<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19872
WALKER INTERACTIVE SYSTEMS, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2862954
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
303 SECOND STREET, SAN FRANCISCO, CA 94107
-------------------------------------------
(Address of principal executive offices including zip code)
(415) 495-8811
--------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
There were 14,013,285 Shares of $.001 Par Value Common Stock outstanding as of
August 3, 1998.
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WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<C> <S> <C>
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997....................................... 3
Consolidated Statements of Operations for
the three and six months ended June 30, 1998 and 1997...... 4
Consolidated Statements of Cash Flows for
the six months ended June 30, 1998 and 1997................ 5
Notes to Consolidated Financial Statements.................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 7
PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 15
ITEM 5. OTHER INFORMATION............................................. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 15
SIGNATURES............................................................. 17
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WALKER INTERACTIVE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
JUNE DECEMBER
ASSETS 30, 1998 31, 1997
--------- --------
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents $11,304 $ 7,646
Short-term investments 5,437 13,693
Accounts receivable, net 26,797 23,107
Prepaid expenses 2,364 2,001
--------- --------
Total current assets 45,902 46,447
Long-term investments 4,494 6,351
Property and equipment, net 4,327 4,599
Capitalized software, net 17,427 15,777
Deferred tax assets, net 12,288 13,632
Other assets 4,082 4,528
--------- --------
TOTAL ASSETS $88,520 $91,334
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $15,607 $19,292
Deferred revenue 13,855 15,557
--------- --------
Total current liabilities 29,462 34,849
Deferred revenue 1,714 1,190
Accrued rent 918 887
Other long-term obligations 2,532 2,719
--------- --------
Total liabilities 34,626 39,645
--------- --------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.001 par value: 50,000,000
shares authorized; issued 14,072,909
shares - June 30, 1998; 13,973,457 shares
- December 31, 1997 14 14
Additional paid-in capital 74,208 73,622
Currency translation adjustments 219 238
Unrealized gain on investments 11 2
Accumulated deficit (19,798) (22,187)
Treasury stock at cost (50,330 shares -
June 30, 1998) (760) -
--------- --------
Total stockholders' equity 53,894 51,689
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $88,520 $91,334
========= ========
</TABLE>
See notes to consolidated financial statements
3
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WALKER INTERACTIVE SYSTEMS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
License $ 5,560 $ 3,451 $11,967 $ 7,191
Maintenance 7,602 6,795 15,327 13,716
Consulting 12,278 6,015 21,808 12,427
-------- -------- ------- --------
Total revenues 25,440 16,261 49,102 33,334
OPERATING EXPENSES:
Costs of revenues:
Costs of licenses, maintenance and
consulting 10,522 6,500 20,258 13,176
Amortization of capitalized software 1,037 1,253 2,070 2,341
Sales and marketing 5,698 3,931 11,337 7,787
Product development 3,191 2,451 6,392 4,984
General and administrative 3,173 2,062 5,896 4,448
-------- ------- -------- -------
Total operating expenses 23,621 16,197 45,953 32,736
Operating income 1,819 64 3,149 598
Interest income, net 276 490 584 994
-------- ------- -------- -------
Income before income taxes 2,095 554 3,733 1,592
Income tax expense 755 195 1,344 557
-------- ------- -------- -------
NET INCOME $ 1,340 $ 359 $ 2,389 $ 1,035
======== ======= ======== =======
BASIC NET INCOME PER SHARE $ 0.10 $ 0.03 $ 0.17 $ 0.08
======== ======= ======== =======
Shares used in computing basic net
income per share 13,978 13,207 13,976 13,193
======== ======= ======== =======
DILUTED NET INCOME PER SHARE $ 0.09 $ 0.03 $ 0.16 $ 0.07
======== ======= ======== =======
Shares used in computing diluted
net income per share 15,196 14,220 15,140 14,182
======== ======= ======== =======
</TABLE>
See notes to consolidated financial statements
4
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WALKER INTERACTIVE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,389 $ 1,035
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,267 3,730
Tax benefit of nonqualified stock options 203 199
Changes in operating assets and liabilities:
Accounts receivable, net (3,690) (2,440)
Prepaid expenses (363) (758)
Accounts payable and accrued liabilities (2,376) (1,221)
Deferred tax assets 1,344 587
Deferred revenue (1,178) (605)
Other 467 81
--------- ---------
Net cash provided by operating activities 63 608
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan issuances and
stock options exercised 1,201 1,067
Treasury stock acquired (1,578) (328)
Repayment of borrowings (1,422) -
Other (43) (12)
--------- ---------
Net cash provided (used) by financing activities (1,842) 727
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short- and long-term investments (3,256) (17,729)
Maturities of short-term investments 8,150 8,750
Sales of short-term investments 5,221 9,006
Purchases of property (966) (1,212)
Additions to capitalized software (3,719) (3,863)
Other 7 106
--------- ---------
Net cash provided (used) by investing activities 5,437 (4,942)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,658 (3,607)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 7,646 13,475
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $11,304 $ 9,868
========= =========
</TABLE>
See notes to consolidated financial statements
5
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WALKER INTERACTIVE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and include all adjustments (consisting only
of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position, operating results and cash
flows for those periods. Results for the interim periods are not
necessarily indicative of the results for the entire year. These
consolidated financial statements and any notes thereto, should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1997 included in the Walker Interactive Systems, Inc.
Annual Report on Form 10-K.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform with
the current presentation format.
2. ACQUISITION OF REVERE, INC
--------------------------
On December 2, 1997, the Company acquired all the outstanding share capital
of Revere, Inc. ("Revere") in exchange for $7.7 million of the Company's
common stock (634,022 shares) and $0.6 million for various transaction
related costs and fees. An additional earnout of up to $2.0 million is
payable based upon the achievement of certain 1998 performance targets.
