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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Quarterly Period Ended May 31, 1997
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-19417
PROGRESS SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2746201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Oak Park
Bedford, Massachusetts 01730
(Address of principal executive offices)
Telephone Number: (617) 280-4000
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and, (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
----- -----
As of July 9, 1997, there were 11,462,796 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
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PROGRESS SOFTWARE CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED MAY 31, 1997
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
May 31, 1997 and November 30, 1996 3
Condensed Consolidated Statements of Income for
the three and six months ended May 31, 1997 and
May 31, 1996 4
Condensed Consolidated Statements of Cash Flows
for the six months ended May 31, 1997 and
May 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PROGRESS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
May 31, 1997 November 30, 1996
------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents .................................. $ 25,086 $ 30,872
Short-term investments ................................ 70,873 66,451
Accounts receivable (less allowance for doubtful
accounts of $5,275 in 1997 and $5,112 in 1996) ...... 30,863 34,452
Inventories ........................................... 1,363 1,257
Other current assets .................................. 8,020 4,367
Deferred income taxes ................................. 3,722 3,552
-------- --------
Total current assets .......................... 139,927 140,951
-------- --------
Property and equipment-net .............................. 23,027 24,230
Capitalized software costs-net .......................... 5,616 5,428
Other assets ............................................ 2,242 2,579
-------- --------
Total ......................................... $170,812 $173,188
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ..................... $ -- $ 37
Accounts payable ...................................... 7,402 7,989
Accrued compensation and related taxes ................ 12,333 12,385
Income taxes payable .................................. 2,018 3,004
Other current liabilities ............................. 7,385 5,964
Deferred revenue ...................................... 33,068 27,365
-------- --------
Total current liabilities ..................... 62,206 56,744
-------- --------
Deferred income taxes ................................... 2,382 2,345
Long-term debt .......................................... -- 85
Minority interest in subsidiary ......................... 528 221
Commitments and contingency
Shareholders' equity:
Preferred stock, $.01 par value; authorized,
1,000,000 shares; issued, none
Common stock, $.01 par value; authorized,
50,000,000 shares in 1997 and 20,000,000
shares in 1996; issued and outstanding,
11,985,142 shares in 1997 and 12,632,630
shares in 1996 ..................................... 120 126
Additional paid-in capital ............................ 29,692 41,309
Retained earnings ..................................... 76,300 72,280
Unrealized gain on short-term investments ............. 102 241
Cumulative translation adjustments .................... (518) (163)
-------- --------
Total shareholders' equity .................... 105,696 113,793
-------- --------
Total ......................................... $170,812 $173,188
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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PROGRESS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended May 31, Six Months Ended May 31,
-------------------------- ------------------------
1997 1996 1997 1996
------- ------ ------- ------
<S> <C> <C> <C> <C>
Revenue:
Software licenses ...................... $22,975 $20,730 $47,616 $49,723
Maintenance and support services ....... 21,856 20,932 42,559 40,321
------- ------- ------- -------
Total revenue .................. 44,831 41,662 90,175 90,044
------- ------- ------- -------
Costs and expenses:
Cost of software licenses .............. 2,388 2,231 4,737 4,581
Cost of maintenance and support services 7,222 7,008 14,180 14,010
Sales and marketing .................... 21,364 22,083 42,922 44,007
Product development .................... 6,776 5,866 13,181 11,891
General and administrative ............. 5,698 5,263 11,576 10,489
------- ------- ------- -------
Total costs and expenses ....... 43,448 42,451 86,596 84,978
------- ------- ------- -------
Income (loss) from operations ............ 1,383 (789) 3,579 5,066
------- ------- ------- -------
Other income (expense):
Interest income ........................ 1,043 992 1,918 1,941
Interest expense ....................... (3) (1) (7) (6)
Foreign currency gain (loss) ........... 471 (4) 283 (303)
Minority interest ...................... 182 87 296 256
Other income (expense) ................. 19 (49) 22 (23)
------- ------- ------- -------
Total other income ............. 1,712 1,025 2,512 1,865
------- ------- ------- -------
Income before provision for income taxes . 3,095 236 6,091 6,931
Provision for income taxes ............... 1,053 81 2,071 2,357
------- ------- ------- -------
Net income ............................... $ 2,042 $ 155 $ 4,020 $ 4,574
======= ======= ======= =======
Income per common share .................. $ 0.16 $ 0.01 $ 0.31 $ 0.34
======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding ... 13,002 13,121 12,946 13,445
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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PROGRESS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended May 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................. $ 4,020 $ 4,574
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 5,379 4,590
Amortization of capitalized software costs ............ 1,069 805
Amortization of intangible assets ..................... 138 176
Deferred income taxes ................................. (183) 78
Minority interest in subsidiary ....................... (296) (256)
Noncash compensation .................................. 16 1
Changes in operating assets and liabilities:
Accounts receivable .................................. 2,076 7,128
Inventories .......................................... (109) 226
Other current assets ................................. (3,849) (303)
Accounts payable and accrued expenses ................ 1,623 (5,934)
Income taxes payable ................................. (622) 713
Deferred revenue ..................................... 7,145 2,064
-------- --------
Total adjustments .................................. 12,387 9,288
-------- --------
Net cash provided by operating activities .......... 16,407 13,862
-------- --------
Cash flows from investing activities:
Purchases of investments available for sale ............. (15,475) (38,731)
Maturities of investments available for sale ............ 1,075 13,313
Sales of investments available or sale .................. 9,839 19,895
Purchase of property and equipment ...................... (4,646) (5,616)
Capitalized software costs .............................. (1,257) (1,217)
Increase in other noncurrent assets ..................... 131 (412)
-------- --------
Net cash used for investing activities ............. (10,333) (12,768)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock .................. 2,455 1,462
Repurchase of common stock .............................. (14,396) (3,778)
Contributions from minority interest .................... 603 --
Payment of obligations under capital leases ............. (116) (39)
-------- --------
Net cash used for financing activities ............. (11,454) (2,355)
-------- --------
Effect of exchange rate changes on cash ................... (406) (174)
-------- --------
Net decrease in cash and equivalents ...................... (5,786) (1,435)
Cash and equivalents, beginning of period ................. 30,872 33,465
-------- --------
Cash and equivalents, end of period ....................... $ 25,086 $ 32,030
======== ========
Supplemental disclosure of noncash financing activities:
Income tax benefit from employees' exercise of
stock options .......................................... $ 302 $ 168
======== ========
</TABLE>
See notes to condensed consolidated financial statements
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PROGRESS SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared by Progress Software Corporation (the Company) pursuant
to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read
in conjunction with the audited financial statements included in the
Company's Annual Report and Form 10-K for the fiscal year ended November
30, 1996.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as
the audited financial statements, and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
the results of the interim periods presented. The operating results for
the interim periods presented are not necessarily indicative of the
results to be expected for the full fiscal year.
2. Income Per Common Share
Income per common share is computed on a fully-diluted basis using the
weighted average number of common and common equivalent shares outstanding
during each period presented.
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and are comprised of product media, documentation, and packaging.
4. Income Taxes
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year.
Cumulative adjustments to the tax provision are recorded in the interim
period in which a change in the estimated annual effective rate is
determined.
5. Contingency and Litigation
The Company's 401(k) Plan has approximately $900,000 in Guaranteed
Investment Contracts (GICs) issued by Mutual Benefit Life Insurance
Company (MBLI). On July 16, 1991, the Insurance Commissioner of the State
of New Jersey took possession and control of MBLI's assets. In April 1994,
a rehabilitation plan was approved by the Superior Court of New Jersey.
Pursuant to the rehabilitation plan, the GICs are supported by a group of
life insurance companies and are paid out from the assets of MBL Life
Assurance Corporation, the successor to MBLI. On May 23, 1997, the Company
initiated a process to purchase the GICs from the 401(k) Plan to enable
participants to choose other investment vehicles prior to the end of the
rehabilitation plan. The purchase transaction requires the approval of the
Department of Labor and the Internal Revenue Service. Assuming no
objection or other impediment to the transaction, the Company expects the
purchase transaction to be completed before the end of the Company's
current fiscal year and not to have a material effect on the Company's
consolidated financial position or results of operations.
