Participating Employees.
If shares are purchased in one or more transactions on the open market or in
private transactions at the direction of the Board or Committee, the Corporation
will pay the difference between the Purchase Price and the price at which such
shares are purchased for Participating Employees. As soon as practicable
following each Investment Date, the Corporation shall direct the Corporation's
transfer agent to credit on the books of the Corporation or deliver to each
Participating Employee a stock certificate, the whole shares of stock acquired
on such Investment Date by the Participating Employee.
9. LIMITATION ON PURCHASES
No Participating Employee may purchase any Common Stock under this Plan and any
other plan of the Corporation, and its Subsidiary corporations intended to
qualify under Section 423 of the Code if the Fair Market Value of the purchase
plus the Fair Market Value of all prior purchases by the Participating Employee
under such plans (determined by reference to the Fair Market Value on each date
of purchase) during any calendar year exceeds $25,000.
A Participating Employee's Payroll Deduction Account may not be used to purchase
Common Stock on any Investment Date to the extent that after such purchase the
Participating Employee would own (or be considered as owning within the meaning
of Section 424(d) of the Code) stock possessing 5 percent or more of the total
combined voting power or value of all classes of stock of the Corporation or any
Subsidiary. For this purpose, stock which the Participating Employee may
purchase under any outstanding option shall be treated as owned by such
Participating Employee. As of the first Investment Date on which this Section 9
limits a Participating Employee's ability to purchase Common Stock, the employee
shall cease to be a Participating Employee.
<PAGE> 6
10. TITLE TO SHARES
The Corporation shall direct the Corporation's stock transfer agent to credit
each Participating Employee with the whole shares acquired on each Investment
Date. The Participating Employee may designate on his or her Enrollment Form
whether shares shall be credited in the name of the Participating Employee or in
the name of such Participating Employee jointly with a member of such
Participating Employee's family, with right of survivorship. A Participating
Employee who is a resident of a jurisdiction which does not recognize such a
joint tenancy may direct that shares be credited in the Participating Employee's
name as tenant in common with a member of the Participating Employee's family,
without right of survivorship.
11. RIGHTS AS A SHAREHOLDER
A Participating Employee shall have the right at any time to obtain a
certificate for the whole shares of Common Stock credited to such Participating
Employee or to direct that such shares be transferred to a broker designated by
the Participating Employee to be held in street name.
Subject to the provisions of Section 6, a Participating Employee shall have the
right at any time to direct that any shares held in such Participating
Employee's name be sold through a broker selected by the Participating Employee,
and that the proceeds, less expenses of sale, be remitted to the Participating
Employee.
If a Participating Employee ceases to be such, the Participating Employee may
elect to have the shares credited to such Participating Employee's name sold by
a broker designated by the Participating Employee and the proceeds, after
selling expenses, remitted, or the Participating Employee may elect to have a
certificate for the whole shares of Common Stock credited to such Participating
Employee's name forwarded to the Participating Employee.
As a condition of participation in the Plan, each Participating Employee agrees
to notify the Corporation in the event such individual sells or otherwise
disposes of any of the shares of Common Stock acquired under this Plan within
two years of the Investment Date on which such shares were purchased.
12. RETIREMENT, TERMINATION AND DEATH
In the event of a Participating Employee's retirement or termination of
employment, or if a Participating Employee ceases to be such, the amount in the
Participating Employee's Payroll Deduction Account shall be refunded to the
Participating Employee, and, unless otherwise elected, certificates will be
issued for whole shares held in such Participating Employee's name. If a
Participating Employee elects to have the shares sold, the Participating
Employee will receive the proceeds of the sale, less selling expenses. In the
event of death, the amount in the Participating Employee's Payroll Deduction
Account and all shares in the Participating Employee's name shall be delivered
to the beneficiary designated by the Participating Employee in a writing filed
with the Corporation. If no beneficiary has been designated, or if the
designated
<PAGE> 7
beneficiary does not survive the Participating Employee, such amount and all
shares shall be delivered to the estate of the Participating Employee.