Associated with the transaction's closing total purchase price of $8.3
million, the Company allocated $4.1 million to goodwill, $4.6 million was
allocated to in-process research and development and the remaining amounts
allocated primarily to working capital. The amount of the purchase price
allocated to in-process research and development was charged to the
Company's operations, because technological feasibility had not been
established and no alternative future uses existed at the acquisition date.
The acquisition was accounted for as a purchase transaction. The goodwill
will be ratably charged to operations over six years. The results of
operations of Revere are included in the 1998 consolidated statements of
operations.
3. EARNINGS PER SHARE
------------------
The Company calculates basic earnings per share ("EPS") and diluted EPS in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share". Basic EPS is computed by dividing net income
(loss) by the weighted average number of common shares outstanding for that
period. Diluted EPS takes into account the effect of dilutive instruments,
such as stock options, and uses the average share price for the period in
determining the number of incremental shares that are to be added to the
weighted average number of shares outstanding.
The following is a summary of the calculation of the number of shares used
in calculating basic and diluted EPS (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares used to compute basic EPS 13,978 13,207 13,976 13,193
Add:
------ ------ ------ ------
Effect of dilutive securities 1,218 1,013 1,164 989
------ ------ ------ ------
Shares used to compute diluted EPS 15,196 14,220 15,140 14,182
====== ====== ====== ======
</TABLE>
6
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WALKER INTERACTIVE SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The report on this Form 10-Q contains forward-looking statements, including
statements related to industry trends and demand for mainframe products, cash
commitments, working capital requirements and possible expansion in
international markets. Discussions containing such forward-looking statements
may be found in the material set forth in this section, generally and
specifically herein under the captions "Liquidity and Capital Resources", "Year
2000 Compliance" and "Additional Risk Factors." Actual events or results may
differ materially from those discussed herein. The Company disclaims any
obligation to update these forward-looking statements as a result of subsequent
events. The risk factors on pages 10 through 14, among others, should be
considered in evaluating the Company's prospects and future financial
performance.
Walker Interactive Systems, Inc. (hereinafter "Walker" or the "Company") was
incorporated in California in 1973 and reincorporated in Delaware in March 1992.
Walker designs, develops, markets and supports, on a worldwide basis, a family
of enterprise client/server financial application software products that enable
large and medium-sized organizations, higher education institutions, and
federal, state, and government agencies to accelerate time-to-benefit, lower
cost of ownership and reduce information systems risks stemming from changes in
information technology and/or business processes or structure.
Walker designs its software products specifically for the client/server and
network computing models and believes that its architecture is among the most
scalable and adaptable available for enterprise-level financial applications
software. The Company's strategy is to offer comprehensive enterprise financial
solutions to a variety of industries utilizing its best-of-breed software
products. Walker's internet/intranet-enabled applications support and enhance
enterprise-wide financial processes, including planning, budgeting, forecasting,
consolidation and performance management. The Company's software products
utilize the Microsoft Windows operating systems on the desktop, and industry-
leading relational database management systems including IBM's DB2, Oracle and
Microsoft SQL/Server.
The Tamaris product line represents the Company's core suite of business and
financial solutions utilizing the power of the enterprise server, while the
Aptos suite of financial applications provides a client/server architecture that
runs on UNIX and Windows NT servers. The Company also develops and markets
Horizon best-of-breed analytic applications which provide financial reporting,
budgeting and financial consolidation solutions for large and mid-sized
organizations. The Horizon analytic applications can be used with the Tamaris
and Aptos products or in conjunction with leading Enterprise Resource Planning
("ERP") applications. In addition, Walker's IMMPOWER product line provides
best-of-breed Enterprise Asset Management solutions for capital intensive
industries.
The Company's software products include productivity tools that allow the
Company's applications to be extensively customized to fit the customer's
particular requirements. The Company complements its software products by
providing specialized consulting services to assist customers with
customization, implementation, migration, Year 2000 consulting and best practice
solutions.
The Company derives its revenues primarily from software licenses, software
maintenance and professional consulting services. The Company's Tamaris,
Horizon and IMMPOWER product lines are licensed to large and mid-size business
and governmental organizations worldwide. The Company's Aptos products are
marketed primarily in the United Kingdom and are licensed to mid-sized
organizations. The Company's products and services are marketed primarily
through its sales forces located in the United States, United Kingdom and Asia
Pacific. The Company licenses software products directly to customers and
occasionally to distributors for resale.
ACQUISITION OF REVERE, INC.
- ---------------------------
On December 2, 1997, the Company acquired all the outstanding share capital of
Revere, Inc. ("Revere") in exchange for $7.7 million of the Company's common
stock (634,022 shares) and $0.6 million for various transaction related costs
and fees. An additional earnout of up to $2.0 million is payable based upon the
achievement of certain 1998 performance targets. Associated with the
transaction's closing total purchase price of
7
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$8.3 million, the Company allocated $4.1 million to goodwill, $4.6 million was
allocated to in-process research and development and the remaining amounts
allocated primarily to working capital. The amount of the purchase price
allocated to in-process research and development was charged to the Company's
operations, because technological feasibility had not been established and no
alternative future uses existed at the acquisition date. The acquisition was
accounted for as a purchase transaction. The goodwill will be ratably charged to
operations over six years. The results of operations of Revere are included in
the consolidated statement of operations for the three and six month periods
ended June 30, 1998. Therefore, period to period comparisons may not
meaningfully depict trends or changes in operating results.
RESULTS OF OPERATIONS
- ---------------------
The following results of operations for three and six months ended June 30, 1998
include the operations of Revere, unless otherwise specified.
REVENUES. The Company recorded total revenues of $25.4 million and $49.1
million during the three and six months ended June 30, 1998, respectively. The
increase in total revenues of $9.2 million and $15.8 million over the three and
six months ended June 30, 1997, respectively, is primarily due to increases in
worldwide license and consulting revenue.
