<PAGE> 1
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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, 1999
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: (781) 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, 1999, there were 16,918,000 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 QUARTERLY PERIOD ENDED MAY 31, 1999
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
May 31, 1999 and November 30, 1998 3
Condensed Consolidated Statements of Income for
the three and six months ended May 31, 1999 and
May 31, 1998 4
Condensed Consolidated Statements of Cash Flows
for the six months ended May 31, 1999 and
May 31, 1998 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 4. Submission of Matters to a Vote of Security Holders 15
ITEM 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PROGRESS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 31, 1999 November 30, 1998
------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 40,784 $ 50,155
Short-term investments 72,293 63,844
Accounts receivable 43,472 40,779
Other current assets 10,455 9,855
Deferred income taxes 8,511 8,415
-------- --------
Total current assets 175,515 173,048
-------- --------
Property and equipment-net 21,222 22,458
Capitalized software costs-net 3,842 4,742
Other assets 6,541 6,460
-------- --------
Total $207,120 $206,708
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,957 $ 12,461
Accrued compensation and related taxes 15,346 23,041
Income taxes payable 7,300 10,276
Other current liabilities 8,275 8,140
Deferred revenue 55,941 49,942
-------- --------
Total current liabilities 100,819 103,860
-------- --------
Minority interest in subsidiary 61 155
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, authorized, 1,000 shares; issued, none
Common stock, authorized, 75,000 shares in
1999 and 50,000 in 1998; issued, 16,842 shares in
1999 and 17,090 shares in 1998 168 171
Additional paid-in capital 22,781 18,795
Retained earnings 84,570 84,115
Other comprehensive income (1,279) (388)
-------- --------
Total shareholders' equity 106,240 102,693
-------- --------
Total $207,120 $206,708
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
3
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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,
------------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software licenses $ 32,124 $ 27,686 $ 65,253 $ 55,332
Maintenance and services 38,626 29,420 72,642 55,920
-------- -------- --------- --------
Total revenue 70,750 57,106 137,895 111,252
-------- -------- --------- --------
Costs and expenses:
Cost of software licenses 3,140 2,438 6,246 5,273
Cost of maintenance and services 13,198 11,833 25,711 21,471
Sales and marketing 27,131 22,036 52,914 44,588
Product development 9,895 8,133 19,189 15,247
General and administrative 7,001 6,727 13,795 13,866
-------- -------- --------- --------
Total costs and expenses 60,365 51,167 117,855 100,445
-------- -------- --------- --------
Income from operations 10,385 5,939 20,040 10,807
-------- -------- --------- --------
Other income (expense):
Interest income 1,199 996 2,406 1,898
Foreign currency gain (loss) (43) 42 (549) (437)
Minority interest 35 2 94 55
Other income (expense) (46) (5) (25) (54)
-------- -------- --------- --------
Total other income 1,145 1,035 1,926 1,462
-------- -------- --------- --------
Income before provision for income taxes 11,530 6,974 21,966 12,269
Provision for income taxes 3,690 2,301 7,029 4,049
-------- -------- --------- --------
Net income $ 7,840 $ 4,673 $ 14,937 $ 8,220
======== ======== ========= ========
Basic earnings per share $ 0.46 $ 0.27 $ 0.86 $ 0.48
======== ======== ========= ========
Weighted average shares outstanding (basic) 17,218 17,289 17,270 17,288
======== ======== ========= ========
Diluted earnings per share $ 0.40 $ 0.24 $ 0.76 $ 0.43
======== ======== ========= ========
Weighted average shares outstanding (diluted) 19,429 19,491 19,751 18,974
======== ======== ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
4
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PROGRESS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended May 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,937 $ 8,220
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 5,379 5,942
Amortization of capitalized software costs 1,081 892
Amortization of intangible assets 329 653
Deferred income taxes (361) (295)
Minority interest in subsidiary (94) (55)
Noncash compensation 30 --
Changes in operating assets and liabilities:
Accounts receivable (5,157) (1,505)
Other current assets (909) (1,866)
Accounts payable and accrued expenses (4,986) 2,573
Income taxes payable 995 1,044
Deferred revenue 8,539 10,492
-------- --------
Total adjustments 4,846 17,875
-------- --------
Net cash provided by operating activities 19,783 26,095
-------- --------
Cash flows from investing activities:
Purchases of investments available for sale (32,857) (19,901)
Maturities of investments available for sale 24,069 4,861
Sales of investments available for sale -- 100
