<PAGE>
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: JUNE 28, 1997 Commission File Number: 0-18059
------------- -------
PARAMETRIC TECHNOLOGY CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2866152
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
128 TECHNOLOGY DRIVE, WALTHAM, MA 02154
----------------------------------------
(Address of principal executive offices, including zip code)
(617) 398-5000
--------------
(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
--- ---
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 127,375,563
- -------------------------------------- ----------------------------
Class Outstanding at June 28, 1997
Total number of pages: 31
Exhibit index appears on page 12
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
INDEX
-----
Page
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheet 3
June 28, 1997 and September 30, 1996
Consolidated Statement of Income 4
Three and nine months ended June 28, 1997 and
June 29, 1996
Consolidated Statement of Cash Flows 5
Nine months ended June 28, 1997 and June 29, 1996
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6 Exhibits 10
SIGNATURE 11
2
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PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS June 28, 1997 September 30, 1996
-------------- ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $223,642 $201,614
Short-term investments 301,466 232,602
Accounts receivable, net 145,721 117,273
Other current assets 21,695 10,561
-------- --------
Total current assets 692,524 562,050
Marketable investments -- 21,896
Property and equipment, net 44,332 36,517
Other assets 44,507 38,754
-------- --------
Total assets $781,363 $659,217
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 36,739 $ 39,416
Accrued compensation 38,658 32,186
Deferred revenue 76,687 56,420
Income taxes 33,351 17,970
-------- --------
Total current liabilities 185,435 145,992
Other liabilities 741 793
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 350,000 shares authorized;
128,148 and 127,452 shares issued 1,281 1,275
Additional paid-in capital 237,038 207,039
Retained earnings 394,725 306,638
Treasury stock, at cost, 773 and 23 shares (34,035) (1,164)
Other equity (3,822) (1,356)
-------- --------
Total stockholders' equity 595,187 512,432
-------- --------
Total liabilities and stockholders' equity $781,363 $659,217
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ---------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
License $149,372 $117,836 $434,868 $312,686
Service 57,742 39,268 153,759 110,308
-------- -------- -------- --------
Total revenue 207,114 157,104 588,627 422,994
-------- -------- -------- --------
Cost of revenue:
License 1,320 1,160 6,048 2,926
Service 18,189 12,930 49,570 37,007
-------- -------- -------- --------
Total cost of revenue 19,509 14,090 55,618 39,933
-------- -------- -------- --------
Gross profit 187,605 143,014 533,009 383,061
-------- -------- -------- --------
Operating expenses:
Sales and marketing 80,136 62,916 229,060 169,670
Research and development 13,715 10,499 39,141 27,225
General and administrative 10,198 7,426 28,622 20,174
-------- -------- -------- --------
Total operating expenses 104,049 80,841 296,823 217,069
-------- -------- -------- --------
Operating income 83,556 62,173 236,186 165,992
Other income, net 2,837 3,063 7,912 8,737
-------- -------- -------- --------
Income before income taxes 86,393 65,236 244,098 174,729
Provision for income taxes 30,205 23,616 85,401 63,252
-------- -------- -------- --------
Net income $ 56,188 $ 41,620 $158,697 $111,477
======== ======== ======== ========
Net income per share $ 0.42 $ 0.31 $ 1.18 $ 0.84
======== ======== ======== ========
Weighted average number of
common and dilutive
common equivalent shares
outstanding 132,897 134,426 134,683 133,175
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
June 28, 1997 June 29, 1996
------------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 158,697 $ 111,477
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 16,338 12,043
Deferred income taxes 1,701 2,684
Changes in assets and liabilities:
Increase in accounts receivable (31,939) (23,968)
Increase in other current assets (9,267) (959)
(Increase) decrease in other assets (1,671) 1,879
Increase (decrease) in accounts payable and accrued expenses (1,548) 11,484
Increase in accrued compensation 7,503 5,679
Increase in deferred revenue 21,366 11,652
Increase in income taxes 35,668 22,508
--------- ---------
Net cash provided by operating activities 196,848 154,479
--------- ---------
Cash flows from investing activities:
Additions to property and equipment, net (21,642) (25,040)
Additions to capitalized and purchased software costs (842) (645)
Proceeds from sale of investments 286,398 160,850
Purchases of investments (341,231) (229,151)
--------- ---------
Net cash used by investing activities (77,317) (93,986)
--------- ---------
Cash flows from financing activities:
Repayment of long-term obligations (102) (92)
Proceeds from issuance of common stock 41,858 26,348
Purchases of treasury stock (135,066) (45,404)
--------- ---------
Net cash used by financing activities (93,310) (19,148)
--------- ---------
Effects of exchange rate changes on cash (4,193) (3,235)
--------- ---------
Net increase in cash and cash equivalents 22,028 38,110
Cash and cash equivalents at beginning of period 201,614 145,638
--------- ---------
Cash and cash equivalents at end of period $ 223,642 $ 183,748
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, and have been
prepared by the Company in accordance with generally accepted accounting
principles. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1996.
The results of operations for the three-month and nine-month periods ended
June 28, 1997 are not necessarily indicative of the results expected for the
full fiscal year.
2. NEW ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS
No. 128 establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS No. 128, the Company will be required to present both basic
net income per share and diluted net income per share. Basic net income per
share for the three-month and nine-month periods ended June 28, 1997 would have
been $.44 and $1.24 per share, respectively, as compared with $.33 and $.88 per
share for the corresponding periods in fiscal 1996. The impact of SFAS No. 128
on the calculation of diluted net income per share for these quarters is not
expected to be materially different from reported earnings per share. The
Company plans to adopt SFAS No. 128 in its first quarter of fiscal 1998 and at
that time all historical net income per share data presented will be restated to
conform to the provisions of SFAS No. 128.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Parametric Technology Corporation is the CAD/CAM/CAE (computer-aided design,
manufacturing and engineering) industry's leading supplier of software tools
used to automate the mechanical development of a product from its conceptual
design through its release into manufacturing.