License revenues increased $2.1 million or 61 percent and $4.8 million or 66
percent to $5.6 million and $12.0 million for the three and six months ended
June 30, 1998, respectively. The increase in license revenues is partly
attributable to license revenues generated from Revere operations during the
first half of 1998. The remaining increase in license revenues is primarily
attributable to increases in license revenues generated by the Company's Horizon
and Aptos product lines. The Company believes that the increase in Horizon and
Aptos license revenues during the first half of 1998 is attributable to
increased sales and marketing efforts, enhanced product offerings and increased
demand for the Company's financial application solutions from large and mid-
sized organizations.
Maintenance revenues increased 12 percent to $7.6 million for the 3 months ended
June 30, 1998 and increased 12 percent to $15.3 million for the six months ended
June 30, 1998. The increase is primarily attributable to maintenance revenue
from Revere operations. The remaining increase in maintenance revenues is
primarily attributable to growth in license sales during 1998.
Consulting revenues were $12.3 million for the second quarter of 1998 and $21.8
million for the first six months of 1998. During 1997 consulting revenues were
$6.0 million and $12.4 million for the three and six months ended June 30,
respectively. Consulting revenues are generated from new and existing customers
for services related to training, implementation, customization, migration,
enhancement, Year 2000 compliance engagements, best practice consulting
engagements and other special projects. The Company generates a majority of its
consulting revenues from implementation related projects. The $6.3 million and
$9.4 million increases in consulting revenues during the second quarter and
first half of 1998, respectively, are partly attributable to consulting revenues
generated from Revere operations. The remaining increases in 1998 consulting
revenues are primarily due to revenues generated from Year 2000 consulting
engagements, which were minimal during the first half of 1997. Additional
increases in consulting revenues were generated from implementation related
projects associated with the Company's Tamaris, Aptos and Horizon product lines.
COSTS OF LICENSES, MAINTENANCE AND CONSULTING. Costs of licenses, maintenance
and consulting represented 41 percent of total revenues for the three and six
months ended June 30, 1998 compared to 40 percent of total revenues for the same
periods in 1997. The increase is primarily attributable to increased license
revenues and a greater proportion of those license revenues generated from the
Company's products which utilize technology licensed from third parties.
Excluding the operations of Revere, the costs of licenses, maintenance and
consulting represented 41 percent and 42 percent of total revenues for the three
and six months ended June 30, 1998, respectively, compared to 40 percent of
total revenues for the same periods in 1997. The increase in 1998 is partially
attributable to lower profit margins in North America associated with a fixed
fee consulting engagement offset by relatively higher profit margins recognized
on Year 2000 compliance engagements. Further contributing to the increase are
higher fees associated with the use of third party technology and increases in
consulting headcount due to the increased volume of consulting engagements
associated with the increases in license revenue.
8
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AMORTIZATION OF CAPITALIZED SOFTWARE. Amortization of capitalized software
represented 4 percent of total revenues for the three and six months ended June
30, 1998 compared to 8 percent and 7 percent of total revenues for the same
periods in 1997, respectively. The decrease in 1998 is attributable to the
completion of amortization for several products at the beginning of the Q4
partially offset by amortization from recent product releases.
SALES AND MARKETING. In absolute dollars, sales and marketing expenses
increased 45 percent to $5.7 million for the three months ended June 30, 1998
and increased 46 percent to $11.3 million for the six months ended June 30,
1998. The increase in absolute dollars is primarily attributable to Revere
operations, higher commissions and travel expenses associated with the increase
in license revenues and increased costs associated with marketing promotions.
As a percentage of total revenues, sales and marketing expenses were 22 percent
and 24 percent for the three months ended June 30, 1998 and 1997, respectively.
For the six months ended June 30, 1998 and 1997, sales and marketing expenses as
a percentage of total revenues was 23 percent. The increase in sales and
marketing expenses as a percentage of total revenues during the second quarter
of 1998 is primarily attributable to increased costs associated with marketing
promotions. Expenses associated with commissions and travel expenses were not a
significant contributing factor to the increase in sales and marketing expenses
as a percent of total revenue during the second quarter due to increases in
total revenues during the same timeframe.
PRODUCT DEVELOPMENT. Product development related expenses, excluding
amortization of capitalized software, are detailed as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Product development costs including
additions to capitalized software
(gross) $4,975 $4,475 $10,111 $8,847
Less:
Additions to capitalized software (1,784) (2,024) (3,719) (3,863)
------ ------ ------ ------
Product development expenses $3,191 $2,451 $6,392 $4,984
====== ====== ====== ======
</TABLE>
The increase in 1998 gross product development expenses is primarily due to
expenses generated by Revere operations. Further contributing to the increase
in gross expenses are the Company's continued efforts to broaden its existing
product offerings by further developing acquired technologies, incorporating
third party technologies in new products and enhancing existing products. As a
percentage of gross product development expenses, additions to capitalized
software were 36 percent and 45 percent for the three months ended June 30, 1998
and 1997, respectively. For the six months ended June 30, 1998 and 1997,
additions to capitalized software represented 37 percent and 44 percent of gross
development expenses, respectively. The decrease in capitalized software in
1998 is partially attributable to the use of product development resources for
post-release work after a major product release in the fourth quarter of 1997.
Resources were additionally utilized on several other projects which were not
capitalizable as technological feasibility had not been reached on those
projects. Historical additions to capitalized software, in absolute dollars and
as a percentage of gross product development costs, are not a reliable indicator
of additions to capitalized software in absolute dollars and as a percentage of
gross product development costs that will be recognized in the future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $3.2
million and $2.1 million for the three months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998 and 1997, general and
administrative expenses were $5.9 million and $4.4 million, respectively. The
increase is primarily due to expenses from Revere operations. Further
contributing to the increase in 1998 general and administrative expenses were
increased facility costs associated with rental increases and additional
headcount.
INCOME TAX EXPENSE. Income tax expense is recorded each quarter based on the
Company's estimated effective income tax rate for the year. The Company
estimates that the 1998 effective income tax rate will be 36 percent.