Purchase of property and equipment (4,588) (4,831)
Capitalized software costs (181) (173)
Acquisition of distributor -- (5,000)
Decrease (increase) in other noncurrent assets (1,606) 128
-------- --------
Net cash used for investing activities (15,163) (24,816)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 8,108 5,244
Repurchase of common stock (22,408) (18,561)
-------- --------
Net cash used for financing activities (14,300) (13,317)
-------- --------
Effect of exchange rate changes on cash 309 (40)
-------- --------
Net decrease in cash and equivalents (9,371) (12,078)
Cash and equivalents, beginning of period 50,155 39,451
-------- --------
Cash and equivalents, end of period $ 40,784 $ 27,373
======== ========
Supplemental disclosure of noncash financing activities:
Income tax benefit from employees' exercise of stock options $ 3,774 $ 1,033
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
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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, 1998.
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
expected for the full fiscal year.
2. 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.
3. Earnings Per Share
Basic earnings per share is calculated using the weighted average number of
common shares outstanding. Diluted earnings per share is computed on the
basis of the weighted average number of common shares outstanding plus the
effect of outstanding stock options using the treasury stock method.
4. Comprehensive Income
Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which requires presentation of the components of comprehensive income,
including unrealized gains and losses on investments and foreign currency
translation adjustments. Comprehensive income was as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended May 31,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 7,840 $4,673
Foreign currency translation adjustments 1,213 (154)
Unrealized holding losses on investments (288) (111)
------- ------
Total comprehensive income $ 8,765 $4,408
======= ======
Six Months Ended May 31,
-----------------------
1999 1998
---- ----
Net income $14,937 $8,220
Foreign currency translation adjustments (552) (191)
Unrealized holding gains (losses) on investments (339) 7
------- ------
Total comprehensive income $14,046 $8,036
======= ======
</TABLE>
6
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5. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133) which establishes standards for derivative instruments and
hedging activities. SFAS 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met and that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS 133 is currently effective
for fiscal years beginning after June 15, 1999. In May 1999, the FASB
issued an exposure draft that would delay the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. If the effective date is
deferred, the Company will adopt SFAS 133 in the first quarter of fiscal
2001. The Company is currently evaluating this statement, but does not
expect the adoption of SFAS 133 to have a material effect on the Company's
consolidated financial position or results of operations.
7
<PAGE> 8
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 that involves 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 greater 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, professional consulting services and technical support, pricing
pressures and the competitive environment in the software industry, the adoption
rate of Java for business application development, consumer use of the Internet,
issues related to the year 2000 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 that it 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
compared with the corresponding period in the previous fiscal year.
<TABLE>
<CAPTION>
Percentage of Total Revenue
------------------------------------- Period-to-Period Change
Three Months Ended Six Months Ended ---------------------------------
------------------ ---------------- Three Months Six Months
May 31, May 31, May 31, May 31, 1999 Compared 1999 Compared
1999 1998 1999 1998 To 1998 To 1998
---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses 45% 48% 47% 50% 16% 18%
Maintenance and services 55 52 53 50 31 30
--- --- --- ---
Total revenue 100 100 100 100 24 24
--- --- --- ---
Costs and expenses:
Cost of software licenses 4 4 4 5 29 18
Cost of maintenance and services 19 21 19 19 12 20
Sales and marketing 38 39 38 40 23 19
Product development 14 14 14 14 22 26
General and administrative 10 12 10 12 4 (1)
--- --- --- ---
Total costs and expenses 85 90 85 90 18 17
--- --- --- ---
Income from operations 15 10 15 10 75 85
--- --- --- ---
Other income, net 1 2 1 1 11 32
--- --- --- ---
Income before provision for income taxes 16 12 16 11 65 79
Provision for income taxes 5 4 5 4 60 74
--- --- --- ---
Net income 11% 8% 11% 7% 68% 82%
=== === === ===
</TABLE>
The Company's total revenue increased 24% from $57.1 million in the second
quarter of fiscal 1998 to $70.8 million in the second quarter of fiscal 1999.