Information provided by the Company, including information contained in this
Quarterly Report on Form 10-Q, or by its spokespersons from time to time may
contain forward-looking statements concerning projected financial performance,
industry segment growth, product development and commercialization or other
aspects of future operations. In particular, the statements in this Report
concerning anticipated revenue, geographical growth rates and projected expenses
made pursuant to the safe harbor established by recent securities legislation
are based on the assumptions and expectations of the Company's management at the
time such statements are made. The Company cautions investors that its
performance (and, therefore, any forward-looking statement) is subject to risks
and uncertainties. Important information about the basis for those assumptions
including factors that may cause actual results to vary from those forecast are
discussed below and are also contained in "Important Factors Regarding Future
Results" included in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section in the 1996 Annual Report to
Stockholders, incorporated herein by reference.
RESULTS OF OPERATIONS
Revenue, including license and service revenues, for the three-month and
nine-month periods ended June 28, 1997 was $207,114,000 and $588,627,000,
respectively, compared with $157,104,000 and $422,994,000 for the three-month
and nine-month periods ended June 29, 1996. These totals represent increases of
32% for the three-month period and 39% for the nine-month period over the
corresponding periods in fiscal 1996. Net income, as a percentage of revenue,
was 27% for the three-month and nine-month periods ended June 28, 1997 compared
to 26% in the corresponding periods in fiscal 1996. This represents an increase
in net income of 35% and 42% from the three-month and nine-month periods ended
June 29, 1996.
The Company derives its revenue from the sale and support of software used in
the mechanical segment of the CAD/CAM/CAE industry. Revenue growth in the
three-month and nine-month periods ended June 28, 1997 reflects the continued
worldwide acceptance of the Company's products and services and the Company's
ongoing investment in expanding its worldwide direct sales force. License
revenue was $149,372,000 and $434,868,000 for the three-month and nine-month
periods ended June 28, 1997, a 27% and 39% increase from $117,836,000 and
$312,686,000 for the corresponding periods in fiscal 1996. This growth results
from an increase in the number of seats of software licensed. A seat of
software generally consists of various software products configured to serve the
needs of a single end user. The Company licensed 7,611 and 22,070 seats of
software respectively in the three-month and nine-month periods ended June 28,
1997, an increase of 29% and 35% from 5,892 and 16,346 seats of software in the
comparable periods in fiscal 1996. The increase in the number of seats licensed
was achieved as a result of continued market penetration of the Company's
products.
Service revenue is derived from the sale of software maintenance contracts
and the performance of training and consulting services. Service revenue was
$57,742,000 and $153,759,000 for the three-month and nine-month periods ended
June 28, 1997, an increase of 47% and 39% from $39,268,000 and $110,308,000 for
the comparable periods in fiscal 1996. The increase in service revenue is a
result of the growth in the Company's increased installed customer base and, to
a lesser extent, increased training and consulting services performed for these
customers.
The Company derived 53% and 55% of revenue from sales to international
customers in the three-month and nine-month periods ended June 28, 1997,
compared with 56% and 55% for the same periods in fiscal 1996. The decrease in
the percentage of revenue derived from international sales is primarily
attributable to weaker revenues in Japan due principally to internal execution
issues and to a lesser extent the strengthening of the dollar in relation to the
yen and the major European currencies. The Company has taken measures to
strengthen the sales and support infrastructure in Japan and to rebuild capacity
in order to re-accelerate revenue growth in this region. The Company
anticipates that total revenue will increase for the
7
<PAGE>
remainder of fiscal 1997 from continued sales in the mechanical CAD/CAM/CAE
industry, particularly in view of the strong growth in North America. However,
growth in international revenue will continue to be affected by weaker revenues
in Japan and foreign exchange rates. These factors also affect the Company's
ability to forecast quarter to quarter results. Although the Company expects
revenues to grow throughout fiscal 1997, there can be no assurance that
quarterly revenue growth rates and/or geographical growth rates will be
comparable with those achieved in prior periods. The rate of continued revenue
growth throughout the remainder of fiscal 1997 depends upon the strength of the
U.S. dollar in relation to foreign currencies as well as the Company's ability
to implement recent measures taken to strengthen results in Japan, to adequately
manage the Company's exposure to foreign currency fluctuations, to continue to
penetrate the mechanical segment of the CAD/CAM/CAE industry, to attract and
retain skilled personnel, and to deliver timely product enhancements.
Cost of license revenue consists of the amortization of capitalized computer
software costs and costs associated with reproducing software, printing user
manuals, royalties, packaging and shipping. The increase in cost of license
revenue is primarily a result of the increase in the number of seats licensed
and the royalty costs associated with those licenses during the three-month and
nine-month periods ended June 28, 1997 as compared to the corresponding periods
in fiscal 1996. Cost of service revenue includes the costs associated with
training and consulting personnel, such as salaries and related costs and
travel, and the costs related to software maintenance, including costs incurred
for customer support personnel and the release of maintenance updates. The
increase in cost of service revenue resulted primarily from growth in the
staffing necessary to generate and support increased worldwide service revenue
and provide ongoing quality customer support to the Company's increasing
installed base. Combined, these expenses increased to $19,509,000 and
$55,618,000 for the three-month and nine-month periods ended June 28, 1997 from
$14,090,000 and $39,933,000 for the corresponding periods in fiscal 1996. Total
cost of revenue as a percentage of revenue remained stable between 9% and 10%
for both the three-month and nine-month periods ended June 28, 1997 and the
corresponding periods in fiscal 1996.