9
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LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from financing activities used cash of $1.8 million in 1998 and
provided cash of $0.7 million in 1997. The increase in cash used during 1998 is
primarily a result of $1.4 million used to repay an outstanding line of credit
which was assumed during the acquisition of Revere in December 1997. The
Company further used $1.6 million during the first six months of 1998 for the
repurchase of its common stock, offset by $1.2 million provided by employee
stock purchase plan issuances and exercises of stock options.
The Company has a line of credit in the amount of $3.0 million, secured by
marketable securities. The line of credit expires on August 31, 1999. The
Company has never borrowed against this line of credit.
As of June 30, 1998, the Company's principal sources of liquidity included cash,
cash equivalents and short- and long-term investments aggregating $21.2 million.
The following sentence is a forward looking statement. The Company believes
that its principal sources of liquidity, together with funds expected to be
generated from operations, will satisfy the Company's currently anticipated
working capital and capital expenditure requirements for at least the next
twelve months.
YEAR 2000 COMPLIANCE
- --------------------
The Company has completed an assessment of its Year 2000 issues. The following
statement is a forward-looking statement. The Company has determined that its
Year 2000 issues would not have a material effect on the Company's business,
results of operations or financial condition.
ADDITIONAL RISK FACTORS
- -----------------------
The Company operates in a rapidly changing environment that involves numerous
risks and uncertainties which could have a material adverse effect on the
Company. The following discussion details some, but not all, of these risks and
uncertainties.
FLUCTUATION IN OPERATING RESULTS. The Company's operating results fluctuate as
a result of a variety of factors including: (i) the execution of new license
agreements; (ii) the shipment of software products; (iii) customer acceptance
criteria for services performed; (iv) completion of milestone or other
significant development requirements pursuant to the Company's license
agreements; (v) the financial terms of consulting agreements and the inclusion
of fixed as opposed to variable pricing; (vi) third-party royalty payments for
licensed software; (vii) the demand for the Company's products and services;
(viii) changes in the Company's product mix; (ix) the development and launch of
new products, and the life cycles of the Company's existing products; (x)
research and development expenditures required to update and expand the
Company's product portfolio and related third-party consulting costs; (xi) sales
and marketing expenses generally related to the entry into new markets with new
or existing products and maintenance of market share in existing markets; (xii)
acquisitions and the integration and development of acquired entities or
products; (xiii) competitive conditions in the industry and (xiv) general
economic conditions. As a result, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.
The Company's quarterly operating results are particularly dependent on the
number of license agreement bookings executed in each quarter. The amount of
quarterly bookings has varied substantially from quarter to quarter due to a
variety of reasons including: (i) a high proportion of license agreements are
negotiated during the latter part of each quarter which may not be completed
before the quarter end; (ii) the sales cycles for some of the Company's products
are relatively long due to the Company's focus on "enterprise solutions" as
opposed to individual products, which adds complexity to the customer's
selection, negotiation and approval process; (iii) the amount related to each
booking may vary significantly due to the need for different solutions for
different customers; (iv) procurement procedures may vary from customer to
customer, which may affect the timing of the bookings; (v) the period for a
customer to complete product evaluations and to complete any subsequent purchase
approval may be delayed due to resource limitations; and (vi) economic,
political and industrial conditions can adversely affect business opportunities
without notice. In addition, bookings that are executed during a particular
quarter may not be
10
<PAGE>
recognized as revenue during such quarter because such bookings may not have met
the Company's revenue recognition criteria. No assurance can be given that the
Company will be able to effect new bookings in accordance with historical
results or management's expectations, and the inability of the Company to do so
could have a material adverse effect on the Company's operating results.
While the Company typically sells its software under a standard license
agreement, license agreements associated with large enterprise solutions often
require the negotiation of terms and conditions that differ substantially from
the Company's standard license agreement terms. The negotiation of these
agreements may extend the sales cycle. In certain circumstances, the Company
may not obtain terms and conditions that permit the recognition of revenue upon
shipment of the licensed product or under the percentage of completion method of
contract accounting rules. Accordingly, revenue may not be recognized despite
the shipment of a product because specified milestones have not been met or
because applicable services have not been completed.
The Company in the past has and in the future expects to enter into fixed price
consulting agreements, particularly in response to increased competition in the
industry. The Company has recognized lower profit margins on certain fixed-
price service agreements when compared to variable agreements. No assurance can
be given that the Company will be able to conclude fixed-price agreements on
terms that will allow the Company to retain its historical operating margins.
The Company has historically generated a majority of its consulting revenue from
pre- and post-implementation services. Recently, the Company has provided
services which include, but are not limited to, Year 2000 conversion
engagements, best practice solution engagements and other hardware and software
solutions. The Company intends to continue its pursuit of consulting
engagements for which the Company believes it is qualified. There can be no
assurances that these engagements will result in profit margins equal to or
greater than those engagements that are specific to a customer's product
implementation. Furthermore, there can be no assurances that consulting revenue
generated from non-implementation related projects will continue in the future.
Employee and facility related expenditures comprise a significant portion of the
Company's operating costs and expenses, and are therefore relatively fixed over
the short term. In addition, the Company's expense levels are based, in
significant part, on the Company's forecasted revenue. If revenue levels fall
below expectations, net income is likely to be adversely affected. There can be
no assurance that the Company will be able to maintain or to continue its
current level of profitability on a quarterly or annual basis in the future. Any
of the foregoing factors could cause the Company's future operating results to
fall below the expectations of public securities market analysts, which could
have an adverse effect on the trading price of the Company's common stock. See
"Volatility of Stock Price."
RELIANCE ON THIRD PARTY TECHNOLOGY. The Company generates revenue from
internally developed software products, some of which utilize technology
licensed from third parties. The Company expects to continue utilizing third
party technology and may enter into agreements with additional business
partners. If sales of software utilizing third party technology increase
disproportionately, gross margins may be below historical levels due to third
party royalty obligations. There can be no assurances that the third parties
will renew existing agreements with the Company or will not require financial
conditions which are unfavorable to the Company. Furthermore, there can be no
assurances that existing third party agreements will not be terminated.