13. RIGHTS NOT TRANSFERABLE
Rights under the Plan are not transferable by a Participating Employee except
pursuant to a qualified domestic relations order, by will or by the laws of
descent and distribution. All rights under the Plan are exercisable, during a
Participating Employee's lifetime, only by such Participating Employee.
14. CHANGES IN CAPITALIZATION
Subject to any required action by the stockholders, the number of shares covered
by the Plan and the Purchase Price shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock of the
Corporation resulting from a subdivision or consolidation of shares or the
payment of a stock dividend (but only on the Common Stock) or any other increase
or decrease in the number of such shares effected without receipt of
consideration by the Corporation. In the event of a change of all of the
Corporation's authorized Common Stock with par value into the same number of
shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be Common Stock within the meaning of
the Plan.
To the extent that the foregoing adjustments relate to stock or securities of
the Corporation, such adjustments shall be made by the Board or Committee, whose
determination in that respect shall be final, binding and conclusive, provided
that the Board or Committee shall make no adjustment that would cause the Plan
to fail to continue to qualify as an employee stock purchase plan under Section
423 of the Code.
Except as hereinbefore expressly provided in this Section 14, a Participating
Employee shall have no rights (i) by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class, or (ii) by
reason of any dissolution, liquidation, merger, or consolidation, spin-off of
assets or stock of another corporation, or any issue by the Corporation of
shares of stock of any class, nor shall any of these actions affect, or cause an
adjustment to be made with respect to, the number or Purchase Price of shares
subject to the Plan. The Plan shall not affect in any way the right or power of
the Corporation (i) to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, (ii) to merge or consolidate,
(iii) to dissolve, liquidate, or sell or transfer all or any part of its
business or assets or (iv) to issue any bonds, debentures, preferred or other
preference stock ahead of or affecting the Common Stock.
15. AMENDMENT OF THE PLAN
The Board of Directors may at any time, or from time to time, amend the Plan in
any respect; provided, however, that the shareholders of the Corporation must
approve any amendment that would materially (i) decrease the Purchase Price,
(ii) increase the number of shares of Common
<PAGE> 8
Stock that may be issued under the Plan, or (iii) modify the requirements as to
eligibility for participation in the Plan.
16. TERMINATION OF THE PLAN
The Plan shall terminate on the earlier of:
(a) the Investment Date that Participating Employees become entitled to purchase
a number of shares greater than the number of reserved shares remaining
available for purchase; or
(b) April 1, 2008, or at any earlier date at the discretion of the Board of
Directors.
In the event that the Plan terminates under circumstances described in (a)
above, reserved shares remaining as of the termination date shall be issued to
Participating Employees on a pro rata basis. Upon termination of the Plan, all
amounts in an employee's Payroll Deduction Account that are not used to purchase
Common Stock will be refunded.
17. GOVERNING LAW
The Plan shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Virginia.
18. EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date and at the time of the Corporation's
1998 annual meeting of shareholders, subject to the approval of the Plan on or
before such date by a majority of the voting shares of Common Stock represented
and entitled to vote.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 27,420,135
<SECURITIES> 0
<RECEIVABLES> 10,746,811
<ALLOWANCES> 1,319,535
<INVENTORY> 0
<CURRENT-ASSETS> 47,178,910
<PP&E> 16,798,611
<DEPRECIATION> 12,231,950
<TOTAL-ASSETS> 64,389,508
<CURRENT-LIABILITIES> 23,283,606
<BONDS> 0
0
0
<COMMON> 122,375
<OTHER-SE> 32,566,818
<TOTAL-LIABILITY-AND-EQUITY> 64,289,508
<SALES> 7,254,648
<TOTAL-REVENUES> 14,188,579
<CGS> 699,709
<TOTAL-COSTS> 1,897,729
<OTHER-EXPENSES> 10,128,364
<LOSS-PROVISION> 155,756
<INTEREST-EXPENSE> 3,568
<INCOME-PRETAX> 2,741,602
<INCOME-TAX> 1,048,664
<INCOME-CONTINUING> 1,692,938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,692,933
<EPS-PRIMARY> 0.14<F1>
<EPS-DILUTED> 0.13
<FN>
<F1>This amount is reported as EPS BASIC
</FN>
</TABLE>