Sales and marketing expenses primarily include salaries, sales commissions,
travel and facility costs. Sales and marketing expenses increased to
$80,136,000 and $229,060,000 for the three-month and nine-month periods ended
June 28, 1997 from $62,916,000 and $169,670,000 for the corresponding periods in
fiscal 1996. These costs decreased as a percentage of revenue to 39% for both
the three-month and nine-month periods ended June 28, 1997, compared with 40%
for the comparable periods in fiscal 1996. The absolute increase in these
expenses was due primarily to worldwide expansion of the sales force and sales
commissions associated with higher revenue. Total sales and marketing headcount
increased to 2,026 at June 28, 1997, an increase of 33% from 1,524 at June 29,
1996. The Company expects to continue the growth of its worldwide sales and
marketing organization during fiscal 1997, reflecting the Company's commitment
to focus its resources on increasing its installed base and expanding worldwide
acceptance for its products. The Company's ability to meet this expectation
depends upon its ability to attract and retain highly skilled technical,
managerial and sales personnel.
The Company continued to make investments in research and development,
consisting principally of salaries and benefits, expenses associated with
product translations, costs of computer equipment used in software development,
and facility expenses. Research and development expenses increased to
$13,715,000 and $39,141,000 for the three-month and nine-month periods ended
June 28, 1997 from $10,499,000 and $27,225,000 for the corresponding periods in
fiscal 1996. Total research and development expenses were 7% of revenue for the
three-month and nine-month periods ended June 28, 1997, compared with 7% and 6%
for the same periods in fiscal 1996.
General and administrative expenses include the costs of corporate, finance,
information technology, human resources and administrative functions of the
Company. These expenses increased to $10,198,000 and $28,622,000 for the three-
month and nine-month periods ended June 28, 1997 from $7,426,000 and $20,174,000
for the corresponding periods in fiscal 1996. General and administrative
expenses as a percentage of revenue remained constant at 5% for the three-month
and nine-month periods ended June 28, 1997 and June 29, 1996. The absolute
increase in these expenses was primarily due to the hiring of additional
employees necessary to support the Company's worldwide growth.
8
<PAGE>
Other income, net, primarily includes interest income and expense, contract
costs associated with managing the Company's foreign exchange exposure and
foreign currency gains and losses. Other income decreased to $2,837,000 and
$7,912,000 for the three-month and nine-month periods ended June 28, 1997
compared with $3,063,000 and $8,737,000 for the corresponding periods in fiscal
1996. As the Company's international business continues to increase, a growing
percentage of the Company's revenue and expenses is transacted in foreign
currencies. In order to reduce its exposure to fluctuations in foreign exchange
rates, the Company engages in hedging transactions involving the use of forward
foreign exchange contracts in the primary European and Asian currencies.
The Company's effective tax rate for the three-month and nine-month periods
ended June 28, 1997 was 35%, compared with 36.2% for the same periods in fiscal
1996. The difference between the effective and statutory federal tax rate was
due primarily to the benefits of tax-exempt interest income and the tax benefits
from the use of the foreign sales corporation, offset by the impact of state
income taxes.
The number of worldwide employees increased 30% to 3,346 at June 28, 1997
compared with 2,573 at June 29, 1996. Employment increased significantly to
support higher revenues and international expansion, with the largest portion of
this growth occurring in the sales and marketing organization.
LIQUIDITY AND CAPITAL RESOURCES
As of June 28, 1997, the Company had $223,642,000 of cash and cash
equivalents and $301,466,000 of investments. Net cash generated by operating
activities and proceeds from issuance of the Company's stock under stock plans
provided sufficient resources to fund the Company's headcount growth, capital
asset needs and stock repurchases for the nine months ended June 28, 1997. Net
cash provided by operating activities, consisting primarily of net income from
operations before depreciation and amortization and increases in working
capital, was $196,848,000 for the nine-month period ended June 28, 1997,
compared with $154,479,000 for the corresponding period in fiscal 1996. Net
cash used by investing activities totaled $77,317,000 for the nine-month period
ended June 28, 1997, compared with $93,986,000 for the corresponding period in
fiscal 1996. The decrease is principally due to the timing of the purchases and
sales of investments. The Company acquired $21,642,000 of capital equipment
consisting primarily of computer equipment, software, and office equipment to
meet the needs resulting from the growth in employee headcount, continued
expansion of its worldwide sales and support operations and increased investment
in information technologies and in computer workstations to keep field and
development employees current with changes in the hardware and software
marketplace. For the remainder of fiscal 1997, the Company plans to continue
spending at current levels; however, the level of spending will be dependent on
various factors, including the growth of the business and general economic
conditions. Financing activities, consisting primarily of proceeds from
issuance of common stock offset by the purchases of treasury stock, used
$93,310,000 for the nine months ended June 28, 1997 and $19,148,000 for the nine
months ended June 29, 1996. The 1997 increase was due principally to higher
stock repurchases under the Company's stock repurchase program.
On May 12, 1994, the Company announced that its Board of Directors had
authorized a plan that allows the Company to repurchase up to 6,000,000 shares
of its common stock. The Company intends to repurchase these shares to
partially offset the dilution caused by the exercise of stock options under the
Company's option plans and the purchase of shares under the employee stock
purchase plan. During the three-month and nine-month periods ended June 28,
1997, the Company repurchased 907,500 and 2,664,500 shares at a cost of
$40,046,000 and $135,066,000, respectively, of which 773,000 remained in
treasury on June 28, 1997. Since the inception of the plan, the Company has
repurchased 4,757,500 shares. Ongoing repurchases will be funded through the
use of available cash, cash generated from operations and cash received from
stock option exercises and employee stock purchase plan purchases.
The Company believes that existing cash and short-term investment balances,
together with cash generated from operations and issuance of the Company's
common stock under stock plans, will be sufficient to meet the Company's
currently projected working capital, financing and capital expenditure
requirements through at least the next twelve months.
9
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PART II - OTHER INFORMATION
ITEM 6: Exhibits
10.1 Severance Agreement with Michael E. McGuinness, dated May 15, 1997.
10.2 Severance Agreement with John D. McMahon, dated May 15, 1997.
10.3 Consulting Agreement with Michael E. Porter, dated November 17, 1995.
10.4 Amendment #1 to Consulting Agreement with Michael E. Porter, dated May
15, 1997.