INDUSTRY. Certain software companies, including the Company, have experienced
significant economic downturns as a result of technological shifts and
competitive pressures. These downturns are characterized by decreased product
demand, price erosion, work slowdowns and layoffs. The Company's operations
may, in the future, experience substantial fluctuations from period to period as
a consequence of such industry patterns and general economic and political
conditions which could affect the timing of orders from customers. There can be
no assurance that such factors will not have a materially adverse effect on the
Company's business, operating results or financial condition.
INTERNATIONAL. The Company plans to increase its presence in international
markets including, but not limited to, marketing the Tamaris and Aptos product
lines in additional countries. Risks associated with such pursuits include, but
are not limited to, the following: changing market demands, economic and
political conditions in foreign markets, foreign exchange fluctuations, longer
collections cycles, difficulty in managing a geographically dispersed
organization, and changes in international tax laws. The downturn in the Asia
Pacific business climate
11
<PAGE>
will have an adverse effect on some market opportunities. Operating results are
likely to be adversely affected if the Company's expansion into international
markets is not successful.
COMPETITION. The business and financial applications software market for large
and complex organizations is intensely competitive. The Company's principal
competitors with Tamaris solutions are Dun & Bradstreet Software Services, Inc.
(mainframe applications now owned by Geac Computer Corporation Limited), SAP AG,
Oracle and PeopleSoft, Inc. With Aptos solutions, the Company faces competition
from The BAAN Company N.V., Oracle Corporation, Lawson Software, Inc., Platinum
Software, Inc., Systems Union Group Ltd and Agresso AS. With the Horizon suite
of products, the Company faces competition from Hyperion Software, Longview and
Oracle Corporation. With the IMMPOWER suite of products, the Company faces
competition from Datastream Systems, Inc., Indus International, Inc., Marcam
Solutions, Inc., Mincom Pty Ltd., Product Software & Development, Inc. and SAP
AG.
The Company also competes to a lesser extent with other independent software
application vendors. Many of the Company's current and potential competitors
have substantially greater financial, technical, marketing and sales resources
than the Company. Some of these competitors also offer business application
products not offered by the Company, primarily in the areas of human resources
and manufacturing. However, Walker remains one of the few companies committed
to providing and enhancing applications for the mainframe environment. Many of
the competitors listed above compete with Walker by offering UNIX-based
applications.
The Company encounters competition from a broader range of firms in the market
for professional services. These competitors include the consulting divisions
of the major accounting firms which possess greater resources than the Company
and small independent firms which compete primarily on the basis of price of
services provided.
The principal competitive factors in the market for business and financial
applications software and services include product functionality, flexibility,
portability, integration, reliability, performance, product availability, speed
of implementation, quality of customer support and user documentation, vendor
reputation, experience, financial stability, cost effectiveness and price. The
Company believes that it competes favorably with respect to these factors.
There can be no assurance, however, that the Company will be able to compete
successfully in the future.
RAPID TECHNOLOGICAL CHANGE. The software industry is characterized by rapid
technological change. The pace of change has accelerated due to advances in
mainframe and client/server technology and the growth in internet, intranet and
extranet utilization. The Company expects to evaluate potential opportunities
and may invest in those which are compatible with the Company's strategic
direction. However, there can be no assurance that any such investments will be
profitable. Furthermore, the Company's products are designed primarily for use
with certain mainframe and client/server systems. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete. Accordingly, the Company's future success
depends in part upon its ability to continue to enhance its current products and
to develop and introduce new products that respond to evolving customer
requirements and keep pace with technological development and emerging industry
standards, such as new operating systems, hardware platforms, interfaces and
third party applications software. There can be no assurances that the Company
will be successful in developing and marketing product enhancements or new
products that respond to technological change, changes in customer requirements
or emerging industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of such products and enhancements or that any new
products or enhancements that it may introduce will achieve market acceptance.
PRODUCT DEVELOPMENT. The Company's continued success is dependent on its
continued ability to introduce, develop and market new and enhanced versions of
its software products, although there can be no assurance that such ability can
be maintained. The Company expects product development expenses to grow in
future periods. However, there can be no assurance that revenues will be
sufficient to support the future product development which is required for the
Company to be competitive. Although the Company may be able to release new
products in addition to enhancements to existing products, there can be no
assurance that the Company's new or upgraded products will be accepted, will not
be delayed or canceled, or will not contain errors or "bugs" that could affect
the performance of the product or cause damage to users' data.
PROPRIETARY RIGHTS. The Company regards its products as proprietary. Through
its license agreements with customers and its internal security systems,
confidentiality procedures and employee agreements, the Company has
12
<PAGE>
taken steps to maintain the trade secrecy of its products. However, there can be
no assurances that misappropriation will not occur. In addition, the laws of
some countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. There can be no assurance that the
confidentiality of any proprietary information will provide any meaningful
competitive advantage. The Company has no patents relating to its products. The
Company believes that, because of the rapid pace of technological change in the
computer software industry, that trade secrets are less significant than factors
such as the knowledge, ability and experience of the Company's employees,
frequent product enhancements and the timeliness and quality of support
services. There can be no assurance that the Company's current efforts to retain
its products as proprietary will be adequate.
Although the Company believes that its products do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future
with respect to current or future products or that any such assertions may not
require the Company to enter into royalty arrangements or result in costly
litigation.
YEAR 2000 COMPLIANCE. The Company believes that its commercial application
software products generally offered for license by the Company to end-user
customers are Year 2000 compliant. Furthermore, the Company has completed an
assessment of its Year 2000 issues. The Company has determined that its Year
2000 issues would not have a material effect on the Company's business, results
of operations or financial condition. However, failure of the Company's
commercial application software products or internal business technology to
operate properly in the Year 2000 may have an adverse impact on business
operations or require the Company to incur unanticipated expenses to remedy any
problems.