The Company is a defendant in litigation entitled NEWSTAR TECHNOLOGIES
INC. V. PROGRESS SOFTWARE CORPORATION of Canada Ltd. and Progress Software
Corporation, No. 97-CU-121571, pending in the Ontario (Canada) Court of
Justice (General Division), commenced April 4, 1997. Newstar claims that
the
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Company entered into a contract with it under which Newstar was entitled
to purchase the Company's software and receive product support from the
Company under specific terms which differ substantially from the Company's
standard terms and conditions. The purported contract cited by Newstar was
prepared by Newstar and executed by a lower-level Company salesperson in
the name of a Company sales executive followed by the initials of the
salesperson. The Company denies the existence of a binding contract, on
various grounds, including that the salesperson did not have the authority
to sign the sales executive's name and that Newstar knew or should have
known of that fact. Newstar seeks (a) an injunction mandating that the
Company comply with the terms of the purported contract, (b) a declaration
that the purported contract is of full force and effect, (c) an order
restraining the Company from terminating the purported contract, (d)
damages of $200 million, (e) special damages of an unstated amount, (f)
punitive damages of $20 million, (g) costs of the litigation, and (h) such
other and further relief as the court deems just. The evidence offered by
the plaintiff to date does not support its claims. Newstar moved for a
preliminary injunction; however, that motion was stayed by agreement to
allow the parties to participate in voluntary non-binding mediation which
took place on July 7, 1997. During this session a tentative settlement was
reached which the parties anticipate will be finalized in the near future.
Pursuant to such settlement, Newstar will become an Application Partner of
the Company under mutually acceptable terms and conditions reasonably
consistent with arrangements entered into with other Application Partners.
If, for any reason, the settlement is not finalized, the Company will
defend the action vigorously.
Naf Naf S.A. commenced an expert proceeding in the Paris Trade Court,
Paris, France, against Progress Software S.A., Timeless S.A. and Digital
Equipment France in May 1996. In June 1997, Naf Naf petitioned the court
to add Progress Software Corporation as a party to the expert proceeding,
which petition has been granted. The basis of the proceeding is alleged
late availability of Progress Software products and alleged product
deficiencies after delivery by Timeless to Naf Naf of such products. At
this time, no specific damage claim has been formally filed under French
legal proceeding rules with the court. The Company intends to vigorously
defend itself in this proceeding. While the outcome of this claim cannot
be predicted with certainty, management does not believe that the outcome
will have a material adverse effect on the Company's consolidated
financial position or results of operations.
The Company is subject to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business.
While the outcome of these claims cannot be predicted with certainty,
management does not believe that the outcome of any of these legal matters
will have a material adverse effect on the Company's consolidated
financial position or results of operations.
6. New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
per Share." SFAS 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 (APB 15). Under SFAS 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 six-month periods ended May 31, 1997 would have been $.17
and $.32 per share, respectively as compared with $.01 and $.35 per share
for the corresponding periods in fiscal 1996. Diluted net income per share
under SFAS 128 for these periods is not expected to be materially
different from primary earnings per share under APB 15. The Company plans
to adopt SFAS 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 128.
7. Subsequent Event
On June 27, 1997, the Company agreed to acquire Apptivity Corporation, a
developer of Java-based application development tools, for a payment of
approximately $3,800,000 in cash, the assumption of approximately
$1,000,000 of liabilities and the issuance of approximately 400,000
shares of its common stock. The acquisition is expected to close in
mid-July. The acquisition will be accounted for as a purchase and a
substantial portion of the purchase price is expected
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to be allocated to in-process software development costs. This
non-recurring charge will be reflected in the Company's results for the
third quarter ended August 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers or
employees may contain "forward-looking" information which involve risks and
uncertainties. Actual future results may differ materially. Statements
indicating that the Company "expects," "estimates," "believes," "is planning" or
"plans to" are forward-looking, as are other statements concerning future
financial results, product offerings or other events that have not yet occurred.
There are several important factors which could cause actual results or events
to differ materially from those anticipated by the forward-looking statements.
Such factors, some of which are described in great detail below under the
heading "Factors That May Affect Future Results," include, but are not limited
to, the receipt and shipment of new orders, the timely release of enhancements
to the Company's products, which could be subject to software release delays,
the growth rates of certain market segments, the positioning of the Company's
products in those market segments, variations in the demand for customer service
and technical support, pricing pressures and the competitive environment in the
software industry, consumer use of the Internet, and the Company's ability to
penetrate international markets and manage its international operations.
Although the Company has sought to identify the most significant risks to its
business, the Company cannot predict whether, or to what extent, any of such
risks may be realized nor can there be any assurance that the Company has
identified all possible issues which the Company might face.
RESULTS OF OPERATIONS
The following table sets forth certain income and expense items as a percentage
of total revenue, and the percentage change in dollar amounts of such items, for
the three and six months ended May 31, 1997 and May 31, 1996.
<TABLE>
<CAPTION>
Percentage of Total Revenue Period-to-Period Change
-------------------------------------------------- ----------------------------
Three Months Ended May 31, Six Months Ended May 31, Three Months Six Months
------------------------- ----------------------- 1997 Compared 1997 Compared
1997 1996 1997 1996 to 1996 to 1996
---- ---- ---- ---- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Software licenses 51% 50% 53% 55% 11% (4)%
Maintenance and support services 49 50 47 45 4 6
--- --- --- ---
Total revenue 100 100 100 100 8 0
--- --- --- ---
Cost and expenses:
Cost of software licenses 5 5 5 5 7 3
Cost of maintenance and
support services 16 17 16 15 3 1
Sales and marketing 48 53 47 49 (3) (2)
Product development 15 14 15 13 16 11
General and administrative 13 13 13 12 8 10
--- --- --- ---
Total costs and expenses 97 102 96 94 2 2
--- --- --- ---
Income from operations 3 (2) 4 6 275 (29)
Other income 4 2 3 2 67 35
--- --- --- ---
Income before provision for income taxes 7 0 7 8 1,211 (12)
Provision for income taxes 2 0 2 3 1,200 (12)
--- --- --- ---
Net income 5% 0% 5% 5% 1,217% (12)%
=== === === ===
</TABLE>
The Company's total revenue increased 8% from $41,662,000 in the second quarter
of fiscal 1996 to $44,831,000 in the second quarter of fiscal 1997. The
Company's total revenue of $90,175,000 in the first six months of fiscal 1997
remained relatively constant as compared to the total revenue from the
comparable period of fiscal 1996. Software license revenue increased 11% from
$20,730,000 in the second quarter of fiscal 1996 to $22,975,000 in
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the second quarter of fiscal 1997. Software license revenue decreased 4% from
$49,723,000 in the first six months of fiscal 1996 to $47,616,000 in the first
six months of fiscal 1997. The increase in software license revenue in the
second quarter of fiscal 1997 as compared to the period one year ago is due to
greater sales of the Company's flagship product, PROGRESS Versions 7 and 8, and
a slowdown in the rate of decline of PROGRESS Version 6. In addition, sales from
the Company's newest product, WebSpeed, have continued to increase since its
release in the fourth quarter of fiscal 1996. The decrease in software license
revenue in the first six months of fiscal 1997 as compared to the period one
year ago resulted from the slowdown in the Company's business which began in the
second quarter of fiscal 1996. The slowdown was due primarily to increased
competition and the transition some of the Company's Application Partners faced
in the marketplace as they moved their applications to PROGRESS Versions 7 and 8
and WebSpeed. During the first six months of fiscal 1997, the Company entered
into 105 new Application Partner agreements worldwide (29 in North America and
76 outside North America).
Maintenance and support services revenue increased 4% from $20,932,000 in the
second quarter of fiscal 1996 to $21,856,000 in the second quarter of fiscal
1997. Maintenance and support services revenue increased 6% from $40,321,000 in
the first six months of fiscal 1996 to $42,559,000 in the first six months of
fiscal 1997. The maintenance and support services revenue increase was primarily
a result of growth in the Company's installed customer base, renewal of
maintenance contracts and increased consulting revenues.
Total revenue generated in markets outside North America increased from
$25,228,000 in the second quarter of fiscal 1996 to $27,461,000 in the second
quarter of fiscal 1997, but represented 61% of total revenue in each period.
Total revenue generated in markets outside North America would have represented
63% of total revenue in the second quarter of fiscal 1997 if exchange rates had
been constant as compared to the exchange rates in the effect in the second
quarter of fiscal 1996. Total revenue generated in markets outside North America
increased from $52,333,000 in the first six months of fiscal 1996 to $53,630,000
in the first six months of fiscal 1997 and increased as a percentage of total
revenue from 58% in the first six months of fiscal 1996 to 59% in the first six
months of fiscal 1997. Total revenue generated in markets outside North America
would have represented 61% of total revenue in the first six months of fiscal
1997 if exchange rates had been constant as compared to the exchange rates in
the effect in the first six months of fiscal 1996.
Cost of software licenses consists primarily of cost of product media,
documentation, duplication, packaging, royalties and amortization of capitalized
software costs. Cost of software licenses increased 7% from $2,231,000 in the
second quarter of fiscal 1996 to $2,388,000 in the second quarter of fiscal
1997, but remained approximately the same percentage of software license revenue
in each period. Cost of software licenses increased 3% from $4,581,000 in the
first six months of fiscal 1996 to $4,737,000 in the first six months of fiscal
1997 and increased as a percentage of software license revenue from 9% to 10%.