13.1 Annual Report to Stockholders for the fiscal year ended September 30,
1996 (which is not deemed to be "filed" except to the extent that
portions thereof are expressly incorporated in this Quarterly Report
on Form 10-Q).
10
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAMETRIC TECHNOLOGY CORPORATION
Date: August 11, 1997 by: /S/ Edwin J. Gillis
------------------------
Edwin J. Gillis
Executive Vice President,
Chief Financial Officer and
Treasurer
11
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EXHIBIT INDEX
10.1* Severance Agreement with Michael E. McGuinness, dated May 15, 1997; filed
herewith.
10.2* Severance Agreement with John D. McMahon, dated May 15, 1997; filed
herewith.
10.3* Consulting Agreement with Michael E. Porter, dated November 17, 1995;
filed herewith.
10.4* Amendment #1 to Consulting Agreement with Michael E. Porter, dated May
15, 1997; filed herewith.
13.1 Annual Report to Stockholders for the fiscal year ended September 30, 1996
(which is not deemed to be "filed" except to the extent that portions
thereof are expressly incorporated in this Quarterly Report on Form 10-Q);
filed as Exhibit 13.1 to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1996 and incorporated herein by reference.
___________
*Identifies a management contract or compensatory plan or arrangement in which
an executive officer or director of the Company participates.
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Exhibit 10.1
AGREEMENT
---------
This Agreement is entered into as of this 15th day of May, 1997,
between Parametric Technology Corporation, a Massachusetts corporation (the
"Company"), and Michael E. McGuinness (the "Officer").
WHEREAS, the Officer is the Executive Vice President of Research and
Development and Product Marketing of the Company; and
WHEREAS, to provide incentive for the Officer to maintain employment
with the Company, the Company desires to make the following arrangements with
the Officer concerning his termination of employment.
NOW, THEREFORE, the Company and the Officer hereby agree as follows:
1. Termination Notice. The Company agrees that it may not terminate
------------------
the employment of the Officer unless (i) such termination is for Cause (as
defined below) or (ii) the Company has delivered to the Officer a written notice
of such termination (the "Termination Notice") at least six months in advance of
the termination date. The duties of the Officer during the period from the date
of delivery of a Termination Notice until the termination of his employment
shall be as determined by the Board of Directors.
2. Salary. During the period from the date of delivery of the
------
Termination Notice (the "Notice Date") until the earlier of (i) the date six
months after the Notice Date or (ii) the date the Officer commences employment
with another company or organization, the Company shall pay to the Officer a
salary that is equal, on an annualized basis, to the highest
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annual salary (excluding any bonuses) in effect with respect to the Officer
during the six-month period immediately preceding the Termination Notice.
3. Stock Options. Effective upon a Change in Control (as defined
-------------
below) of the Company, all stock options granted to the Officer and then
outstanding under any Stock Option Plan (as defined below) of the Company shall
become exercisable in full, notwithstanding any vesting schedule or other
provisions to the contrary in the agreements evidencing such options; and the
Company and the Officer hereby agree that such option agreements are hereby and
will be deemed amended to give effect to this provision.
4. Definitions.
-----------
(a) A termination by the Company of the Officer's employment for
"Cause" shall mean termination (i) for the Officer's willful and continued
failure to substantially perform his duties to the Company (other than any such
failure resulting from the Officer's incapacity due to physical or mental
illness or any such actual or perceived failure after a Change in Status of the
Officer), provided that (a) the Company has delivered a written demand for
substantial performance to the Officer specifically identifying the manner in
which the Company believes that the Officer has not substantially performed his
duties, and (b) the Officer has not cured such failure within 30 days after such
demand, (ii) for willful conduct by the Officer which is demonstrably and
materially injurious to the Company, or (iii) for the Officer's willful
violation of any material provision of any confidentiality, nondisclosure,
assignment of invention, noncompetition or similar agreement entered into by the
Officer in connection with his employment by the Company. For purposes of this
paragraph, no act or failure to act on the Officer's part shall be deemed
"willful" unless done or omitted to be done by the Officer not in good faith and
without reasonable belief that his action or omission was in the best interests
of the Company.
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(b) A "Change in Control" of the Company shall mean the occurrence
of any of the following events: (i) any "person", as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock in the Company) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities (other
than as a result of acquisitions of such securities from the Company); (ii)
individuals who, as of the date hereof, constitute the Board of Directors of the
Company (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company) shall be, for purposes of this Agreement, considered to be a member of
the Incumbent Board; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 20% of the combined voting power
of the Company's then
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outstanding securities; or (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(c) A "Stock Option Plan" of the Company shall mean any stock option
or equity compensation plan of the Company in effect at any time, including
without limitation the 1987 Incentive Stock Option Plan and the 1997 Incentive
Stock Option Plan.
5. Term. This Agreement shall continue in effect until February 13,
----
2000, unless extended by the mutual written consent of the Company and the
Officer.
6. Successors.
----------
(a) This Agreement is personal to the Officer and without the prior
written consent of the Company shall not be assignable by the Officer otherwise
than by will or the laws of descent and distribution.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
defined above and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement.
16
<PAGE>
7. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without reference to
principles of conflict of laws.
(b) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(c) All notices and other communications hereunder shall be in writing
and shall be delivered by hand delivery, by a reputable overnight courier
service, or by registered or certified mail, return receipt requested, postage
prepaid, in each case addressed as follows:
If to the Company:
-----------------
Parametric Technology Corporation
128 Technology Drive
Waltham, MA 02154
Attention: Corporate Counsel
If to the Officer:
------------------
Michael E. McGuinness
32 Sears Road
Southboro, MA 01772
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Any notice or communication shall be deemed to
be delivered upon the date of hand delivery, one day following delivery to such
overnight courier service, or three days following mailing by registered or
certified mail.
17
<PAGE>
EXECUTED as of the date first written above.