The Company's total revenue increased 24% from $111.3 million in the first six
months of fiscal 1998 to $137.9 million in the first six months of fiscal 1999.
Software license revenue increased 16% from $27.7 million in the second quarter
of fiscal 1998 to $32.1 million in the second quarter of fiscal 1999. Software
license revenue increased 18% from $55.3 million in the first six months of
fiscal 1998 to $65.3 million in the first six months of fiscal 1999.
8
<PAGE> 9
The increase in software license revenue is attributable to greater acceptance
of the Company's products, including Progress(R) Version 8 and Progress(R)
Version 9, the latest versions of the Company's flagship development and
deployment product set, and, to a lesser extent, new Internet-focused products
such as Progress(R) WebSpeed(R) and Progress(R) Apptivity(TM). Progress Version
9 was released in December 1998. The Company also experienced an increase in
sales to Independent Software Vendors (ISVs), value-added resellers who resell
the Company's products in conjunction with the sale of their applications. The
increase in sales to ISVs is primarily due to greater deployment revenue from
database, application server, dataservers and reporting tools products.
Maintenance and services revenue increased 31% from $29.4 million in the second
quarter of fiscal 1998 to $38.6 million in the second quarter of fiscal 1999.
Maintenance and services revenue increased 30% from $55.9 million in the first
six months of fiscal 1998 to $72.6 million in the first six months of fiscal
1999. The increase in maintenance and services revenue was primarily the result
of growth in the Company's installed customer base, renewal of maintenance
contracts and increased consulting revenue. The Company is dedicating more
resources to its service businesses in order to take advantage of the market
opportunities associated with companies buying packaged applications and
engaging service providers to customize such packages.
Total revenue generated in markets outside North America increased 25% from
$33.3 million in the second quarter of fiscal 1998 to $41.5 million in the
second quarter of fiscal 1999. Such revenue represented 59% of total revenue in
the second quarter of fiscal 1999 as compared to 58% of total revenue in the
second quarter of fiscal 1998. Total revenue generated in markets outside North
America would have represented 60% of total revenue in the second quarter of
fiscal 1999 if exchange rates had been constant as compared to the exchange
rates in effect in the second quarter of fiscal 1998. On a constant currency
basis, total revenue would have increased by 27% versus the 24% reported in the
second quarter of fiscal 1999.
Total revenue generated in markets outside North America increased 31% from
$63.6 million in the first six months of fiscal 1998 to $83.1 million in the
first six months of fiscal 1999. Such revenue represented 60% of total revenue
in the first six months of fiscal 1999 as compared to 57% in the first six
months of fiscal 1998. Total revenue generated in markets outside North America
would have represented 61% of total revenue in the first six months of fiscal
1999 if exchange rates had been constant as compared to the exchange rates in
effect in the first six months of fiscal 1998. On a constant currency basis,
total revenue would have increased by 25% versus the 24% reported in the first
six months of fiscal 1999.
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 29% from $2.4 million in the
second quarter of fiscal 1998 to $3.1 million in the second quarter of fiscal
1999 and increased as a percentage of software license revenue from 9% to 10%.
Cost of software licenses increased 18% from $5.3 million in the first six
months of fiscal 1998 to $6.2 million in the first six months of fiscal 1999,
but remained the same percentage of software license revenue in each period. The
dollar increase was due to an increase in documentation costs and higher royalty
expense for products and technologies licensed from third parties.