PRODUCT LIABILITY. The Company's license agreements with its customers contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in such license agreements may not be enforced as a result
of international, federal, state and local laws or ordinances or unfavorable
judicial decisions. The license and support of the Company's software for use in
mission critical applications creates the risk of product liability claims
against the Company. Damage liability or injunctive relief resulting from such a
claim could cause a materially adverse impact on the Company's business,
operating results and financial condition.
EMPLOYEES. The Company believes that its continued success will depend in large
part upon its ability to attract, train and retain highly-skilled technical,
sales and marketing and managerial personnel. The Company continues to hire a
significant number of sales, marketing, services and technical personnel.
Because of the high level of demand, competition for such personnel is intense
and the Company from time to time experiences difficulty in locating candidates
with appropriate qualifications or within desired geographic locations. Revenue
growth is dependent on the Company's ability to attract, train, retain and
productively manage such personnel.
EXPANSION OF FACILITIES. Recently, commercial building vacancy rates have
significantly dropped in San Francisco, California, where the Company has its
headquarters. The Company's San Francisco office lease expires in 2007.
However, the Company may experience difficulty obtaining additional space if the
Company's space requirements in San Francisco significantly exceed the quantity
of space the Company currently has under lease. In addition, the increased
demand for office space has caused commercial rental rates to increase
substantially. Failure to either obtain space, or obtain it on reasonably
attractive commercial terms, may inhibit the Company's ability to grow or
otherwise adversely affect the Company's operations and financial results.
ACQUISITION RELATED RISKS. The Company has acquired and may continue to acquire
complimentary businesses, products or technology. The process of integrating an
acquired company's business into the Company's operations may result in
unforeseen operating difficulties and expenditures and may require significant
management attention that would otherwise be available for the ongoing
development of the Company's business. There can be no assurance that any
anticipated benefits of an acquisition will be realized. Future acquisitions by
the Company could result in potentially dilutive issuances of equity securities,
the incurrence of debt and contingent liabilities and amortization related to
goodwill and other intangible assets, which could materially affect the
Company's operating results and financial condition. Acquisitions involve
numerous risks, including difficulties in the assimilation of operations,
technologies and products of the acquired company, risks associated with
entering markets in which the Company has no or limited direct prior experience
and the potential loss of key employees of the acquired company.
13
<PAGE>
VOLATILITY OF STOCK PRICE. High technology companies, including the Company,
frequently experience volatility in their common stock prices. Factors such as
quarterly fluctuations in results of operations, announcements of technological
innovations by the Company or its competitors or the introduction of new
products by the Company or its competitors and macroeconomic conditions in the
computer hardware and software industries generally may have a significant
adverse impact on the market price of the Company's stock. If revenues or
earnings in any quarter fail to meet the expectations of the investment
community, there could be an immediate impact on the Company's stock price. In
addition, the Company has issued shares and stock options which if sold directly
or exercised and sold on the open market in large concentrations, could cause
the Company's stock price to decline in the short term. Recent tax legislation
which lowered tax rates on capital gains could potentially result in increased
sales of all U.S. equity securities including the Company's common stock. Such
sales, if material, could negatively impact the stock price. Furthermore, the
stock market has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market price for many high
technology companies, in some cases unrelated to the operating performance of
those companies. These broad market fluctuations may materially adversely
affect the market price of the stock of the Company.
14
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of Walker Interactive Systems, Inc.
was held on May 21, 1998.
(b) Richard C. Alberding was elected to the Board of Directors to hold
office until the 2001 Annual Meeting of Stockholders. The Directors
whose term of office as Director continued after the meeting where:
Tania Amochaev, William A. Hasler, John M. Lillie, Leonard Y. Liu, and
David C. Wetmore.
(c) The matters voted upon at the meeting and the voting of the
stockholders with respect thereto are as follows:
(i) The election of Richard C. Alberding as a Director to hold office
until the 2001 Annual Meeting of Stockholders:
For: 11,238,276 Withheld: 553,628
(ii) To approve the Company's 1992 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan from 650,000 shares
to 950,000, an increase of 300,000 shares:
For: 7,864,729 Against: 44,480
Abstain: 50,461 Broker Non-Vote: 3,832,234
(iii) To approve the Company's 1994 Equity Incentive Plan, as amended
to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan from 1,200,000 shares to
2,400,000, an increase of 1,200,000 shares.
For: 6,157,123 Against: 1,779,916
Abstain: 47,904 Broker Non-Votes: 3,806,961
(iii) Ratification of the selection of Deloitte & Touche LLP as
independent public accountants of the Company for its fiscal year
ending December 31, 1998.
For: 11,779,084 Against: 1,690
Abstain: 11,130 Broker Non-Votes: 0
Item 5. OTHER INFORMATION
Pursuant to the Company's Bylaws, stockholders who wish to bring
matters or propose nominees for director at the Company's 1999 annual
meeting of stockholders must provide specified information to the
Company not later than the close of business on the sixtieth (60th) day
nor earlier than the close of business on the ninetieth (90th) day
prior to the first anniversary of the 1998 annual meeting (or May 21,
1999), unless such matters are included in the Company's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, as amended.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.14 1995 Executive Employment Agreement between the
Registrant and Leonard Y. Liu, as amended to date.
10.16 1998 Executive Employment Agreement between the
Registrant and Thomas W. Hubbs.
27.1 Financial Data Schedule (electronic filing only)
15
<PAGE>
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
June 30, 1998.
16
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-Q
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.
WALKER INTERACTIVE SYSTEMS, INC.
--------------------------------
(REGISTRANT)
Date: August 7, 1998 By: /s/ BARBARA M. HUBBARD
-------------- ----------------------
Barbara M. Hubbard
Vice President and
Corporate Controller
(Chief Accounting Officer)
17
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-Q
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description Page Reference
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10.14 1995 Executive Employment Agreement between the 19
Registrant and Leonard Y. Liu, as amended to date.