The percentage increase was due to an increase in amortization of capitalized
software costs and higher royalty expense. Cost of software licenses as a
percentage of software license revenue can vary depending upon the relative
product mix in a given period.
Cost of maintenance and support services consists primarily of costs of
providing customer technical support, education and consulting. Cost of
maintenance and support services increased 3% from $7,008,000 in the second
quarter of fiscal 1996 to $7,222,000 in the second quarter of fiscal 1997, but
remained approximately the same percentage of maintenance and support services
revenue in each period. Cost of maintenance and support services in the first
six months of fiscal 1997 remained relatively constant as compared to the first
six months of 1996, but decreased as a percentage of maintenance and support
services revenue from 35% to 33%. The percentage decrease was due primarily to
improved consulting margins in the North America consulting business and, to a
lesser extent, a slight reduction in the technical support, education and
consulting staff in the first six months of fiscal 1997 as compared to the first
six months of fiscal 1996. The Company decreased its technical support,
education, and consulting staff from 224 at May 31, 1996 to 211 at May 31, 1997.
Sales and marketing expenses decreased 3% from $22,083,000 in the second quarter
of fiscal 1996 to $21,364,000 in the second quarter of fiscal 1997 and decreased
as a percentage of total revenue from 53% to 48%. Sales and marketing expenses
decreased 2% from $44,007,000 in the first six months of fiscal 1996 to
$42,922,000 in the first six months of fiscal 1997 and decreased as a percentage
of total revenue from 49% to 47%. The dollar and percentage decrease in sales
and marketing expenses was primarily due to a reduction of the sales, sales
support and
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marketing staff and, to a lesser extent, a slight reduction in the level of
discretionary marketing spending. The amount of discretionary marketing expenses
can vary from period to period depending on the timing of significant trade
shows, advertising campaigns and direct mail solicitations. The Company's sales,
sales support and marketing staff decreased from 502 at May 31, 1996 to 473 at
May 31, 1997. The Company expects the level of the sales, sales support and
marketing staff for the remainder of fiscal 1997 to be within the range which
has prevailed over the past several quarters.
Product development expenses increased 16% from $5,866,000 in the second quarter
of fiscal 1996 to $6,776,000 in the second quarter of fiscal 1997 and increased
as a percentage of total revenue from 14% to 15%. Product development expenses
increased 11% from $11,891,000 in the first six months of fiscal 1996 to
$13,181,000 in the first six months of fiscal 1997 and increased as a percentage
of total revenue from 13% to 15%. The dollar and percentage increases were due
primarily to higher average personnel costs and other related costs to support
continued new product development efforts. The major product development efforts
in the first six months of fiscal 1997 related to the development of the next
versions of the WebSpeed and PROGRESS product lines. The product development
staff decreased from 220 at May 31, 1996 to 201 at May 31, 1997. The Company
expects the product development staff to increase during the remainder of fiscal
1997 from the level at May 31, 1997, but there can be no assurance that the
Company will be successful in recruiting new employees or retaining current
employees.
The Company capitalized $608,000 of software development costs in the second
quarter of fiscal 1996 and $633,000 in the second quarter of fiscal 1997 in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
The Company capitalized $1,217,000 of software development costs in the first
six months of fiscal 1996 and $1,257,000 in the first six months of fiscal 1997.
The amounts capitalized represented 9% of total product development costs in
each period presented for fiscal 1996 and fiscal 1997. Capitalized software
costs are amortized over the estimated life of the product (four years) and
amounts amortized are included in cost of software licenses for the period.
General and administrative expenses include the costs of the finance, human
resources, legal, information systems and administrative departments of the
Company. General and administrative expenses increased 8% from $5,263,000 in the
second quarter of fiscal 1996 to $5,698,000 in the second quarter of fiscal
1997, but remained approximately the same percentage of total revenue in each
period. General and administrative expenses increased 10% from $10,489,000 in
the first six months of fiscal 1996 to $11,576,000 in the first six months of
fiscal 1997 and increased as a percentage of total revenue from 12% to 13%. The
dollar and percentage increases in general and administrative expenses were
primarily due to higher average personnel costs and other related costs. The
Company's general and administrative staff decreased from 187 at May 31, 1996 to
180 at May 31, 1997.
Other income increased $687,000 from $1,025,000 in the second quarter of fiscal
1996 to $1,712,000 in the second quarter of fiscal 1997 due primarily to a
foreign currency gain of $471,000 in 1997 versus a foreign currency loss of
$4,000 in 1996 and an increase in other income-minority interest. All revenue,
costs and expenses attributable to the Company's joint venture in Japan are
included in the Company's revenue, costs and expenses. To account for the fact
that the Company owns only a 51% interest in the joint venture, other income
(expense) reflects that portion of the joint venture's income or loss which is
attributable to the 49% minority interest in the joint venture. The joint
venture generated a net loss in each period presented and the Company recorded
as "other income - minority interest" an amount equal to 49% of the joint
venture's net loss. The foreign currency gain in the second quarter of fiscal
1997 relates primarily to unrealized market gains on foreign currency option
contracts related to the Company's intercompany hedging programs.
The Company's effective tax rate was 34% for each period presented for fiscal
1996 and 1997 and was based upon the estimated effective tax rate for the full
fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $95,959,000 in cash and short-term investments at May 31, 1997.
The cash and short-term investments decrease of $1,364,000 from $97,323,000 at
November 30, 1996 was primarily due to common stock repurchases and property and
equipment purchases offset by cash generated from operations.
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The Company purchased $5,616,000 of property and equipment in the first six
months of fiscal 1996 and $4,646,000 in the first six months of fiscal 1997. The
purchases consisted primarily of computer equipment and software, furniture and
fixtures, and leasehold improvements. The Company financed these purchases
primarily from cash generated from operations.
In September 1996, the Board of Directors authorized, through September 30,
1997, the purchase of up to 3,000,000 shares of the Company's common stock, at
such times when the Company deems such purchases to be an effective use of cash,
for various purposes including the issuance of shares pursuant to the Company's
stock option plans. The Company purchased 488,200 shares of its common stock for
$8,424,000 in the second quarter of fiscal 1997. For the first six months of
fiscal 1997, the Company has purchased 839,200 shares of its common stock at a
cost of $14,396,000. At May 31, 1997, there remained approximately 2,100,000
shares of common stock authorized for repurchase.
The Company's 401(k) Plan has approximately $900,000 in Guaranteed Investment
Contracts (GICs) issued by Mutual Benefit Life Insurance Company (MBLI). On July
16, 1991, the Insurance Commissioner of the State of New Jersey took possession
and control of MBLI's assets. In April 1994, a rehabilitation plan was approved
by the Superior Court of New Jersey. Pursuant to the rehabilitation plan, the
GICs are supported by a group of life insurance companies and are paid out from
the assets of MBL Life Assurance Corporation, the successor to MBLI. On May 23,
1997, the Company initiated a process to purchase the GICs from the 401(k) Plan
to enable participants to choose other investment vehicles prior to the end of
the rehabilitation plan. The purchase transaction requires the approval of the
Department of Labor and the Internal Revenue Service. Assuming no objection or
other impediment to the transaction, the Company expects the purchase
transaction to be completed before the end of the Company's current fiscal year
and not to have a material effect on the Company's consolidated financial
position or results of operations.
The Company is party to two legal proceedings. While the outcome of these claims
cannot be predicted with certainty, management does not believe that the outcome
of any of these legal matters will have a material adverse effect on the
Company's consolidated financial position or results of operations. See Part II,
Item 1 - Legal Proceedings for further details.
On June 27, 1997, the Company agreed to acquire Apptivity Corporation, a
developer of Java-based application development tools, for a payment of
approximately $3,800,000 in cash, the assumption of approximately $1,000,000 of
liabilities and the issuance of approximately 400,000 shares of its common
stock. The acquisition is expected to close in mid-July. The acquisition will
be accounted for as a purchase and a substantial portion of the purchase price
is expected to be allocated to in-process software development costs. This
non-recurring charge will be reflected in the Company's results for the third
quarter ended August 31, 1997.
The Company believes that existing cash balances together with funds generated
from operations will be sufficient to finance the Company's operations and meet
its foreseeable cash requirements (including planned capital expenditures, lease
commitments, and other long-term obligations) through the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS
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 (APB 15). Under SFAS 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 six-month periods ended May 31, 1997 would
have been $.17 and $.32 per share, respectively as compared with $.01 and $.35
per share for the corresponding periods in fiscal 1996. Diluted net income per
share under SFAS 128 for these periods is not expected to be materially
different from primary earnings per share under APB 15. The Company plans to
adopt SFAS 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 128.