Cost of maintenance and services consists primarily of costs of providing
customer technical support, education and consulting. Cost of maintenance and
services increased 12% from $11.8 million in the second quarter of fiscal 1998
to $13.2 million in the second quarter of fiscal 1999, but decreased as a
percentage of maintenance and services revenue from 40% to 34%. Cost of
maintenance and services increased 20% from $21.5 million in the first six
months of fiscal 1998 to $25.7 million in the first six months of 1999, but
decreased as a percentage of maintenance and services revenue from 38% to 35%.
The margin improvement for the three and six month periods ended May 31, 1999
was due to improved consulting margins and higher technical support margins. The
dollar increase was due primarily to greater usage of outside contractors to
fulfill demand for consulting services and an increase in the technical support,
consulting and education staff in the first six months of fiscal 1999 as
compared to the first six months of fiscal 1998. The Company increased its
technical support, education, and consulting staff from 285 at the end of the
first six months of fiscal 1998 to 328 at the end of the first six months of
fiscal 1999. The Company expects its headcount for technical support, consulting
and education to continue to increase through the remainder of fiscal 1999
primarily due to the need to satisfy increased demand for consulting and
education services. However, there can be no assurance that the Company will be
successful in recruiting and retaining such personnel.
9
<PAGE> 10
Sales and marketing expenses increased 23% from $22.0 million in the second
quarter of fiscal 1998 to $27.1 million in the second quarter of fiscal 1999,
but decreased as a percentage of total revenue from 39% to 38%. Sales and
marketing expenses increased 19% from $44.6 million in the first six months of
fiscal 1998 to $52.9 million in the first six months of fiscal 1999, but
decreased as a percentage of total revenue from 40% to 38%. The percentage
decrease was due to increased productivity from the Company's sales and
marketing efforts. If the Company is able to achieve its planned revenue, sales
and marketing expenses are expected to continue to increase at a slower rate of
growth than revenue during the remainder of fiscal 1999. The dollar increase in
sales and marketing expenses was due to an increase in headcount in the sales,
sales support and marketing staff and an increase in the level of discretionary
marketing spending, including the Company's worldwide users conference in May.
The amount of discretionary marketing expenses can vary from period to period
depending on the timing of significant trade shows, advertising campaigns,
direct mail solicitations and other events. The headcount increase was primarily
to support international growth and new product lines. The Company increased its
sales, sales support and marketing staff from 456 at the end of the first six
months of fiscal 1998 to 529 at the end of the first six months of fiscal 1999.
Product development expenses increased 22% from $8.1 million in the second
quarter of fiscal 1998 to $9.9 million in the second quarter of fiscal 1999 and
remained the same percentage of total revenue in each period. Product
development expenses increased 26% from $15.2 million in the first six months of
fiscal 1998 to $19.2 million in the first six months of fiscal 1999 and remained
the same percentage of total revenue in each period. The dollar increase was
primarily due to an increase in headcount to support continued new product
development efforts. The major product development efforts in the first six
months of fiscal 1999 primarily related to the development of the next versions
of the Company's various product lines. Capitalized software costs weren't
significant in the second quarter or first six months of each fiscal year due to
the stages of the Company's various development projects. The product
development staff increased from 210 at the end of the first six months of
fiscal 1998 to 243 at the end of the first six months of fiscal 1999.
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 4% from $6.7 million in
the second quarter of fiscal 1998 to $7.0 million in the second quarter of
fiscal 1999, but decreased as a percentage of total revenue from 12% to 10%.
General and administrative expenses decreased 1% from $13.9 million in the first
six months of fiscal 1998 to $13.8 million in the first six months of fiscal
1999 and decreased as a percentage of total revenue from 12% to 10%. The dollar
increase in the second quarter of fiscal 1999 was due to increased headcount.
The dollar decrease in the first six months of fiscal 1999 was primarily due to
lower goodwill amortization charges in fiscal 1999 and start-up expenses
associated with the Company's subsidiary in Brazil in the first quarter of
fiscal 1998, partially offset by increased headcount. The Company increased its
administrative staff from 185 at the end of the first six months of fiscal 1998
to 205 at the end of the first six months of fiscal 1999.