10.16 1998 Executive Employment Agreement between the 22
Registrant and Thomas W. Hubbs.
27.1 Financial Data Schedule (electronic filing only) 25
</TABLE>
18
<PAGE>
EXHIBIT 10.14
AMENDMENT NO. 1
TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 (this "Amendment") is entered into by and between
WALKER INTERACTIVE SYSTEMS, INC. (the "Company") and LEONARD Y. LIU
("Executive"), effective March 4, 1998.
WITNESSETH
WHEREAS, the Company and Executive entered into an Executive Employment
Agreement effective June 25, 1995 (the "Employment Agreement");
WHEREAS, the parties desire to modify certain provisions in the Employment
Agreement in order to provide Executive greater benefits than those provided by
the Employment Agreement in return for Executive's continued service to the
Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto:
2. SUBSTITUTION OF PROVISIONS. The following provisions shall replace Sections
7.1(a) and 7.1(b) of the Employment Agreement:
7.1 COMPANY INITIATED TERMINATION.
10.16.1 If within the first six (6) months of
Executive's employment with the Company, the Company
terminates Executive's employment without cause or
Executive terminates employment because the Company has
reduced Executive's responsibilities, functions, titles,
or overall compensation package, Executive shall
receive, as severance: (i) continued payment of
Executive's base salary for twelve (12) months from the
Effective Date, (ii) continued health care benefits for
twelve (12) months from the Effective Date following
Executive's date of termination under the federal COBRA
law; (iii) accelerated vesting of any and all shares
pursuant to any and all stock options granted to
Executive such that all shares which otherwise would
have vested on or before the end of the twelfth month
following the Effective Date had Executive's termination
not occurred until the end of such period will be deemed
vested as of the date of the Executive's termination;
and (iv) six (6) months after the date of Executive's
termination to exercise any and all vested shares
subject to any and all stock options granted to
Executive (provided that any such extension shall not
extend the maximum term
19
<PAGE>
during which any such option may be exercised beyond ten
(10) years).
If after the first six (6) months of Executive's employment with the
Company, the Company terminates Executive's employment without cause or
Executive terminates employment because the Company has reduced Executive's
responsibilities, functions, titles, or overall compensation package, the
Executive shall receive, as severance: (i) continued payment of Executive's base
salary for twelve (12) months; (ii) continued health care benefits for twelve
(12) months following Executive's termination of employment under the federal
COBRA law; (iii) accelerated vesting of any and all shares pursuant to any and
all stock options granted to Executive such that all shares which otherwise
would have vested on or before the end of the sixth month following the date of
Executive's termination, with respect to all stock options granted to Executive
prior to March 4, 1998, and the twelfth month following the date of Executive's
termination, with respect to all stock options granted to Executive on or
subsequent to March 4, 1998, will be deemed vested as of the date of the
Executive's termination; and (iv) with respect to all stock options granted to
Executive prior to March 4, 1998, six (6) months, and with respect to all stock
options granted to Executive on or subsequent to March 4, 1998, twelve (12)
months, after the date of Executive's termination to exercise any and all vested
shares subject to any and all stock options granted to Executive (provided that
any such extension shall not extend the maximum term during which any such
option may be exercised beyond ten (10) years). For purposes of this Section
7.1 (a), the second option as described in Section 2.d. shall be considered to
have vested at the rate of 2.0833% per month over 48 months beginning from the
Effective Date.
10.16.2 Notwithstanding Section 7.1(a) above,
if the Company (i) merges or combines with any other
company or entity in a manner which produces a change of
control; (ii) sells all or substantially all its assets
to any other company or entity; (iii) has forty percent
(40%) or more of its stock acquired by a person and/or
affiliates of such person, the Executive shall receive:
(i) continued payment of base salary for twenty-four
(24) months following Executive's date of termination
for any reason; (ii) continued health care benefits for
twenty-four (24) months following Executive's
termination of employment under the federal COBRA law;
(iii) accelerated vesting of any and all shares,
pursuant to any and all stock options granted to
Executive; and (iv) with respect to all stock options
granted to Executive prior to March 4, 1998, twelve (12)
months, and with respect to all stock options granted to
Executive on or subsequent to March 4, 1998, twenty-four
(24) months, after the date of Executive's termination
of employment for any reason to exercise any and all
vested shares subject to any and all stock options
granted to Executive (provided that any such extension
shall not extend the maximum term during which any such
option may be exercised beyond ten (10) years). For the
purposes of this agreement, "change of control"
20
<PAGE>
means a merger or consolidation in which the Company is
not the surviving corporation, or in which the
shareholders of the Company immediately prior to the
merger or consolidation do not hold a majority of the
shares of the resulting corporation.
3. TAX CONSEQUENCES. Executive acknowledges that he has been advised by the
Company to consult with a tax advisor or attorney with respect to the tax
consequences, if any, of these amendments to his stock option grants.
4. AFFIRMATION. Subject to the foregoing modifications to Section 7.1(a) and
7.1(b), the Company and Executive each hereby affirm all of the terms and
conditions of the Employment Agreement, and acknowledge that the Employment
Agreement is a binding agreement between the Executive and the Company.
5. ENTIRE AGREEMENT. This Amendment, together with the Employment Agreement,
contains the entire agreement between the parties and constitutes the
complete, final and exclusive embodiment of their agreement with respect to
the subject matter. This Amendment is executed without reliance upon any
promise, warranty or representation, written or oral, by any party or any
representative of any party other than those expressly contained herein and
it supersedes any other such promises, warranties or representations.
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Amendment to be executed as follows:
LEONARD Y. LIU WALKER INTERACTIVE SYSTEMS, INC.