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<PAGE> 12
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves certain
risks and uncertainties, some of which are beyond the Company's control. The
following discussion highlights some of these risks.
The Company may experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including changes in
demand for the Company's products, introduction, enhancement or announcement of
products by the Company and its competitors, market acceptance of new products,
size and timing of significant orders, budgeting cycles of customers, mix of
distribution channels, mix of products and services sold, mix of international
and North American revenues, foreign currency movements relative to the United
States dollar, changes in the level of operating expenses, changes in the
Company's sales incentive plans, customer order deferrals in anticipation of new
products announced by the Company or its competitors and general economic
conditions. Revenue forecasting is uncertain, in large part, because the Company
generally ships its products upon receipt of orders. This uncertainty is
compounded because each quarter's revenue is derived disproportionately from
orders booked and shipped during the third month, and disproportionately in the
latter half of that month. In contrast, most of the Company's expenses are
relatively fixed, including costs of personnel and facilities, and are not
easily reduced. Thus, an unexpected reduction in the Company's revenue, or a
decrease in the rate of growth of such revenue, would have a material adverse
effect on the profitability of the Company.
The Company develops, markets and supports its core product line, the PROGRESS
Application Development Environment, the PROGRESS RDBMS and the PROGRESS
Dataserver Architecture (collectively, "PROGRESS"). In May 1997, the Company
began shipping the latest major enhancement to the PROGRESS product line,
PROGRESS Version 8.2. In October 1996, the Company began shipments of WebSpeed,
an open development and deployment environment that enables organizations to
build transaction processing applications on the Internet and corporate
intranets. In June 1997, the Company introduced WebSpeed Version 2.0, which is
expected to begin commercial shipments in July 1997. The Company's Crescent
Division develops and markets a collection of advanced tools and components to
Visual Basic and Visual J++ development teams. The Crescent Division began
offering these products commercially in January 1995 and has since released
major enhancements to its existing line of products as well as new products.
Although the Company believes that PROGRESS, WebSpeed and the Crescent line of
products have features and functionality which enable the Company to compete
effectively with other vendors of application development products, ongoing
enhancements to PROGRESS, WebSpeed and the Crescent line of products will be
required to enable the Company to maintain its competitive position. There can
be no assurance that the Company will be successful in developing and marketing
enhancements to its products on a timely basis, or that the enhancements will
adequately address the changing needs of the marketplace. Delays in the release
of enhancements may negatively affect results.
The Company has derived most of its revenue from PROGRESS and other products
which complement PROGRESS and are generally licensed only in conjunction with
PROGRESS. Accordingly, the Company's future results depend on continued market
acceptance of PROGRESS and any factor adversely affecting the market for
PROGRESS could have a material adverse effect on the Company's business and its
financial results. Future results may also depend upon the Company's continued
successful distribution of PROGRESS through its Application Partner channel and
may be impacted by downward pressure on pricing, which may not be offset by
increases in volume. Application Partners resell PROGRESS along with their own
applications and any adverse effect on their business related to competition,
pricing and other factors could have a material adverse effect on the Company's
business, financial condition and operating results.
The Company experiences significant competition from a variety of sources with
respect to the marketing and distribution of its products. Some of these
competitors have greater financial, marketing or technical resources than the
Company and may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
promotion and sale of their products than can the Company. Increased competition
could make it more difficult for the Company to maintain its market presence.
12
<PAGE> 13
In addition, current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to deliver products which address the needs of
the Company's prospective customers. Current and potential competitors also may
be more successful than the Company in having their products or technologies
widely accepted. There can be no assurance that the Company will be able to
compete successfully against current and future competitors and its failure to
do so could have a material adverse affect upon the Company's business,
financial condition and operating results.
The Company hopes that WebSpeed, the Crescent Division products and other new
products will contribute positively to the Company's future results. The market
for Internet transaction processing products, such as WebSpeed, is highly
competitive and will depend in large part on the commercial acceptance of the
Internet as a medium for all types of commerce. Because global commerce and
online exchange of information on the Internet and other similar open wide area
networks are new and evolving, it is difficult to predict with any assurance
that the infrastructure or complementary products necessary to make the Internet
a viable medium for all types of commerce will develop. The market for products
such as those in the Crescent Division is extremely competitive and may be
affected by changes in Microsoft's strategy with respect to Visual Basic and
Visual J++ and the add-on product market for such products, and market
acceptance of products competitive with Visual Basic and Visual J++.
Overlaying the risks associated with the Company's existing products and
enhancements are ongoing technological developments and rapid changes in
customer requirements. The Company's future success will depend upon its ability
to develop and introduce in a timely manner new products that take advantage of
technological advances and respond to new customer requirements. The Company is
currently developing new products intended to help organizations meet the future
needs of application developers. The development of new products is increasingly
complex and uncertain, which increases the risk of delays. There can be no
assurance that the Company will be successful in developing new products
incorporating new technology on a timely basis, or that its new products will
adequately address the changing needs of the marketplace. The marketplace for
these new products is intensely competitive and characterized by low barriers to
entry. As a result, new competitors possessing technological, marketing or other
competitive advantages may emerge and rapidly acquire market share.
Approximately 51% of the Company's total revenue in the first six months of
fiscal 1997 was attributable to international sales made through international
subsidiaries. Because a substantial portion of the Company's total revenue is
derived from such international operations which are conducted in foreign
currencies, changes in the value of these foreign currencies relative to the
United States dollar may affect the Company's results of operations and
financial position. The Company engages in certain currency-hedging transactions
intended to reduce the effect of fluctuations in foreign currency exchange rates
on the Company's results of operations. However, there can be no assurance that
such hedging transactions will materially reduce the effect of fluctuation in
foreign currency exchange rates on such results. If for any reason exchange or
price controls or other restrictions on the conversion of foreign currencies
were imposed, the Company's business could be adversely affected. Other
potential risks inherent in the Company's international business generally
include longer payment cycles, greater difficulties in accounts receivable
collection, unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, political instability, reduced protection for intellectual property
rights in some countries, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world, and potentially
adverse tax consequences, any of which could adversely impact the success of the
Company's international operations. There can be no assurance that one or more
of such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, financial
condition and operating results.
The Company's future success will depend in large part upon its ability to
attract and retain highly skilled technical, managerial and marketing personnel.
Competition for such personnel in the software industry is intense. There can be
no assurance that the Company will continue to be successful in attracting and
retaining the personnel it requires to successfully develop new and enhanced
products and to continue to grow and operate profitably.
The Company's success is heavily dependent upon its proprietary software
technology. The Company relies principally on a combination of contract
provisions and copyright, trademark and trade secret laws to protect its
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<PAGE> 14
proprietary technology. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology or independent development by others of similar technology. In
addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claim of infringement or invalidity. Although the Company
believes that its products and technology do not infringe on any existing
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims in the future. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and operating results.
The Company also utilizes certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that functionally similar technology will be available on
commercially reasonable terms in the future.
The market price of the Company's common stock, like that of other technology
companies, is highly volatile and is subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, or other events or factors. The
Company's stock price may also be affected by broader market trends unrelated to
the Company's performance.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in litigation entitled NEWSTAR TECHNOLOGIES INC. V.
PROGRESS SOFTWARE CORPORATION of Canada Ltd. and Progress Software Corporation,
No. 97-CU-121571, pending in the Ontario (Canada) Court of Justice (General
Division), commenced April 4, 1997. Newstar claims that the Company entered into
a contract with it under which Newstar was entitled to purchase the Company's
software and receive product support from the Company under specific terms which
differ substantially from the Company's standard terms and conditions. The
purported contract cited by Newstar was prepared by Newstar and executed by a
lower-level Company salesperson in the name of a Company sales executive
followed by the initials of the salesperson. The Company denies the existence of
a binding contract, on various grounds, including that the salesperson did not
have the authority to sign the sales executive's name and that Newstar knew or
should have known of that fact. Newstar seeks (a) an injunction mandating that
the Company comply with the terms of the purported contract, (b) a declaration
that the purported contract is of full force and effect, (c) an order
restraining the Company from terminating the purported contract, (d) damages of
$200 million, (e) special damages of an unstated amount, (f) punitive damages of
$20 million, (g) costs of the litigation, and (h) such other and further relief
as the court deems just. The evidence offered by the plaintiff to date does not
support its claims. Newstar moved for a preliminary injunction; however, that
motion was stayed by agreement to allow the parties to participate in voluntary
non-binding mediation which took place on July 7, 1997. During this session a
tentative settlement was reached which the parties anticipate will be finalized
in the near future. Pursuant to such settlement, Newstar will become an
Application Partner of the Company under mutually acceptable terms and
conditions reasonably consistent with arrangements entered into with other
Application Partners. If, for any reason, the settlement is not finalized, the
Company will defend the action vigorously.