PARAMETRIC TECHNOLOGY CORPORATION
By: /S/ C. Richard Harrison
------------------------------------------
C. Richard Harrison
President and Chief Operating Officer
/S/ Michael E. McGuinness
------------------------------------------
Michael E. McGuinness
18
<PAGE>
Exhibit 10.2
AGREEMENT
---------
This Agreement is entered into as of this 15th day of May, 1997,
between Parametric Technology Corporation, a Massachusetts corporation (the
"Company"), and John D. McMahon (the "Officer").
WHEREAS, the Officer is the Executive Vice President Worldwide Sales
of the Company; and
WHEREAS, to provide incentive for the Officer to maintain employment
with the Company, the Company desires to make the following arrangements with
the Officer concerning his termination of employment.
NOW, THEREFORE, the Company and the Officer hereby agree as follows:
1. Termination Notice. The Company agrees that it may not terminate
------------------
the employment of the Officer unless (i) such termination is for Cause (as
defined below) or (ii) the Company has delivered to the Officer a written notice
of such termination (the "Termination Notice") at least six months in advance of
the termination date. The duties of the Officer during the period from the date
of delivery of a Termination Notice until the termination of his employment
shall be as determined by the Board of Directors.
2. Salary. During the period from the date of delivery of the
------
Termination Notice (the "Notice Date") until the earlier of (i) the date six
months after the Notice Date or (ii) the date the Officer commences employment
with another company or organization, the Company shall pay to the Officer a
salary that is equal, on an annualized basis, to the highest
19
<PAGE>
annual salary (excluding any bonuses) in effect with respect to the Officer
during the six-month period immediately preceding the Termination Notice.
3. Stock Options. Effective upon a Change in Control (as defined
-------------
below) of the Company, all stock options granted to the Officer and then
outstanding under any Stock Option Plan (as defined below) of the Company shall
become exercisable in full, notwithstanding any vesting schedule or other
provisions to the contrary in the agreements evidencing such options; and the
Company and the Officer hereby agree that such option agreements are hereby and
will be deemed amended to give effect to this provision.
4. Definitions.
-----------
(a) A termination by the Company of the Officer's employment for
"Cause" shall mean termination (i) for the Officer's willful and continued
failure to substantially perform his duties to the Company (other than any such
failure resulting from the Officer's incapacity due to physical or mental
illness or any such actual or perceived failure after a Change in Status of the
Officer), provided that (a) the Company has delivered a written demand for
substantial performance to the Officer specifically identifying the manner in
which the Company believes that the Officer has not substantially performed his
duties, and (b) the Officer has not cured such failure within 30 days after such
demand, (ii) for willful conduct by the Officer which is demonstrably and
materially injurious to the Company, or (iii) for the Officer's willful
violation of any material provision of any confidentiality, nondisclosure,
assignment of invention, noncompetition or similar agreement entered into by the
Officer in connection with his employment by the Company. For purposes of this
paragraph, no act or failure to act on the Officer's part shall be deemed
"willful" unless done or omitted to be done by the Officer not in good faith and
without reasonable belief that his action or omission was in the best interests
of the Company.
20
<PAGE>
(b) A "Change in Control" of the Company shall mean the occurrence of
any of the following events: (i) any "person", as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock in the Company) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities (other
than as a result of acquisitions of such securities from the Company); (ii)
individuals who, as of the date hereof, constitute the Board of Directors of the
Company (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company) shall be, for purposes of this Agreement, considered to be a member of
the Incumbent Board; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 20% of the
21
<PAGE>
combined voting power of the Company's then outstanding securities; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(c) A "Stock Option Plan" of the Company shall mean any stock option
or equity compensation plan of the Company in effect at any time, including
without limitation the 1987 Incentive Stock Option Plan and the 1997 Incentive
Stock Option Plan.
5. Term. This Agreement shall continue in effect until February 13,
----
2000, unless extended by the mutual written consent of the Company and the
Officer.
6. Successors.
----------
(a) This Agreement is personal to the Officer and without the prior
written consent of the Company shall not be assignable by the Officer otherwise
than by will or the laws of descent and distribution.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
defined above and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement.
22
<PAGE>
7. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without reference to
principles of conflict of laws.
(b) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(c) All notices and other communications hereunder shall be in writing
and shall be delivered by hand delivery, by a reputable overnight courier
service, or by registered or certified mail, return receipt requested, postage
prepaid, in each case addressed as follows:
If to the Company:
-----------------
Parametric Technology Corporation
128 Technology Drive
Waltham, MA 02154
Attention: Corporate Counsel
If to the Officer:
------------------
John D. McMahon
23 Bridle Path
Sudbury, MA 01776
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Any notice or communication shall be deemed to
be delivered upon the date of hand delivery, one day following delivery to such
overnight courier service, or three days following mailing by registered or
certified mail.
23
<PAGE>
EXECUTED as of the date first written above.
PARAMETRIC TECHNOLOGY CORPORATION
By: /S/ C. Richard Harrison
-----------------------------------------
C. Richard Harrison
President and Chief Operating Officer
/S/ John D. McMahon
-----------------------------------------
John D. McMahon
24
<PAGE>
Exhibit 10.3
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (this "Agreement"), is made and entered into
as of this 17th day of November, 1995, by and between PARAMETRIC TECHNOLOGY
CORPORATION, a Massachusetts corporation, having a principal place of business
at 128 Technology Drive, Waltham, MA 02154 (hereinafter "PTC"), and MICHAEL E.
PORTER, an individual residing at 147 Chestnut Hill Road, Chestnut Hill, MA
02167 (hereinafter "Consultant").
ARTICLE 1
TERM AND TERMINATION
1.1 Term. This Agreement will become effective on the date first
shown above and will remain in full force and effect unless and until terminated
in accordance with the provisions of Section 1.2 hereof.
1.2 Termination of Agreement.
(a) Consultant may, at his sole option, terminate this Agreement, at
any time, upon thirty (30) days' advance written notice to PTC.