/s/ Leonard Y. Liu By: /s/ William A. Hasler
- -------------------------- ------------------------------
Date: May 15, 1998 Title: Chair, Comp. Committee, BOD
------------------- ---------------------------
Date: May 15, 1998
---------------------------
21
<PAGE>
EXHIBIT 10.16
March 19, 1998
Mr. Thomas W. Hubbs
1205 San Mateo Drive
Menlo Park, CA 95025
Dear Thomas:
It is my pleasure to offer you the position of Sr. Vice President, Finance and
Chief Financial Officer for Walker, Inc., reporting directly to me. Walker's
dynamic environment offers you both challenges and excellent professional
development opportunities. All those who have met you are very impressed with
your potential and believe you can make a significant contribution to our future
success. The specific terms of our offer to you are:
BASE SALARY: Your initial base salary will be $18,750.00 per month, the
- -----------
equivalent of $225,000.00 per year.
START DATE: We would like you to begin work not later than April 20, 1998,
- -----------
or on a mutually acceptable start date.
BONUS: You will be eligible to earn a bonus of $100,000.00 per year at
- ------
achievement of 100% of objectives under terms of the Walker
Executive Incentive Bonus Plan. Bonus payments are tied 100% to
the Company's achievement of quarterly revenue and profit
targets. For 1998, this incentive bonus will be pro-rated from
your start date at Walker through December 31, 1998
STOCK OPTION: Subject to the approval of the Compensation Committee of the
- ------------
Board of Directors, you will be granted an option to acquire
120,000 shares of the Company's common stock. The request will
be presented to the Committee for action at its first regular
meeting after you have become an employee of the Company. The
exercise price of the option will be the closing market price on
the date you join Walker, and the option will vest ratably over
4 years.
TERMINATION: You and the Company each acknowledge that either party has the
- ------------
right to terminate your employment with the Company at any time
for any reason whatsoever, with or without cause or advance
notice. This at-will employment relationship cannot be changed
except in writing signed by a duly authorized officer of the
Company.
(A) In the event the Company terminates your employment without
cause, you shall be entitled to receive the benefits described
below, provided you sign a twelve month consulting agreement
with the Company to provide appropriate personal services to the
Company during the period following termination.
22
<PAGE>
Thomas W. Hubbs
Page 2
March 19, 1998
Providing you sign the twelve month consulting agreement, you
shall receive, as severance: (i) twelve (12) months continued
payment of your base salary from the date of your termination,
six months of which shall be paid as a lump sum and six months
of which will be paid over the twelve months of the consulting
agreement; (ii) continued health care benefits for twelve (12)
months following your date of termination under the federal
COBRA law; (iii) accelerated vesting of any and all shares
pursuant to any and all stock options granted to you such that
all shares which otherwise would have vested had you been
employed for six (6) months after the date of the your
termination will be deemed vested at the conclusion of the
twelve-month consulting agreement; and (iv) extension of the
period during which the you may exercise any and all stock
options deemed vested as of the conclusion of the twelve-month
consulting agreement or vested as of the date of termination
such that the you shall have until the end of three (3) months
after the conclusion of the twelve-month consulting agreement to
exercise such options
(B) Notwithstanding the above, if the Company is acquired by or
otherwise merges or combines with any other company or entity,
and your employment is terminated without cause or your
responsibilities and duties are substantially reduced during the
period from one (1) month prior to the consummation of such
merger or business combination through the end of the twelfth
months following the date of such merger or business
combination, the you shall receive, as severance: (i) continued
payment of base salary for twelve (12) months; (ii) continued
health care benefits for twelve (12) months following your date
of termination under the federal COBRA law; and (iii)
accelerated vesting of any and all shares pursuant to any and
all stock options granted to you such that all shares which
otherwise would have vested after your termination will be
deemed vested as of the date of the termination.
OTHER: You will be eligible to enroll in the Company's 401(k)
- ------
Retirement Plan on the first day of the month that follows the
month in which your employment commences.
You will be eligible for coverage under the Company's Group
Health Plans beginning on your first day of employment.
You will accrue vacation from your start date of employment at
the rate of 10.0 hours per month (3 weeks per year). Beginning
with your third year of employment, the accrual will increase to
four weeks per year.
Your employment by the Company is contingent upon your compliance with our
standard conditions of employment such as entering into a proprietary rights and
confidentiality agreement, and providing the necessary proof of citizenship or
other status that enables the Company to legally employ you.
23
<PAGE>
Thomas W. Hubbs
Page 3
March 19, 1998
I hope you will decide to join the Walker team, as our success is derived from
the people who work here. You may accept this offer by signing below and
returning one copy of this letter to me. We will expect a reply from you no
later than March 25, 1998, after which we will consider this offer closed.
Please retain the extra original of this letter for your personal records.
Should you have any questions regarding this offer, please do not hesitate to
contact me.
Upon acceptance of this offer and determination of your start date, you will be
scheduled for new hire orientation by Human Resources
Sincerely,
Leonard Liu
Chief Executive Officer and Chairman of the Board
I accept Walker's offer of employment:
/s/ Thomas W. Hubbs March 20, 1998
- --------------------------- ---------------------------
Thomas W. Hubbs Date Signed
- ---------------------------
Employment Start Date
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Walker
Interactive Systems, Inc. quarterly report on Form 10-Q for the period ended
June 30, 1998 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> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,304
<SECURITIES> 9,931
<RECEIVABLES> 27,899
<ALLOWANCES> 1,102
<INVENTORY> 0
<CURRENT-ASSETS> 45,902
<PP&E> 26,444
<DEPRECIATION> 22,117
<TOTAL-ASSETS> 88,520
<CURRENT-LIABILITIES> 29,462
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 53,880
<TOTAL-LIABILITY-AND-EQUITY> 88,520
<SALES> 49,102
<TOTAL-REVENUES> 49,102
<CGS> 22,328
<TOTAL-COSTS> 45,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,733
<INCOME-TAX> 1,344
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,389
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
<FN>
<F1> Basic earnings per share are reported under Edgar tag "EPS-Primary"
</FN>
</TABLE>