Other income increased 11% from $1.0 million in the second quarter of fiscal
1998 to $1.1 million in the second quarter of fiscal 1999. Other income
increased 32% from $1.5 million in the first six months of fiscal 1998 to $1.9
million in the first six months of fiscal 1999. The increase in each period was
primarily due to an increase in interest income from higher average cash
balances. Other income also includes foreign currency gains and losses and the
minority interest in the Company's joint venture in Japan. Foreign currency
gains and losses in each period primarily relate to the translation and
settlement of short-term intercompany receivables.
The Company's effective tax rate was 33% in each period of fiscal 1998 and 32%
in each period of fiscal 1999 and was based upon the estimated effective tax
rate for the full fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At the end of the second quarter of fiscal 1999, the Company's cash and
short-term investments totaled $113.1 million. The balance remained
approximately the same as at year-end as cash generated from operations and
proceeds from stock issuances in the first six months of fiscal 1999 were offset
by common stock repurchases and capital expenditures.
The Company generated $19.8 million in cash from operations in the first six
months of fiscal 1999 as compared to $26.1 million in the first six months of
fiscal 1998. The decrease was primarily due to the timing of payments as
10
<PAGE> 11
accounts payable and other accrued liabilities decreased by $5.0 million in the
first six months of fiscal 1999 as compared to an increase of $2.6 million in
the first six months of fiscal 1998.
The Company purchased 926,000 shares of its common stock for $22.4 million in
the first six months of fiscal 1999 as compared to approximately 1,141,000
shares for $18.6 million in the first six months of fiscal 1998. In September
1998, the Board of Directors authorized, through September 30, 1999, the
purchase of up to 5,000,000 shares of the Company's common stock, at such times
as 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. At May 31, 1999, there remained approximately 3,800,000 shares of common
stock available for repurchase under this authorization.
The Company purchased $4.6 million of property and equipment in the first six
months of fiscal 1999 and $4.8 million in the first six months of fiscal 1998.
The purchases consisted primarily of computer equipment and software, furniture
and fixtures, and leasehold improvements. The property and equipment purchases
were for supporting the continued growth in the business, replacement of older
equipment and renovations to various locations.
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 and
lease commitments) through the next twelve months.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133)
which establishes standards for derivative instruments and hedging activities.
SFAS 133 requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met and that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133 is
currently effective for fiscal years beginning after June 15, 1999. In May 1999,
the FASB issued an exposure draft that would delay the effective date of SFAS
133 to fiscal years beginning after June 15, 2000. If the effective date is
deferred, the Company will adopt SFAS 133 in the first quarter of fiscal 2001.
The Company is currently evaluating this statement, but does not expect the
adoption of SFAS 133 to have a material effect on the Company's consolidated
financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments and foreign currency fluctuations.
The Company has established policies and procedures to manage its exposure to
fluctuations in interest rates and foreign currency exchange.
The Company's exposure to market rate risk for changes in interest rates relates
to the Company's investment portfolio. The Company has not used derivative
financial instruments in its investment portfolio. The Company places its
investments with high quality issuers and has policies limiting, among other
things, the amount of credit exposure to any one issuer. The Company limits
default risk by purchasing only investment-grade securities. The Company's
investments are all fixed rate instruments. In addition, the Company has
classified all its debt securities as available for sale. This classification
reduces the income statement exposure to interest rate risk.
The Company has entered into foreign exchange option contracts to hedge certain
transactions of selected foreign currencies (mainly in Europe and Asia Pacific)
against fluctuations in exchange rates. The Company has not entered into foreign
exchange option contracts for speculative or trading purposes. The Company's
accounting policies for these contracts are based on the Company's designation
of the contracts as hedging transactions. The criteria the Company uses for
designating a contract as a hedge include the contract's effectiveness in risk
reduction and matching of derivative instruments to the underlying transactions.