Naf Naf S.A. commenced an expert proceeding in the Paris Trade Court, Paris,
France, against Progress Software S.A., Timeless S.A. and Digital Equipment
France in May 1996. In June 1997, Naf Naf petitioned the court to add Progress
Software Corporation as a party to the expert proceeding, which petition has
been granted. The basis of the proceeding is alleged late availability of
Progress Software products and alleged product deficiencies after
14
<PAGE> 15
delivery by Timeless to Naf Naf of such products. At this time, no specific
damage claim has been formally filed under French legal proceeding rules with
the court. The Company intends to vigorously defend itself in this proceeding.
While the outcome of this claim cannot be predicted with certainty, management
does not believe that the outcome will have a material adverse effect on the
Company's consolidated financial position or results of operations.
The Company is subject to various legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. While the outcome
of these claims cannot be predicted with certainty, management does not believe
that the outcome of any of these legal matters will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) On April 25, 1997, the Annual Meeting of Shareholders of the Company
was held at the offices of the Company located at 14 Oak Park, Bedford,
Massachusetts.
b) Joseph W. Alsop, Larry R. Harris, Robert J. Lepkowski, Michael L.
Mark, Arthur J. Marks, Amram Rasiel and James W. Storey were elected at the
Annual Meeting to serve as directors of the Company.
c) At the Annual Meeting, the Shareholders also voted (i) to fix the
number of directors at seven, (ii) to amend the Company's Restated Articles of
Organization to authorize an increase in the authorized Common Stock, $.01 par
value per share, of the Company from 20,000,000 shares to 50,000,000 shares, and
(iii) to approve and adopt the 1997 Stock Incentive Plan.
The following votes were tabulated on the aforementioned proposals:
1. Fixing the numbers of directors at seven:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Cast Votes Cast Abstaining
---------- ---------- ----------
<S> <C> <C> <C> <C>
10,905,451 85,292 67,116
<CAPTION>
2. To elect the following seven directors: Joseph W. Alsop, Larry R.
Harris, Robert J. Lepkowski, Michael L. Mark, Arthur J. Marks, Amram
Rasiel and James W. Storey
Nominee For Withhold Authority
------- --- ------------------
<S> <C> <C>
Joseph W. Alsop 10,468,240 589,619
Larry R. Harris 10,471,041 586,818
Robert J. Lepkowski 10,467,241 590,618
Michael L. Mark 10,471,341 588,318
Arthur J. Marks 10,469,541 588,318
Amram Rasiel 10,470,141 587,718
James W. Storey 10,469,541 588,318
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Affirmative Negative Votes Broker
Votes Cast Votes Cast Abstaining Non-Votes
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
3. Amending the Company's Restated 9,091,013 1,888,627 78,219
Articles of Organization to authorize
an increase in the authorized Common
Stock, $.01 par value per share, of the
Company from 20,000,000 shares to
50,000,000 shares
4. Approving and adopting the 4,943,390 1,733,159 82,167 4,299,143
Company's 1997 Stock Incentive
Plan
</TABLE>
d) Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
10.18 - 1997 Stock Incentive Plan
11.1 - Statement regarding computation of per share earnings
27.1 - Financial Data Schedule (EDGAR Version only)
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended May 31, 1997.
16
<PAGE> 17
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.
PROGRESS SOFTWARE CORPORATION
(Registrant)
Dated: July 14, 1997 /s/ Joseph W. Alsop
-------------------------------
Joseph W. Alsop
President and Treasurer
(Principal Executive Officer)
Dated: July 14, 1997 /s/ Norman R. Robertson
-------------------------------
Norman R. Robertson
Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
Dated: July 14, 1997 /s/ David H. Benton, Jr.
-------------------------------
David H. Benton, Jr.
Corporate Controller
(Principal Accounting Officer)
17
<PAGE> 1
EXHIBIT 10.18
PROGRESS SOFTWARE CORPORATION
1997 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS.
The name of the plan is the Progress Software Corporation 1997 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the officers, employees and directors of, and other persons providing services
to, Progress Software Corporation (the "Company") and its Subsidiaries upon
whose judgment, initiative and efforts the Company largely depends for the
successful conduct of its business, to acquire a proprietary interest in the
Company. It is anticipated that providing such persons with a direct stake in
the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards", except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Conditioned Stock Awards, Unrestricted Stock Awards, Performance Share
Awards and Stock Appreciation Rights.
"Board" means the Board of Directors of the Company.
"Cause" means (i) any material breach by the participant of any agreement
to which the participant and the Company are both parties, (ii) any act or
omission to act by the participant which may have a material and adverse effect
on the Company's business or on the participant's ability to perform services
for the Company, including, without limitation, the commission of any crime
(other than ordinary traffic violations), or (iii) any material misconduct or
material neglect of duties by the participant in connection with the business or
affairs of the Company or any affiliate of the Company.
"Change of Control" shall have the meaning set forth in Section 15.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Conditioned Stock Award" means an Award granted pursuant to Section 6.
"Committee" shall have the meaning set forth in Section 2.
"Disability" means disability as set forth in Section 22(e)(3) of the Code.
"Effective Date" means the date on which the Plan is approved by
shareholders as set forth in Section 17.
"Eligible Persons" shall have the meaning set forth in Section 4.
"Fair Market Value" on any given date means the closing price per share of
the Stock on such date as reported by a nationally recognized stock exchange,
or, if the Stock is not listed on such an exchange, as reported by the Nasdaq
Stock Market, or, if the Stock is not quoted on the Nasdaq Stock Market, the
fair market value of the Stock as determined by the Committee.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
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"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Normal Retirement" means retirement from active employment with the
Company and its Subsidiaries in accordance with the retirement policies of the
Company and its Subsidiaries then in effect.
"Outside Director" means any director who (i) is not an employee of the
Company or of any "affiliated group," as such term is defined in Section 1504(a)
of the Code, which includes the Company (an "Affiliate"), (ii) is not a former
employee of the Company or any Affiliate who is receiving compensation for prior
services (other than benefits under a tax-qualified retirement plan) during the
Company's or any Affiliate's taxable year, (iii) has not been an officer of the
Company or any Affiliate and (iv) does not receive remuneration from the Company
or any Affiliate, either directly or indirectly, in any capacity other than as a
director.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means an Award granted pursuant to Section 8.
"Stock" means the Common Stock, $.01 par value per share, of the Company,
subject to adjustments pursuant to Section 3.
"Stock Appreciation Right" means an Award granted pursuant to Section 9.
"Subsidiary" means a subsidiary as set forth in Section 424 of the Code.
"Unrestricted Stock Award" means Awards granted pursuant to Section 7.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS.
(a) Committee. The Plan shall be administered by a committee (the
"Committee") consisting of at least two Outside Directors. None of the members
of the Committee shall have been granted any Award under this Plan (other than
pursuant to Section 7(c)) or any other stock option plan of the Company (other
than the Company's 1993 Directors' Stock Option Plan) within one year prior to
service on the Committee. It is the intention of the Company that the Plan shall
be administered by "disinterested persons" within the meaning of Section 162(m)
of the Code, but the authority and validity of any act taken or not taken by the
Committee shall not be affected if any person administering the Plan is not a
disinterested person. Except as specifically reserved to the Board under the
terms of the Plan, the Committee shall have full and final authority to operate,
manage and administer the Plan on behalf of the Company. Action by the Committee
shall require the affirmative vote of a majority of all members thereof.
(b) Powers of Committee. The Committee shall have the power and authority
to grant Awards consistent with the terms of the Plan, including the power and
authority:
(i) to select the officers and other employees of, and persons
providing services to, the Company and its Subsidiaries to whom Awards may
from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Conditioned Stock,
Unrestricted Stock, Performance Shares and Stock Appreciation Rights, or
any combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of shares to be covered by any Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award,
which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards;
(v) to accelerate the exercisability or vesting of all or any portion
of any Award;
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<PAGE> 3
(vi) subject to the provisions of Section 5(a)(ii), to extend the
period in which any outstanding Stock Option or Stock Appreciation Right
may be exercised;
(vii) to reduce the per-share exercise price of any outstanding Stock
Option or Stock Appreciation Right awarded to any employee of the Company
(but not to less than 100% of Fair Market Value on the date the reduction
is made) provided, however, that if the Committee shall reduce the
per-share exercise price of a Stock Option or Stock Appreciation Right
awarded to any officer or director of the Company, such reduction shall be
effective only if approved by the shareholders of the Company;
(viii) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts equal to interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals; and
(ix) to adopt, alter and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the Plan and
any Award (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to
decide all disputes arising in connection with the Plan; and to otherwise
supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION.