(b) PTC may terminate this Agreement for Cause (as defined below),
effective immediately upon notice to Consultant that, in the good faith judgment
of the Board, (1) an event constituting Cause for termination has occurred, and
(2) either Consultant had a reasonable opportunity to take remedial action but
failed or refused to do so, or an opportunity to take remedial action would not
have been meaningful or appropriate under the circumstances. For purposes of
this Section 1.2, "Cause" shall mean: (i) Consultant willfully commits an act
of dishonesty or breach of trust, or willfully acts in a manner which is
inimical or injurious to the business or interest of PTC, (ii) Consultant
willfully violates or breaches any of the provisions of this Agreement and such
violation or breach results in demonstrable injury to PTC and has not been
remedied within thirty (30) days of receipt of written notice of such violation
or breach, (iii) Consultant's act or omission to act results in or is intended
to result in gain to or personal enrichment of Consultant at PTC's expense, or
(iv) Consultant is convicted of a felony or any crime involving larceny,
embezzlement or moral turpitude.
1.3 Effect of Termination. Upon termination of this Agreement, the
Option, to the extent not yet exerciseable at the date of such termination
(according to the Exerciseability Schedule contained within the Stock Option
Agreement dated November 17, 1995 between PTC and the Contractor (the "Stock
Option Agreement")), shall be canceled as to any such shares effective on the
date of such termination. For purposes of this Article 1, the term "Option"
shall mean that certain option to purchase 4,000 shares of PTC's common stock,
$.01 par value per share, evidenced by the Stock Option Agreement.
1.4 Survival. In the event of any termination of this Agreement,
Articles 5 and 6 hereof shall survive and continue in effect.
ARTICLE 2
INDEPENDENT CONTRACTOR STATUS
It is the intention of the parties that Consultant be an independent
contractor and not an employee, agent, joint venturer, or partner of PTC.
Nothing in this Agreement shall be interpreted or construed as creating or
establishing the relationship of employer and employee between PTC and either
Consultant or any employee or agent of Consultant. Consultant shall retain the
right to perform work for others during the terms of this Agreement, provided
such work does not otherwise violate the provisions of Article 5 of this
Agreement. PTC shall retain the right to cause work of the same or a different
kind to be performed by its own personnel or other contractors during the term
of this Agreement.
25
<PAGE>
ARTICLE 3
SERVICES TO BE PERFORMED BY CONSULTANT
Consultant is engaged to provide consulting services to PTC in
connection with strategic growth methods and alternatives with respect to PTC's
business and its products and to analyze opportunities within PTC's market and
the industry generally. PTC and Consultant will mutually determine the methods
and means Consultant will use to perform the work to be carried out for PTC. PTC
shall be entitled to exercise a broad general power of supervision and control
over the results of work performed by Consultant.
ARTICLE 4
COMPENSATION AND EXPENSES
4.1 Compensation; Option. Consultant shall receive the Option in lieu
of all other compensation, whether cash or otherwise. Consultant affirmatively
acknowledges that he will not receive cash or any other compensation in
connection with the services. PTC makes no representation, warranty or covenant
with respect to the Option or PTC's common stock. Consultant understands,
acknowledges and agrees that he may never realize any value from the Options,
which constitute the only compensation payable hereunder, and that any value
that he may realize on such Options will be directly tied to performance of
PTC's common stock, which performance is not guaranteed or warranted by PTC.
4.2 Expenses. PTC shall reimburse Consultant for all reasonable, out-
of-pocket expenses incurred by Consultant in connection with the performance of
the services hereunder by providing PTC with a written request for reimbursement
accompanied by such written documentation as may be reasonably requested by PTC
to support the amount and validity of such expense.
ARTICLE 5
CONFIDENTIALITY AND INTELLECTUAL PROPERTY RIGHTS
5.1 Confidentiality. Consultant shall maintain in strict confidence,
and shall use and disclose only as authorized by PTC, all information of a
competitively sensitive or proprietary nature that he receives in connection
with the work performed for PTC hereunder. Consultant agrees that, by its
nature, the services to be performed hereunder, and any information gathered or
compiled in connection therewith, is of a competitively sensitive nature which
must be maintained in the strictest of confidence. These restrictions shall not
be construed to apply to (1) information generally available to the public; (2)
information released by PTC generally without restriction; (3) information
independently developed or acquired by Consultant without reliance in any way on
other protected information of PTC; or (4) information approved in advance in
writing for the use and disclosure of Consultant without restriction.
Notwithstanding the foregoing restrictions, Consultant may use and disclose any
information (a) to the extent required by an order of any court or other
governmental authority or (b) as necessary for him to protect his interest in
this Agreement, but in each case only after PTC has been so notified in advance
in writing and has had the opportunity, if possible, to obtain reasonable
protection for such information in connection with such disclosure.
5.2 Ownership of Work Product. The reports, writings, documents and
other work product that Consultant produces during the course of performing the
services under this Agreement (collectively, the "Work Product") shall belong to
PTC and shall, to the extent possible, be considered a work made for hire for
PTC within the meaning of Title 17 of the United States Code. PTC shall have a
copyright in all such Work Product and Consultant shall take such actions as may
be reasonably requested by PTC to vest in PTC all rights of ownership in such
copyright(s).
26
<PAGE>
ARTICLE 6
GENERAL PROVISIONS
6.1 Notices. Any notices to be given hereunder by either party to the
other shall be delivered to the address set forth in the introductory paragraph
of this Agreement and may be effected either by personal delivery in writing or
by mail, registered or certified, postage prepaid with return receipt requested.
Notices delivered personally will be deemed communicated as of actual receipt.
Mailed notices will be deemed communicated as of two days after mailing.
6.2 Entire Agreement of the Parties. This Agreement supersedes any
and all agreements, either oral or written, between the parties hereto with
respect to the rendering of services by Consultant for PTC and contains all the
covenants and agreements between the parties with respect to the rendering of
such services in any manner whatsoever.
6.3 Partial Invalidity. If any provision in this agreement is held by
a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions will nevertheless continue in full force without being
impaired or invalidated in any way.