Market value increases and decreases on the foreign exchange option contracts
are recognized in income in the same period as gains and losses on the
underlying transactions. The Company operates in certain countries where there
are limited forward currency exchange markets
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<PAGE> 12
and thus the Company has unhedged transaction exposures in these currencies. The
Company generally does not hedge the net assets of its international
subsidiaries.
YEAR 2000
The Year 2000 presents potential concerns and issues for the Company as well as
other companies in the information technology industry. In general, Year 2000
readiness issues typically arise in computer software and hardware systems that
use two digit date formats, instead of four digits, to represent a particular
year. Users must test their unique combination of hardware, system software
(operating systems, transaction processors and database systems) and application
software in order for Year 2000 readiness to be achieved.
The Company has established a global project team to coordinate the Company's
Year 2000 readiness efforts and address the impact of the Year 2000 date
transition on its operations. The project team meets regularly and reports to an
executive steering committee composed of the Chief Financial Officer, the
General Counsel and the General Manager for Core Products and Services.
With the exception of the products discussed below, the Company believes that
the most current versions of its products are Year 2000 ready. For example, the
Company's Progress product set fully supports four-digit years. The Progress
product set internally stores dates as integers representing the number of days
from a base date. For customers who require the entry and display of two digit
years, the Progress product set provides the ability to specify a range of years
for comparison and calculation. Therefore, the Company does not believe that the
most current versions of its products, except those discussed below, will be
adversely affected by date changes in the Year 2000.
The Company does not intend to test products that will be retired as of January
1, 2000. The Company is encouraging customers who are using such products to
either upgrade to a more current version or conduct their own testing to
determine if the continued use of such products allows them to meet their own
Year 2000 readiness objectives. There can be no assurance that the Company's
products contain and will contain all features and functionality considered
necessary by customers, including ISVs, end users and distributors, to be Year
2000 ready. In addition, there can be no assurances that the Company's products
do not contain undetected errors or defects associated with Year 2000 date
functions that may result in material costs to the Company.
While the Company believes that the most current versions of its products are
Year 2000 ready, other factors may result in an application created using the
Company's products not being Year 2000 ready. Some of these factors include
improper programming techniques used in creating the application or
non-compliance of the underlying hardware or operating system on which the
software runs. The Company does not believe that it would be liable in such
events. However, due to the unprecedented nature of potential litigation related
to Year 2000 readiness as discussed in the industry and popular press, the most
likely worst case scenario is that the Company would be subject to litigation.
It is uncertain whether or to what extent the Company may be affected by such
litigation.
The Company has tested the current versions of its three Crescent products and
determined that two products were not Year 2000 ready. Free patches that fix the
Year 2000 issues for these products are available on the Company's website. The
Company does not intend to test earlier versions of those Crescent products or
retired Crescent products. The Company cautions users of such products to
conduct their own testing to determine if the continued use of such products
allows them to meet their own Year 2000 readiness objectives.
The Company is not aware of any material operational issues or costs associated
with preparing its internal systems, both information technology (IT) and non-IT
systems, for the Year 2000. These systems are based primarily on the Company's
own software products with respect to applications and also include third-party
software and hardware technology. The Company's Year 2000 readiness plans
encompasse four phases. The first phase is an inventory and assessment of the
Company's internal systems. The second phase is testing such systems for Year
2000 readiness. The third phase is remediation, representing the repair or
replacement of any hardware or software, and the fourth phase is contingency
planning and preparation.
The Company has substantially completed the first two phases and, although
testing is ongoing, the Company believes that all mission-critical internal
systems are Year 2000 ready. However, there can be no assurance that the
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<PAGE> 13
Company will not experience unanticipated negative consequences or material
costs caused by undetected errors or defects in the technology used in its
internal systems. The Company is in the process of assessing the Year 2000
readiness of material third parties, such as public utilities and key suppliers,
who provide external services to the Company. It is not currently anticipated
that any potential third party issues will have a material adverse effect on the
Company's business, financial condition and operating results. The Company
expects to substantially complete its Year 2000 readiness efforts of material
internal systems by the end of August 1999, and to continue extensive testing of
secondary systems and evaluating material third parties throughout 1999.