(a) Shares Issuable. The maximum number of shares of Stock with respect to
which Awards (including Stock Appreciation Rights) may be granted under the Plan
shall be 680,000. For purposes of this limitation, the shares of Stock
underlying any Awards which are forfeited, cancelled, reacquired by the Company
or otherwise terminated (other than by exercise) shall be added back to the
shares of Stock with respect to which Awards may be granted under the Plan so
long as the participants to whom such Awards had been previously granted
received no benefits of ownership of the underlying shares of Stock to which the
Awards related. Subject to such overall limitation, any type or types of Award
may be granted with respect to shares, including Incentive Stock Options. Shares
issued under the Plan may be authorized but unissued shares or shares reacquired
by the Company.
(b) Limitation on Awards. In no event may any Plan participant be granted
Awards (including Stock Appreciation Rights) with respect to more than 100,000
shares of Stock in any calendar year. The number of shares of Stock relating to
an Award granted to a Plan participant in a calendar year that is subsequently
forfeited, cancelled or otherwise terminated shall continue to count toward the
foregoing limitation in such calendar year.
(c) Stock Dividends, Mergers, etc. In the event that after approval of the
Plan by the shareholders of the Company in accordance with Section 17, the
Company effects a stock dividend, stock split or similar change in
capitalization affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number and kind of shares of stock or securities with
respect to which Awards may thereafter be granted (including without limitation
the limitations set forth in Sections 3(a) and (b) above), (ii) the number and
kind of shares remaining subject to outstanding Awards, and (iii) the option or
purchase price in respect of such shares. In the event of any merger,
consolidation, dissolution or liquidation of the Company, the Committee in its
sole discretion may, as to any outstanding Awards, make such substitution or
adjustment in the aggregate number of shares reserved for issuance under the
Plan and in the number and purchase price (if any) of shares subject to such
Awards as it may determine and as may be permitted by the terms of such
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<PAGE> 4
transaction, or accelerate, amend or terminate such Awards upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any Award, shall require payment or other consideration which
the Committee deems equitable in the circumstances), subject, however, to the
provisions of Section 15.
(d) Substitute Awards. The Committee may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances. The shares which may be delivered
under such substitute awards shall be in addition to the maximum number of
shares provided for in Section 3(a) only to the extent that the substitute
Awards are both (i) granted to persons whose relationship to the Company does
not make (and is not expected to make) them subject to Section 16(b) of the Act;
and (ii) granted in substitution for awards issued under a plan approved, to the
extent then required under Rule 16b-3 (or any successor rule under the Act), by
the shareholders of the entity which issued such predecessor awards.
SECTION 4. ELIGIBILITY.
Awards may be granted to officers or other key employees of the Company or
its Subsidiaries, and to members of the Board and consultants or other persons
who render services to the Company, regardless of whether they are also
employees ("Eligible Persons"), provided, however, that members of the Committee
at the time of grant, except for the purposes of Section 7(c), shall not
constitute Eligible Persons.
SECTION 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. To the extent that any option does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after December
31, 2006.
(a) Grant of Stock Options. The Committee in its discretion may grant
Incentive Stock Options only to employees of the Company or any Subsidiary. The
Committee in its discretion may grant Non-Qualified Stock Options to Eligible
Persons. Stock Options granted pursuant to this Section 5(a) shall be subject to
the following terms and conditions and the terms and conditions of Section 13
and shall contain such additional terms and conditions, not inconsistent with
the terms of the Plan, as the Committee shall deem desirable.
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Committee at the time of grant but shall be, in the case
of Incentive Stock Options and Non-Qualified Stock Options, not less than
100% of Fair Market Value on the date of grant. If an employee owns or is
deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation and
an Incentive Stock Option is granted to such employee, the option price
shall be not less than 110% of Fair Market Value on the grant date.
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(ii) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation and an Incentive Stock
Option is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(iii) Exercisability; Rights of a Shareholder. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the grant
date. The Committee may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
shareholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole or
in part, by delivering written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the purchase
price may be made by one or more of the following methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(B) In the form of shares of Stock that are not then subject to
restrictions under any Company plan, if permitted by the Committee, in
its discretion. Such surrendered shares shall be valued at Fair Market
Value on the exercise date; or
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable
to the Company to pay the purchase price; provided that in the event the
optionee chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter into such
agreements of indemnity and other agreements as the Committee shall
prescribe as a condition of such payment procedure. Payment instruments
will be received subject to collection.
The delivery of certificates representing shares of Stock to be purchased
pursuant to the exercise of a Stock Option will be contingent upon receipt
from the Optionee (or a purchaser acting in his stead in accordance with
the provisions of the Stock Option) by the Company of the full purchase
price for such shares and the fulfillment of any other requirements
contained in the Stock Option or applicable provisions of laws.
(v) Non-transferability of Options. No Stock Option shall be
transferable other than by will or by the laws of descent and distribution
and all Stock Options shall be exercisable, during the optionee's lifetime,
only by the optionee.
(vi) Annual Limit on Incentive Stock Options. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
Stock with respect to which incentive stock options granted under this Plan
and any other plan of the Company or its Subsidiaries become exercisable
for the first time by an optionee during any calendar year shall not exceed
$100,000.
(vii) Repurchase Right. The Committee may in its discretion provide
upon the grant of any Stock Option hereunder that the Company shall have an
option to repurchase upon such terms and conditions as determined by the
Committee all or any number of shares purchased upon exercise of such Stock
Option. The repurchase price per share payable by the Company shall be such
amount or be determined by such formula as is fixed by the Committee at the
time the Option for the shares subject to repurchase
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is granted. In the event the Committee shall grant Stock Options subject to
the Company's repurchase option, the certificates representing the shares
purchased pursuant to such Options shall carry a legend satisfactory to
counsel for the Company referring to the Company's repurchase option.
(viii) Form of Settlement. Shares of Stock issued upon exercise of a
Stock Option shall be free of all restrictions under the Plan, except as
otherwise provided in this Plan.
(b) Reload Options. At the discretion of the Committee, Options granted
under Section 5(a) may include a so-called "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Committee may provide) to purchase that number of shares of Stock equal to the
number delivered to exercise the original Option.
SECTION 6. CONDITIONED STOCK AWARDS.
(a) Nature of Conditioned Stock Award. The Committee in its discretion may
grant Conditioned Stock Awards to any Eligible Person. A Conditioned Stock Award
is an Award entitling the recipient to acquire, at no cost or for a purchase
price determined by the Committee, shares of Stock subject to such restrictions
and conditions as the Committee may determine at the time of grant ("Conditioned
Stock"). Conditions may be based on continuing employment and/or achievement of
pre-established performance goals and objectives. In addition, a Conditioned
Stock Award may be granted to an employee by the Committee in lieu of a cash
bonus due to such employee pursuant to any other plan of the Company.
(b) Acceptance of Award. A participant who is granted a Conditioned Stock
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within 60 days (or such shorter date as the
Committee may specify) following the award date by making payment to the
Company, if required, by certified or bank check or other instrument or form of
payment acceptable to the Committee in an amount equal to the specified purchase
price, if any, of the shares covered by the Award and by executing and
delivering to the Company a written instrument that sets forth the terms and
conditions of the Conditioned Stock in such form as the Committee shall
determine.
(c) Rights as a Shareholder. Upon complying with Section 6(b) above, a
participant shall have all the rights of a shareholder with respect to the
Conditioned Stock, including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 6 and subject to such other conditions contained in
the written instrument evidencing the Conditioned Award. Unless the Committee
shall otherwise determine, certificates evidencing shares of Conditioned Stock
shall remain in the possession of the Company until such shares are vested as
provided in Section 6(e) below.
(d) Restrictions. Shares of Conditioned Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment by the
Company and its Subsidiaries for any reason (including death, Disability, Normal
Retirement and for Cause), the Company shall have the right, at the discretion
of the Committee, to repurchase shares of Conditioned Stock with respect to
which conditions have not lapsed at their purchase price, or to require
forfeiture of such shares to the Company if acquired at no cost, from the
participant or the participant's legal representative. The Company must exercise
such right of repurchase or forfeiture not later than the ninetieth day
following such termination of employment (unless otherwise specified, in the
written instrument evidencing the Conditioned Award).
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(e) Vesting of Conditioned Stock. The Committee at the time of grant shall
specify the date or dates and/or the attainment of pre-established performance
goals, objectives and other conditions on which the non-transferability of the
Conditioned Stock and the Company's right of repurchase or forfeiture shall
lapse. Subsequent to such date or dates and/or the attainment of such
pre-established performance goals, objectives and other conditions, the shares
on which all restrictions have lapsed shall no longer be Conditioned Stock and
shall be deemed "vested." The Committee at any time may accelerate such date or
dates and otherwise waive or, subject to Section 13, amend any conditions of the
Award.