6.4 Parties in Interest. This Agreement is enforceable only by
Consultant and PTC. The terms of this Agreement are not a contract or assurance
regarding compensation, continued employment, or benefit of any kind to
Consultant, or any beneficiary of Consultant, and neither Consultant, nor any
such beneficiary thereof, shall be a third-party beneficiary under or pursuant
to the terms of this Agreement.
6.5 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of The Commonwealth of Massachusetts.
6.6 Successors. This Agreement shall inure to the benefit of, and be
binding upon, Consultant and PTC, and their permitted successors and assigns.
This Agreement, and the rights and obligations hereunder, may not be assigned,
nor may the duties be delegated by Consultant. PTC may assign this Agreement,
and the rights and obligations hereunder, and may delegate the duties, to any
entity that controls, is controlled by, or is under common control with PTC, or
to any purchaser or other transferee of all or substantially all of PTC's assets
or business.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CONSULTANT
/S/ Michael E. Porter
---------------------
Michael E. Porter
Society Security Number: ###-##-####
------------
PTC PARAMETRIC TECHNOLOGY CORPORATION
By: /S/ Steven C. Walske
---------------------------------------
Name: Steven C. Walske
-------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
27
<PAGE>
Exhibit 10.4
AMENDMENT #1 TO
CONSULTING AGREEMENT
This Amendment #1 To Consulting Agreement, dated May 15th 1997, hereby
amends the terms of that certain Consulting Agreement dated November 17, 1995 by
and between Parametric Technology Corporation, a Massachusetts corporation,
having its principle business address at 128 Technology Drive, Waltham,
Massachusetts 02154 (hereinafter "PTC") and Michael E. Porter, an individual
residing at 147 Chestnut Hill Road, Massachusetts 02167 (hereinafter
"Consultant").
SECTION 1.3 Effect of Termination, is hereby amended by designating the
paragraph thereunder as Subsection (a) and adding the following Subsection (b)
thereto:
(b) With respect to any option granted pursuant to this Agreement, upon the
termination of this Agreement, any such option, to the extent not yet
exercisable at the date of termination (according to the Exercisability
Schedule contained within the Stock Option Agreement pertaining to any such
option granted), shall be canceled as to any such shares effective on the
date of such termination. The term "Option" is hereby amended to include any
option granted pursuant to this Agreement.
ARTICLE 3 Services to be Performed by Consultant, is hereby amended by
designating the paragraph thereunder as Section 3.1 and adding the following
Section 3.2:
3.2 Consultant is engaged pursuant to this Amendment #1 to Consulting
Agreement, to participate in a series of top management seminars to be
sponsored by PTC with the purpose of increasing market penetration by
accessing a broader range of accounts. Consultant, in addition to the actual
delivery of the presentations, will work intensively with PTC management in
crafting the PTC portion of the seminars and packaging it for a top
management audience. PTC and Consultant will mutually determine the methods
and means Consultant will use to perform the work to be carried out for PTC.
PTC shall be entitled to exercise a broad general power of supervision and
control over the results of work performed by Consultant.
ARTICLE 4 Compensation and Expenses, is hereby amended by adding the following
Section 4.3:
4.3 Option Grant for Services to be Performed Under Section 3.2. In
connection with those services to be performed pursuant to this Amendment #1
to Consulting Agreement (as described in Section 3.2 above), Consultant shall
receive an option to purchase 25,000 shares of PTC's common stock, $.01 par
value per share, under the terms of the Stock Option Agreement dated May 15,
1997 between PTC and the Consultant attached hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment #1 to Consulting
Agreement as of the date and year first above written.
Consultant Parametric Technology Corporation
/S/ Michael E. Porter /S/ Steven C. Walske
- --------------------- ------------------------------------
Michael E. Porter Steven C. Walske
Chairman and Chief Executive Officer
28
<PAGE>
No. 10002 25,000 Shares
PARAMETRIC TECHNOLOGY CORPORATION
1997 Incentive Stock Option Plan
Nonstatutory Stock Option Certificate
May 15, 1997
Parametric Technology Corporation (the "Company"), a Massachusetts
corporation, hereby grants to the person named below an option to purchase
shares of Common Stock, $0.01 par value, of the Company (the "Option") under and
subject to the Company's 1997 Incentive Stock Option Plan (the "Plan")
exercisable on the following terms and conditions set forth below and those
attached hereto and in the Plan:
Name of Optionholder: Michael E. Porter
Social Security Number ###-##-####
Number of Shares: 25,000
Option Price: $48.00
Date of Grant: May 15, 1997
Exercisability Schedule:
On or after June 5, 1997, as to 5,000 shares,
on or after June 6, 1997, as to 5,000 additional shares,
on or after September 5, 1997, as to 5,000 additional shares,
on or after December 5, 1997, as to 5,000 additional shares,
on or after March 5, 1998, as to 5,000 additional shares,
provided that Optionholder's consulting agreement with the Company is not
terminated earlier, in which event the Option, (i) to the extent exercisable at
the date of such termination, may not be exercised as to any shares after the
expiration of seven (7) months from the date of such termination, and (ii) to
the extent not exercisable at the date of such termination, shall be canceled
as to any such shares effective on the date of such termination.
This Option shall not be treated as an Incentive Stock Option under section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to the terms and
conditions set forth above and those attached hereto and in the Plan.
OPTIONHOLDER PARAMETRIC TECHNOLOGY CORPORATION
By: /S/ Michael E. Porter By: /S/ Edwin J. Gillis
--------------------- -------------------
Optionholder Executive Vice President - CFO
29
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION 1997 INCENTIVE STOCK OPTION PLAN
Nonstatutory Stock Option Terms and Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to
------------------------------
the terms of the Plan and may be amended as provided in the Plan. Capitalized
terms used and not otherwise defined in this certificate have the meanings given
to them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding. Copies of the Plan may be obtained upon written
request without charge from the Corporate Counsel of the Company.