The Company has begun to develop contingency plans and will continue to evaluate
the scope of such plans based on the outcome of its assessment of the Year 2000
readiness of material third parties.
All costs related to Year 2000 issues are being expensed as incurred. To date,
costs for addressing Year 2000 readiness issues have not been material. Most of
these expenses have been, and are expected to continue to be, time spent by
employees. Such costs are integrated into the operating budgets of each product
unit or function and are not separately maintained.
Resolving Year 2000 readiness issues impacts almost every customer of the
Company and may potentially absorb significant portions of their budgets and
time in the near term. As the Year 2000 approaches, customers may delay software
purchases as they devote more time to preparing and testing their existing
systems and applications for Year 2000 readiness. It is uncertain whether or to
what extent the Company's revenue may be impacted by such actions.
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. In addition, risks and
uncertainties related to Year 2000 issues are described above under the heading
"Year 2000."
The Company may experience significant fluctuations in future quarterly
operating results that may be caused by many factors. Some of these factors
include 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, fluctuations in currency
exchange rates, 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 shortly after receipt of orders. 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 application development, deployment
and management software. Its core product line, Progress, is composed primarily
of Progress(R) ProVision(TM), Progress(R) RDBMS(TM), Progress WebSpeed,
Progress(R) Open AppServer(TM) and Progress(R) DataServers(TM). In December
1998, the Company began shipping the latest major enhancement to the Progress
product line, Progress Version 9.0. The Progress Apptivity product line consists
of Apptivity Developer and Apptivity Server. The Company began commercial
shipments of Progress Apptivity Version 3.0 in October 1998. The ISQ product
line is a set of software products that measure, monitor and manage the
availability, performance and recoverability of enterprise networks and ensure
overall system and application quality. Progress(R) IPQoS(TM) Version 2.0, the
latest ISQ product, began shipping in March 1999.
The Company believes that the Progress product set, Progress Apptivity, and the
ISQ product set have features and functionality that enable the Company to
compete effectively with other vendors of application development products.
Ongoing enhancements to these product lines 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 could
have a material adverse effect on the Company's
13
<PAGE> 14
business, financial condition, and operating results.
The Company has derived most of its revenue from its core product line,
Progress, and other products that 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 also depend upon
the Company's continued successful distribution of its products through its ISV
channel and may be impacted by downward pressure on pricing, which may not be
offset by increases in volume. ISVs resell the Company's products 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.
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 that 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 effect upon the Company's business,
prospects, financial condition and operating results.
The Company hopes that Progress Apptivity, the ISQ product set and other new
products will contribute positively to the Company's future results. The market
for Internet transaction processing products is highly competitive. Global
commerce and online exchange of information on the Internet and other similar
open wide area networks continue to evolve. There can be no assurance that the
Company's products will be successful in penetrating these new and evolving
markets. The market for Java-based business application development and
deployment tools, such as Progress Apptivity, is in the early stages of
commercial adoption. There can be no assurance that Java will emerge as a viable
programming language for large-scale business application deployment
environments.
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 57% of the Company's total revenue in the first six months of
fiscal 1999, as compared to 53% in the first six months of fiscal 1998, was
attributable to international sales made through its 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
14
<PAGE> 15
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 one of these factors 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, patent and trade secret laws to protect its
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 claims of infringement. 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 continue to 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on April 23, 1999, the
shareholders voted on the items described below:
o To fix the numbers of directors at seven:
Affirmative Negative Votes
Votes Cast Votes Cast Abstaining
---------- ---------- ----------
13,719,865 111,279 13,956
o To elect the following seven directors: Joseph W. Alsop, Larry R. Harris,
Roger J. Heinen, Jr., Michael L. Mark, Arthur J. Marks, Scott A. McGregor and
Amram Rasiel:
15
<PAGE> 16
Nominee For Withhold Authority
------- --- ------------------
Joseph W. Alsop 13,226,009 619,091
Arthur J. Marks 13,226,009 619,091
Larry R. Harris 13,225,709 619,391
Scott A. McGregor 13,225,709 619,391
Roger J. Heinen, Jr. 13,225,609 619,491
Amram Rasiel 13,225,901 619,199
Michael L. Mark 13,226,009 619,091
o To act upon a proposal to amend the Company's Restated Articles of
Organization to increase the authorized Common Stock, $.01 par value per
share, of the Company from 50,000,000 shares to 75,000,000 shares.