(f) Waiver, Deferral and Reinvestment of Dividends. The written instrument
evidencing the Conditioned Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock.
SECTION 7. UNRESTRICTED STOCK AWARDS.
(a) Grant or Sale of Unrestricted Stock. The Committee in its discretion
may grant (or sell at a purchase price determined by the Committee which shall
in no event be less than 100% of Fair Market Value) to any Eligible Person
shares of Stock free of any restrictions under the Plan ("Unrestricted Stock").
Shares of Unrestricted Stock may be granted or sold as described in the
preceding sentence in respect of past services or other valid consideration.
(b) Elections to Receive Unrestricted Stock In Lieu of Compensation. Upon
the request of an Eligible Person and with the consent of the Committee, each
Eligible Person may, pursuant to an irrevocable written election delivered to
the Company no later than the date or dates specified by the Committee, receive
a portion of the cash compensation otherwise due to him in Unrestricted Stock
(valued at Fair Market Value on the date or dates the cash compensation would
otherwise be paid). Such Unrestricted Stock may be paid to the Eligible Person
at the same time as the cash compensation would otherwise be paid, or at a later
time, as specified by the Eligible Person in the written election.
(c) Elections to Receive Unrestricted Stock in Lieu of Directors'
Fees. Each Outside Director may, pursuant to an irrevocable written election
delivered to the Company no later than June 30 of any calendar year, receive all
or a portion of the directors' fees otherwise due to him in the subsequent
calendar year in Unrestricted Stock (valued at Fair Market Value on the date or
dates the directors' fees would otherwise be paid). Such Unrestricted Stock may
be paid to the Non-Employee Director at the same time the directors' fees would
otherwise have been paid, or at a later time, as specified by the Non-Employee
Director in the written election.
(d) Restrictions on Transfers. The right to receive unrestricted Stock may
not be sold, assigned, transferred, pledged or otherwise encumbered, other than
by will or the laws of descent and distribution.
SECTION 8. PERFORMANCE SHARE AWARDS.
(a) Nature of Performance Shares. A Performance Share Award is an award
entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Committee may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. Performance Share Awards may be granted under the Plan to any Eligible
Person including those who qualify for awards under other performance plans of
the Company. The Committee in its discretion shall determine whether and to whom
Performance Share Awards shall be made, the performance goals applicable under
each such Award, the periods during which performance is to be measured, and all
other limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Committee may rely on the performance goals and
other standards applicable to other performance-based plans of the Company in
setting the standards for Performance Share Awards under the Plan.
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(b) Restrictions on Transfer. Performance Share Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) Rights as a Shareholder. A participant receiving a Performance Share
Award shall have the rights of a shareholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Committee).
(d) Termination. Except as may otherwise be provided by the Committee at
any time prior to termination of employment, a participant's rights in all
Performance Share Awards shall automatically terminate upon the participant's
termination of employment by the Company and its Subsidiaries for any reason
(including death, Disability, Normal Retirement and for Cause).
(e) Acceleration, Waiver, Etc. At any time prior to the participant's
termination of employment by the Company and its Subsidiaries, the Committee may
in its sole discretion accelerate, waive or, subject to Section 13, amend any or
all of the goals, restrictions or conditions imposed under any Performance Share
Award.
SECTION 9. STOCK APPRECIATION RIGHTS.
(a) The Committee in its discretion may grant Stock Appreciation Rights to
any Eligible Person (i) alone, (ii) simultaneously with the grant of a Stock
Option and in conjunction therewith or in the alternative thereto or (iii)
subsequent to the grant of a Non-Qualified option and in conjunction therewith
or in the alternative thereto.
(b) The exercise price per share of a Stock Appreciation Right granted
alone shall be determined by the Committee, but shall not be less than 100% of
Fair Market Value on the date of grant of such Stock Appreciation Right. A Stock
Appreciation Right granted simultaneously with or subsequent to the grant of a
Stock Option and in conjunction therewith or in the alternative thereto shall
have the same exercise price as the related Stock Option, shall be transferable
only upon the same terms and conditions as the related Stock Option, and shall
be exercisable only to the same extent as the related Stock Option; provided,
however, that a Stock Appreciation Right, by its terms, shall be exercisable
only when the Fair Market Value per share of Stock exceeds the exercise price
per share thereof.
(c) Upon any exercise of a Stock Appreciation Right, the number of shares
of Stock for which any related Stock Option shall be exercisable shall be
reduced by the number of shares for which the Stock Appreciation Right shall
have been exercised. The number of shares of Stock with respect to which a Stock
Appreciation Right shall be exercisable shall be reduced upon any exercise of
any related Stock Option by the number of shares for which such Option shall
have been exercised. Any Stock Appreciation Right shall be exercisable upon such
additional terms and conditions as may from time to time be prescribed by the
Committee.
(d) A Stock Appreciation Right shall entitle the participant upon exercise
thereof to receive from the Company, upon written request to the Company at its
principal offices (the "Request"), a number of shares of Stock (with or without
restrictions as to substantial risk of forfeiture and transferability, as
determined by the Committee in its sole discretion), an amount of cash, or any
combination of Stock and cash, as specified in the Request (but subject to the
approval of the Committee in its sole discretion, at any time up to and
including the time of payment, as to the making of any cash payment), having an
aggregate Fair Market Value equal to the product of (i) the excess of Fair
Market Value, on the date of such Request, over the exercise price per
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share of Stock specified in such Stock Appreciation Right or its related Option,
multiplied by (ii) the number of shares of Stock for which such Stock
Appreciation Right shall be exercised. Notwithstanding the foregoing, the
Committee may specify at the time of grant of any Stock Appreciation Right that
such Stock Appreciation Right may be exercisable solely for cash and not for
Stock.
(e) Within thirty (30) days of the receipt by the Company of a Request to
receive cash in full or partial settlement of a Stock Appreciation Right or to
exercise such Stock Appreciation Right for cash, the Committee shall, in its
sole discretion, either consent to or disapprove, in whole or in part, such
Request. A Request to receive cash in full or partial settlement of a Stock
Appreciation Right or to exercise a Stock Appreciation Right for cash may
provide that, in the event the Committee shall disapprove such Request, such
Request shall be deemed to be an exercise of such Stock Appreciation Right for
Stock.
(f) If the Committee disapproves in whole or in part any election by a
participant to receive cash in full or partial settlement of a Stock
Appreciation Right or to exercise such Stock Appreciation Right for cash, such
disapproval shall not affect such participant's right to exercise such Stock
Appreciation Right at a later date, to the extent that such Stock Appreciation
Right shall be otherwise exercisable, or to elect the form of payment at a later
date, provided that an election to receive cash upon such later exercise shall
be subject to the approval of the Committee. Additionally, such disapproval
shall not affect such participant's right to exercise any related Option.
(g) A participant shall not be entitled to request or receive cash in full
or partial payment of a Stock Appreciation Right, if such Stock Appreciation
Right or any related Option shall have been exercised during the first six (6)
months of its respective term; provided, however, that such prohibition shall
not apply in the event of the death or Disability of the participant prior to
the expiration of such six-month period, or if such participant is not a
director or officer of the Company or a beneficial owner of the Company who is
described in Section 16(a) of the Act.
(h) A Stock Appreciation Right shall be deemed exercised on the last day of
its term, if not otherwise exercised by the holder thereof, provided that the
fair market value of the Stock subject to the Stock Appreciation Right exceeds
the exercise price thereof on such date.
(i) No Stock Appreciation Right shall be transferable other than by will or
by the laws of descent and distribution and all Stock Appreciation Rights shall
be exercisable, during the holder's lifetime, only by the holder.
SECTION 10. TERMINATION OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
(a) Termination by Death. If any participant's employment by or services
to the Company and its Subsidiaries terminates by reason of death, any Stock
Option or Stock Appreciation Right owned by such participant may thereafter be
exercised to the extent exercisable at the date of death, by the legal
representative or legatee of the participant, for a period of two years (or such
longer period as the Committee shall specify at any time) from the date of
death, or until the expiration of the stated term of the Option or Stock
Appreciation Right, if earlier.
(b) Termination by Reason of Disability or Normal Retirement.
(i) Any Stock Option or Stock Appreciation Right held by a participant
whose employment by or services to the Company and its Subsidiaries has
terminated by reason of Disability may thereafter be exercised, to the
extent it was exercisable at the time of such termination, for a period of
one year (or such longer period as the Committee shall specify at any time)
from the date of such termination of employment or services, or until the
expiration of the stated term of the Option or Stock Appreciation Right, if
earlier.