2. Option Price. The price to be paid for each share of Common Stock
------------
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time
-----------------------
and from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder
------------------
shall deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery or a payment commitment of a financial
or brokerage institution, as the Committee may approve. Promptly following such
notice, the Company will deliver to the Optionholder a certificate representing
the number of shares with respect to which the Option is being exercised.
5. No Right To Employment. No person shall have any claim or right
----------------------
to be granted an Option. Each employee of the Company or any of its Affiliates
is an employee-at-will (that is to say that either the Participant or the
Company or any Affiliate may terminate the employment relationship at any time
for any reason or no reason at all) unless, and only to the extent, provided in
a written employment agreement for a specified term executed by the chief
executive officer of the Company or his duly authorized designee or the
authorized signatory of any Affiliate. Neither the adoption, maintenance, nor
operation of the Plan nor any Option hereunder shall confer upon any employee of
the Company or of any Affiliate any right with respect to the continuance of
his/her employment by the Company or any such Affiliate nor shall they interfere
with the right of the Company (or Affiliate) to terminate any employee at any
time or otherwise change the terms of employment, including, without limitation,
the right to promote, demote or otherwise re-assign any employee from one
position to another within the Company or any Affiliate.
6. Effect of Grant. Participant shall not earn any Options granted
----------------
hereunder until such time as all the conditions put forth herein and in the Plan
which are required to be met in order to exercise the Option have been fully
satisfied.
7. Recapitalization, Mergers, Etc. As provided in the Plan, in the
------------------------------
event of corporate transactions affecting the Company's outstanding Common
Stock, the number and kind of shares subject to this Option and the exercise
price hereunder shall be equitably adjusted. If such transaction involves a
consolidation or merger of the Company with another entity, the sale or exchange
of all or substantially all of the assets of the Company or a reorganization or
liquidation of the Company, then in lieu of the foregoing, the Committee may
upon written notice to the Optionholder provide that this Option shall terminate
on a date not less than 20 days after the date of such notice unless theretofore
exercised. In connection with such notice, the Committee may in its discretion
accelerate or waive any deferred exercise period.
8. Option Not Transferable. This Option is not transferable by the
-----------------------
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by the Optionholder.
The naming of a Designated Beneficiary does not constitute a transfer.
30
<PAGE>
9. Termination of Employment or Engagement. If the Optionholder's
----------------------------------------
status as an employee or consultant of (a) the Company, (b) an Affiliate, or (c)
a corporation (or parent or subsidiary corporation of such corporation) issuing
or assuming a stock option in a transaction to which section 424(a) of the Code
applies, is terminated for any reason (voluntary or involuntary) and the period
of exercisability for a particular Option following such termination has not
been specified by the Board, each such Option then held by that Participant
shall expire to the extent not previously exercised ten (10) calendar days after
such Participant's employment or engagement is terminated, except that -
------ ----
(a) If the Participant is on military, sick leave or other bona fide
---- ----
leave of absence (such as temporary employment by the federal government), his
or her employment or engagement with the Company will be treated as continuing
intact if the period of such leave does not exceed ninety (90) days, or, if
longer, so long as the Participant's right to reemployment or the survival of
his or her service arrangement with the Company is guaranteed either by statute
or by contract; otherwise, the Participant's employment or engagement will be
deemed to have terminated on the 91st day of such leave.
(b) If the Participant's employment is terminated by reason of his or
her retirement from the Company at normal retirement age, each Option then held
by the Participant, to the extent exercisable at retirement, may be exercised by
the Participant at any time within three (3) months after such retirement unless
terminated earlier by its terms.
(c) If the Participant's employment or engagement is terminated by
reason of his or her death, each Option then held by the Participant, to the
extent exercisable at the date of death, may be exercised at any time within one
year after that date (unless terminated earlier by its terms) by the person(s)
to whom the Participant's option rights pass by will or by the applicable laws
of descent and distribution.
(d) If the Participant's employment or engagement is terminated by
reason of his or her becoming permanently and totally disabled, each Option then
held by the Participant, to the extent exercisable upon the occurrence of
permanent and total disability, may be exercised by the Participant at any time
within one (1) year after such occurrence unless terminated earlier by its
terms. For purposes hereof, an individual shall be deemed to be "permanently and
totally disabled" if he or she is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve (12) months. Any
determination of permanent and total disability shall be made in good faith by
the Company on the basis of a report signed by a qualified physician.
10. Compliance with Securities Laws. It shall be a condition to the
-------------------------------
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issuance upon the exercise of this Option shall have been duly
listed, upon official notice of issuance, upon any national securities exchange
or automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
consider necessary to comply with any law applicable to the issue of such shares
by the Company shall have been taken by the Company or the Optionholder, or
both. The certificates representing the shares purchased under this Option may
contain such legends as counsel for the Company shall consider necessary to
comply with any applicable law.
11. Payment of Taxes. The Optionholder shall pay to the Company, or
----------------
make provision satisfactory to the Company for payment of, any taxes required by
law to be withheld with respect to the exercise of this Option. The Committee
may, in its discretion, require any other Federal or state taxes imposed on the
sale of the shares to be paid by the Optionholder. In the Committee's
discretion, such tax obligations may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of this Option, valued
at their Fair Market Value on the date of delivery. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Optionholder.
Adopted November 14, 1996
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED JUNE 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-28-1997
<CASH> 223,642
<SECURITIES> 301,466
<RECEIVABLES> 147,638
<ALLOWANCES> 1,917
<INVENTORY> 0
<CURRENT-ASSETS> 692,524
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 781,363
<CURRENT-LIABILITIES> 185,435
<BONDS> 0
0
0
<COMMON> 1,281
<OTHER-SE> 593,906
<TOTAL-LIABILITY-AND-EQUITY> 781,363
<SALES> 149,372
<TOTAL-REVENUES> 207,114
<CGS> 1,320
<TOTAL-COSTS> 19,509
<OTHER-EXPENSES> 104,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 86,393
<INCOME-TAX> 30,205
<INCOME-CONTINUING> 56,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,188
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