Affirmative Negative Votes
Votes Cast Votes Cast Abstaining
---------- ---------- ----------
11,725,870 2,095,408 23,822
o To act upon a proposal to amend the Company's 1997 Stock Incentive Plan to
increase the maximum number of shares that may be issued under such plan
from 1,020,000 shares to 2,520,000 shares:
Affirmative Negative Votes Broker
Votes Cast Votes Cast Abstaining Non-votes
---------- ---------- ---------- ---------
5,346,759 5,293,366 21,344 3,183,631
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.9 - 1997 Stock Incentive Plan, as amended
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, 1999.
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 13, 1999 /s/ Joseph W. Alsop
----------------------------------
Joseph W. Alsop
President
(Principal Executive Officer)
Dated: July 13, 1999 /s/ Norman R. Robertson
----------------------------------
Norman R. Robertson
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
Dated: July 13, 1999 /s/ David H. Benton, Jr.
----------------------------------
David H. Benton, Jr.
Vice President and Corporate Controller
(Principal Accounting Officer)
17
<PAGE> 1
EXHIBIT 10.9
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 NASDAQ, or,
if the Stock is not quoted on NASDAQ, the fair market value of the Stock as
determined by the Committee.
<PAGE> 2
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"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;
<PAGE> 3
(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;
(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 other than directors and officers 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
<PAGE> 4
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 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.
<PAGE> 5
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.
(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
<PAGE> 6
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) Transferability of Options. No Stock Option shall be transferable
by the optionee otherwise 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 or his or her legal
representative; provided, however, that the Committee may, in the manner
established by the Committee, permit transfer, without payment of
consideration, of a Non-Qualified Stock Option by an optionee to a member
of the optionee's immediate family or to a trust or partnership whose
beneficiaries are members of the optionee's immediate family; and such
transferee shall remain subject to all the terms and conditions applicable
to the option prior to the transfer. For purposes of this provision, an
optionee's "immediate family" shall mean the holder's spouse, children and
grandchildren.
(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 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.
<PAGE> 7
(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).
(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
preestablished 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.
<PAGE> 8
(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.
(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
<PAGE> 9
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 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
<PAGE> 10
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.
(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) Voluntary Termination. If any participant's employment by or services
to the Company and its Subsidiaries is voluntarily terminated, 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 90 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.
(e) 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,
voluntary termination 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.
<PAGE> 11
(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 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
<PAGE> 12
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.
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 thirty-five 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
(iv) the shareholders 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.
<PAGE> 13
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 stockholder 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED
IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING MAY 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 40,784
<SECURITIES> 72,293
<RECEIVABLES> 50,595
<ALLOWANCES> 7,123
<INVENTORY> 0
<CURRENT-ASSETS> 175,515
<PP&E> 65,747
<DEPRECIATION> 44,524
<TOTAL-ASSETS> 207,120
<CURRENT-LIABILITIES> 100,819
<BONDS> 0
0
0
<COMMON> 168
<OTHER-SE> 106,072
<TOTAL-LIABILITY-AND-EQUITY> 207,120
<SALES> 65,253
<TOTAL-REVENUES> 137,895
<CGS> 6,246
<TOTAL-COSTS> 117,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,966
<INCOME-TAX> 7,029
<INCOME-CONTINUING> 14,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,937
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.76
</TABLE>