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(ii) Any Stock Option or Stock Appreciation Right held by a
participant whose employment by or services to the Company and its
Subsidiaries has terminated by reason of Normal Retirement may thereafter
be exercised, to the extent it was exercisable at the time of such
termination, for a period of 90 days (or such longer period as the
Committee shall specify at any time) from the date of such termination of
employment or services, or until the expiration of the stated term of the
Option or Stock Appreciation Right, if earlier.
(iii) The Committee shall have sole authority and discretion to
determine whether a participant's employment or services has been
terminated by reason of Disability or Normal Retirement.
(iv) Except as otherwise provided by the Committee at the time of
grant, the death of a participant during a period provided in this Section
10(b) for the exercise of a Stock Option or Stock Appreciation Right, shall
extend such period for two years from the date of death, subject to
termination on the expiration of the stated term of the Option or Stock
Appreciation Right, if earlier.
(c) Termination for Cause. If any participant's employment by or services
to the Company and its Subsidiaries has been terminated for Cause, any Stock
Option or Stock Appreciation Right held by such participant shall immediately
terminate and be of no further force and effect; provided, however, that the
Committee may, in its sole discretion, provide that such Option or Stock
Appreciation Right can be exercised for a period of up to 30 days from the date
of termination of employment or services or until the expiration of the stated
term of the Option or Stock Appreciation Right, if earlier.
(d) Other Termination. Unless otherwise determined by the Committee, if a
participant's employment by or services to the Company and its Subsidiaries
terminates for any reason other than death, Disability, Normal Retirement or for
Cause, any Stock Option or Stock Appreciation Right held by such participant may
thereafter be exercised, to the extent it was exercisable on the date of
termination of employment, for 90 days (or such longer period as the Committee
shall specify at any time) from the date of termination of employment or
services or until the expiration of the stated term of the Option or Stock
Appreciation Right, if earlier.
SECTION 11. TAX WITHHOLDING.
(a) Payment by Participant. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of any Federal, state or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(b) Payment in Shares. Participant may elect to have such tax withholding
obligation satisfied, in whole or in part, by (i) authorizing the Company to
withhold from shares of Stock to be issued pursuant to an Award a number of
shares with an aggregate Fair Market Value (as of the date the withholding is
effected) that would satisfy the withholding amount due with respect to such
Award, or (ii) transferring to the Company shares of Stock owned by the
participant with an aggregate Fair Market Value (as of the date the withholding
is effected) that would satisfy the withholding amount due. With respect to any
participant who is subject to Section 16 of the Act, the following additional
restrictions shall apply:
(A) the election to satisfy tax withholding obligations relating to an
Award in the manner permitted by this Section 11(b) shall be made either
(1) during the period beginning on the third business day following the
date of release of quarterly or annual summary statements of sales and
earnings of the Company and ending on the twelfth business day following
such date, or (2) at least six months prior to
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the date as of which the receipt of such an Award first becomes a taxable
event for Federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or approval of the
Committee; and
(D) the Stock withheld to satisfy tax withholding, if granted at the
discretion of the Committee, must pertain to an Award which has been held
by the participant for at least six months from the date of grant of the
Award.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another;
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Committee otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same exercise or purchase price) for the purpose of satisfying
changes in law or for any other lawful purpose, but no such action shall
adversely affect rights under any outstanding Award without the holder's
consent. However, no such amendment, unless approved by the shareholders of the
Company, shall be effective if it would (i) cause the Plan to fail to satisfy
the incentive stock option requirements of the Code, (ii) cause transactions
under the Plan to fail to satisfy the requirements of Rule 16b-3 or any
successor rule under the Act as in effect on the date of such amendment, (iii)
permit the Board or the Committee to reprice Options or Stock Appreciation
Rights granted to officers and directors of the Company under the Plan without
shareholder approval, or (iv) permit the Board or the Committee to grant
Non-Qualified Stock Options or Stock Appreciation Rights under the Plan at less
than 100% of the Fair Market Value on the date of grant of such Non-Qualified
Stock Options or Stock Appreciation Rights, as the case may be.
SECTION 14. STATUS OF PLAN.
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
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SECTION 15. CHANGE OF CONTROL PROVISIONS.
(a) Upon the occurrence of a Change of Control as defined in this Section
15:
(i) subject to the provisions of clause (iii) below, after the
effective date of such Change of Control, each holder of an outstanding
Stock Option, Conditional Stock Award, Performance Share Award or Stock
Appreciation Right shall be entitled, upon exercise of such Award, to
receive, in lieu of shares of Stock (or consideration based upon the Fair
Market Value of Stock), shares of such stock or other securities, cash or
property (or consideration based upon shares of such stock or other
securities, cash or property) as the holders of shares of Stock received in
connection with the Change of Control;
(ii) the Committee may accelerate the time for exercise of, and waive
all conditions and restrictions on, each unexercised and unexpired Stock
Option, Conditional Stock Award, Performance Share Award and Stock
Appreciation Right, effective upon a date prior or subsequent to the
effective date of such Change of Control, specified by the Committee; or
(iii) each outstanding Stock Option, Conditional Stock Award,
Performance Share Award and Stock Appreciation Right may be cancelled by
the Committee as of the effective date of any such Change of Control
provided that (x) notice of such cancellation shall be given to each holder
of such an Award and (y) each holder of such an Award shall have the right
to exercise such Award to the extent that the same is then exercisable or,
if the Committee shall have accelerated the time for exercise of all such
unexercised and unexpired Awards, in full during the 30-day period
preceding the effective date of such Change of Control.
(b) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Act) becomes a "beneficial owner" (as such term is defined in Rule
13d-3 promulgated under the 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
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company), directly or indirectly, of securities
of the Company representing thirtyfive percent (35%) or more of the
combined voting power of the Company's then outstanding securities; or
(ii) persons who, as of January 1, 1997, constituted the Company's
Board (the "Incumbent Board") cease for any reason, including without
limitation as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that
any person becoming a director of the Company subsequent to January 1, 1997
whose election was approved by, or who was nominated with the approval of,
at least a majority of the directors then comprising the Incumbent Board
shall, for purposes of this Plan, be considered a member of the Incumbent
Board; or
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity,
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 65% 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 hereinabove
defined) acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
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(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.
SECTION 16. GENERAL PROVISIONS.
(a) No Distribution; Compliance with Legal Requirements. The Committee may
require each person acquiring shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange requirements have
been satisfied. The Committee may require the placing of such stop orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) Delivery of Stock Certificates. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to shareholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan or any
Award under the Plan does not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon approval by the holders of a majority
of the shares of capital stock of the Company present or represented and
entitled to vote at a meeting of shareholders.
SECTION 18. GOVERNING LAW.
This Plan shall be governed by, and construed and enforced in accordance
with, the substantive laws of The Commonwealth of Massachusetts without regard
to its principles of conflicts of laws.
A-13
<PAGE> 1
EXHIBIT 11.1
(In thousands, except per share data)
PRIMARY
- -------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
--------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of common and
common equivalent shares outstanding:
Common stock .......................... 12,267 12,921 12,450 12,933
Common equivalent shares resulting from
stock options (treasury stock method).. 735 200 496 512
------- ------- ------- -------
Total ................................... 13,002 13,121 12,946 13,445
======= ======= ======= =======
Net income .............................. $ 2,042 $ 155 $ 4,020 $ 4,574
======= ======= ======= =======
Net income per common share ............. $ 0.16 $ 0.01 $ 0.31 $ 0.34
======= ======= ======= =======
<CAPTION>
FULLY-DILUTED
- -------------
Three Months Ended Six Months Ended
May 31, May 31,
--------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of common and
common equivalent shares outstanding:
Common stock .......................... 12,267 12,921 12,450 12,933
Common equivalent shares resulting from
stock options (treasury stock method) . 735 200 496 512
------- ------- ------- -------
Total ................................... 13,002 13,121 12,946 13,445
======= ======= ======= =======
Net income .............................. $ 2,042 $ 155 $ 4,020 $ 4,574
======= ======= ======= =======
Net income per common share ............. $ 0.16 $ 0.01 $ 0.31 $ 0.34
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINS IN THE COMPANY'S FORM 10-Q
FOR THE PERIOD ENDING MAY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1
<CASH> 25,086
<SECURITIES> 70,873
<RECEIVABLES> 36,138
<ALLOWANCES> 5,275
<INVENTORY> 1,363
<CURRENT-ASSETS> 139,927
<PP&E> 50,877
<DEPRECIATION> 27,850
<TOTAL-ASSETS> 170,812
<CURRENT-LIABILITIES> 62,206
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 105,576
<TOTAL-LIABILITY-AND-EQUITY> 170,812
<SALES> 47,616
<TOTAL-REVENUES> 90,175
<CGS> 4,737
<TOTAL-COSTS> 86,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 6,091
<INCOME-TAX> 2,071
<INCOME-CONTINUING> 4,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,020
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
